Imation: Fiscal 4Q11 Financial Results

Imation Corp. released financial results for the quarter ended December 31, 2011.

The company reported Q4 2011 net revenue of $342.3 million, down 14.1 percent from Q4 2010, an operating loss of $12.1 million including special charges of $12.3 million, and a diluted loss per share of $0.34. Excluding these charges, Q4 2011 operating income would have been $0.2 million and diluted loss per share would have been $0.14 (see Tables Five and Six for non-GAAP measures).

Imation President and Chief Executive Officer Mark Lucas commented: "Imation continues to execute on its strategic transformation, focusing on growth opportunities in secure and scalable storage and audio and video information (AVI) products."

"We are pleased with the continued progress we have made in our new product categories. While we saw declines in our lower-margin commodity storage products, our new differentiated products in secure and scalable storage showed encouraging growth. RDX continues its positive momentum, with revenues up nearly 30 percent in the quarter. We are also gaining traction in the early stages of scaling up our new mobile security business. Additionally, we are pleased with the response to our new differentiated AVI products, which we showcased on the floor of the recent International Consumer Electronics Show in Las Vegas."

"Within our traditional storage products, we saw a slightly higher rate of decline than previous quarters. We have taken pricing actions in our optical business to stabilize gross margins, as stated previously, but this had an impact on short-term revenues. In magnetic tape, we experienced single-digit revenue declines, similar to previous quarters."

* During Q2 2011 the company changed the name of the emerging storage
product category to secure and scalable storage to better reflect the
company’s direction and future product offerings.
** During Q3 2011 the company changed the name of the electronics and
accessories product category to audio and video information to better
reflect the company’s direction and future product offerings.

"We are pleased with our gross margin performance, up over Q4 of last year. This improvement reflects our ongoing transition to higher-gross margin products in secure and scalable storage as well as in our AVI product portfolio. We accomplished this despite having to overcome obstacles that included unexpected and significant optical cost increases, and natural disasters that threatened to disrupt our supply chain," said Lucas.

Lucas continued: "As I look back on my first full year as CEO, I believe we have made solid progress on our transformation. We invested in key technology platforms needed to deliver differentiated security products, acquiring mobile security businesses from ENCRYPTX, MXI Security, and IronKey. We acquired assets of ProStor Systems and are launching a new line of data protection appliances designed specifically for small and medium businesses. In Q4, we also acquired key deduplication technology from Nine Technology, which will further differentiate our storage appliances and enable new cloud-based storage offerings in our scalable storage portfolio. Our AVI product focus is also demonstrating results, including significant growth of our XtremeMac revenues year on year."

"We are committed to our strategy and are enthusiastic about the progress we are making. Our management team and our employees worldwide are executing on this strategy and remain focused on our goal of returning to revenue growth as we exit 2012," Lucas concluded.

Q4 2011 Results Compared with Q4 2010
Net revenue for Q4 2011 was $342.3 million, down 14.1 percent from Q4 2010. Net revenue was positively impacted by foreign currency translation of 1.7 percent. From a regional perspective, Americas revenue decreased 12.4 percent, Europe revenue decreased 17.7 percent, North Asia revenue decreased 12.2 percent and South Asia revenue decreased 19.3 percent.

Gross margin for Q4 2011 was 15.0 percent, 17.3 percent excluding inventory write-offs of $7.6 million which were part of the company’s restructuring programs. Gross margin was positively impacted by higher gross margins in several product categories including secure and scalable storage and audio and video information. Gross margin for Q4 2010 was 12.7 percent, 16.3 percent excluding inventory write offs of $14.2 million which were part of the company’s restructuring programs.

SG&A expenses for Q4 2011 were $52.9 million, up $4.3 million compared with Q4 2010 expenses of $48.6 million due primarily to the additional ongoing SG&A expense related to Imation’s acquired businesses and acquisition related intangible amortization.

R&D expenses for Q4 2011 were $6.0 million, up $2.2 million compared with Q4 2010 expenses of $3.8 million primarily as a result of the company’s investment to support growth initiatives in secure and scalable storage products as well as audio and video information products.

Restructuring and other charges were $4.7 million in Q4 2011. Restructuring and other charges include $5.0 million related to the company’s previously announced restructuring programs, $0.6 million related to a pension settlement and $1.1 million of acquisition and integration costs, offset by a gain of $2.0 million due to an amendment the company’s long-term disability plan.

Operating loss was $12.1 million in Q4 2011 compared with an operating loss of $43.8 million in Q4 2010. Excluding the special charges, adjusted operating income would have been $0.2 million in Q4 2011 compared with adjusted operating income on the same basis of $12.4 million in Q4.

Income tax provision was a benefit of $0.7 million in Q4 2011 compared with an income tax provision of $94.9 million in Q4 2010. The 2011 income tax result represents a tax benefit related to the tax provision outside the United States. The company maintains a valuation allowance related to its U.S. deferred tax assets and, therefore, no tax provision or benefit was recorded related to its 2011 U.S. results. The Q4 2011 tax benefit included a benefit of $5.0 million related to the reversal of a valuation allowance on net operating loss carryforwards in the Netherlands. The Q4 2010 tax provision included a provision of $4.8 million as well as $90.1 million of additional net charges comprised of a deferred tax assets valuation allowance of $105.6 million and $5.1 million for taxes related to cash repatriation, offset by a tax benefit of $20.6 million related to restructuring and other charges.

Loss per diluted share from continuing operations was $0.34 in Q4 2011 compared with a loss per diluted share from continuing operations of $3.63 in Q4 2010. Excluding the special charges, adjusted loss per diluted share would have been $0.14 in Q4 2011 compared with adjusted earnings per diluted share of $0.22 in Q4 2010 .

Cash and cash equivalents ending balance was $223.1 million as of December 31, 2011, a decrease of $9.8 million during the quarter driven by payments of $21.0 related to acquisitions.