Imation: Fiscal 3Q12 Financial Results

Imation Corp. made several announcements:

• third quarter financial results ended September 20, 2012;
• the realignment of its global business into two new business units;
• a cost reduction program; and
• increased focus on data storage and security including exploring
  strategic options for its consumer electronic brands and businesses.

Q3 Overview
The company reported Q3 2012 net revenue of $248.2 million, down 19.6%
from Q3 2011, an operating loss of $6.5 million including a benefit in
restructuring and other charges of $3.6 million, and a diluted loss per
share of $0.17. Excluding the net benefit in restructuring and other
charges, Q3 2012 operating loss would have been $10.1 million and
diluted loss per share would have been $0.26 (see Tables Five and Six
for Non-GAAP measures).

Imation president and CEO Mark Lucas commented: "Our revenues came in
below our expectations in most product lines and in all regions. While
weak macro-economic conditions were a factor, we are certainly not
satisfied with this performance. Given our soft results it is now not
likely that we will return to total company revenue growth in the near
term."

Strategic Initiatives
Lucas commented: "Our traditional media businesses are declining faster than we anticipated
driving the need to accelerate our transformation through the following
actions. First, we are reorganizing into two channel-focused business
units; second, we are implementing an aggressive cost reduction program;
and finally we will explore strategic options for our consumer electronic brands and businesses.
These actions will further focus the company on Secure and Scalable
Storage with large, growing markets and higher margins. The third
quarter all-time high margins achieved in Secure and Scalable Storage
provides concrete evidence of the potential of this market. Based on
Imation’s strong competency in data storage, we are confident in our
strategy to transform the company into a data storage and data security
company."

Organizational Realignment into Global Business Units
To better align the company with its key commercial and consumer
channels, Imation will realign its organizational structure into two
business units:

• Tiered Storage and Security Solutions (TSS), which will focus on SMB, enterprise and government customers; and
• Consumer Storage and Accessories (CSA), which will focus on retail channels.

Lucas said: "Imation is undergoing a transformation to build a
long-term platform for growth and increased margins. We are realigning
our organization into two business units to provide a more focused
customer-centric structure that leads to faster decision-making, clearer
accountability, a more nimble organization and increased efficiency
worldwide. We are fortunate to have two highly skilled and experienced
leaders to head up the business units."

Leading the new TSS business unit will be Ian Williams, currently
Imation VP, global marketing and product management. Williams, who
joined the company in early 2011, has a data storage background. Greg Bosler, currently Imation senior VP, global business management, will lead the CSA business. Bosler brings extensive experience in retail sales, marketing and general management; he has been with Imation since 2009.

Cost Reduction Program
In conjunction with the realignment of the business structure, the
company is also taking actions to right-size its operations with the
goal of reducing operating expenses by approximately 25%. The program
will address process improvements globally, product line rationalization
and infrastructure, and include a reduction of approximately 20% of
Imation’s global workforce. The staff reductions are expected to occur in 2013. Impacted employees will be provided financial support and outplacement assistance.

The company anticipates it will incur cash charges up to $40 million,
with total charges expected to be $50 million to $60 million.

According to Lucas, "Our more focused business units will allow us to
operate more efficiently, right-size our operating expense levels and
forge a path to improved profitability."

Increased Focus on Data Storage and Security
As the company intensifies its focus and investment in storage and security, management will also explore strategic alternatives for its consumer electronic brands and businesses.

Lucas said: "We are assessing strategic options for our consumer
electronic lines in order to focus our attention and resources on data
storage and security in all our distribution channels."

The company will continue to evaluate potential asset impairments during
the fourth quarter. The company has total acquired intangible assets
including goodwill of approximately $325 million. If the analysis
indicates an impairment, a material non-cash charge could be incurred in
the fourth quarter.

Q3 2012 Financial Results
Net revenue for Q3 2012 was $248.2 million, down 19.6% from Q3 2011.
From a regional perspective, Americas revenue decreased 17.0%, Europe
revenue decreased 22.0%, North Asia revenue decreased 17.7% and South
Asia revenue decreased 29.9%.

Gross margin for Q3 2012 was 18.4%, relatively flat from 18.5% in Q3
2011. Gross margins continued to improve in our Secure and Scalable
Storage products as well as our AVI products, however, these were offset
by modest declines in our traditional storage gross margins.

SG&A expenses for Q3 2012 were $50.7 million, down $2.0 million compared with Q3 2011 expenses of $52.7 million.

R&D expenses for Q3 2012 were $5.1 million, relatively unchanged compared with Q3 2011 expenses of $5.3 million.

Restructuring and other charges were a benefit of $3.6 million in Q3
2012 due primarily to adjustment of an acquisition-related contingent
liability. Restructuring and other charges were $7.5 million in Q3 2011.

Operating loss was $6.5 million in Q3 2012 compared with an operating
loss of $8.3 million in Q3 2011. Excluding the impact of restructuring
and other charges, adjusted operating loss would have been $10.1 million
in Q3 2012 compared with adjusted operating loss on the same basis of
$0.8 million in Q3 2011.

Income tax benefit was $0.3 million in Q3 2012 compared with income tax
provision of $2.1 million in Q3 2011. 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 2012 U.S. results.

Loss per diluted share was $0.17 in Q3 2012 compared with $0.38 in Q3
2011. Excluding the impact of restructuring and other charges, adjusted
loss per diluted share would have been $0.26 in Q3 2012 compared with
adjusted loss per diluted share of $0.18 in Q3 2011.

Cash and cash equivalents ending balance was $186.3 million as of
September 30, 2012, down $25 million during the quarter driven primarily
by a final payment associated with a 2009 litigation settlement.