SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1998 OR
___ 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
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IMATION CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1838504
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 IMATION PLACE
OAKDALE, MINNESOTA 55128
(Address of principal executive offices)
(612) 704-4000
(Registrant's telephone number, including area code)
--------------------------------------------
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 _X_. No ___.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 40,616,009 shares of Common
Stock, par value $0.01 per share, were outstanding at April 30, 1998.
================================================================================
<PAGE>
IMATION CORP.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations
for the three months
ended March 31, 1998 and 1997
Condensed Consolidated Balance Sheets as
of March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Accountants
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
PART II. OTHER INFORMATION
SIGNATURE
EXHIBIT INDEX
<PAGE>
PART I. FINANCIAL INFORMATION
IMATION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
Three months ended
March 31,
--------------------------
1998 1997
------- ------
Net revenues $519.4 $547.7
Cost of goods sold 335.0 348.7
------- ------
Gross profit 184.4 199.0
Operating expenses:
Selling, general and
administrative 136.7 133.0
Research and development 37.5 37.8
------- ------
Total 174.2 170.8
Operating income 10.2 28.2
Other income and expense:
Interest expense 5.2 2.4
Other, net 1.5 4.0
------- ------
Total 6.7 6.4
Income before tax 3.5 21.8
Income tax provision 1.5 9.8
------- ------
Net income $ 2.0 $ 12.0
======= ======
Basic and diluted earnings
per common share $ 0.05 $ 0.29
======= ======
Weighted average basic
shares outstanding 39.1 40.8
====== =====
Weighted average diluted
shares outstanding 39.3 41.1
====== =====
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
IMATION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
March 31,
1998 December 31,
(Unaudited) 1997
------------- ------------
ASSETS
Current assets
Cash and equivalents $ 79.3 $ 103.5
Accounts receivable - net 463.8 459.3
Inventories 386.0 399.9
Other current assets 116.6 141.7
--------- --------
Total current assets 1,045.7 1,104.4
Property, plant and equipment - net 364.7 381.6
Other assets 224.1 179.5
--------- --------
Total assets $1,634.5 $1,665.5
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 172.8 $ 182.2
Accrued payroll 29.6 38.3
Short-term debt 37.7 31.3
Other current liabilities 298.3 313.7
--------- --------
Total current liabilities 538.4 565.5
Other liabilities 93.8 98.1
Long-term debt 319.6 319.7
Commitments and contingencies
Shareholders' equity
Preferred stock, $0.01 par value, authorized 25.0
million shares, none issued and outstanding -- --
Common stock, $0.01 par value, authorized 100.0
million shares, 42.9 million issued as of
March 31, 1998 and December 31, 1997 0.4 0.4
Additional paid-in capital 1,025.0 1,025.8
Accumulated deficit (169.4) (171.1)
Unearned ESOP shares (34.3) (37.3)
Cumulative translation adjustments (82.1) (78.1)
Treasury stock, at cost, 2.3 million shares
as of March 31, 1998 and December 31, 1997 (56.9) (57.5)
--------- ---------
Total shareholders' equity 682.7 682.2
--------- --------
Total liabilities and shareholders'
equity $1,634.5 $1,665.5
========= ========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three months ended
March 31,
------------------
1998 1997
-------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2.0 $ 12.0
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 30.8 38.7
Working capital changes (21.7) (38.0)
Other (0.4) 6.5
-------- ------
Net cash provided by operating activities 10.7 19.2
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (18.6) (28.0)
Capitalized software (29.2) (11.2)
Other 1.6 (1.0)
------- -------
Net cash used in investing activities (46.2) (40.2)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term debt 6.8 (0.9)
Borrowings of debt - 141.4
Repayments of debt - (115.4)
Purchases of treasury stock - (12.8)
Decrease in unearned ESOP shares 3.0 2.8
Exercise of stock options 0.2 0.1
------- ------
Net cash provided by financing activities 10.0 15.2
Effect of exchange rate changes on cash 1.3 (0.7)
------- -------
Net change in cash and equivalents (24.2) (6.5)
Cash and equivalents - beginning of period 103.5 61.7
------- ------
Cash and equivalents - end of period $ 79.3 $ 55.2
======= ======
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE>
IMATION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The interim consolidated financial statements are unaudited but, in the opinion
of management, reflect all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows for the periods
presented. These adjustments consist of normal, recurring items. The results of
operations for any interim period are not necessarily indicative of results for
the full year. The consolidated financial statements and notes are presented as
permitted by the requirements for Form 10-Q and do not contain certain
information included in the Company's annual consolidated financial statements
and notes. This Form 10-Q should be read in conjunction with the Company's
consolidated financial statements and notes included in its 1997 Annual Report
on Form 10-K.
2. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, EARINGS PER SHARE, which the Company has
adopted for all periods presented. SFAS No. 128 requires companies to compute
earnings per share under two different methods, basic and diluted earnings per
share. Prior period amounts have been restated to conform with this standard.
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 number of common shares outstanding plus the
dilutive effect of outstanding stock options using the "treasury stock" method.
The following table sets forth the computation of basic and diluted shares
outstanding:
Three Months Ended
March 31,
(In millions) 1998 1997
-------- -------
Weighted average shares outstanding 40.7 42.7
Weighted average ESOP shares not committed (1.6) (1.9)
----- -----
Weighted average basic shares outstanding 39.1 40.8
Dilutive effect of employee stock options 0.2 0.3
----- ----
Weighted average diluted shares outstanding 39.3 41.1
===== ====
<PAGE>
3. SUPPLEMENTAL BALANCE SHEET INFORMATION
March 31,
1998 December 31,
(Unaudited) 1997
---------- ---------
(In millions)
Inventories
Finished goods $ 263.3 $ 272.6
Work in process 57.5 59.7
Raw materials and supplies 65.2 67.6
---------- ---------
Total inventories $ 386.0 $ 399.9
========== =========
Property, plant and equipment
Property, plant and equipment $ 1,696.4 $ 1,704.5
Less accumulated depreciation (1,331.7) (1,322.9)
---------- ----------
Property, plant and equipment - net $ 364.7 $ 381.6
========== =========
4. COMMITMENTS AND CONTINGENCIES
Discussion of legal matters is cross-referenced to this Form 10-Q, Part II, Item
1, Legal Proceedings, and should be considered an integral part of the
Consolidated Financial Statements and Notes.
5. RESTRUCTURING CHARGE
In the fourth quarter of 1997, the Company recorded a $170 million pre-tax
charge for the restructuring of its worldwide operations in order to improve the
Company's competitive position, to focus resources on areas of strength and on
growth opportunities, and to reduce costs and eliminate unnecessary structure.
In the first quarter of 1998, the Company made cash payments of $5.8 million
related to this restructuring and reduced its headcount by approximately 300. As
part of this restructuring plan, the Company closed a research facility in the
United Kingdom and announced its intentions to sell its CD-ROM business. The
Company also announced its intention to outsource metal printing plates
currently manufactured at its facility in Middleway, West Virginia.
<PAGE>
6. NEW ACCOUNTING STANDARDS
In the first quarter of 1998, the Company adopted SFAS No. 130, REPORTING OF
COMPREHENSIVE INCOME. The standard requires the display and reporting of
comprehensive income (loss), which includes all changes in shareholders' equity
with the exception of additional investments by shareholders or distributions to
shareholders. Comprehensive income for the Company includes net income and the
effects of translation which are charged or credited to the cumulative
translation adjustments account within shareholders' equity. Comprehensive
income (loss) for the three months ended March 31, 1998 and 1997 was as follows:
Three Months Ended
March 31,
(In millions) 1998 1997
-------- -------
Net income $2.0 $12.0
Changes in cumulative
translation adjustments (4.0) (20.6)
----- ------
Comprehensive income (loss) $(2.0) $(8.6)
====== ======
Effective with year-end 1998 reporting, the Company will adopt SFAS No. 131,
DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131
establishes standards for the reporting of operating segment information in both
annual reports and interim financial reports issued to shareholders. The Company
is reviewing the requirements of SFAS No. 131 but has not yet determined what
segment information will be reported upon adoption. The Company believes that it
may be required to present segment information beyond the one segment currently
presented.
*****
Coopers & Lybrand L.L.P., the Company's independent accountants, has performed a
review of the unaudited interim consolidated financial statements included
herein and their report thereon accompanies this filing.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Imation Corp.:
We have reviewed the accompanying condensed consolidated balance sheet of
Imation Corp. (the Company) as of March 31, 1998, and the related consolidated
statements of operations and condensed consolidated statements of cash flows for
the three month periods ended March 31, 1998 and 1997. These consolidated
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, 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 reviews, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended (not presented herein); and in our report dated
February 6, 1998, except for the second paragraph of Note 7, as to which the
date is March 30, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1997, is fairly
stated in all material respects in relation to the consolidated balance sheet
from which it has been derived.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
May 7, 1998
<PAGE>
IMATION CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
Imation Corp. (the "Company") began operations as an independent, publicly held
company on July 1, 1996 when Minnesota Mining and Manufacturing Company, ("3M"),
spun off substantially all of the businesses previously operated within its data
storage and imaging systems groups.
RESULTS OF OPERATIONS
Net revenues for the first quarter of 1998 were $519.4 million, a decrease of
$28.3 million or 5.2 percent from the same period in 1997. Volume increases of
3.8 percent were more than offset by price declines of 5.5 percent and the
negative effect of changes in currency exchange rates of 3.5 percent. Volume
growth was positively impacted by continued strength of DryView(TM) and
SuperDisk(TM) technologies offset somewhat by volume declines in the Company's
more mature product lines. In the first quarter of 1998, 42.2% of the Company's
revenues were generated from the Customer Solutions and Growth Technologies
businesses, compared to 38.5% from the same period in 1997.
Net revenues in the United States decreased 2.3 percent with volume increases of
1.8 percent more than offset by pricing declines of 4.1 percent. International
volume growth was 6.0 percent which was more than offset by price declines of
7.0 percent. Changes in currency exchange rates negatively impacted
international revenues by 7.0 percent. International revenues accounted for 48.1
percent of the Company's first quarter 1998 revenues, as compared to 49.6
percent for first quarter 1997.
Gross profit in the first quarter of 1998 was $184.4 million or 35.5 percent of
revenues. Gross profit in the first quarter of 1997 was $199.0 million or 36.3
percent of revenues. The decrease in gross profit margin of 0.8 percent is
primarily due to the continued strength of the U.S. dollar.
Selling, general and administrative (SG&A) expenses were $136.7 million or 26.3
percent of revenues. SG&A expenses in the first quarter of 1997 were $133.0
million or 24.3 percent of revenues. The increase is primarily attributable to
costs associated with the Company's launch of its SuperDisk program and costs
attributable to information technology infrastructure development in order to
support the Company's new worldwide information systems.
<PAGE>
Research and development costs totaled $37.5 million or 7.2 percent of revenues
in the first quarter of 1998, down $0.3 million but up 0.3 percent of revenues
from the same period in 1997 and in line with the Company's expectations.
Operating income for the first quarter of 1998 was $10.2 million. This
represents a $18.0 million decrease over operating income of $28.2 million in
the first quarter of 1997.
First quarter 1998 interest expense was $5.2 million, up $2.8 million from the
same quarter last year. Average debt outstanding was higher in the first quarter
of 1998 as compared to the same period of 1997.
The net other income and expense in the first quarter of 1998 totaled $1.5
million of expense. In the same period of 1997, net other income and expense was
$4.0 million of expense.
The Company's effective tax rate in the first quarter of 1998 was 43.0 percent
compared to 45.0 percent in the first quarter of 1997 and 42.9% for fiscal year
1997 in total.
Net income in the first quarter of 1998 was $2.0 million, or $0.05 per basic and
diluted share compared with $12.0 million, or $0.29 per basic and diluted share,
for the same period in 1997.
FINANCIAL POSITION
The Company had 3.3 months of inventory on hand at March 31, 1998, down from 3.4
months at December 31, 1997. The accounts receivable days sales outstanding was
78 days at March 31, 1998, up from 76 days at December 31, 1997. Other current
assets decreased by $25.1 million from December 31, 1997 primarily due to
reductions in taxes receivable and defined taxes.
The book value of property, plant and equipment at March 31, 1998 was $364.7, a
decrease of $16.9 million from the December 31, 1997 balance of $381.6 million.
This decrease is primarily due to capital spending being lower than
depreciation. Other assets increased $44.6 million from December 31, 1997
primarily due to capitalization of costs related to the design, implementation
and testing of the Company's worldwide information technology systems and
increases in deferred taxes.
LIQUIDITY
Cash provided by operating activities was $10.7 million during the three months
ended March 31, 1998, compared to $19.2 million during the same period in 1997.
This change was primarily due to lower net income in the first three months of
1998 compared with the same period last year. Depreciation and amortization were
$30.8 million in the first three months of 1998, as compared to $38.7 million in
the
<PAGE>
comparable period of 1997. In the first quarter of 1998, the Company made cash
payments of $5.8 million related to its 1997 restructuring. The Company expects
net cash payments of approximately $100 million in 1998 related to its 1997
restructuring.
Cash used in investing activities was $46.2 million for the first quarter of
1998 compared to $40.2 million in the comparable period of 1997. Investing
activities included capital expenditures of $18.6 million for the first three
months of 1998 compared to $28.0 million during the same period of 1997.
Capitalized software was $29.2 million in the first three months of 1998,
primarily related to the design, implementation and testing of the Company's new
information technology systems. It is expected that the Company will spend an
additional $15 million to $20 million to complete this project. Amortization of
these costs will begin in the second quarter of 1998 and are expected to be
approximately $4.5 million per quarter.
Financing activities during the first quarter of 1998 provided cash of $10.0
million. Financing activities primarily related to the net borrowing of $6.8
million under short-term debt arrangements.
At March 31, 1998, the Company had borrowed $313.0 million under its $350
million revolving credit facility with a syndicate of banks (the "Credit
Agreement"). As a result of the restructuring and other special charges recorded
by the Company in its 1997 consolidated financial statements, as of December 31,
1997, the Company was not in compliance with certain of its financial covenants
contained in the Credit Agreement. In December 1997, the Company obtained a
limited waiver from the lenders who are parties to the Credit Agreement under
which the lenders agreed to waive compliance by the Company with the financial
covenants contained in the Credit Agreement during the period from December 17,
1997 to March 30, 1998. On March 30, 1998, the Company entered into a Limited
Waiver and Amendment No. 2 to the Credit Agreement under which the lenders
agreed to waive compliance by the Company with the financial covenants contained
in the Credit Agreement, which provides for an extension through January 5, 1999
of the limited waiver granted in December 1997. During the extended waiver
period, borrowings under the Credit Agreement will be collateralized by
substantially all of the Company's assets and the Company will be required to
maintain a specified minimum level of earnings before income taxes, depreciation
and amortization (EBITDA). The Company will also incur certain fees' and
increased interest rates on outstanding borrowings under the Credit Agreement
during the extended waiver period. The Company expects to enter into a new
credit facility prior to December 31, 1998.
At March 31, 1998, the Company's ratio of total debt to total capital was 34%.
The Company expects to maintain an adequate level of liquidity through cash
flows from operations, availability of borrowings under its bank credit
agreement and potential debt and equity financings.
<PAGE>
YEAR 2000 COMPLIANCE
The Company has a project team that is currently assessing the impact of the
year 2000 on the processing of date-related information by computer systems. The
Company is in the process of implementing a new corporate-wide IT infrastructure
that will enable it to operate independently from 3M. Major implementation
efforts are scheduled to occur during the second quarter of 1998. The Company
presently believes that Year 2000 issues will not pose significant operational
problems for the Company's new IT systems, as implemented. However, it is
possible that the Year 2000 issue may have a material impact on the operations
of the Company in the event the Company's new IT systems are not implemented as
planned. In addition, the Company is currently evaluating its product and
service offerings, all production equipment and all business partner
relationships to determine whether any changes will be necessary to ensure Year
2000 functionality. At this time, the Company is unable to quantify the cost of
any such modifications or other activities required to address the Year 2000
issue and therefore is unable to determine if such costs and expenses will be
material to the Company.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective with year-end 1998 reporting, the Company will adopt Statement of
Financial Accounting Standard ("SFAS") No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for the
reporting of operating segment information in both annual reports and interim
financial reports issued to shareholders. The Company is reviewing the
requirements of SFAS No. 131 but has not yet determined what segment information
will be reported upon adoption. The Company believes that it may be required to
present segment information beyond the one segment currently presented.
FORWARD-LOOKING STATEMENTS
Certain information contained in this report which does not relate to historical
financial information may be deemed to constitute forward looking statements.
The words or phrases "will likely result", "are expected to", "will continue",
"is anticipated", "estimate", "project", "believe" or similar expressions
identify "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties which could cause actual results to differ materially
from historical results and those presently anticipated or projected. The
Company wishes to caution readers not to place undue reliance on any such
forward looking statements, which speak only as of the date made. Among the
factors that could cause the Company's actual results in the future to differ
materially from any opinions or statements expressed with respect to future
periods are market acceptance of newly introduced products (including the
Company's
<PAGE>
SuperDisk(TM) products), implementation of the Company's restructuring plans,
competitive industry conditions including historical price erosion in certain
product categories, technological developments in the markets served by the
Company, foreign currency fluctuations, the Company's ability to establish its
operations as an independent company (including the implementation of its global
information technology systems), and the various factors set forth in the
Company's filings with the Securities and Exchange Commission, including its
1997 Annual Report on Form 10-K.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3. "Legal Proceedings" included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997. The
following previously reported legal proceedings had developments during the
first quarter of 1998:
EASTMAN KODAK COMPANY vs. MINNESOTA MINING AND MANUFACTURING CORPORATION, et.
al. (U.S. District Court for the Western District of New York, Civil Action No.
97-CV-6535T), and IMATION S.P.A., et. al. vs. EASTMAN KODAK COMPANY et. al.
(Civil Court of Savona, Italy, No. 2259/97). On December 2, 1997 Eastman Kodak
Company ("Kodak ") filed a civil complaint against the Company, 3M and certain
of their respective subsidiaries in the U.S. District Court for the Western
District of New York. The complaint alleges improper receipt of Kodak trade
secrets by 3M's Italian subsidiaries between 1993 and May 1996 from Harold
Worden, a retired Kodak employee. Worden has since pleaded guilty and been
sentenced in the Western District of New York on criminal charges of interstate
transportation of stolen Kodak documents. The 3M subidiaries that dealt with
Worden became subsidiaries of the Company in connection with the spin-off of the
Company from 3M in July 1996. In its complaint, Kodak seeks unspecified
compensatory damages, treble damages, punitive damages and permanent injunctive
relief. On December 2, 1997 the Company, 3M and their respective subsidiaries
filed a suit in Italy asking the Italian Court to declare that they have no
liability to Kodak in this matter. On May 15, 1998, the parties requested that
the legal proceedings in the United States and in Italy be stayed pending
ongoing settlement discussions among the parties. The Company disputes any
liability to Kodak relating to this matter and, in the event the litigation is
not settled, will vigorously defend the action.
In the ordinary course of its business, the Company is party to various legal
actions which the Company believes are incidental to the operation of its
business. All such matters are subject to many uncertainties and outcomes that
are not predictable with assurance. Consequently, the Company is unable to
ascertain the ultimate aggregate amount of any monetary liability or financial
impact that may be incurred by the Company with respect to these matters. While
these matters could materially affect operating results of any one quarter when
resolved in future periods, it is management's opinion that after final
disposition, any monetary liability or financial impact to the Company beyond
that provided in the consolidated balance sheet as of March 31, 1997 would not
have a material adverse effect on the Company's financial position or annual
results of operations or cash flows.
Items 2-5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as exhibits to this Report.
10.1 Employment Agreement dated as of April 1, 1998, between
Robert L. Edwards and the Registrant
15.1 An awareness letter from the Company's independent
accountants regarding unaudited interim financial
statements.
27.1 Financial data schedule
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1998.
<PAGE>
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.
Imation Corp.
(REGISTRANT)
Date: May 15, 1998 By: /s/ Robert L. Edwards
-------------------------
Robert L. Edwards
Senior Vice President,
Strategy, Planning and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.1 Employment Agreement dated as of April 1, 1998, between Robert L.
Edwards and the Registrant
15.1 An awareness letter from the Company's independent accountants
regarding unaudited interim financial statements
27.1 Financial data schedule
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of April 1, 1998, is between
Imation Corp., a Delaware corporation (the "Company") and Robert L. Edwards (the
"Employee").
WHEREAS, the Company and the Employee desire to enter into an
employment agreement;
NOW, THEREFORE, in consideration of the premise and the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
1. Term; Position and Responsibilities.
(a) Term of Employment. Unless the Employee's employment shall
terminate sooner pursuant to Section 7 hereof, the Company shall employ
the Employee for a term commencing on April 6, 1998 and ending on March
31, 2000 (the "Employment Term"), and the Employee's employment shall
continue thereafter at will.
(b) Position and Responsibilities. During the Employment Term,
the Employee will serve as Senior Vice President - Strategy, Planning
and Chief Financial Officer of the Company and shall have the duties,
responsibilities and authority customarily associated with such
positions, subject to the supervisory powers of the Board of Directors
of the Company (the "Board"). During the Employment Term, the Employee
will devote all of his skill, knowledge and working time (except for
reasonable vacation time and absence for sickness or similar
disability) to the conscientious performance of his duties. Anything
herein to the contrary notwithstanding, subject to Section 8 hereof,
nothing shall preclude the Employee from (i) serving on the boards of
directors of a reasonable number of other corporations or the boards of
a reasonable number of trade associations and/or charitable
organizations, (ii) engaging in charitable activities community affairs
and (iii) managing his personal investments and affairs, provided that
such activities do not interfere with the proper performance of his
duties and responsibilities hereunder. The Employee represents that he
is entering into this Agreement voluntarily and that his employment
hereunder and compliance by him with the terms and conditions of this
Agreement will not conflict with or result in the breach of any
agreement to which he is a party or by which he may be bound. The
Employee further represents that he has provided a copy to the Company
of any employment agreement or arrangement that he has signed with a
previous employer.
2. Base Salary. As compensation for the services to be performed by the
Employee hereunder, the Company will pay the
<PAGE>
Employee an annual base salary of $250,000 during the Employment Term. The
Compensation Committee of the Board will review the Employee's base salary from
time to time during the Employment Term and, in the discretion of such
Committee, may increase such base salary from time to time based upon the
performance of the Employee, the financial condition of the Company, prevailing
industry salary scales or such other factors as such Committee, in its
discretion, may consider relevant. (The annual base salary payable to the
Employee under this Section 2, as the same may be increased as described above,
shall hereinafter be referred to as "Base Salary".) The Base Salary payable
under this Section 2 shall be reduced to the extent that the Employee elects to
defer such Base Salary under the terms of any savings plan maintained or
established by the Company, provided that any such reduction in the Base Salary
shall not be taken into account for purposes of calculating the amount of the
Bonus Award (as defined in Section 3 below). The Company shall pay the Employee
the Base Salary in accordance with the Company's standard payroll practices as
in effect from time to time.
3. Incentive Compensation. During the Employment Term, the Employee
shall be eligible to participate in the Company's Success Sharing Plan under
which he may receive such annual incentive compensation in such amount and on
such terms and conditions as shall be determined from time to time by the
Compensation Committee of the Board (the "Bonus Award"). The target amount of
the Employee's Bonus Award shall be approximately $175,000 and the actual amount
of the Bonus Award will vary depending on the economic profit improvement or
financial performance of the Company or other standards established by the
Compensation Committee in its discretion. For fiscal year 1998, the Company will
guarantee the payment to the Employee of a Bonus Award in the amount of $175,000
based on an employment start date of April 6, 1998.
4. Stock Options. Pursuant to the provisions of the Company's 1996
Employee Stock Incentive Program or any successor plan (the "Stock Plan"), the
Compensation Committee of the Board will grant to the Employee in 1998 an option
to purchase 100,000 shares of common stock of the Company at an exercise price
per share of $18.00, the Fair Market Value (as defined in the Stock Plan) of a
share of common stock of the Company on March 13, 1998. The option will not be
an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended. The option will vest in installments over a
five-year period as follows: 25% after two years, 50% after three years, 75%
after four years and 100% after five years from the date of grant; provided,
however, that such option shall become fully exercisable in the event of the
Employee's termination of employment during the Employment Term Without Cause or
for Good Reason, as described in Section 7 below. The option will have a term of
10 years from the date of grant.
5. Employee Benefits. During the Employment Term, employee benefits,
including life, medical, dental, disability and officer's
<PAGE>
liability insurance, will be provided to the Employee in accordance with
programs of the Company then available to executive employees. The Employee
shall also be eligible to participate in the Company's retirement and savings
plans, as the same may be amended and in effect from time to time, at levels and
having interests commensurate with the Employee's then current period of
service, compensation and position.
6. Expenses.
(a) General. During the Employment Term, the Company shall
reimburse the Employee for all reasonable business expenses upon the
presentation of records of such expenses, in accordance with the
applicable policies and procedures of the Company then in effect.
(b) Relocation Expenses. The Company shall reimburse the
Employee for his expenses associated with his relocation to the Twin
Cities metropolitan area.
7. Termination of Employment.
(a) Termination Due to Death or Disability. In the event that
the Employee's employment terminates during the Employment Term due to
death or is terminated by the Company due to the Employee's Disability
(as defined below), no termination benefits shall be payable to or in
respect of the Employee except as provided in Section 7(g)(ii). For
purposes of this Agreement, "Disability" shall mean the inability of
the Employee to perform the duties and responsibilities of his
employment hereunder by reason of his illness or other physical or
mental impairment or condition, if such inability continues for an
uninterrupted period of six months or longer. A period of inability
shall be "uninterrupted" unless and until the Employee returns to
full-time work for a continuous period of at least 30 days.
(b) Termination by the Company for Cause. The Employee may be
terminated for Cause by the Company. "Cause" shall mean: (i) the
Employee's continued and willful failure to perform his duties and
responsibilities, which failure is not remedied by him within 30 days
after the Employee's receipt of written notice from the Company of such
failure, (ii) an act or acts of dishonesty undertaken by the Employee
and intended to result in gain or personal enrichment of the Employee
at the expense of the Company, (iii) unlawful conduct or gross
misconduct that is willful on the Employee's part and that is
demonstrably and materially injurious to the Company, (iv) the
conviction of the Employee of a felony or (v) the existence of any
court order prohibiting the Employee's continued employment with the
Company.
<PAGE>
(c) Termination by the Company Without Cause. The Employee may
be terminated Without Cause by the Company. A termination "Without
Cause" shall mean a termination of employment by the Company other than
due to Disability as defined in Section 7(a) or for Cause as defined in
Section 7(b).
(d) Termination by the Employee For Good Reason. The Employee
may terminate his employment with the Company for Good reason. "Good
Reason" shall mean termination of employment by the Employee within 30
days following (i) the assignment to the Employee of any duties or
responsibilities that are significantly different from, and result in a
substantial diminution of, the duties and responsibilities of the
Senior Vice President Strategy, Planning and Chief Financial Officer of
the Company, (ii) the failure by the Company to obtain the assumption
in writing of this Agreement by any successor as contemplated by
Section 9 hereof or (iii) a material breach by the Company of this
Agreement.
(e) Notice of Termination. Any termination by the Company
pursuant to Section 7(a), 7(b) or 7(c) or a termination by the Employee
pursuant to section 7(d) shall be communicated by a written "Notice of
Termination" addressed to the other party. A "Notice of Termination"
shall mean a notice (i) stating that the Employee's employment
hereunder has been or will be terminated, (ii) setting forth the date
of such termination and (iii) indicating the termination provision in
this Agreement under which the Company is terminating the Employee's
employment and setting forth in reasonable detail the facts and
circumstances, if any, claimed to provide a basis for termination of
the Employee' employment under the provision so indicated. A " Notice
of Termination" from the employee shall mean a notice stating that the
Employee is termination his employment with the Company on the
Termination Date (as defined below) and indicating the termination
provision in Section 7(d) of this Agreement under which he is
terminating his employment.
(f) Termination Date. The "Termination Date" shall be (i) the
date of the Employee's death if the Employee's employment is terminated
by his death, (ii)the date on which Notice of Termination is given as
contemplated by Section 7(e) if the Employee's employment is terminated
for Cause, (iii) 30 days after the date on which Notice of Termination
is given as contemplated by Section 7(e) (or, if no such Notice is
given, 30 days after the date of termination of employment) if the
Employee's employment is terminated due to Disability or Without Cause,
and (iv) 30 days after the date on which Notice of termination is given
as contemplated by Section 7(e) if the Employee terminates his
employment for Good reason.
(g) Payments Upon Certain Terminations.
<PAGE>
(i) In the event of a termination of the Employee's
employment Without Cause or by the Employee for Good Reason
prior to April 1, 1999, the Company shall pay to the Employee
an amount equal to the sum of (A) two times the Employee's
annual Base Salary as of the Termination Date multiplied by a
fraction of which (x) the numerator shall be the number of
months remaining in the Employment term (including the month
in which the termination date occurs) and (y) the denominator
shall be 24, (B) $175.000, but only to the extent such amount
has not been paid pursuant to Section 3 hereof (C) the target
amount of the Employee's Bonus Award for fiscal year 1999. The
Company shall pay the Employee such amount in equal monthly
installments for the remainder of the original Employment
Term. In the event of a termination of the Employee's
employment Without Cause or by the Employee for Good Reason
during the Employment term but on or after April 1, 1999, the
Company shall pay to the Employee in 12 equal monthly
installments after the Termination Date an amount equal to the
sum of (A) one times the Employee's annual Base Salary as of
the Termination date,(B)$175.000, but only to the extent such
amount has been paid pursuant to Section 3 hereof and (C) the
target amount of the Employee's Bonus obligations to the
Employee under this Agreement, except to the extent otherwise
provided in the applicable benefit plans and programs referred
to Section 5 hereof.
(ii) In the event that Employee's employment
terminates upon his death or Disability or the Company
terminates the Employee's employment for Cause, or the
Employee terminates his employment with the Company without
Good Reason during the Employment Term, the Company shall pay
the Employee his Base Salary through the date of such
termination and the Company shall have no additional
obligations to the Employee under this Agreement, except to
the extent otherwise provided in the applicable benefit plans
and programs referred to in Section 5 hereof.
(h) Acceleration of Vesting of Stock Options Upon Certain
Terminations. In the event of a termination of the Employee's
employment Without cause or by the Employee for Good reason during the
Employment term, stock options granted to the Employee pursuant to
Section 4 hereof or otherwise shall become fully exercisable on the
date on which the Notice of termination is given and such options shall
expire on the 31st day following the termination Date.
(i) Condition to Payments. The Company's obligation to make
any payments under Section 7(g)(i) and the acceleration of the vesting
of stock options
<PAGE>
pursuant to Section 7(h) shall be conditioned upon the Company's
receipt of an appropriately signed "Settlement and Release of Claims"
in form and substance satisfactory to the Company.
8. Confidential Information; Removal of Documents; Non-
Competition, Non-Solicitation and Non-Disparagement.
(a) Confidential Information; Removal of Documents;
Non-Competition. As a condition to Employee's employment with the
Company the Employee shall be required to sign an employee agreement in
the form attached as Exhibit A hereto (the "Employee Agreement");
provided, however, that the two-year period referenced in Section F of
the Employee Agreement shall be changed to a one-year period.
(b) Non-Solicitation and Non-Disparagement. During the
Employee's employment with the Company and for a period of one year
after any termination of employment with the Company, the Employee
(i)shall not solicit or encourage any officer, employee or consultant
of the Company to leave the employ of the Company for employment by or
with any other employer; (ii) shall not divert any customer of the
Company to any business(a "competitive business") which is in
competition with the information processing, medical and photo imaging
application or information processor service application businesses of
the Company; and (iii) shall not disparage the Company or any employee,
director or officer of the Company. For a period of one year after any
termination of the Employee's employment with the Company, the Company
agrees that its directors and officers shall not disparage the
Employee. If, at any time the provisions of this Section 8(b) shall be
determined to be invalid of unenforceable, by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section
8(b) shall be considered divisible and shall become and be immediately
amended to only such area, duration and scope of activity as shall be
determined to be reasonable and enforceable by the court or other body
having jurisdiction over the matter, and the Employee agrees that this
Section 8(b) as so amended shall be valid and binding as though any
invalid or unenforceable provision had not been included herein.
(c) Remedies. In the event of a breach or threatened breach of
this Section 8, the Employee agrees that the Company shall be entitled
to injunctive relief in a court of appropriate jurisdiction to remedy
any such breach or threatened breach, the Employee acknowledging that
damages would be inadequate and insufficient.
(d) Continuing Operation. Any termination of the Employee's
employment or of this Agreement shall have no effect on the continuing
operation of this Section 8.
<PAGE>
9. Successors; Binding Agreement.
(a) Company's Successors. No rights or obligations of the
Company under this Agreement may be assigned or transferred by the
Company except that such rights or obligations may be assigned or
transferred pursuant to a merger or consolidation in which the Company
is not the continuing entity, or the sale or liquidation of all or
substantially all of the business and/or assets of the Company,
provided that the assignee or transferee is the successor to all or
substantially all of the business and/or assets of the Company and such
assignee or transferee assumes the liabilities, obligations and duties
of the Company, as contained in this Agreement, either contractually or
as a matter of law. The Company will require any such successor to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 9 or which
otherwise becomes bound by all the terms and provisions of this
Agreement or by operation of law.
(b) Employee's Successors. The rights and obligations of the
Employee under this Agreement may not be assigned, transferred or
delegated, in whole or in part, by the Employee.
10. Conditions to the Agreement. This Agreement is conditioned upon the
receipt by the Company of (a) acceptable results of the pre-employment screening
process of a reference check, background check and medical evaluation which
includes a drug/alcohol screening and (b) an Employment Eligibility Form
(Department of Justice Form I-9) executed by the Employee along with one or more
documents that identify the Employee and certify that he is authorized to work
in the United States.
11. Entire Agreement. This Agreement and the Employee Agreement
constitutes the entire agreement between the Company and the Employee with
respect to the subject matter hereof and supersedes all agreements, promises,
representations, understandings, arrangements and communications, whether oral
or written, relating to such subject matter (including those made to or with the
Employee by any other person or entity).
12. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
interpreted and construed in accordance with the laws of the State of
Minnesota, without giving effect to the conflict of laws principles
thereof.
<PAGE>
(b) Tax Withholding. Any payments made under this Agreement
shall be paid net of any applicable withholding requirements under
federal, state and local laws or regulations.
(c) Amendments; Waiver. No provision of this Agreement may be
amended, altered, modified, waived or discharged in any way whatsoever
except by written agreement executed by the Employee and such officer
of the Company as may be specifically designated for the Company by the
Board. No delay or failure of either party to insist, in any one or
more instances, upon performance of any of the terms and conditions of
this Agreement or to exercise any rights or remedies hereunder shall
constitute a waiver or a relinquishment of such rights or remedies or
any other rights or remedies hereunder.
(d) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability
of the remaining provisions contained herein shall not be affected
thereby.
(e) Notices. Any notice or other communication required or
permitted to be delivered under this Agreement shall be (i)in writing,
(ii)delivered personally, by courier service or by certified or
registered mail, first-class postage prepaid and return receipt
requested, (iii)deemed to have been received on the date of delivery or
on the third business day after the mailing thereof, and (iv)addressed
as follows (or to such other address as the party entitled to notice
shall hereafter designate in accordance with the terms hereof):
if to the Company:
Imation Corp.
One Imation Place
Oakdale, Minnesota 55125
Attention: General Counsel
if to the Employee:
Robert L. Edwards
290 Old Bridge Road
Anaheim Hills California 92808
(f) Survival. Sections 8 and 12(a) shall survive the
termination of this Agreement and the termination of the Employee's
employment with the Company.
(g) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and both of
which together shall constitute one and the same instrument.
<PAGE>
(h) Headings. The section and other headings contained in this
Agreement are for the convenience of the parties only and are not
intended to be a part hereof or to affect the meaning or interpretation
hereof.
IN WITNESS WHEREOF, the Company has duly executed this Agreement by its
authorized representative and the Employee has hereunto set his hand, in each
case effective as of the date first above written.
IMATION CORP.
By /s/ William T. Monahan
--------------------------
William T. Monahan
Chief Executive Officer
/s/ Robert L. Edwards
-----------------------------
Robert L. Edwards
EXHIBIT 15.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Imation Corp.
Registrations on Form S-8 and Form S-4
We are aware that our report dated May 7, 1998 on our reviews of the interim
consolidated financial information of Imation Corp. (the Company) for the three
month periods ended March 31, 1998 and 1997, and included in the Company's Form
10-Q for the quarter ended March 31, 1998, is incorporated by reference in the
Company's Registration Statements on Form S-8 (Registration Nos. 333-15273,
333-15275, 333-15277 and 333-35591) and on Form S-4 (Registration No.
333-28837). Pursuant to Rule 436(c), under the Securities Act of 1933, this
report should not be considered part of the Registration Statements prepared or
certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 79,300
<SECURITIES> 0
<RECEIVABLES> 486,200
<ALLOWANCES> (22,400)
<INVENTORY> 386,000
<CURRENT-ASSETS> 1,045,700
<PP&E> 1,696,400
<DEPRECIATION> (1,331,700)
<TOTAL-ASSETS> 1,634,500
<CURRENT-LIABILITIES> 538,400
<BONDS> 319,600
400
0
<COMMON> 0
<OTHER-SE> 682,300
<TOTAL-LIABILITY-AND-EQUITY> 1,634,500
<SALES> 519,400
<TOTAL-REVENUES> 519,400
<CGS> 335,000
<TOTAL-COSTS> 335,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,200
<INCOME-PRETAX> 3,500
<INCOME-TAX> 1,500
<INCOME-CONTINUING> 2,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,000
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
