e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the quarterly period ended March 31, 2006
or
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o |
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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.
(Exact name of registrant as specified in its charter)
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Delaware
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41-1838504 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
1 Imation Place
Oakdale, Minnesota 55128
(Address of principal executive offices, including zip code)
(651) 704-4000
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date: 34,880,850 shares of Common Stock, par value $0.01 per share, were
outstanding at April 28, 2006.
IMATION CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
IMATION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
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Three Months Ended |
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March 31, |
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2006 |
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2005 |
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Net revenue |
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$ |
335.2 |
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$ |
315.0 |
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Cost of goods sold |
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256.0 |
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232.7 |
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Gross profit |
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79.2 |
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82.3 |
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Operating expenses: |
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Selling, general and administrative |
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35.3 |
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38.4 |
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Research and development |
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12.8 |
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12.6 |
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Restructuring and other |
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1.8 |
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Total |
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49.9 |
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51.0 |
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Operating income |
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29.3 |
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31.3 |
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Other (income) and expense: |
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Interest income |
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(4.7 |
) |
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(2.1 |
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Interest expense |
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0.2 |
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0.1 |
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Other expense, net |
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3.1 |
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3.7 |
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Total |
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(1.4 |
) |
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1.7 |
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Income from continuing operations before income taxes |
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30.7 |
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29.6 |
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Income tax provision (benefit) |
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11.3 |
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(1.2 |
) |
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Income from continuing operations |
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19.4 |
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30.8 |
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Income from operations of discontinued business, net of income taxes |
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0.6 |
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Net income |
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$ |
19.4 |
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$ |
31.4 |
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Earnings per common share basic: |
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Continuing operations |
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$ |
0.56 |
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$ |
0.91 |
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Discontinued operations |
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$ |
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$ |
0.02 |
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Net income |
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$ |
0.56 |
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$ |
0.93 |
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Earnings per common share diluted: |
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Continuing operations |
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$ |
0.55 |
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$ |
0.90 |
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Discontinued operations |
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$ |
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$ |
0.02 |
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Net income |
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$ |
0.55 |
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$ |
0.92 |
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Weighted average basic shares outstanding |
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34.7 |
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33.8 |
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Weighted average diluted shares outstanding |
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35.4 |
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34.2 |
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Cash dividends paid per common share |
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$ |
0.12 |
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$ |
0.10 |
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The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
3
IMATION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
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March 31, |
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December 31, |
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2006 |
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2005 |
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(Unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
523.0 |
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$ |
483.0 |
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Accounts receivable, net |
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201.9 |
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194.7 |
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Inventories, net |
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139.8 |
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134.9 |
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Other current assets |
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53.4 |
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75.6 |
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Total current assets |
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918.1 |
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888.2 |
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Property, plant and equipment, net |
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190.9 |
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195.0 |
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Other assets |
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60.9 |
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63.0 |
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Total assets |
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$ |
1,169.9 |
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$ |
1,146.2 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
141.1 |
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$ |
131.8 |
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Accrued payroll |
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11.4 |
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22.2 |
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Other current liabilities |
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91.8 |
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91.1 |
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Total current liabilities |
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244.3 |
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245.1 |
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Other liabilities |
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44.5 |
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45.8 |
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Shareholders equity |
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881.1 |
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855.3 |
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Total liabilities and shareholders equity |
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$ |
1,169.9 |
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$ |
1,146.2 |
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The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
4
IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
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Three Months Ended |
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March 31, |
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2006 |
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2005 |
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Cash Flows from Operating Activities: |
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Net income |
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$ |
19.4 |
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$ |
31.4 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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7.9 |
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10.0 |
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Deferred income taxes |
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(0.2 |
) |
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3.2 |
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Stock-based compensation |
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2.2 |
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Excess tax benefits from stock-based compensation |
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(2.4 |
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Other |
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2.3 |
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4.3 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(6.1 |
) |
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(9.5 |
) |
Inventories |
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(4.1 |
) |
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(14.5 |
) |
Other assets |
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3.2 |
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2.9 |
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Accounts payable |
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8.7 |
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16.7 |
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Accrued payroll and other liabilities |
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(7.8 |
) |
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(11.7 |
) |
Litigation settlement from discontinued operation |
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(20.9 |
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Net cash provided by operating activities |
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23.1 |
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11.9 |
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Cash Flows from Investing Activities: |
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Capital expenditures |
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(3.3 |
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(3.5 |
) |
Purchase of investments |
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(4.5 |
) |
Proceeds from sale of investments |
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20.2 |
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4.0 |
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Net cash provided by (used in) investing activities |
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16.9 |
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(4.0 |
) |
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Cash Flows from Financing Activities: |
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Purchases of treasury stock |
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(15.0 |
) |
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(14.9 |
) |
Exercise of stock options |
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14.3 |
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5.9 |
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Dividend payments |
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(4.4 |
) |
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(3.4 |
) |
Excess tax benefits from stock-based compensation |
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2.4 |
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Net cash used in financing activities |
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(2.7 |
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(12.4 |
) |
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Effect of exchange rate changes on cash and cash equivalents |
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2.7 |
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(3.1 |
) |
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Net change in cash and cash equivalents |
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40.0 |
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(7.6 |
) |
Cash and cash equivalents beginning of period |
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483.0 |
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397.1 |
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Cash and cash equivalents end of period |
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$ |
523.0 |
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$ |
389.5 |
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The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
5
IMATION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The interim Consolidated Financial Statements of Imation Corp. (Imation, the Company, we, us,
or our) are unaudited but, in the opinion of management, reflect all adjustments necessary for a
fair statement of financial position, results of operations and cash flows for the periods
presented. Except as otherwise disclosed herein, these adjustments consist of normal, recurring
items. The results of operations for any interim period are not necessarily indicative of full year
results. The Consolidated Financial Statements and Notes are presented in accordance with the
requirements for Form 10-Q and do not contain certain information included in our annual
Consolidated Financial Statements and Notes.
The December 31, 2005 Condensed Consolidated Balance Sheet was derived from the audited
Consolidated Financial Statements but does not include all disclosures required by accounting
principles generally accepted in the United States of America. This Form 10-Q should be read in
conjunction with our Consolidated Financial Statements and Notes included in our Annual Report on
Form 10-K for the year ended December 31, 2005.
2. STOCK-BASED COMPENSATION
We currently have stock options and restricted stock outstanding under our 1996 Employee Stock
Incentive Program (Employee Plan), our 1996 Directors Stock Compensation Program (Directors Plan),
our 2000 Stock Incentive Plan (2000 Incentive Plan), and our 2005 Stock Incentive Plan (2005
Incentive Plan) (collectively the Stock Plans).
The Employee Plan was approved and adopted by 3M Company on June 18, 1996, as our sole
shareholder, and became effective on July 1, 1996. The total number of shares of common stock that
could have been issued or awarded under the Employee Plan may not exceed 6.0 million. Grant prices
are equal to the fair market value of our common stock at date of grant. The outstanding options
are non-qualified, normally have a term of ten years, and generally become exercisable from one to
five years after grant date. As a result of the approval and adoption of the 2000 Incentive Plan in
May 2000, no further shares are available for grant under the Employee Plan.
The Directors Plan was also approved and adopted by 3M Company, as our sole shareholder, and
became effective on July 1, 1996. The total number of shares of common stock that could have been
issued or awarded under the Directors Plan may not exceed 800,000. The outstanding options are
non-qualified options, normally have a term of ten years, and generally become exercisable one year
after grant date. Grant prices are equal to the fair market value of our common stock at the date
of grant. As a result of the approval and adoption of the 2005 Incentive Plan in May 2005, no
further shares are available for grant under the Directors Plan.
The 2000 Incentive Plan was approved and adopted by our shareholders on May 16, 2000, and
became effective immediately. The total number of shares of common stock that could have been
issued or awarded under the 2000 Incentive Plan may not exceed 4.0 million. Grant prices are equal
to the fair market value of our common stock at date of grant. The outstanding options are
non-qualified, normally have a term of seven to ten years, and generally become exercisable 25
percent per year beginning on the first anniversary of the grant date. As a result of the approval
and adoption of the 2005 Incentive Plan in May 2005, no further shares are available for grant
under the 2000 Incentive Plan.
The 2005 Incentive Plan was approved and adopted by our shareholders on May 4, 2005, and
became effective immediately. The 2005 Incentive Plan permits the granting of incentive and
non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units,
dividend equivalents, performance awards, and other stock and stock-based awards. The total number
of shares of common stock that may be issued or awarded under the 2005 Incentive Plan may not
exceed 2.5 million of which the maximum number of shares that may be awarded pursuant to grants of
restricted stock, restricted stock units, and stock awards is 1.5 million. Grant prices are equal
to the fair market value of our common stock at date of grant. The outstanding options are
non-qualified, normally have a term of ten years, and generally become exercisable 25 percent per
year beginning on the first anniversary of the grant date. As of March 31, 2006, there were
1,706,754 shares available for grant under the 2005 Incentive Plan.
6
Prior to our January 1, 2006 adoption of the Financial Accounting Standards Board (FASB)
Statement No. 123(R), Share-Based Payment (SFAS 123R), we accounted for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Accordingly, no compensation
expense was recognized for time-based stock options granted prior to January 1, 2006, as options
granted had no intrinsic value at the time of grant. Compensation expense has been recorded for
restricted stock issued under our Stock Plans. As required by FASB Statement No. 123, Accounting
for Stock-Based Compensation (SFAS 123), we included pro forma disclosure in the Notes to
Consolidated Financial Statements.
The table below illustrates the effect on net income and earnings per share if the fair value
of options granted had been recognized as compensation expense on a straight-line basis over the
vesting periods in accordance with the provisions of SFAS 123, during the three month period ended
March 31, 2005.
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Three Months |
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Ended |
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March 31, |
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(In millions, except per share amounts) |
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2005 |
|
Net income, as reported |
|
$ |
31.4 |
|
Add: Stock-based employee compensation expense
included in net income, net of income tax |
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0.1 |
|
Deduct: Total stock-based employee compensation
expense determined under fair value based method
of accounting, net of income tax |
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(1.2 |
) |
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Pro forma net income |
|
$ |
30.3 |
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Earnings per share: |
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Basic as reported |
|
$ |
0.93 |
|
Basic pro forma |
|
$ |
0.90 |
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Diluted as reported |
|
$ |
0.92 |
|
Diluted pro forma |
|
$ |
0.87 |
|
Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123R,
using the modified-prospective transition method. Under this transition method, results for prior
periods have not been restated. For the three months ended March 31, 2006, compensation expense
recognized included the estimated expense for stock options granted on, and subsequent to, January
1, 2006. Estimated expense for the options granted prior to, but not vested as of, January 1, 2006,
was calculated based on the grant date fair value estimated in accordance with the original
provisions of SFAS 123.
The fair value of each option award is estimated on the date of grant using the Black-Scholes
option valuation model that uses the assumptions noted in the following table. Expected
volatilities are based on historical volatility of our stock. The risk-free rate for the
contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of
grant. We use historical data to estimate option exercise and employee termination activity within
the valuation model. The expected term of stock options granted is based on historical data and
represents the period of time that stock options granted are expected to be outstanding. The
dividend yield is based on the latest dividend payments made on or announced by the date of the
grant. Forfeitures are estimated based on historical experience and current demographics.
7
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Three Months |
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Ended |
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March 31, |
|
|
2006 |
Volatility |
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|
35 |
% |
Risk-free interest rate |
|
|
4.30 |
% |
Expected life (months) |
|
|
58 |
|
Dividend yield |
|
|
1.06 |
% |
The following table summarizes stock option activity for the three months ended March 31,
2006:
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Weighted |
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Weighted |
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Average |
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Average |
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Remaining |
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Aggregate |
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Stock |
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Exercise |
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Contractual |
|
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Intrinsic |
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Options |
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Price |
|
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Life |
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Value |
|
Outstanding, January 1 |
|
|
4,115,633 |
|
|
$ |
30.82 |
|
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Granted |
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6,000 |
|
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|
45.17 |
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Exercised |
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579,973 |
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|
24.73 |
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Forfeited |
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|
38,973 |
|
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|
35.73 |
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Canceled |
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|
1,450 |
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|
34.58 |
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Outstanding, March 31 |
|
|
3,501,237 |
|
|
$ |
31.80 |
|
|
|
5.7 |
|
|
$ |
39,726,779 |
|
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|
Exercisable, March 31 |
|
|
1,844,235 |
|
|
$ |
27.79 |
|
|
|
4.3 |
|
|
$ |
28,300,850 |
|
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|
The weighted average grant-date fair value of options that were granted during the three
months ended March 31, 2006 was $15.23. The total intrinsic value of options exercised during the
three months ended March 31, 2006 was $12.7 million. Total stock-based compensation expense
recognized in the Consolidated Statements of Operations for the quarter ended March 31, 2006 was
$2.2 million before income taxes of which $1.8 million related to time-based stock options. The
related tax benefit was $0.8 million for the quarter ended March 31, 2006. The impact of accounting
for stock-based compensation under the provisions of SFAS 123R on both basic and diluted earnings
per share for the three months ended March 31, 2006, was $0.03 per share.
A summary of the status of our nonvested stock options as of March 31, 2006, including
changes during the three month period ended March 31, 2006, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant |
|
|
|
Stock |
|
|
Date Fair |
|
Nonvested Stock Options |
|
Options |
|
|
Value |
|
Nonvested stock options outstanding at January 1, 2006 |
|
|
1,839,542 |
|
|
$ |
12.76 |
|
Granted |
|
|
6,000 |
|
|
|
15.23 |
|
Vested |
|
|
149,567 |
|
|
|
10.86 |
|
Forfeited |
|
|
38,973 |
|
|
|
14.45 |
|
|
|
|
|
|
|
|
|
Nonvested stock options outstanding at March 31, 2006 |
|
|
1,657,002 |
|
|
|
12.90 |
|
|
|
|
|
|
|
|
|
The total fair value of shares vested during the three months ended March 31, 2006 was $1.6
million. As of March 31, 2006, there was $15.1 million of total unrecognized compensation expense
related to nonvested share-based compensation arrangements granted under our Stock Plans. That
expense is expected to be recognized over a weighted average period of 2.4 years.
Prior to the adoption of SFAS 123R, we presented tax benefits resulting from the exercise of
stock options as operating cash inflows in the Consolidated Statements of Cash Flows, in accordance
with the provisions of the Emerging Issues Task Force (EITF) Issue No 00-15, Classification in the
Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a
Nonqualified Employee Stock Option. SFAS 123R requires the benefits of tax deductions in excess of
the compensation expense recognized for those options to be classified as financing cash inflows
rather than operating cash inflows on a prospective basis. This amount is shown as excess tax
benefits from stock-based compensation in the Condensed Consolidated Statement of Cash Flows.
8
3. WEIGHTED AVERAGE BASIC AND DILUTED SHARES OUTSTANDING
Basic earnings per share is calculated using the weighted average number of shares outstanding
during the period. Diluted earnings per share is computed on the basis of the weighted average
basic shares outstanding plus the dilutive effect of our stock-based compensation plans using the
treasury stock method. The following table sets forth the computation of the weighted average
basic and diluted shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In millions) |
|
Weighted average number of shares outstanding during the period |
|
|
34.7 |
|
|
|
33.8 |
|
Dilutive effect of stock-based compensation plans |
|
|
0.7 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
Weighted average number of diluted shares outstanding during the period |
|
|
35.4 |
|
|
|
34.2 |
|
|
|
|
|
|
|
|
As of March 31, 2006 and 2005, certain options to purchase approximately 6,000 and
1,556,000 shares, respectively, of our common stock were outstanding that were not considered in
the computation of potential common shares because the effect of the options would be antidilutive.
4. SUPPLEMENTAL BALANCE SHEET INFORMATION
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In millions) |
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
|
|
|
Accounts Receivable |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
211.4 |
|
|
$ |
204.9 |
|
Less allowances |
|
|
(9.5 |
) |
|
|
(10.2 |
) |
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
201.9 |
|
|
$ |
194.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
|
|
Finished goods |
|
$ |
109.8 |
|
|
$ |
104.7 |
|
Work in process |
|
|
8.8 |
|
|
|
10.7 |
|
Raw materials and supplies |
|
|
21.2 |
|
|
|
19.5 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
139.8 |
|
|
$ |
134.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Assets |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
$ |
24.2 |
|
|
$ |
24.6 |
|
Short-term investments |
|
|
8.8 |
|
|
|
24.6 |
|
Other |
|
|
20.4 |
|
|
|
26.4 |
|
|
|
|
|
|
|
|
Total other current assets |
|
$ |
53.4 |
|
|
$ |
75.6 |
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In millions) |
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
|
|
|
Property, Plant and Equipment |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
$ |
670.9 |
|
|
$ |
672.4 |
|
Less accumulated depreciation |
|
|
(480.0 |
) |
|
|
(477.4 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
190.9 |
|
|
$ |
195.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
$ |
24.6 |
|
|
$ |
24.3 |
|
Long-term investments |
|
|
4.0 |
|
|
|
8.4 |
|
Intangible assets |
|
|
7.1 |
|
|
|
7.6 |
|
Goodwill |
|
|
12.3 |
|
|
|
12.3 |
|
Other |
|
|
12.9 |
|
|
|
10.4 |
|
|
|
|
|
|
|
|
Total other assets |
|
$ |
60.9 |
|
|
$ |
63.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Liabilities |
|
|
|
|
|
|
|
|
Employee separation costs |
|
$ |
3.2 |
|
|
$ |
2.1 |
|
Rebates |
|
|
22.9 |
|
|
|
29.5 |
|
Income taxes |
|
|
17.8 |
|
|
|
11.6 |
|
Other |
|
|
47.9 |
|
|
|
47.9 |
|
|
|
|
|
|
|
|
Total other current liabilities |
|
$ |
91.8 |
|
|
$ |
91.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities |
|
|
|
|
|
|
|
|
Pension |
|
$ |
16.4 |
|
|
$ |
17.5 |
|
Other |
|
|
28.1 |
|
|
|
28.3 |
|
|
|
|
|
|
|
|
Total other liabilities |
|
$ |
44.5 |
|
|
$ |
45.8 |
|
|
|
|
|
|
|
|
5. INVESTMENTS
Our investments in marketable equity securities consist of strategic investments in actively
traded common stock of companies in the data storage industry as well as equity securities for
which there is not an active market. Our policy is to review our venture capital and minority
equity securities classified as investments on a quarterly basis to determine if an
other-than-temporary decline in fair value exists. The policy includes, but is not limited to,
reviewing the revenue and income outlook, financial viability, and management of each investment.
In the first quarter of 2006, we evaluated the near-term prospects of our marketable securities
impairments in relation to the severity, duration and forecasted recovery of the fair value of
impairments. We determined that an other-than-temporary decline in value existed in one of our
investments and, consequently, reduced the carrying value of the investment by $2.2 million with a
corresponding loss recorded in other expense in the Consolidated Statement of Operations for the
quarter ended March 31, 2006. The impairment charge was partially offset by a gain on sale of
investments of $0.9 million.
6. RESTRUCTURING
During the first quarter of 2006, we recorded severance and other charges of $1.8 million. The
charges related to employee reductions in our Wahpeton, North Dakota and Camarillo, California
production facilities and consisted of estimated severance payments and related benefits. The
restructuring will result in the elimination of approximately 100 positions by the middle of 2006.
No employee reductions or cash payments relating to these charges were made during the quarter
ended March 31, 2006.
During the fourth quarter of 2004, we recorded severance and other charges of $16.6 million
related to the restructuring of our business to lower overall operating costs, simplify structure,
and improve decision-making speed. The charge included $15.3 million for estimated cash severance
payments and related benefits associated with the planned reduction in headcount of
approximately 260 employees, which was substantially completed by the end of 2005. The other
charges of $1.3 million included pension related costs associated with severed employees and lease
termination costs. These charges were partially offset by a $0.6 million benefit for European
severance and related costs, reflecting adjustments of $0.2 million to the second quarter 2004
charges and $0.4 million to prior charges.
10
During the second quarter of 2004, we recorded severance and other charges of $3.1 million.
The charges related to a plan to close our production facility in Tucson, Arizona as well as
international administrative and sales employee reductions and consisted of estimated severance
payments and related benefits related to the elimination of 280 positions. The restructuring has
impacted approximately 275 positions as of March 31, 2006. Production at the Tucson, Arizona
facility was terminated on September 30, 2005 and the facility was closed by December 31, 2005.
Ongoing production activities from this facility have concluded or shifted to other facilities as
the shutdown occurred.
The following tables summarize the activity related to our 2004 restructuring programs.
Changes in the restructuring accruals during the three months ended March 31, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of |
|
|
|
|
|
|
|
Employees |
|
|
|
Amount |
|
|
Affected |
|
|
|
(In millions) |
|
|
|
|
|
Balance, December 31, 2005 |
|
$ |
2.1 |
|
|
|
14 |
|
Usage |
|
|
0.7 |
|
|
|
6 |
|
|
|
|
|
|
|
|
Balance, March 31, 2006 |
|
$ |
1.4 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
On a cumulative basis through March 31, 2006, the status of the 2004 restructuring
accruals was as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as of |
|
|
|
Program |
|
|
Cumulative |
|
|
Net |
|
|
March 31, |
|
|
|
Amounts |
|
|
Usage |
|
|
Adjustments |
|
|
2006 |
|
|
|
(In millions) |
Severance |
|
$ |
18.0 |
|
|
$ |
16.5 |
|
|
$ |
(0.2 |
) |
|
$ |
1.3 |
|
Pension and lease termination costs |
|
|
1.7 |
|
|
|
1.6 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
19.7 |
|
|
$ |
18.1 |
|
|
$ |
(0.2 |
) |
|
$ |
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
Balance |
|
|
|
|
|
|
Reductions |
|
as of |
|
|
Program |
|
and |
|
March 31, |
|
|
Amounts |
|
Adjustments |
|
2006 |
No. of employees affected |
|
|
540 |
|
|
|
532 |
|
|
|
8 |
|
7. RETIREMENT PLANS
Employer Contributions
During the three months ended March 31, 2006, we contributed approximately $4.1 million to our
pension plans. We presently anticipate contributing additional amounts of $6 million to $11 million
to fund our pension plans in 2006.
Components of Net Periodic Pension Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
International |
|
|
|
Three Months Ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(In millions) |
|
Net periodic pension cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
2.3 |
|
|
$ |
2.7 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
Interest cost |
|
|
1.8 |
|
|
|
1.8 |
|
|
|
0.8 |
|
|
|
0.8 |
|
Expected return on plan assets |
|
|
(2.5 |
) |
|
|
(2.2 |
) |
|
|
(0.8 |
) |
|
|
(0.7 |
) |
Amortization of unrecognized items |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
1.8 |
|
|
$ |
2.4 |
|
|
$ |
0.2 |
|
|
$ |
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
8. COMPREHENSIVE INCOME
Accumulated other comprehensive loss represents certain items which, according to the
respective accounting rules, are required to be recorded directly to equity accounts and consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In millions) |
|
Cumulative translation adjustment |
|
$ |
(87.8 |
) |
|
$ |
(90.9 |
) |
Minimum pension liability adjustments, net of income tax |
|
|
(15.0 |
) |
|
|
(15.0 |
) |
Cash flow hedging and other, net of income tax |
|
|
(0.1 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
(102.9 |
) |
|
$ |
(106.6 |
) |
|
|
|
|
|
|
|
Comprehensive income for the three months ended March 31, 2006 and 2005 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In millions) |
|
Net income |
|
$ |
19.4 |
|
|
$ |
31.4 |
|
Cumulative currency translation adjustment |
|
|
3.1 |
|
|
|
(3.5 |
) |
Cash flow hedging and other, net |
|
|
0.6 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
23.1 |
|
|
$ |
28.5 |
|
|
|
|
|
|
|
|
9. DISCONTINUED OPERATIONS
On June 30, 2005, we closed on the sale of our Specialty Papers business to Nekoosa Coated
Products, LLC for $17.0 million, with the potential for up to an additional $4.0 million in
consideration over the next three years, contingent on performance of the business. Upon closing,
we received a cash payment of $16.0 million and a note receivable of $1.0 million due in four years
subject to certain post closing adjustments. A gain of $4.6 million, net of taxes of $2.7 million,
was recognized on the sale. Specialty Papers is reported as a discontinued operation as we
eliminated the operations and cash flows of the Specialty Papers business and there will not be
significant continuing involvement in the Specialty Papers business in the future. In accordance
with applicable accounting rules, the results of this segment for prior periods have been reported
as discontinued operations. Accordingly, the Consolidated Financial Statements for prior periods
have been adjusted to reflect this presentation. General corporate overhead costs previously
allocated to the Specialty Papers segment have not been allocated to discontinued operations. As a
result of the sale of our Specialty Papers business, our remaining segment is Data Storage and
Information Management. Specialty Papers net revenue and operating income were $10.2 million and
$1.8 million, respectively, for the three months ended March 31, 2005.
12
In the first quarter of 2005, we also recorded expenses of $0.6 million (net of taxes of $0.4
million) related to the Jazz Photo litigation associated with our Photo Color Systems business sold
in 1999. The settlement was completed in the first quarter of 2005, as discussed in Note 13.
10. DERIVATIVES AND HEDGING ACTIVITIES
We maintain a foreign currency exposure management policy that allows the use of derivative
instruments, principally foreign currency forward and option contracts, to manage risks associated
with foreign exchange rate volatility. Generally, these contracts are entered into to fix the U.S.
dollar amount of the eventual cash flows. As of March 31, 2006, the derivative instruments range in
duration from less than one to nine months. We do not hold or issue derivative financial
instruments for speculative or trading purposes, and we are not a party to leveraged derivatives.
We are exposed to the risk of nonperformance by our counter-parties in foreign currency
forward and option contracts, but we do not anticipate nonperformance by any of these
counter-parties. We actively monitor our exposure to credit risk through the use of credit
approvals and credit limits, and by using major international banks and financial institutions as
counter-parties.
Cash Flow Hedges
We attempt to mitigate the risk that forecasted cash flows denominated in foreign currencies
may be adversely affected by changes in currency exchange rates through the use of option and
forward contracts. We formally document all relationships between hedging instruments and hedged
items, as well as our risk management objective and strategy for undertaking the hedge items. This
process includes linking all derivatives to forecasted transactions.
We also formally assess, both at the hedges inception and on an ongoing basis, whether the
derivatives used in hedging transactions are highly effective in offsetting changes in the cash
flows of hedged items. Gains and losses related to cash flow hedges are deferred in accumulated
other comprehensive income (loss) with a corresponding asset or liability. When the hedged
transaction occurs, the gains and losses in accumulated other comprehensive income (loss) are
reclassified into the Consolidated Statement of Operations in the same line as the item being
hedged. If at any time it is determined that a derivative is not highly effective as a hedge, we
discontinue hedge accounting prospectively, with deferred gains and losses being recognized in
current period operations.
As of March 31, 2006, cash flow hedges ranged in duration from less than one to nine months
and had a total notional amount of $130.0 million. Hedge costs, representing the premiums paid on
expired options net of hedge gains and losses, of $0.1 million were reclassified into the
Consolidated Statement of Operations during the quarter ended March 31, 2006. The amount of net
deferred losses on foreign currency cash flow hedges included in accumulated other comprehensive
income (loss) in shareholders equity as of March 31, 2006 was $0.7 million, pre-tax, which,
depending on market factors, is expected to reverse or be reclassified into operations in 2006.
Other Hedges
We enter into foreign currency forward contracts, generally with durations of less than two
months, to manage the foreign currency exposure related to our monetary assets and liabilities
denominated in foreign currencies. We record the estimated fair value of these forwards within
other current assets or other current liabilities in the Consolidated Balance Sheets, and all
changes
in their fair value are immediately recognized in the Consolidated Statement of Operations. As
of March 31, 2006, we had a notional amount of forward contracts of $44.6 million to hedge our
recorded balance sheet exposures.
Fair Value Disclosure
As of March 31, 2006, the fair value of our foreign currency forward and option contracts
outstanding was $0.4 million. The estimated fair market values were determined using available
market information or other appropriate valuation methodologies.
13
11. DEBT
As of March 31, 2006, we did not have any debt outstanding. On March 30, 2006, we entered into
a Credit Agreement with a group of banks that expires on March 29, 2011 and that replaced our prior
credit facility that would have expired on December 15, 2006. The Credit Agreement provides for
revolving credit, including letters of credit, with borrowing availability of $300 million.
Borrowings under the Credit Agreement bear interest, at the Companys option, at either: (a) the
higher of the federal funds rate plus 0.50% or the rate of interest published by Bank of America as
its prime rate plus, in each case, up to 0.50% depending on the applicable leverage ratio, as
described below, or (b) the British Bankers Association LIBOR, adjusted by the reserve percentage
in effect from time to time, as determined by the Federal Reserve Board, plus up to 1.20% depending
on the applicable leverage ratio. Leverage ratio is defined as the ratio of total debt to EBITDA
(net earnings before interest, income taxes, depreciation and amortization). A facility fee ranging
from 0.15 to 0.30 percent per annum based on our consolidated leverage ratio is payable on the
revolving line of credit. The Credit Agreement contains covenants which are customary for similar
credit arrangements and contains financial covenants that require the Company to have a leverage
ratio not exceeding 2.5 to 1.0 and a fixed charge coverage ratio (defined as the ratio of EBITDA
less capital expenditures to interest expenses) not less than 2.5 to 1.0. We do not expect these
covenants to materially restrict our ability to borrow funds in the future. No borrowings were
outstanding under the Credit Agreement as of March 31, 2006, and we were in compliance with all
covenants under the Credit Agreement.
12. INCOME TAXES
We recognized a one-time tax benefit of $12.0 million, or $0.35 per diluted share, in the
first quarter of 2005 related to the favorable resolution of a U.S. tax matter. The matter involved
the U.S. treatment of tax benefits associated with changes to our European structure initiated in
2000 that were approved by U.S. tax authorities in the first quarter of 2005, resulting in the
reversal of an income tax accrual.
13. LITIGATION, COMMITMENTS AND CONTINGENCIES
During the first quarter of 2005, we paid the net settlement of $20.9 million for the Jazz
Photo litigation, the expense for which was recorded in the fourth quarter of 2004.
14. SUBSEQUENT EVENT
On April 28, 2006, we closed on the acquisition of substantially all of the assets of Memorex
International Inc. (Memorex), including the capital stock of its operating subsidiaries engaged in
the business of the design, development, marketing, distribution and sale of hardware, media and
accessories used for the storage of electronic data under the Memorex brand name.
Memorexs product portfolio includes recordable CDs and DVDs, branded accessories, USB flash
drives and magnetic and optical drives. As a result of the acquisition, we expect to strengthen our
market share and become a larger participant in the data storage industry. The results of Memorexs
operations will be included in our Consolidated Financial Statements after April 28, 2006.
The Memorex acquisition will be accounted for as a purchase business combination. Assets
acquired and liabilities assumed will be recorded at their fair values as of April 28, 2006. The
purchase price was $329.1 million, after net asset adjustments were made to the original purchase
price of $330.0 million. This amount excludes the cost of integration, as well as other indirect
costs related to the transaction. Additional cash consideration ranging from a minimum of $5.0
million to a maximum of $45.0 million may be paid out over a period of up to three years after
close, contingent on financial performance of the purchased business. The financial performance
will be measured by EBITDA of the purchased business as defined in the purchase agreement
previously filed on Form 8-K.
We placed $33.0 million of the purchase price paid at closing in escrow to address potential
indemnification claims. One-half of the escrowed amounts (less claims made) will be released to
Memorex on March 31, 2007, and the remainder will be released to Memorex on September 30, 2007. We
also placed an additional $8.0 million of the purchase price paid at closing in escrow until the
determination of any required post-closing purchase price adjustments under the Acquisition
Agreement are finalized.
The allocation of the purchase price has not been finalized as of the date of the filing of
this Form 10-Q as certain amounts are not available for valuation.
15. REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, our independent registered public accounting firm, has performed a
review of the unaudited interim Consolidated Financial Statements included herein and their report
thereon accompanies this filing. This report is not a report within the meaning of Sections 7 and
11 of the Securities Act of 1933, as amended, and the independent registered public accounting
firms liability under Section 11 does not extend to it.
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Imation Corp.:
We have reviewed the accompanying condensed consolidated balance sheet of Imation Corp. and
its subsidiaries as of March 31, 2006, and the related consolidated statements of operations for
each of the three-month periods ended March 31, 2006 and 2005 and the condensed consolidated
statements of cash flows for the three-month periods ended March 31, 2006 and 2005. These interim
financial statements are the responsibility of the Companys management.
We conducted our review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
accompanying condensed consolidated interim financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December 31, 2005, and the
related consolidated statements of operations, shareholders equity and comprehensive income, and
of cash flows for the year then ended, managements assessment of the effectiveness of the
Companys internal control over financial reporting as of December 31, 2005 and the effectiveness
of the Companys internal control over financial reporting as of December 31, 2005; and in our
report dated February 28, 2006, we expressed unqualified opinions thereon. The consolidated
financial statements and managements assessment of the effectiveness of internal control over
financial reporting referred to above are not presented herein. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of March 31, 2006, is fairly
stated in all material respects in relation to the consolidated balance sheet from which it has
been derived.
As discussed in Note 2, the Company changed its method of accounting for equity-based
compensation arrangements effective January 1, 2006.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
May 4, 2006
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
General Overview
Imation is a leading provider of removable data storage media products designed to help
customers capture, create, protect, preserve, and retrieve valuable digital assets. Our
business-to-business customers range from managers of large data centers to distributed network
administrators to small business owners who rely on our tape cartridges for data processing,
security, business continuity, backup and archiving applications. For personal storage needs, our
customers rely on our recordable optical discs, USB-enabled flash and removable hard drives to
store, edit and manage business data, photos, video, images, and music on professional and home
desktops. Our products are sold in the United States and in approximately 100 other countries.
Approximately 67 percent of our first quarter 2006 revenue came from outside the United States.
The data storage market presents attractive growth opportunities as well as challenges. The
market is highly competitive, characterized by continuing changes in technology, ongoing and
variable price erosion, diverse distribution channels, and a large variety of formats for tape,
optical, flash, and removable hard disk products.
We deliver a broad portfolio of products across diverse distribution channels and geographies.
Success in the market is dependent on being early to market with new formats, having efficient
manufacturing, sourcing and supply chain operations, maintaining competitive total delivered cost,
working closely with leading Original Equipment Manufacturers (OEMs) to develop new formats or
enhancements to existing formats, offering a broad assortment of products across multiple competing
drive technology platforms, and having broad geographic and market coverage across diverse
distribution channels.
While the demand for data storage media continues to grow at a modest rate, the highest
revenue growth opportunities include newer tape formats in open system environments, recordable
optical discs and removable flash memory. These higher revenue growth opportunities provide revenue
streams that are typically at lower gross profit margins than our historical gross margins on the
magnetic media products.
Our strategy is to take advantage of these growth opportunities by establishing strategic
sourcing, brand distribution, and licensing arrangements and by implementing a relatively flat and
efficient operating structure. For example, while we have manufacturing operations, intellectual
property, patents and know-how across a broad range of storage-related media technologies, we also
source some products from third party manufacturers. As a result, our business is a combination of
a manufacturer and a brand distributor. We believe this strategy can support higher revenue without
the need to add substantial infrastructure or overhead costs, thus delivering increased gross
margin dollars and operating profit growth on increased revenue. We have launched various
restructuring activities to lower overall operating costs, simplify structure, and improve
decision-making speed. In addition, we are implementing lean enterprise principles throughout our
organization. The emphasis of lean enterprise principles is speed, quality, and competitive cost
across all key functions and processes.
Memorex International Inc. Acquisition
On April 28, 2006, we closed on the acquisition of substantially all of the assets of Memorex
International Inc. (Memorex), including the capital stock of its operating subsidiaries engaged in
the business of the design, development, marketing, distribution and sale of hardware, media and
accessories used for the storage of electronic data under the Memorex brand name. Memorexs
product portfolio includes recordable CDs and DVDs, branded accessories, USB flash drives and
magnetic and optical drives. The purchase price was $329.1 million, after net asset adjustments
were made to the original purchase price of $330.0 million. This amount excludes the cost of
integration, as well as other indirect costs related to the transaction. Additional cash
consideration ranging from a minimum of $5.0 million to a maximum of $45.0 million may be paid out
over a period of up to three years after close, contingent on financial performance of the
purchased business. The financial performance will be measured by EBITDA of the purchased business
as defined in the purchase agreement previously filed on Form 8-K. The expected financial impact of
the Memorex acquisition is discussed below under Forward-Looking Statements and Risk Factors.
16
Executive Summary
First Quarter 2006 Consolidated Results of Operations
|
|
|
Revenue of $335.2 million in the quarter ended March 31, 2006 was up 6.4 percent over
the same period last year. |
|
|
|
Gross profit margin of 23.6 percent for the three months ended March 31, 2006 is
compared with gross profit margin of 26.1 percent for the comparable period last year and
21.6 percent for the fourth quarter of 2005. |
|
|
|
|
Diluted earnings per share from continuing operations was $0.55 for the three months
ended March 31, 2006 compared to $0.90 for the same period last year. |
First Quarter 2006 Cash Flow/Financial Condition
|
|
|
Cash flow from operations totaled $23.1 million in the quarter. |
|
|
|
|
Total cash and cash equivalents were $523.0 million as of March 31, 2006, compared with
$483.0 million at year-end 2005. |
|
|
|
|
We repurchased approximately 340,000 shares during the quarter for approximately $15.0 million. |
|
|
|
|
The Board of Directors declared a quarterly dividend of $0.12 per share in February 2006. |
Financial Accounting Standards Board Statement No. 123(R), Share-Based Payment Adoption
Prior to our January 1, 2006 adoption of the Financial Accounting Standards Board (FASB)
Statement No. 123(R), Share-Based Payment (SFAS 123R), we accounted for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Accordingly, no compensation
expense was recognized for time-based stock options granted prior to January 1, 2006, as options
granted had no intrinsic value at the time of grant. Compensation expense has been recorded for
restricted stock issued under our stock plans. As required by FASB Statement No. 123, Accounting
for Stock-Based Compensation (SFAS 123), we included pro forma disclosure in the Notes to
Consolidated Financial Statements.
Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123R,
using the modified-prospective transition method. Under this transition method, results for prior
periods have not been restated. For the three months ended March 31, 2006, compensation expense
recognized included the estimated expense for stock options granted on, and subsequent to, January
1, 2006. Estimated expense for the options granted prior to, but not vested as of, January 1, 2006,
was calculated based on the grant date fair value estimated in accordance with the original
provisions of SFAS 123.
The total fair value of shares vested during the three months ended March 31, 2006 was $1.6
million. As of March 31, 2006, there was $15.1 million of total unrecognized compensation expense
related to nonvested share-based compensation arrangements granted
under our stock plans. That
expense is expected to be recognized over a weighted average period of 2.4 years. For further
information regarding SFAS 123R adoption, see Note 2 to the Condensed Consolidated Financial
Statements.
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Dollar |
Percentage of Revenue |
|
|
|
Increase/(Decrease) |
March 31, |
|
|
|
March 31, |
2006 |
|
2005 |
|
|
|
2006 vs. 2005 |
|
100.0 |
% |
|
|
100.0 |
% |
|
Net revenue |
|
|
6.4 |
% |
|
23.6 |
|
|
|
26.1 |
|
|
Gross profit |
|
|
(3.8 |
) |
|
10.5 |
|
|
|
12.2 |
|
|
Selling, general and administrative expenses |
|
|
(8.1 |
) |
|
3.8 |
|
|
|
4.0 |
|
|
Research and development expenses |
|
|
1.6 |
|
|
0.5 |
|
|
|
|
|
|
Restructuring and other expenses |
|
nm |
|
8.7 |
|
|
|
9.9 |
|
|
Operating income |
|
|
(6.4 |
) |
|
(0.4 |
) |
|
|
0.5 |
|
|
Other (income) expense, net |
|
nm |
|
5.8 |
|
|
|
9.8 |
|
|
Income from continuing operations |
|
|
(37.0 |
) |
17
Comparison of Three Months Ended March 31, 2006 and 2005
Net revenue of $335.2 million increased 6.4 percent from last years first quarter revenue of
$315.0 million. U.S. revenue totaled $109.1 million, or 33 percent of worldwide revenue, compared
with $107.8 million, or 34 percent, from a year ago. Non-U.S. revenue totaled $226.1 million, or 67
percent of worldwide revenue, compared with $207.2 million, or 66 percent, from a year ago. The
worldwide revenue growth in the first quarter of 2006 was driven by volume increases of
approximately 15 percent, partially offset by price declines of approximately six percent and
negative currency exchange rate translation of approximately three percent. As discussed under
Impact of Changes in Foreign Currency Rates below, pricing can be impacted by changes in foreign
currency exchange rates. Revenue growth was driven by optical media products as we benefited from
growth in our Global Data Media joint venture, as well as growth in mid-range LTO tape cartridges
and flash media products. Selective price increases somewhat moderated price erosion in the
quarter. Growth in Asia Pacific and the United States was offset somewhat by slight declines in
Europe due to currency exchange rate impacts.
Gross profit in the first quarter of 2006 was $79.2 million, or 23.6 percent of revenue,
compared to $82.3 million, or 26.1 percent of revenue in the first quarter of 2005. The
year-over-year decline in gross margin was due to a greater portion of lower gross margin optical
and flash products in the total product mix.
Selling, general and administrative (SG&A) expenses in the first quarter of 2006 were $35.3
million, or 10.5 percent of revenue, compared to $38.4 million, or 12.2 percent of revenue, in the
first quarter of 2005. The decrease in SG&A expenses as a percent of revenue was due to our cost
reduction efforts taken at the end of 2004 and continued through 2005, continued focus on
controlling spending and implementing an efficient cost structure in all geographic areas and our
revenue growth. This decrease was partially offset by additional stock-based compensation expenses
of $1.4 million recorded in the first quarter of 2006 due to the adoption of SFAS 123R effective
January 1, 2006.
Research and development (R&D) costs were $12.8 million, or 3.8 percent of revenue in the
first quarter of 2006, as compared to $12.6 million, or 4.0 percent of revenue in the first quarter
of 2005. R&D costs remained essentially flat over the periods.
During the first quarter of 2006, we recorded severance and other charges of $1.8 million. The
charges related to employee reductions in our Wahpeton, North Dakota and Camarillo, California
production facilities and consisted of estimated severance payments and related benefits. The
restructuring will result in the elimination of approximately 100 positions by the middle of 2006.
No employee reductions or cash payments relating to these charges were made during the quarter
ended March 31, 2006.
Based on the above factors, operating income in the first quarter of 2006 was $29.3 million,
or 8.7 percent of revenue, compared with operating income of $31.3 million, or 9.9 percent of
revenue for the same period last year.
Other income was $1.4 million for the quarter ended March 31, 2006 compared to other expense
of $1.7 million for the quarter ended March 31, 2005. Interest income was $4.7 million in the first
quarter of 2006 and $2.1 million in the first quarter of 2005. Increased interest income is
attributed to higher interest rates and higher invested cash balances. Other expenses included net
investment losses of $1.3 million and $1.9 million in the quarters ended March 31, 2006 and 2005,
respectively.
The tax provision for the first quarter of 2006 was $11.3 million, resulting in a tax rate of
36.8 percent, compared to a tax benefit of $1.2 million in the first quarter of 2005. The tax
benefit for the first quarter of 2005 relates to the favorable resolution of a U.S. tax matter that
resulted in a one-time tax benefit of $12.0 million, or $0.35 per diluted share. The matter
involved the U.S. treatment of tax benefits associated with changes to our European structure
initiated in 2000 that were approved by U.S. tax authorities in the first quarter of 2005,
resulting in the reversal of an income tax accrual.
Income from continuing operations in the first quarter of 2006 was $19.4 million, or $0.56 per
basic share and $0.55 per diluted share, compared with income from continuing operations of $30.8
million, or $0.91 per basic share and $0.90 per diluted share, in the first quarter of 2005. The
expenses associated with our restructuring and adoption of SFAS 123R had an impact of $0.06 per
diluted share on first quarter 2006 results. The one-time tax benefit of $12.0 million discussed
above resulted in an additional $0.35 per diluted share in the first quarter of 2005.
Income from discontinued operations during the three months ended March 31, 2005 of $0.6
million, net of tax, consists of Specialty Papers after tax income of $1.2 million, partially
offset by the Jazz Photo litigation loss of $0.6 million, net of taxes. The Specialty Papers
business results exclude corporate overhead costs previously allocated to this business.
Net income in the first quarter of 2006 was $19.4 million, or $0.56 per basic share and $0.55
per diluted share, compared with net income of $31.4 million, or $0.93 per basic share and $0.92
per diluted share, in the first quarter of 2005.
18
Impact of Changes in Foreign Currency Rates
We have a market presence in more than 100 countries, and we sell products on a local currency
basis through a variety of distribution channels. We source finished goods, primarily optical
products, from foreign countries, although much of this sourcing is on a U.S. dollar basis.
Further, we produce a significant portion of our products in our own manufacturing facilities in
the United States. Comparisons of revenue and gross profit from foreign countries are subject to
various fluctuations due to the impact of translating results at differing exchange rates in
different periods.
Changes in foreign currency exchange rates in the first three months of 2006 negatively
impacted worldwide revenue by approximately three percent due to unfavorable translation. The
impact on profits is more difficult to determine due to the influence of other factors that we
believe are also impacted by currency rate changes, including the translation impact on local
offsetting expenses and pricing declines that tend to offset translation benefits over time. For
example, we have generally experienced increased price erosion internationally as the dollar
weakened. In addition, a weak dollar negatively affects some regional business activity.
Our foreign currency hedging policy attempts to manage some of the foreign currency risks over
near term periods; however, these risk management activities cannot ensure that the program will
offset more than a portion of the adverse financial impact resulting from unfavorable movements in
foreign exchange rates or that medium and longer term effects of exchange rates will not be
significant (see Item 3. Quantitative and Qualitative Disclosures about Market Risk in this Form
10-Q).
Financial Position
As of March 31, 2006, our cash and cash equivalents balance was $523.0 million, an increase of
$40.0 million from $483.0 million as of December 31, 2005. We also had other investments, which
totaled $8.8 million and $24.6 million as of March 31, 2006 and December 31, 2005, respectively,
related to investment grade interest bearing securities with original maturities greater than three
months that are classified as other current assets. Ending cash and cash equivalents, plus these
investments, totaled $531.8 million and $507.6 million as of March 31, 2006 and December 31, 2005,
respectively. Our cash and investments increase was due to operating cash flow of $23.1 million and
proceeds of $14.3 million from the exercise of options, partially offset by share repurchases and
dividend payments of $15.0 million and $4.4 million, respectively.
Accounts receivable days sales outstanding was 46 days as of March 31, 2006, unchanged from
December 31, 2005. Days sales outstanding is calculated using the count-back method, which
calculates the number of days of most recent revenue that is reflected in the net accounts
receivable balance. Days of inventory supply was 55 days as of March 31, 2006, down one day
compared to 56 days as of December 31, 2005. Days of inventory supply is calculated using the
current period inventory balance divided by the average of the inventoriable portion of cost of
goods sold for the previous 12 months, expressed in days.
Other current assets were $53.4 million as of March 31, 2006 compared to $75.6 million as of
December 31, 2005. The decrease in other current assets is attributed to the maturation of certain
investments. These investments related to investment grade interest-bearing securities, the
maturation of which caused them to move into our cash and cash equivalents balance.
Accounts payable was $141.1 million as of March 31, 2006 compared to $131.8 million as of
December 31, 2005. The increase was due to increased purchasing activity towards the end of the
first quarter of 2006, as well as timing of payments made during the quarter.
Accrued payroll was $11.4 million as of March 31, 2006 compared to $22.2 million as of
December 31, 2005. The decrease during the period was mainly due to payments under our broad-based
employee incentive compensation plans.
In late 2003, we entered into a tape media distribution agreement with Exabyte Corp.
(Exabyte), whereby we became the exclusive distributor of Exabyte media including the VXA class of
tape cartridges. This transaction resulted in an intangible asset of $18.5 million. On October 31,
2005, we amended certain terms of the Exabyte distribution agreement whereby we agreed to lower the
margin we earn on distribution in exchange for consideration of $10.3 million in the form of
Exabyte common stock, preferred stock, warrants, and note receivables with a corresponding offset
to the original intangible asset recorded in conjunction with the execution of the original Exabyte
distribution agreement. Due to the decline in value of Exabyte common stock, we determined that an
other-than-temporary decline in value existed as of March 31, 2006, and consequently, reduced the
carrying
value of our Exabyte stock holdings by $2.2 million with a corresponding loss recorded in the
Consolidated Statement of Operations for the quarter ended March 31, 2006. The notes consist of a
$5.0 million note payable, bearing 10 percent interest beginning January 1, 2006, with interest
only payments through 2007 and quarterly principal and interest payments commencing on March 31,
2008 continuing through December 31, 2009, and a $2.0 million note payable bearing 10 percent
interest through December 15, 2006, at which time the principal amount is due. In connection with
the notes, we obtained a subordinated security position in the assets of Exabyte. The collection of
the notes receivable and realization of the intangible asset is dependent on Exabytes ability to
continue as a going concern and on the success of the Exabyte relationship.
19
Liquidity and Capital Resources
Cash provided by operating activities of $23.1 million in the first three months of 2006 was driven by net income of
$19.4 million. Cash provided by operating activities of $11.9 million in the first three months of 2005 was driven by net income of
$31.4 million, partially offset by payment of the net settlement of $20.9 million for the Jazz Photo litigation, the expense for
which was recorded in the fourth quarter of 2004.
Cash provided by investing activities was $16.9 million in the first three months of 2006 compared to cash used in investing
activities of $4.0 million in the first three months of 2005. Capital spending totaled $3.3 million in the first quarter of 2006
and $3.5 million in the first quarter of 2005. We also had $15.6 million in maturation of certain cash investments, as well as
$4.6 million in proceeds from the sale of investments in the first quarter of 2006.
Cash used in financing activities of $2.7 million in the first three months of 2006 was driven by share repurchases of
$15.0 million and dividend payments of $4.4 million, offset by cash inflows of $14.3 million related to the exercise of stock
options. Cash used in financing activities of $12.4 million in the first three months of 2005 was driven by share repurchases of
$14.9 million and dividend payments of $3.4 million, offset partially by cash inflows of $5.9 million related to the exercise of
stock options.
As of March 31, 2006, we did not have any debt outstanding. On March 30, 2006, we entered into a Credit Agreement with a group
of banks that expires on March 29, 2011 and that replaced our prior credit facility that would have expired on December 15, 2006.
The Credit Agreement provides for revolving credit, including letters of credit, with borrowing availability of $300 million.
Borrowings under the Credit Agreement bear interest, at the Companys option, at either: (a) the higher of the federal funds rate
plus 0.50% or the rate of interest published by Bank of America as its prime rate plus, in each case, up to 0.50% depending on
the applicable leverage ratio, as described below, or (b) the British Bankers Association LIBOR, adjusted by the reserve
percentage in effect from time to time, as determined by the Federal Reserve Board, plus up to 1.20% depending on the applicable
leverage ratio. Leverage ratio is defined as the ratio of total debt to EBITDA (net earnings before interest, income taxes,
depreciation and amortization). A facility fee ranging from 0.15 to 0.30 percent per annum based on our consolidated leverage
ratio is payable on the revolving line of credit. The Credit Agreement contains covenants which are customary for similar credit
arrangements and contains financial covenants that require the Company to have a leverage ratio not exceeding 2.5 to 1.0 and a
fixed charge coverage ratio (defined as the ratio of EBITDA less capital expenditures to interest expenses) not less than 2.5 to
1.0. We do not expect these covenants to materially restrict our ability to borrow funds in the future. No borrowings were
outstanding under the Credit Agreement as of March 31, 2006, and we were in compliance with all covenants under the Credit
Agreement.
In addition, certain international subsidiaries have borrowing arrangements locally outside of the Credit Agreement discussed
above. As of March 31, 2006, there were no borrowings outstanding under such arrangements.
In 1997, our Board of Directors authorized the repurchase of up to six million shares of our common stock and in 1999
increased the authorization to a total of 10 million shares. On August 4, 2004, our Board of Directors increased the authorization
for repurchase of common stock, expanding the then remaining share repurchase authorization of 1.8 million shares as of June 30,
2004, to a total of six million shares. During the three months ended March 31, 2006, we repurchased 0.3 million shares. As of
March 31, 2006, we had repurchased 3.1 million shares under the latest authorization and held, in total, 8.2 million shares of
treasury stock acquired at an average price of $23.91 per share. Authorization for repurchases of an additional 2.9 million shares
remains outstanding as of March 31, 2006.
We paid a cash dividend of $0.12 per share, or $4.4 million, during the first quarter of 2006. On May 3, 2006, our Board of
Directors declared a quarterly cash dividend of $0.14 per share payable June 30, 2006, to shareholders of record at the close of
business on June 15, 2006. Any future dividends are at the discretion of and subject to the approval of our Board of Directors.
As previously disclosed, we expect pension contributions to be in the range of $10 million to $15 million in 2006, depending
on asset performance and interest rates. We contributed approximately $4.1 million to our pension plans during the first quarter
of 2006.
20
Our remaining anticipated liquidity needs for 2006 include the following: the Memorex
acquisition cost of $329 million and other related acquisition costs, including possible
restructuring costs; capital expenditures targeted to be approximately $22 million; pension funding
of approximately $6 million to $11 million; operating lease payments of approximately $7 million
and any amounts associated with the repurchase of common stock under the authorization discussed
above or any future dividends that may be paid upon approval of the Board of Directors. We expect
that cash and cash equivalents, together with cash flow from operations and availability of
borrowings under our current and future sources of financing, will provide liquidity sufficient to
meet these needs and for our operations.
Other than operating lease commitments, we are not using off-balance sheet arrangements,
including special purpose entities, nor do we have any contractual obligations or commercial
commitments with terms greater than one year that would significantly impact our liquidity.
Contractual Obligations
A table of our contractual obligations was provided in Item 7 in our Annual Report on Form
10-K for the year ended December 31, 2005. There were no significant changes to our contractual
obligations during the first three months of 2006.
Critical Accounting Policies and Estimates
The preparation of our Consolidated Financial Statements and related disclosures in conformity
with generally accepted accounting principles in the United States requires us to make judgments,
assumptions and estimates that affect the amounts reported. Other than the discussion of
stock-based compensation below, there have been no other material changes to our critical
accounting policies and estimates from the information provided in Item 7. Managements Discussion
and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies and
Estimates included in our fiscal 2005 Annual Report on Form 10-K.
Stock-Based Compensation Effective January 1, 2006, we adopted the provisions of, and
account for stock-based compensation in accordance with, SFAS 123R. Under the fair value
recognition provisions of SFAS 123R, we measure stock-based compensation cost at the grant date
based on the fair value of the award and recognize the compensation expense over the requisite
service period, which is the vesting period. We elected the modified-prospective method of adopting
SFAS 123R, under which prior periods are not retroactively revised. The valuation provisions of
SFAS 123R apply to awards granted after the effective date. Estimated stock-based compensation
expense for awards granted prior to the effective date but that remain unvested on the effective
date will be recognized over the remaining service period using the compensation cost estimated for
the SFAS 123 pro forma disclosures.
The fair value of each option award is estimated on the date of grant using the Black-Scholes
option valuation model. The Black Scholes option valuation model requires the development of
assumptions that are input into the model. These variables are the expected volatility, the
risk-free rate, the options expected life and the dividend yield on the underlying stock.
Expected volatilities are based on historical volatility of our stock. The risk-free rate for
the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time
of grant. We use historical data to estimate option exercise and employee termination activity
within the valuation model. The expected term of stock options granted is based on historical data
and represents the period of time that stock options granted are expected to be outstanding. The
dividend yield is based on the latest dividend payments made on or announced by the date of the
grant. Forfeitures are estimated based on historical experience and current demographics.
Developing these assumptions requires us to make significant judgment and involves analyzing
available historical data, making adjustments to historical data for future expectations, and
appropriately weighting each of the inputs. These assumptions are evaluated and revised as
necessary, based on changes in market conditions and historical experience.
The guidance in SFAS 123R is relatively new. The application of these principles may be
subject to further interpretation and refinement over time. This may result in a lack of
consistency in future periods and may materially affect the fair value estimate of stock-based
awards. It may also result in a lack of comparability with other companies that use different
models, methods and assumptions.
21
Forward-Looking Statements and Risk Factors
The following section contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995.
The following statements are based on our current outlook for fiscal year 2006, and include
the anticipated impact from closing the acquisition of Memorex. The 2006 outlook estimates are
subject to change based on the final allocation of intangible assets, which will be determined
subsequent to close, and are subject to the risks and uncertainties described below:
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Our revenue for 2006 is targeted between $1.54 billion and $1.59 billion,
which represents growth of approximately 23 percent to 27 percent. |
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Operating income for 2006 is targeted between $93 million and $98 million. |
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Diluted earnings per share is targeted between $1.70 and $1.80 for 2006. |
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Capital spending for 2006 is targeted to be approximately $25 million.
Previously, we had targeted a range of $25 million to $30 million. |
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The 2006 tax rate is anticipated to be in the range of 36 percent to 37
percent. |
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Depreciation and amortization for 2006 is targeted in the range of $39
million to $44 million, including amortization of intangible assets resulting from the
Memorex acquisition ranging between $5 million and $8 million. Previously, we had
targeted a range of $4 million to $9 million in amortization of intangible assets
resulting from the Memorex acquisition. |
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We have adopted SFAS 123R beginning January 2006, which requires the
expensing of equity-based compensation programs. We expect an expense in the range of $10
million to $12 million or $0.18 to $0.22 per diluted share related to the adoption of
SFAS 123R in 2006. This expense is included in the diluted earnings per share target
cited above. |
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We anticipate that certain restructuring charges will likely be incurred, the
majority of which are associated with the Memorex acquisition, which would range between
$13 million and $17 million for the full year and are also included in the diluted
earnings per share target cited above. As a result, the impact of the acquisition on 2006
operating income is anticipated to be neutral to slightly positive. After full
integration of Memorex, the transaction is expected to be significantly accretive,
contributing $32 million to $36 million in annual operating income or $0.40 to $0.47 per
share. This estimate includes synergy benefits, purchase price amortization expenses and
the assumed loss of interest income due to cash used in the acquisition. |
Certain information contained in this report, which does not relate to historical financial
information, including the business outlook for fiscal 2006, may be deemed to constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are subject to certain risks and uncertainties that could cause our actual
results in the future to differ materially from our historical results and those presently
anticipated or projected. We wish to caution investors not to place undue reliance on any such
forward-looking statements. Any forward-looking statements speak only as of the date on which such
statements are made, and we undertake no obligation to update such statements to reflect events or
circumstances arising after such date. These factors include our ability to integrate our
operations and achieve anticipated benefits and cost synergies associated with the Memorex
acquisition; continuing uncertainty in global economic conditions that make it particularly
difficult to predict product demand; our ability to meet our cost reduction and revenue growth
targets; our ability to introduce new offerings in a timely manner either independently or in
association with OEMs or other third parties; our ability to achieve the expected benefits in a
timely manner from the Moser Baer and other strategic relationships, including the Global Data
Media joint venture and Exabyte distribution agreement; the competitive pricing environment;
foreign currency fluctuations; the outcome of litigation; our ability to secure adequate supply of
certain high demand products; the ready availability and price of energy; availability of key raw
materials or critical components; the market acceptance of newly introduced product and service
offerings; the rate of decline for certain existing products as well as various factors set forth
under the caption Risk Factors in Item 1A of the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2005 and in our other filings with the Securities and Exchange
Commission from time to time.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Except for the paragraph noted below, there has been no material change since the Companys
Annual Report Form 10-K for the fiscal year ended December 31, 2005. For further information, see
Item 7A. Quantitative and Qualitative Disclosures about Market Risk included in the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2005. Also, see information on
derivatives and hedging activities in Note 10 to the Consolidated Financial Statements of this Form
10-Q.
22
As of March 31, 2006, we had $174.6 million notional amount of foreign currency forward and
option contracts of which $44.6 million hedged recorded balance sheet exposures. This compares to
$222.7 million notional amount of foreign currency forward and option contracts as of December 31,
2005, of which $43.8 million hedged recorded balance sheet exposures. An immediate adverse change
of 10 percent in quarter-end foreign currency exchange rates with all other variables (including
interest rates) held constant would reduce the fair value of foreign currency contracts outstanding
as of March 31, 2006 by $7.7 million.
Item 4. Controls and Procedures
Based on an evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934 (Exchange Act)) as of March 31, 2006, the end of the
period covered by this report, the Chairman of the Board and Chief Executive Officer, Bruce A.
Henderson, and the Vice President, Chief Financial Officer, Paul R. Zeller, have concluded that the
disclosure controls and procedures were effective.
During the quarter ended March 31, 2006, there was no change in our internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to various pending or threatened legal actions in the ordinary course of our
business. All such matters are subject to many uncertainties and outcomes that are not predictable
with assurance. Consequently, as of March 31, 2006, we are unable to ascertain the ultimate
aggregate amount of any monetary liability or financial impact that we may incur with respect to
these matters. While these matters could materially affect operating results when resolved in
future periods, it is our opinion that after final disposition, any monetary liability to us beyond
that provided in the Consolidated Balance Sheet as of March 31, 2006 would not be material to our
financial position.
Item 1A. Risk Factors
There has been no material change in the risk factors set forth in our Annual Report Form 10-K
for the fiscal year ended December 31, 2005. For further information, see Item 1A. Risk Factors
included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) (b)
Not applicable
(c) Registrant Purchases of Equity Securities
23
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Total Number of |
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Maximum Number |
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Shares Purchased as |
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of Shares that May |
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Total Number of |
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Average |
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Part of Publicly |
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Yet Be Purchased |
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Shares |
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Price Paid |
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Announced Plans or |
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Under the Plans or |
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Period |
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Purchased |
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per Share |
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Programs |
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Programs |
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January 1, 2006 January 31, 2006 |
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3,263,100 |
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February 1, 2006 February 28, 2006 |
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192,500 |
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$ |
44.35 |
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192,500 |
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3,070,600 |
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March 1, 2006 March 31, 2006 |
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147,500 |
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$ |
43.76 |
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147,500 |
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2,923,100 |
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Total |
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340,000 |
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$ |
44.10 |
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340,000 |
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2,923,100 |
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In 1997, our Board of Directors authorized the repurchase of up to six million shares of our
common stock and in 1999 increased the authorization to a total of 10 million shares. On August 4,
2004, our Board of Directors announced an increase in the authorization for repurchase of common
stock, expanding the then remaining share repurchase authorization of 1.8 million shares as of June
30, 2004, to a total of six million shares. During the three months ended March 31, 2006, we
repurchased 0.3 million shares. As of March 31, 2006, we had repurchased 3.1 million shares under
the latest authorization and held, in total, 8.2 million shares of treasury stock acquired at an
average price of $23.91 per share. Authorization for repurchases of an additional 2.9 million
shares remains outstanding as of March 31, 2006 and such authorization has no expiration date.
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits
The following documents are filed as exhibits to this Report.
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Exhibit |
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Number |
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Description of Exhibit |
10.1
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Amendment to Employment Agreement between Imation and Bruce
Henderson (incorporated by reference to Exhibit 10.1 to Imations Form
8-K Current Report filed March 3, 2006) |
10.2
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Amendment to and restated Severance Agreement with Executive
Officers (incorporated by reference to Exhibit 10.2 to Imations Form 8-K
Current Report filed March 3, 2006) |
10.3
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Credit Agreement between Imation and a Consortium of Lenders
dated as of March 29, 2006 (incorporated by reference to Exhibit 10.1
to Imations Form 8-K Current Report filed April 5, 2006) |
15.1
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An awareness letter from the Companys independent registered public
accounting firm regarding unaudited interim financial statements |
31.1
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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2
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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1
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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2
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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Imation
Corp. |
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Date: May 4, 2006
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/s/ Paul R. Zeller
Paul R. Zeller
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Vice President and Chief Financial Officer |
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(duly authorized officer and principal |
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financial officer) |
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25
EXHIBIT INDEX
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Exhibit |
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Number |
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Description of Exhibit |
10.1
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Amendment to Employment Agreement between Imation and Bruce
Henderson (incorporated by reference to Exhibit 10.1 to Imations Form
8-K Current Report filed March 3, 2006) |
10.2
|
|
Amendment to and restated Severance Agreement with Executive
Officers (incorporated by reference to Exhibit 10.2 to Imations Form
8-K
Current Report filed March 3, 2006) |
10.3
|
|
Credit Agreement between Imation and a Consortium of Lenders
dated as of March 29, 2006 (incorporated by reference to Exhibit 10.1
to Imations Form 8-K Current Report filed April 5, 2006) |
15.1
|
|
An awareness letter from the Companys independent registered public
accounting firm regarding unaudited interim financial statements |
31.1
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1
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|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2
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|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
26