Imation: Fiscal 1Q09 Financial Results

Imation Corp. released financial results for the quarter ended March 31, 2009.

Key points for Q1 include the following:

• Revenue of $426.2 million was down 19.7 percent compared with Q1 2008 revenue of $530.9 million driven by continued economic softness.
• Operating loss of $7.4 million and diluted loss per share of $0.31 in Q1 2009 compared with operating income of $19.5 million and diluted earnings per share of $0.29 in Q1 2008. Operating loss in Q1 2009 included restructuring charges of $5.5 million or $0.10 per diluted share (see table entitled Reconciliation of GAAP to Adjusted Non-GAAP Results below).
• Cash generated from operations in Q1 2009 was $15.7 million and total cash was $103.0 million at March 31, 2009.

Commenting on the results, Imation Vice Chairman and CEO Frank Russomanno said: “We continued to face a difficult economic environment in our major Commercial and Consumer markets during the first quarter. Although we generated an operating loss in the quarter, this was not unexpected.”

“In Q1, we saw continuing declines in our legacy storage media business at rates similar to those of the fourth quarter of 2008. Magnetic tape continues to experience the most significant declines, especially in the financial services sector which has clearly been hit hard during this economic crisis. We had solid magnetic and optical margins in the quarter and were encouraged to see growth in consumer electronics as well as our external hard drive products.”

“We are seeing the benefits of restructuring actions we have taken focusing on improving our financial position through aggressively reducing costs and conserving cash. At the same time we are continuing to execute our longer-term strategy to transform into a brand and product management company and are addressing areas with greater growth potential.”

“Our financial position remains strong. During the quarter we generated positive operating cash flow and increased our cash balance. We are confident in our ability to withstand the current economic headwinds while positioning the Company for success when global economic conditions begin to improve. We remain committed to our strategy and are intently focused on improving our financial performance and creating shareholder value,” Russomanno concluded.

Net Revenue for Q1 2009 was $426.2 million, down 19.7 percent from Q1 2008, driven by price erosion of approximately nine percent, volume declines of approximately six percent and unfavorable currency impacts of approximately five percent. From a product perspective, the decrease was driven primarily by revenue declines in magnetic and optical products, offset partly by revenue growth in electronic products as well as external and removable hard disk products. Revenue in the Americas segment, which represented 36.7 percent of total revenue in the quarter, decreased 27.1 percent from Q1 2008. Revenue from the Europe segment, which represented 31.7 percent of total revenue in the quarter, decreased 23.2 percent from Q1 2008. Revenue from the Asia Pacific segment, which represented 24.1 percent of total revenue in the quarter, decreased 10.0 percent from Q1 2008. Revenue from the Electronic Products segment, which represented 7.5 percent of total revenue in the quarter, increased 22.1 percent from Q1 2008.

Gross Margin of 16.2 percent in Q1 2009 was down 2.4 percentage points from 18.6 percent in Q1 2008, but up 2.6 percentage points from 13.6 percent in Q4 2008. Gross margin as a percent of sales decreased in Q1 2009 compared with Q1 2008, driven primarily by revenue declines in higher margin tape products, partly offset by improved gross margins on optical media. Gross margin as a percent of sales increased in Q1 2009 compared with Q4 2008, driven primarily by product mix shifts associated with a seasonal decline in sales of electronic products.

Selling, General & Administrative (SG&A) spending was $65.6 million or 15.4 percent of revenue in Q1 2009, compared with $71.9 million or 13.5 percent of revenue in Q1 2008 and $75.6 million or 13.8 percent of revenue in Q4 2008. The decrease in SG&A expense from Q1 2008 was primarily due to benefits from our restructuring actions and aggressive cost control.

Research & Development (R&D) spending was $5.3 million or 1.2 percent of revenue in Q1 2009, compared with $6.6 million or 1.2 percent of revenue in Q1 2008.

Restructuring and Other Charges were $5.5 million in Q1 2009 compared with $0.7 million in Q1 2008. The charges in 2009 relate to costs from our previously announced restructuring programs.

Operating Loss was $7.4 million in Q1 2009, compared with operating income of $19.5 million in Q1 2008. The decline was driven by lower revenue and lower gross margins discussed above. Total operating loss/income included restructuring and other expense of $5.5 million in Q1 2009 compared with $0.7 million in Q1 2008. Adjusting for the impact of these expenses, operating loss was $1.9 million in Q1 2009 compared with operating income of $20.2 million in Q1 2008 (see table entitled Reconciliation of GAAP to Adjusted Non-GAAP Results above).

Non-Operating Expense and Income Taxes: Non-operating expense was $7.8 million in Q1 2009 compared with $1.2 million in Q1 2008. The increase in expense relates to a reserve for a note receivable and foreign currency losses. During Q1 2009, the Company recorded a reserve of $4.0 million related to a note receivable from one of our commercial partners whose financial condition has significantly deteriorated. The effective tax rate was 23.7 percent in Q1 2009 compared with 39.9 percent in Q1 2008. The decline was primarily due to the mix of taxable income/loss by country, as well as the tax effects associated with our restructuring and other charges.

Diluted Loss per Share was $0.31 in Q1 2009 compared with diluted earnings per share of $0.29 in Q1 2008. Adjusting for the above noted impact of restructuring and other charges and the related tax effects, diluted loss per share was $0.21 in Q1 2009 compared with diluted earnings per share of $0.33 in Q1 2008 (see table entitled Reconciliation of GAAP to Adjusted Non-GAAP Results above).

Cash and Cash Flows: Ending cash and cash equivalents were $103.0 million as of March 31, 2009, up $6.4 million from $96.6 million as of December 31, 2008. Cash flow provided by operations in Q1 2009 was $15.7 million. Depreciation and amortization totaled $10.7 million and capital spending was $5.4 million for Q1 2009.