-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C6jChOjRAeFI/4ZDbwL7KrCAOUPksrDn2uS3677QkCC97Pos8IWSYxB3T+Muf2rQ xa0pI+S0zQhmieU0kRS/+A== 0000897101-98-000592.txt : 19980518 0000897101-98-000592.hdr.sgml : 19980518 ACCESSION NUMBER: 0000897101-98-000592 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMATION CORP CENTRAL INDEX KEY: 0001014111 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 411838504 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14310 FILM NUMBER: 98626134 BUSINESS ADDRESS: STREET 1: 1 IMATION PL CITY: OAKDALE STATE: MN ZIP: 55128 BUSINESS PHONE: 6127331250 MAIL ADDRESS: STREET 1: 1 IMATION PLACE CITY: OAKDALE STATE: MN ZIP: 55128 FORMER COMPANY: FORMER CONFORMED NAME: 3M INFORMATION PROCESSING INC DATE OF NAME CHANGE: 19960619 10-Q 1 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 --------------- 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. ================================================================================ 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 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. 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. 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. 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 ===== ==== 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. 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. 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 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. 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 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. 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 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. 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. 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 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 EX-10.1 2 EMPLOYMENT AGREEMENT 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 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 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. (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. (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 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. 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. (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. (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 EX-15.1 3 AWARNESS LETTER 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 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 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. 1,000 3-MOS DEC-31-1998 MAR-31-1998 79,300 0 486,200 (22,400) 386,000 1,045,700 1,696,400 (1,331,700) 1,634,500 538,400 319,600 400 0 0 682,300 1,634,500 519,400 519,400 335,000 335,000 0 0 5,200 3,500 1,500 2,000 0 0 0 2,000 0.05 0.05
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