##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the quarterly period ended March 31, 2007
 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 PlaceOakdale, Minnesota
    
    55128(Address of principal executive offices)
    
    (Zip Code)
 (651) 704-4000
 Not Applicable
 
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
  o þ




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##### 



IMATION CORP.
TABLE OF CONTENTS
 PAGEPART I
    
    FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSConsolidated Statements of Operations for the Three Months
Ended March 31, 2007 and 2006
    
    3Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2007 and 2006
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Report of Independent Registered Public Accounting Firm
    
    16ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    17ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    25ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    25PART II
    
    OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    25ITEM 1A.
    
    RISK FACTORS
    
    25ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    26ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    26ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    26ITEM 5.
    
    OTHER INFORMATION
    
    26ITEM 6.
    
    EXHIBITS
    
    27SIGNATURE
    
    
    
    27EXHIBIT INDEXAsset Purchase AgreementAmended and Restated Bylaws of ImationDirector Compensation Program, as amendedAwareness LetterSection 302 CertificationSection 302 CertificationSection 906 CertificationSection 906 Certification




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PART I. FINANCIAL INFORMATION
 
 Financial Statements.
 IMATION CORP.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In millions, except per share amounts)
 (Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006Net revenue
    
    $
    421.9
    
    
    $
    335.2Cost of goods sold
    
    
    340.1
    
    
    
    256.0Gross profit
    
    
    81.8
    
    
    
    79.2Operating expense:Selling, general and administrative
    
    
    45.2
    
    
    
    35.3Research and development
    
    
    12.4
    
    
    
    12.8Restructuring and other
    
    
    0.6
    
    
    
    1.8Total
    
    
    58.2
    
    
    
    49.9Operating income
    
    
    23.6
    
    
    
    29.3Other (income) and expense:Interest income
    
    
    (2.5
    )
    
    
    (4.7
    )Interest expense
    
    
    0.3
    
    
    
    0.2Other expense, net
    
    
    0.7
    
    
    
    3.1Total
    
    
    (1.5
    )
    
    
    (1.4
    )Income before income taxes
    
    
    25.1
    
    
    
    30.7Income tax provision
    
    
    9.4
    
    
    
    11.3Net income
    
    $
    15.7
    
    
    $
    19.4Earnings per common share:Basic
    
    $
    0.45
    
    
    $
    0.56Diluted
    
    
    0.44
    
    
    
    0.55Weighted average shares outstanding:Basic
    
    
    34.9
    
    
    
    34.7Diluted
    
    
    35.4
    
    
    
    35.4Cash dividends paid per common share
    
    $
    0.14
    
    
    $
    0.12
    3




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IMATION CORP.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In millions)
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    259.4
    
    
    $
    252.5Accounts receivable, net
    
    
    283.2
    
    
    
    308.1Inventories, net
    
    
    301.4
    
    
    
    258.0Other current assets
    
    
    69.7
    
    
    
    58.3Total current assets
    
    
    913.7
    
    
    
    876.9Property, plant and equipment, net
    
    
    176.4
    
    
    
    178.0Intangible assets, net
    
    
    226.6
    
    
    
    230.2Goodwill
    
    
    59.9
    
    
    
    67.6Other assets
    
    
    30.9
    
    
    
    30.2Total assets
    
    $
    1,407.5
    
    
    $
    1,382.9LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    242.6
    
    
    $
    227.3Accrued payroll
    
    
    12.7
    
    
    
    23.7Other current liabilities
    
    
    131.3
    
    
    
    140.6Total current liabilities
    
    
    386.6
    
    
    
    391.6Other liabilities
    
    
    46.1
    
    
    
    45.0Commitments and contingenciesShareholders equity
    
    
    974.8
    
    
    
    946.3Total liabilities and shareholders equity
    
    $
    1,407.5
    
    
    $
    1,382.9
    4




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IMATION CORP.





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)


Three Months EndedMarch 31,2007
    
    
    2006Cash Flows from Operating Activities:Net income
    
    $
    15.7
    
    
    $
    19.4Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    10.5
    
    
    
    7.9Deferred income taxes
    
    
    (0.6
    )
    
    
    (0.2
    )Stock-based compensation
    
    
    3.0
    
    
    
    2.2Excess tax benefits from exercise of stock options
    
    
    (0.1
    )
    
    
    (2.4
    )Other
    
    
    1.1
    
    
    
    2.3Changes in operating assets and liabilities:Accounts receivable
    
    
    26.1
    
    
    
    (6.1
    )Inventories
    
    
    (42.7
    )
    
    
    (4.1
    )Other assets
    
    
    (5.1
    )
    
    
    3.2Accounts payable
    
    
    14.7
    
    
    
    8.7Accrued payroll and other liabilities
    
    
    (16.4
    )
    
    
    (7.8
    )Net cash provided by operating activities
    
    
    6.2
    
    
    
    23.1Cash Flows from Investing Activities:Proceeds from working capital adjustments related to Memorex
    
    
    7.9
    
    
    
    Capital expenditures
    
    
    (5.4
    )
    
    
    (3.3
    )Proceeds from sale of investments
    
    
    
    
    
    
    20.2Net cash provided by investing activities
    
    
    2.5
    
    
    
    16.9Cash Flows from Financing Activities:Exercise of stock options
    
    
    3.3
    
    
    
    14.3Purchase of treasury stock
    
    
    
    
    
    
    (15.0
    )Dividend payments
    
    
    (4.9
    )
    
    
    (4.4
    )Excess tax benefits from exercise of stock options
    
    
    0.1
    
    
    
    2.4Net cash used in financing activities
    
    
    (1.5
    )
    
    
    (2.7
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (0.3
    )
    
    
    2.7Net change in cash and cash equivalents
    
    
    6.9
    
    
    
    40.0Cash and cash equivalents  beginning of period
    
    
    252.5
    
    
    
    483.0Cash and cash equivalents  end of period
    
    $
    259.4
    
    
    $
    523.0






5




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IMATION CORP.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


Note 1  Basis of Presentation








Note 2  Taxes


Accounting for Uncertainty in Income Taxes










6



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Note 3  Weighted Average Basic and Diluted Shares Outstanding
  Three Months EndedMarch 31,(In millions)
    
    2007
    
    2006Weighted average number of shares outstanding during the period
    
    
    34.9
    
    
    
    34.7Dilutive effect of stock-based compensation plans
    
    
    0.5
    
    
    
    0.7Weighted average number of diluted shares outstanding during
the period
    
    
    35.4
    
    
    
    35.4
  Note 4  Stock-Based Compensation
   WeightedStock
    
    
    AverageOptions
    
    
    Exercise PriceOutstanding December 31, 2006
    
    
    3,378,979
    
    
    $
    34.48Granted
    
    
    1,500
    
    
    
    45.88Exercised
    
    
    (117,998
    )
    
    
    27.92Forfeited
    
    
    (7,050
    )
    
    
    37.31Outstanding March 31, 2007
    
    
    3,255,431
    
    
    $
    34.71Exercisable as of March 31, 2007
    
    
    1,530,613
    
    
    $
    30.45
  7




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##### Table of Contents



Note 5  Supplemental Balance Sheet Information
 March 31,
    
    
    December 31,2007
    
    
    2006(In millions)
    
    (Unaudited)Accounts ReceivableAccounts receivable
    
    $
    299.1
    
    
    $
    320.9Less allowances
    
    
    (15.9
    )
    
    
    (12.8
    )Accounts receivable, net
    
    $
    283.2
    
    
    $
    308.1InventoriesFinished goods
    
    $
    255.2
    
    
    $
    217.6Work in process
    
    
    23.2
    
    
    
    19.6Raw materials and supplies
    
    
    23.0
    
    
    
    20.8Total inventories, net
    
    $
    301.4
    
    
    $
    258.0Other Current AssetsDeferred income taxes
    
    $
    33.8
    
    
    $
    26.0Other
    
    
    35.9
    
    
    
    32.3Total other current assets
    
    $
    69.7
    
    
    $
    58.3Property, Plant and EquipmentProperty, plant and equipment
    
    $
    622.7
    
    
    $
    634.7Less accumulated depreciation
    
    
    (446.3
    )
    
    
    (456.7
    )Property, plant and equipment, net
    
    $
    176.4
    
    
    $
    178.0Other AssetsDeferred income taxes
    
    $
    15.5
    
    
    $
    16.3Other
    
    
    15.4
    
    
    
    13.9Total other assets
    
    $
    30.9
    
    
    $
    30.2Other Current LiabilitiesEmployee separation costs
    
    $
    0.9
    
    
    $
    2.2Rebates
    
    
    56.9
    
    
    
    65.3Income taxes
    
    
    12.0
    
    
    
    9.7Other
    
    
    61.5
    
    
    
    63.4Total other current liabilities
    
    $
    131.3
    
    
    $
    140.6Other LiabilitiesPension
    
    $
    10.2
    
    
    $
    9.8Deferred income taxes
    
    
    4.9
    
    
    
    5.7Other
    
    
    31.0
    
    
    
    29.5Total other liabilities
    
    $
    46.1
    
    
    $
    45.0
 8




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Note 6  Acquisition of Memorex International Inc.
      (In
millions, except per share amounts)Net revenue
    
    $
    446.7Net income
    
    
    11.5Earnings per common share:Basic
    
    $
    0.33Diluted
    
    $
    0.32
  9




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Note 7  Intangible Assets and Goodwill
  Trade
    
    
    
    
    
    
    Customer(In millions)
    
    Names
    
    
    Software
    
    
    Relationships
    
    
    Other
    
    
    TotalMarch 31, 2007Cost
    
    $
    200.9
    
    
    $
    51.5
    
    
    $
    34.2
    
    
    
    7.3
    
    
    $
    293.9Accumulated Amortization
    
    
    (5.6
    )
    
    
    (50.3
    )
    
    
    (7.0
    )
    
    
    (4.4
    )
    
    
    (67.3
    )Net
    
    $
    195.3
    
    
    $
    1.2
    
    
    $
    27.2
    
    
    $
    2.9
    
    
    $
    226.6December 31, 2006Cost
    
    $
    200.9
    
    
    $
    51.7
    
    
    $
    34.2
    
    
    $
    7.3
    
    
    $
    294.1Accumulated Amortization
    
    
    (4.2
    )
    
    
    (50.0
    )
    
    
    (5.7
    )
    
    
    (4.0
    )
    
    
    (63.9
    )Net
    
    $
    196.7
    
    
    $
    1.7
    
    
    $
    28.5
    
    
    $
    3.3
    
    
    $
    230.2
  (In millions)
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012Amortization expense
    
    $
    13.5
    
    
    $
    12.0
    
    
    $
    10.4
    
    
    $
    9.9
    
    
    $
    9.9
  (In millions)
    
    Americas
    
    
    Europe
    
    
    Asia Pacific
    
    
    TotalBalance as of December 31, 2006
    
    $
    63.3
    
    
    $
    2.5
    
    
    $
    1.8
    
    
    $
    67.6Memorex post-closing purchase price adjustments
    
    
    (7.9
    )
    
    
    
    
    
    
    
    
    
    
    (7.9
    )Other adjustment, net
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Balance as of March 31, 2007
    
    $
    55.6
    
    
    $
    2.5
    
    
    $
    1.8
    
    
    $
    59.9
 Note 8  Restructuring and Other Expense
  (In millions)Lease termination costs
    
    $
    0.4Asset impairments
    
    
    0.2Total
    
    $
    0.6
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Balance as of
    
    
    
    
    
    
    
    
    
    
    Balance as ofDecember 31,
    
    
    Additional
    
    
    
    
    
    
    March 31,(In millions)
    
    2006
    
    
    Charges
    
    
    Usage
    
    
    2007Severance and other liability
    
    $
    2.2
    
    
    $
    
    
    
    $
    (1.3
    )
    
    $
    0.9Lease termination costs and other
    
    
    2.6
    
    
    
    0.4
    
    
    
    (0.8
    )
    
    
    2.2Total
    
    $
    4.8
    
    
    $
    0.4
    
    
    $
    (2.1
    )
    
    $
    3.1Total employees affected
    
    
    27
    
    
    
    
    
    
    
    (7
    )
    
    
    20
  Initial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liability as ofProgram
    
    
    Additional
    
    
    Adjustments to
    
    
    Cumulative
    
    
    March 31,(In millions)
    
    Amounts
    
    
    Charges
    
    
    Initial Amounts
    
    
    Usage
    
    
    2007Severance and other liability
    
    $
    10.9
    
    
    $
    
    
    
    $
    (0.7
    )
    
    $
    (9.3
    )
    
    $
    0.9Lease termination costs and other
    
    
    2.2
    
    
    
    3.1
    
    
    
    
    
    
    
    (3.1
    )
    
    
    2.2Total
    
    $
    13.1
    
    
    $
    3.1
    
    
    $
    (0.7
    )
    
    $
    (12.4
    )
    
    $
    3.1
 Initial
    
    
    
    
    
    Balance as ofHeadcount
    
    Cumulative
    
    March 31,Amounts
    
    Reductions
    
    2007Total employees affected
    
    
    164
    
    
    
    (144
    )
    
    
    20
 Note 9  Comprehensive Income (Loss)
  March 31,
    
    
    December 31,(In millions)
    
    2007
    
    
    2006Cumulative currency translation adjustment
    
    $
    (70.2
    )
    
    $
    (77.5
    )Pension liability adjustments, net of income tax
    
    
    (13.5
    )
    
    
    (13.6
    )Cash flow hedging and other, net of income tax
    
    
    (0.9
    )
    
    
    (0.3
    )Total accumulated other comprehensive loss
    
    $
    (84.6
    )
    
    $
    (91.4
    )
  Three Months EndedMarch 31,(In millions)
    
    2007
    
    
    2006Net income
    
    $
    15.7
    
    
    $
    19.4Currency translation adjustment
    
    
    7.3
    
    
    
    3.1Cash flow hedging and other, net of income tax
    
    
    (0.6
    )
    
    
    0.6Total comprehensive income
    
    $
    22.4
    
    
    $
    23.1
 Note 10  Retirement Plans
 Employer Contributions
  11




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Components of Net Periodic Pension Cost
 United States
    
    
    InternationalThree Months Ended March 31,(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    2.0
    
    
    $
    2.3
    
    
    $
    
    
    
    $
    0.1Interest cost
    
    
    1.8
    
    
    
    1.8
    
    
    
    0.8
    
    
    
    0.8Expected return on plan assets
    
    
    (2.4
    )
    
    
    (2.5
    )
    
    
    (0.8
    )
    
    
    (0.8
    )Amortization of unrecognized items
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1Net periodic pension cost
    
    $
    1.5
    
    
    $
    1.8
    
    
    $
    0.1
    
    
    $
    0.2
 Note 11  Derivatives and Hedging Activities
 Cash Flow Hedges
  Other Hedges
  Fair Value Disclosure
  Note 12  Business Segment Information
  12




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Three Months EndedMarch 31,(In millions)
    
    2007
    
    
    2006Net RevenueAmericas
    
    $
    215.1
    
    
    $
    143.2Europe
    
    
    142.7
    
    
    
    128.9Asia Pacific
    
    
    64.1
    
    
    
    63.1Total
    
    $
    421.9
    
    
    $
    335.2Operating IncomeAmericas
    
    $
    24.5
    
    
    $
    31.5Europe
    
    
    11.1
    
    
    
    13.3Asia Pacific
    
    
    6.4
    
    
    
    5.7Corporate and unallocated
    
    
    (18.4
    )
    
    
    (21.2
    )Total
    
    $
    23.6
    
    
    $
    29.3
   Three Months EndedMarch 31,(In millions)
    
    2007
    
    
    2006Net RevenueMagnetic
    
    $
    162.4
    
    
    $
    176.3Optical
    
    
    192.7
    
    
    
    123.8Flash
    
    
    35.7
    
    
    
    18.5Other
    
    
    31.1
    
    
    
    16.6Total
    
    $
    421.9
    
    
    $
    335.2
 Note 13  Litigation, Commitments and Contingencies
    13




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Note 14  Recent Accounting Pronouncements
 Fair Value Measurement
 The Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment to FAS 115.
 Note 15  Subsequent Events
     14




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Note 16  Review Report of Independent Registered Public Accounting Firm
  15




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      /s/ PricewaterhouseCoopers LLP
 
 16




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Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
      Executive Summary
 Consolidated Results of Operations for the Three-Month Period Ended March 31, 2007
 
    
    Revenue of $421.9 million in the three months ended March 31, 2007 was up 25.9 percent
over the same period last year, driven by the Memorex acquisition.
    
    Operating income of $23.6 million in the three months ended March 31, 2007 was down 19.5
percent compared with $29.3 million of operating income in the same period last year.
    
    Both revenue and earnings in the quarter were negatively impacted by two factors which
affected others in our industry. Flash products experienced greater than expected
industry-wide price erosion primarily in the U.S. early in the quarter due to excess
capacity of NAND flash. This reduced operating income by $4.5 million due to lower than
expected margins. The industry also experienced pricing pressure on existing LTO tape media
which could not be mitigated with the sales of new LTO tape media products due to continued
delay of the introduction of LTO 4 drives by the drive manufacturers.
    
    Diluted earnings per share was $0.44 for the three-month period ended March 31, 2007
compared with diluted earnings per share of $0.55 for the same period last year.
 17




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Cash Flow/Financial Condition for the Three-Month Period Ended March 31, 2007
 
    
    Cash flow from operations totaled $6.2 million in the three-month period ended March 31,
2007.
    
    Total cash and cash equivalents were $259.4 million as of March 31, 2007, compared with
$252.5 million at year-end 2006.
    
    The Board of Directors declared a first quarter dividend of $0.14 per share in February
of 2007.
 Adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes
 Accounting for Uncertainty in Income Taxes
 Results of Operations
 Net Revenue
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2007
    
    2006
    
    ChangeNet revenue
    
    $
    421.9
    
    
    $
    335.2
    
    
    
    25.9
    %
  Gross Profit
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2007
    
    2006
    
    ChangeGross profit
    
    $
    81.8
    
    
    $
    79.2
    
    
    
    3.3
    %Gross margin
    
    
    19.4
    %
    
    
    23.6
    %
  Selling, General and Administrative (SG&A)
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2007
    
    2006
    
    ChangeSelling, general and administrative
    
    $
    45.2
    
    
    $
    35.3
    
    
    
    28.0
    %As a percent of revenue
    
    
    10.7
    %
    
    
    10.5
    %
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Research and Development (R&D)
 Three Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2007
    
    2006
    
    ChangeResearch and development
    
    $
    12.4
    
    
    $
    12.8
    
    
    
    -3.1
    %As a percent of revenue
    
    
    2.9
    %
    
    
    3.8
    %Our R&D expense for the first quarter of 2007 remained essentially consistent with the first
quarter of 2006.Restructuring and OtherThree Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2007
    
    2006
    
    ChangeRestructuring and other
    
    $
    0.6
    
    
    $
    1.8
    
    
    
    -66.7
    %As a percent of revenue
    
    
    0.1
    %
    
    
    0.5
    %During the first quarter of 2007, we recorded restructuring and other charges of $0.6 million
mainly related to lease termination costs. Restructuring and other expense of $1.8 million recorded
during the first quarter of 2006 related to severance and related benefits for employee reductions
in our Wahpeton, North Dakota and Camarillo, California production facilities.Operating IncomeThree Months EndedMarch 31,
    
    Percent(Dollars in millions)
    
    2007
    
    2006
    
    ChangeOperating income
    
    $
    23.6
    
    
    $
    29.3
    
    
    
    -19.5
    %As a percent of revenue
    
    
    5.6
    %
    
    
    8.7
    %Our decrease in operating income for the first quarter of 2007, as compared with the first
quarter of 2006, was mainly attributed to gross margin declines discussed above.Other (Income) and ExpenseThree Months EndedMarch 31,
    
    
    Percent(Dollars in millions)
    
    2007
    
    
    2006
    
    
    ChangeInterest income
    
    $
    (2.5
    )
    
    $
    (4.7
    )
    
    
    -46.8
    %Interest expense
    
    
    0.3
    
    
    
    0.2
    
    
    
    50.0
    %Other expense, net
    
    
    0.7
    
    
    
    3.1
    
    
    
    -77.4
    %Other income
    
    
    (1.5
    )
    
    
    (1.4
    )
    
    
    7.1
    %As a percent of revenue
    
    
    0.4
    %
    
    
    0.4
    %
  Performance by Business Segment
  19




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##### Table of Contents



Americas
 Three Months EndedMarch 31,(Dollars in millions)
    
    2007
    
    2006
    
    %ChangeNet revenue
    
    $
    215.1
    
    
    $
    143.2
    
    
    
    50.2
    %Operating income
    
    
    24.5
    
    
    
    31.5
    
    
    
    -22.2
    %As a percent of revenue
    
    
    11.4
    %
    
    
    22.0
    %
   Europe
 Three Months EndedMarch 31,(Dollars in millions)
    
    2007
    
    2006
    
    %ChangeNet revenue
    
    $
    142.7
    
    
    $
    128.9
    
    
    
    10.7
    %Operating income
    
    
    11.1
    
    
    
    13.3
    
    
    
    -16.5
    %As a percent of revenue
    
    
    7.8
    %
    
    
    10.3
    %
   Asia Pacific
 Three Months EndedMarch 31,(Dollars in millions)
    
    2007
    
    2006
    
    %ChangeNet revenue
    
    $
    64.1
    
    
    $
    63.1
    
    
    
    1.6
    %Operating income
    
    
    6.4
    
    
    
    5.7
    
    
    
    12.3
    %As a percent of revenue
    
    
    10.0
    %
    
    
    9.0
    %
  20




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Corporate and Unallocated
 Three Months EndedMarch 31,(Dollars in millions)
    
    2007
    
    2006
    
    %ChangeOperating costs
    
    $
    18.4
    
    
    $
    21.2
    
    
    
    -13.2
    %
  Impact of Changes in Foreign Currency Rates
    Financial Position
     21




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Liquidity and Capital Resources
          22




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##### Table of Contents



Contractual Obligations
  Critical Accounting Policies and Estimates
  Recently Issued Accounting Standards
 Fair Value Measurement
 The Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment to FAS 115.
 Subsequent Events
    23




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Forward-Looking Statements and Risk Factors
 nd
  24




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##### Table of Contents



Quantitative and Qualitative Disclosures about Market Risk
   
 Controls and Procedures.
   
 PART II. OTHER INFORMATION
 
 Legal Proceedings
   
 Risk Factors
  25




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##### Table of Contents



Unregistered Sales of Equity Securities and Use of Proceeds.
   
 Defaults upon Senior Securities.
  
 Submission of Matters to a Vote of Security Holders
  
 Other Information.
       26




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##### Table of Contents



Exhibits.
  ExhibitNumber
    
    Description of Exhibit2.1
    
    Asset purchase agreement dated
May 7, 2007, among Imation Corp. and Hopper Radio of
Florida, Inc., Memcorp, Inc., and Memcorp Asia Limited2.2
    
    Acquisition Agreement, dated April 19, 2007, by and between Imation Corp. and TDK
Corporation (incorporated by reference to Exhibit 2.1 to Imations Form 8-K
Current Report filed April 25, 2007)3.1
    
    Amended and Restated Bylaws of Imation10.1
    
    Employment Closure Agreement between Imation Corp. and Mr. Henderson
(incorporated by reference to Exhibit 10.1 to Imations Form 8-K
Current Report filed April 2, 2007)10.2
    
    Director Compensation Program, as amended15.1
    
    An awareness letter from the Companys independent registered public accounting firm regarding unaudited interim financial statements31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
 SIGNATURE
  Imation Corp.Date: May 8, 2007
    /s/ Paul R. ZellerPaul R. ZellerVice President and Chief Financial Officer
(duly authorized officer and principal
financial officer) 27




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber
    
    Description of Exhibit2.1
    
    Asset purchase agreement dated
May 7, 2007, among Imation Corp. and Hopper Radio of
Florida, Inc., Memcorp, Inc., and Memcorp Asia Limited3.1
    
    Amended and Restated Bylaws of Imation10.2
    
    Director Compensation Program, as amended15.1
    
    An awareness letter from the Companys independent registered public accounting firm regarding unaudited interim financial statements31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 28