10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

or

o 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 Way
Oakdale, Minnesota	55128
(Address of principal executive offices)	(Zip Code)

(651) 704-4000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

     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. þ Yes o No

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer þ 
Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 38,661,326 shares of Common Stock, par value $0.01 per share, were outstanding at July 30, 2010.

IMATION CORP.
TABLE OF CONTENTS

		PAGE
PART I	FINANCIAL INFORMATION		3
ITEM 1.	FINANCIAL STATEMENTS		3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009		3
	Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009		4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009		5
	Notes to Condensed Consolidated Financial Statements		6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		19
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		29
ITEM 4.	CONTROLS AND PROCEDURES		29
PART II	OTHER INFORMATION		30
ITEM 1.	LEGAL PROCEEDINGS		30
ITEM 1A.	RISK FACTORS		30
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		30
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		30
ITEM 4.	(REMOVED AND RESERVED)		30
ITEM 5.	OTHER INFORMATION		30
ITEM 6.	EXHIBITS		30
SIGNATURE			31
EXHIBIT INDEX			32
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except for per share amounts)
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Net revenue	$	354.4		$	400.0		$	720.2		$	796.5
Cost of goods sold		295.9			336.6			600.0			666.2
Gross profit		58.5			63.4			120.2			130.3
Operating expenses:
Selling, general and administrative		51.5			59.2			104.6			123.9
Research and development		3.9			4.7			8.3			10.0
Goodwill impairment		23.5			—			23.5			—
Litigation settlement		—			49.0			—			49.0
Restructuring and other		3.4			9.8			7.4			15.3
Total		82.3			122.7			143.8			198.2
Operating loss		(23.8	)		(59.3	)		(23.6	)		(67.9	)
Other (income) and expense:
Interest income		(0.2	)		(0.2	)		(0.4	)		(0.4	)
Interest expense		1.0			0.3			2.1			0.7
Other, net		2.1			3.3			5.0			10.7
Total		2.9			3.4			6.7			11.0
Loss before income taxes		(26.7	)		(62.7	)		(30.3	)		(78.9	)
Income tax benefit		(11.0	)		(24.4	)		(12.1	)		(27.9	)
Loss from continuing operations		(15.7	)		(38.3	)		(18.2	)		(51.0	)
Discontinued operations:
Income (loss) from operations of discontinued businesses, net of income taxes		—			1.4			(0.1	)		2.5
Income (loss) from discontinued operations		—			1.4			(0.1	)		2.5
Net loss	$	(15.7	)	$	(36.9	)	$	(18.3	)	$	(48.5	)
(Loss) earnings per common share — basic:
Continuing operations	$	(0.42	)	$	(1.02	)	$	(0.48	)	$	(1.36	)
Discontinued operations		—			0.04			—			0.07
Net loss		(0.42	)		(0.98	)		(0.49	)		(1.29	)
(Loss) earnings per common share — diluted:
Continuing operations	$	(0.42	)	$	(1.02	)	$	(0.48	)	$	(1.36	)
Discontinued operations		—			0.04			—			0.07
Net loss		(0.42	)		(0.98	)		(0.49	)		(1.29	)
Weighted average shares outstanding
Basic		37.8			37.5			37.7			37.5
Diluted		37.8			37.5			37.7			37.5

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

3

IMATION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)

	June 30,		December 31,
	2010		2009
Assets
Current assets
Cash and cash equivalents	$	251.3	$	163.4
Accounts receivable, net		238.1		314.9
Inventories		220.3		235.7
Other current assets		159.4		164.4
Total current assets		869.1		878.4
Property, plant and equipment, net		103.2		109.8
Intangible assets, net		329.9		337.3
Goodwill		—		23.5
Other assets		51.8		44.8
Total assets	$	1,354.0	$	1,393.8
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	222.5	$	201.4
Accrued payroll		12.4		19.7
Other current liabilities		127.6		150.8
Total current liabilities		362.5		371.9
Other liabilities		92.7		94.7
Total liabilities		455.2		466.6
Shareholders’ equity		898.8		927.2
Total liabilities and shareholders’ equity	$	1,354.0	$	1,393.8

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

4

IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

	Six Months Ended
	June 30,
	2010			2009
Cash Flows from Operating Activities:
Net loss	$	(18.3	)	$	(48.5	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		9.1			9.7
Amortization		11.8			11.6
Deferred income taxes		(6.3	)		(20.4	)
Goodwill impairment		23.5			—
Asset impairments		—			2.3
Stock-based compensation		3.2			3.8
Pension settlement		—			5.2
Note receivable reserve		—			4.0
Litigation settlement		—			49.0
Other		2.4			0.7
Changes in operating assets and liabilities:
Accounts receivable		66.6			53.8
Inventories		6.0			32.0
Other assets		(0.3	)		(20.4	)
Accounts payable		26.7			(60.8	)
Accrued payroll and other liabilities		(24.4	)		(15.7	)
Restricted cash		2.5			—
Net cash provided by operating activities		102.5			6.3
Cash Flows from Investing Activities:
Capital expenditures		(3.5	)		(7.2	)
License agreement payment		(5.0	)		—
Other, net		0.1			0.8
Net cash used in investing activities		(8.4	)		(6.4	)
Cash Flows from Financing Activities:
Debt issuance costs		—			(2.9	)
Net cash used in financing activities		—			(2.9	)
Effect of exchange rate changes on cash and cash equivalents		(6.2	)		(4.4	)
Net change in cash and cash equivalents		87.9			(7.4	)
Cash and cash equivalents — beginning of period		163.4			96.6
Cash and cash equivalents — end of period	$	251.3		$	89.2

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

5

IMATION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — Basis of Presentation

     The interim Condensed Consolidated Financial Statements of Imation Corp. (Imation, the Company, we, us or our) are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair statement of financial position, results of operations and cash flows for the periods presented. Except as otherwise disclosed herein, these adjustments consist of normal, recurring items. The results of operations for any interim period are not necessarily indicative of full year results. The Condensed Consolidated Financial Statements and Notes are presented in accordance with the requirements for Quarterly Reports on Form 10-Q and do not contain certain information included in our annual Consolidated Financial Statements and Notes.

     The preparation of the interim Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim Condensed Consolidated Financial Statements and the reported amounts of revenue and expenses for the reporting periods. Despite our intention to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates.

     The December 31, 2009 Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Financial Statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. This Form 10-Q should be read in conjunction with our Consolidated Financial Statements and Notes included in our Annual Report on Form 10-K for the year ended December 31, 2009.

     As a result of the wind down of our Global Data Media (GDM) business joint venture during the three months ended September 30, 2009, these operations are presented in our Condensed Consolidated Financial Statements as discontinued operations for all periods presented.

Recently Adopted Accounting Pronouncements

     In January 2010, the Financial Accounting Standards Board (FASB) issued additional disclosure requirements for assets and liabilities held at fair value. Specifically, the new guidance requires a gross presentation of activities within the Level 3 roll forward and adds a new requirement to disclose transfers in and out of Level 1 and 2 measurements. This guidance is applicable to all entities currently required to provide disclosures about recurring and nonrecurring fair value measurements. The effective date for these disclosures is the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 roll forward information, which is required for annual reporting periods beginning after December 15, 2010 and for interim reporting periods within those years. The disclosures required as of June 30, 2010 did not have a material impact on our consolidated financial position, results of operations or cash flows.

Note 2 — Earnings (Loss) per Common Share

     Basic earnings per share is calculated using the weighted average number of shares outstanding for the period. Diluted earnings per share is computed on the basis of the weighted average basic shares outstanding plus the dilutive effect of our stock-based compensation plans using the “treasury stock” method. The following table sets forth the computation of the weighted average basic and diluted income (loss) per share:

6

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2010			2009			2010			2009
Numerator:
Loss from continuing operations	$	(15.7	)	$	(38.3	)	$	(18.2	)	$	(51.0	)
Income (loss) from discontinued operations		—			1.4			(0.1	)		2.5
Net loss	$	(15.7	)	$	(36.9	)	$	(18.3	)	$	(48.5	)
Denominator:
Weighted average number of common stock outstanding during the period		37.8			37.5			37.7			37.5
Dilutive effect of stock-based compensation plans		—			—			—			—
Weighted average number of diluted shares outstanding during the period		37.8			37.5			37.7			37.5
Basic (loss) earnings per common share:
Continuing operations	$	(0.42	)	$	(1.02	)	$	(0.48	)	$	(1.36	)
Discontinued operations		—			0.04			—			0.07
Net loss		(0.42	)		(0.98	)		(0.49	)		(1.29	)
Diluted (loss) earnings per common share:
Continuing operations	$	(0.42	)	$	(1.02	)	$	(0.48	)	$	(1.36	)
Discontinued operations		—			0.04			—			0.07
Net loss		(0.42	)		(0.98	)		(0.49	)		(1.29	)
Anti-dilutive options excluded from calculation		4.4			4.8			4.9			4.5

     Earnings per share amounts for continuing operations, discontinued operations and net income (loss), as presented on the Condensed Consolidated Statements of Operations, are calculated individually and may not sum due to rounding differences.

7

Note 3 — Supplemental Balance Sheet Information

	June 30,			December 31,
(In millions)	2010			2009
	(Unaudited)
Accounts Receivable
Accounts receivable	$	259.9		$	343.5
Less reserves and allowances*		(21.8	)		(28.6	)
Accounts receivable, net	$	238.1		$	314.9
Inventories
Finished goods	$	198.4		$	210.4
Work in process		7.1			8.9
Raw materials and supplies		14.8			16.4
Total inventories	$	220.3		$	235.7
Other Current Assets
Deferred income taxes	$	39.1		$	42.7
Restricted cash		16.4			19.1
Assets held for sale		7.2			7.2
Taxes receivable		51.6			35.1
Other		45.1			60.3
Total other current assets	$	159.4		$	164.4
Property, Plant and Equipment
Property, plant and equipment	$	349.1		$	350.8
Less accumulated depreciation		(245.9	)		(241.0	)
Property, plant and equipment, net	$	103.2		$	109.8
Other Assets
Deferred income taxes	$	44.4		$	35.5
Other		7.4			9.3
Total other assets	$	51.8		$	44.8
Other Current Liabilities
Rebates	$	49.6		$	66.1
Litigation settlement — current		8.2			7.9
Employee separation costs		4.7			4.3
Value added tax		10.2			12.0
Other		54.9			60.5
Total other current liabilities	$	127.6		$	150.8
Other Liabilities
Pension	$	35.2		$	36.3
Litigation settlement — long-term		22.5			21.8
Deferred income taxes		2.9			3.3
Unrecognized tax benefits		15.9			16.0
Other		16.2			17.3
Total other liabilities	$	92.7		$	94.7

* Accounts receivable reserves and allowances include estimated amounts for customer returns, terms discounts and the inability of certain customers to make the required payment.

8

Note 4 — Intangible Assets and Goodwill

     Intangible Assets

     The components of our amortizable intangible assets were as follows:

							Customer
(In millions)	Trade Names			Software			Relationships			Other			Total
June 30, 2010
Gross carrying amount	$	332.0		$	52.7		$	57.6		$	9.5		$	451.8
Accumulated amortization		(39.3	)		(47.7	)		(31.2	)		(3.7	)		(121.9	)
Intangible assets, net	$	292.7		$	5.0		$	26.4		$	5.8		$	329.9
December 31, 2009
Gross carrying amount	$	333.2		$	62.3		$	65.5		$	6.6		$	467.6
Accumulated amortization		(34.4	)		(56.8	)		(33.9	)		(5.2	)		(130.3	)
Intangible assets, net	$	298.8		$	5.5		$	31.6		$	1.4		$	337.3

     In February 2010, we entered into an amendment to our license agreement with ProStor Systems. Under terms of the agreement, we paid $5.0 million and will have a semi-exclusive license to manufacture, market and sell RDX removable hard disk systems through 2020. We have recorded the payment as an other intangible asset and will amortize the payment over a five year period.

     Amortization expense for intangible assets consisted of the following:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2010		2009		2010		2009
Amortization expense	$	6.0	$	5.7	$	11.8	$	11.6

     Goodwill

     As discussed in Note 10 herein, in the second quarter of 2010 we realigned our corporate segments and reporting structure with how the business will be managed going forward. As part of this reorganization, we combined our Electronic Products segment with our Americas segment, and we separated our Asia Pacific segment into North Asia and South Asia regions.

• Our Americas segment includes North America, South America and the Caribbean.

• Our Europe segment includes Europe and all of Africa.

• Our North Asia segment includes Japan, China, Hong Kong, Korea and Taiwan.

• Our South Asia segment includes Australia, Singapore, India, and the Middle East.

     Our reporting units for goodwill are our operating segments with the exception of the Americas segment which is further divided between the Americas-Consumer and Americas-Commercial reporting units as determined by sales channel. As a result of the segment change, the goodwill of $23.5 million which was previously allocated to the Electronics Products segment was merged into the Americas-Consumer reporting unit. The Americas-Consumer reporting unit had a fair value that was significantly less than its carrying amount prior to the combination, which is a triggering event for an interim goodwill impairment test. Goodwill is considered impaired when its carrying amount exceeds its implied fair value. A two-step impairment test was performed to identify a potential impairment and measure an impairment loss to be recognized. Based on the goodwill test performed, we determined that the carrying amount of the reporting unit significantly exceeded its fair value and that the goodwill was fully impaired.

     Changes in the carrying amount of goodwill by segment prior to and after the segment realignment and goodwill impairment are as follows:

9

												Electronic
(In millions)	Americas			Europe			North Asia			South Asia		Products			Total
Balances as of December 31, 2009
Goodwill	$	64.3		$	39.2		$	10.2		$	—	$	38.6		$	152.3
Accumulated impairment losses		(64.3	)		(39.2	)		(10.2	)		—		(15.1	)		(128.8	)
Total goodwill, net		—			—			—			—		23.5			23.5
Operating segment reclassification
Goodwill		38.6			—			—			—		(38.6	)		—
Accumulated impairment losses		(15.1	)		—			—			—		15.1			—
Goodwill impairment		(23.5	)		—			—			—		—			(23.5	)
Balances as of June 30, 2010
Goodwill		102.9			39.2			10.2			—		—			152.3
Accumulated impairment losses		(102.9	)		(39.2	)		(10.2	)		—		—			(152.3	)
Total goodwill, net	$	—		$	—		$	—		$	—	$	—		$	—

     The first step of the impairment test involves comparing the fair value of the reporting unit to which goodwill was assigned to its carrying amount. In calculating fair value, we used a weighting of the valuations calculated using the income approach and a market approach. In determining the fair value of reporting units, we weighted values under the income approach 75 percent and values determined from market comparables 25 percent. The basis of this weighting is due to the income approach being tailored to the circumstances of the business, and the market approach being completed as a secondary test to ensure that the results of the income approach are reasonable and in line with comparable companies in the industry. The summation of our reporting units’ fair values is compared and reconciled to our market capitalization as of the date of our impairment test.

     In determining the fair value of the Americas-Consumer reporting unit under the income approach, our expected cash flows are affected by various assumptions. Fair value on a discounted cash flow basis uses forecasts over a 10 year period with an estimation of residual growth rates thereafter. We use our business plans and projections as the basis for expected future cash flows. The most significant assumptions incorporated in these forecasts for the most recent goodwill impairment test included annual revenue changes with an average annual growth rate of 3 percent and with a terminal growth rate of 3.5 percent. A discount rate of 14 percent was used to reflect the relevant risks of the higher growth assumed for this reporting unit.

     Based on the goodwill test performed, we determined that the carrying amount of the reporting unit significantly exceeded its fair value. The indicated excess in carrying amount over fair value of the Americas-Consumer reporting unit and goodwill is as follows:

			Reporting unit		Excess of carrying		Percentage of carrying
(In millions)	Goodwill		carrying amount		amount over fair value		amount over fair value
Americas-Consumer	$	23.5	$	336.5	$	173.5		206	%

     The second step of the impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill is greater than the implied fair value of the reporting unit’s goodwill an impairment loss must be recognized for the excess. This involves measuring the fair value of the reporting unit’s assets and liabilities (both recognized and unrecognized) at the time of the impairment test. The difference between the reporting unit’s fair value and the fair values assigned to the reporting unit’s individual assets and liabilities is the implied fair value of the reporting unit’s goodwill. Based on this step of the impairment test, we determined that the full amount of remaining goodwill, $23.5 million, was impaired.

Note 5 — Comprehensive Income (Loss)

     Accumulated other comprehensive loss consisted of the following:

	June 30,			December 31,
(In millions)	2010			2009
Cumulative currency translation adjustment	$	(65.6	)	$	(50.4	)
Pension adjustments, net of income tax		(18.6	)		(18.8	)
Cash flow hedging and other, net of income tax		0.8			0.3
Total accumulated other comprehensive loss	$	(83.4	)	$	(68.9	)

10

Comprehensive loss consisted of the following:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2010			2009			2010			2009
Net loss	$	(15.7	)	$	(36.9	)	$	(18.3	)	$	(48.5	)
Cumulative currency translation adjustment		(10.4	)		9.4			(15.2	)		(1.0	)
Pension adjustments, net of income taxes		0.1			4.5			0.2			4.5
Cash flow hedging and other, net of income tax		0.3			(3.5	)		0.5			0.2
Total comprehensive loss	$	(25.7	)	$	(26.5	)	$	(32.8	)	$	(44.8	)

Note 6 — Stock-Based Compensation

     We have stock-based compensation awards outstanding under five plans (collectively, the Stock Plans) consisting of stock options, restricted stock and restricted stock units. As of June 30, 2010, there were 1,044,065 shares available for grant under our 2008 Stock Incentive Plan. No further shares are available for grant under any other Stock Plan.

     Stock compensation expense consisted of the following:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2010		2009		2010		2009
Stock compensation expense	$	1.5	$	2.0	$	3.2	$	3.8

     In addition to the stock-based compensation expense, on March 18, 2010, we announced the retirement of our former Vice Chairman and Chief Executive Officer, Frank Russomanno, effective May 5, 2010. In connection with his retirement from the Company, the Board of Directors also determined to accelerate the vesting of Mr. Russomanno’s outstanding unvested options and restricted stock. As a result, additional compensation expense of $0.8 million was recognized under restructuring and other in our Condensed Consolidated Statement of Operations during the first quarter of 2010.

Stock Options

     The following table summarizes our stock option activity:

				Weighted
				Average
	Stock			Exercise
	Options			Price
Outstanding December 31, 2009		4,594,838		$	27.19
Granted		825,407			10.57
Exercised		(1,000	)		8.11
Cancelled		(269,102	)		31.22
Forefeited		(96,648	)		12.46
Outstanding June 30, 2010		5,053,495		$	24.33

     The outstanding options are non-qualified and normally have a term of ten years. For employees, the options generally become exercisable and vest 25 percent per year beginning on the first anniversary of the grant date, subject to the employee’s continuing service to the Company. For directors, the options generally become exercisable on the first anniversary of the grant date. Of the options granted during the six months ended June 30, 2010, there were 105,397 performance based options granted which will vest based on the Company’s performance against operating income targets for 2010. If operating income (as defined under the 2010 Annual Bonus plan) meets or exceeds specified levels, the full grant will vest 25 percent per year over four years. If operating income meets a minimum threshold, 50 percent of the grant will vest over four years. If operating income does not meet the minimum threshold, the grant will not vest.

     The weighted average grant date fair value of options that were granted for the six months ended June 30, 2010 was $4.51.

11

     The following table summarizes our weighted average assumptions used in the valuation of options:

	2010
Volatility		42.8	%
Risk-free interest rate		2.54	%
Expected life (months)		66
Dividend yield		0.0	%

     As of June 30, 2010, there was $8.2 million of total unrecognized compensation expense related to non-vested stock options granted under our Stock Plans. That expense is expected to be recognized over a weighted average period of 2.7 years.

Restricted Stock

     The following table summarizes our restricted stock activity:

				Weighted
				Average
				Grant Date Fair
	Restricted			Value Per
	Stock			Share
Nonvested as of December 31, 2009		461,702		$	14.84
Granted		480,423			10.57
Vested		(197,234	)		15.48
Forfeited		(2,979	)		10.34
Nonvested as of June 30, 2010		741,912		$	11.44

     The cost of the awards is determined using the fair value of the Company’s common stock on the date of the grant and compensation is recognized on a straight line basis over the requisite vesting period. For employees, the restricted shares generally become exercisable and vest 25 percent per year beginning on the first anniversary of the grant date, subject to the employee’s continuing service to the Company. For directors, the restricted shares generally become exercisable and vest in full on the first anniversary of the grant date. Of the restricted shares granted during the six months ended June 30, 2010, there were 255,787 performance based restricted shares granted which will vest based on Imation’s performance against operating income targets for 2010. If operating income (as defined under the 2010 Annual Bonus plan) meets or exceeds specified levels, the full grant will vest 25 percent per year over four years. If operating income meets a minimum threshold, 50 percent of the grant will vest over four years. If operating income does not meet the minimum threshold, the grant will not vest.

     As of June 30, 2010, there was $8.0 million of total unrecognized compensation expense related to non-vested restricted stock granted under our Stock Plans. That expense is expected to be recognized over a weighted average period of 2.6 years.

Note 7 — Retirement Plans

Employer Contributions

     During the six months ended June 30, 2010, we contributed $2.4 million to our pension plans. We presently anticipate contributing amounts of approximately $5 million to $10 million to fund our pension plans for the full year 2010.

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Components of Net Periodic Pension Cost

	United States						International						United States						International
	Three Months Ended June 30,												Six Months Ended June 30,
(In millions)	2010			2009			2010			2009			2010			2009			2010			2009
Service cost	$	0.4		$	0.6		$	0.2		$	0.2		$	0.8		$	1.4		$	0.4		$	0.4
Interest cost		1.2			1.1			0.8			0.8			2.4			2.8			1.4			1.6
Expected return on plan assets		(1.4	)		(1.7	)		(0.8	)		(0.8	)		(2.9	)		(3.4	)		(1.5	)		(1.6	)
Amortization of net actuarial (gain) loss		—			—			—			—			—			0.1			—			0.1
Amortization of prior service cost (credit)		0.1			—			0.1			—			0.2			—			0.1			—
Net periodic pension cost	$	0.3		$	0.0		$	0.3		$	0.2		$	0.5		$	0.9		$	0.4		$	0.5
Settlement		—			5.2			—			—			—			5.2			—			—
Total pension costs	$	0.3		$	5.2		$	0.3		$	0.2		$	0.5		$	6.1		$	0.4		$	0.5

Note 8 — Restructuring and Other Expense

     The components of our restructuring and other expense included in the Condensed Consolidated Statement of Operations were as follows:

	Three Months Ended		Six Months Ended
(In millions)	June 30, 2010		June 30, 2010
Restructuring
Severance and severance-related expense	$	3.3	$	4.9
Lease termination costs		0.1		0.3
Total restructuring		3.4		5.2
Other		—		2.2
Total	$	3.4	$	7.4

2008 Corporate Redesign Restructuring Program

     During the fourth quarter of 2008, we initiated several additional restructuring actions to further align our cost structure with our strategic direction by reducing selling, general and administrative expenses. We are reducing costs by rationalizing key accounts and products and by simplifying our corporate structure globally. This program was originally anticipated to include $40 million in restructuring and other charges. In July 2010, our Board of Directors approved a $3.3 million increase to this program for a revised total program cost of $43.3 million. The restructuring is expected to be completed during 2010. Since the inception of this program, we have recorded a total of $21.0 million of severance and severance related expenses, $1.8 million of lease termination costs and $17.4 million for pension settlements related to this restructuring. We estimate we will record additional pre-tax restructuring charges during the remainder of 2010 of approximately $3 million.

     During the three months ended June 30, 2010, we recorded a restructuring charge of $3.4 million, which consisted primarily of $3.3 million for severance and severance related expenses. During the three months ended March 31, 2010 we recorded a restructuring charge of $1.8 million, which consisted primarily of $1.6 million for severance and severance related expenses. We expect the majority of this liability to be paid out during 2010.

13

     Changes in the 2008 corporate redesign restructuring program accruals were as follows:

				Lease
	Severance and			Termination
(In millions)	Related			Costs			Total
Accrued balance at December 31, 2009	$	4.3		$	—		$	4.3
Charges		1.6			0.2			1.8
Usage		(1.9	)		(0.2	)		(2.1	)
Currency impacts		(0.1	)		—			(0.1	)
Accrued balance at March 31, 2010	$	3.9		$	—		$	3.9
Charges		3.3			0.1			3.4
Usage		(2.3	)		(0.1	)		(2.4	)
Currency impacts		(0.2	)		—			(0.2	)
Accrued balance at June 30, 2010	$	4.7		$	—		$	4.7

Other

     During the three months ended March 31, 2010, as part of Mr. Russomanno’s announced retirement, he received a severance package based on his previously disclosed Severance Agreement. The $2.2 million of other expense recorded during the three months ended March 31, 2010 represents severance charges and a share based payment modification charge. The severance charge of $1.4 million represents the cash payments Mr. Russomanno received upon his retirement in May 2010. In addition, he became fully vested in all options and restricted stock as of May 5, 2010. The share-based payment modification charge of $0.8 million recorded during the three months ended March 31, 2010 represents the incremental fair value of the modified awards, which we expensed as a result of the Board’s decision to accelerate the vesting of his existing options and restricted stock. Refer to Note 6 herein for additional detail regarding the share-based payment modification charge.

Note 9 — Income Taxes

     We are subject to income taxes in numerous jurisdictions and the use of estimates is required in determining our provision for income taxes. For the three and six month periods ended June 30, 2010, we recorded income tax benefits of $11.0 million and $12.1 million, respectively. Income tax provision (benefit) is recorded based on the estimated annual effective tax rate for the year applied to “ordinary” income (loss). Ordinary income (loss) is pre-tax income (loss) excluding unusual or infrequently occurring discrete items. The effective income tax rate for the three and six month periods ended June 30, 2010 was 41.2 percent and 39.9 percent, respectively, compared with 38.9 percent and 35.4 percent in the same periods last year. The effective rate increases were primarily due to the mix of taxable income/loss by country, as well as the tax effects associated with our restructuring and other charges and discrete items.

     The effective income tax rate for the three and six month periods ended June 30, 2010 differs from the federal statutory rate of 35 percent primarily due to the effects of foreign rate differential and state income taxes net of federal benefit.

     Deferred taxes arise because of the different treatment of transactions for financial statement accounting and income tax accounting, known as temporary differences. We record the tax effect of these temporary differences as deferred tax assets and deferred tax liabilities. Our net deferred tax assets were $80.6 million and $74.9 million as of June 30, 2010 and December 31, 2009, respectively. Significant judgment is required in determining the future realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with loss carryforwards expiring unused and tax planning alternatives. Prior to 2007 we had a history of profits, excluding litigation charges and related expenses and goodwill impairments. Our profitability has declined and we recorded losses in 2008 and 2009 in the United States where $72.7 million of our deferred tax assets are recorded. If we do not achieve at least moderate levels of pretax income in the final six months of 2010, it is likely that we will need to establish a valuation allowance for some or all of the deferred tax assets in the United States, which could materially impact our income tax provision, financial position and results of operations. As of both June 30, 2010 and December 31, 2009 we had valuation allowances of $22.9 million to account for uncertainties regarding the realizability of certain foreign operating loss carryforwards and state tax credit carryforwards.

     We conduct business globally. As a result, we file income tax returns and are subject to examination by taxing authorities in various jurisdictions throughout the world. In the United States, the Internal Revenue Service (IRS) audit for the 2006, 2007 and 2008 Imation Corp. and subsidiaries’ U.S. consolidated tax returns continues to be in process as of June 30, 2010. Some state and foreign jurisdiction tax years remain open to examination for years before 2006.

     We accrue for the effects of uncertain tax positions and the related potential penalties and interest. During the three months ended June 30, 2010, uncertain tax positions of $0.6 million related to a prior years were released due to the finalization of a state audit. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of our unrecognized tax positions will increase or decrease during the next twelve months.

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     Taxes collected from customers and remitted to governmental authorities that were included in revenue for the three months ended June 30, 2010 and 2009 were $6.1 million and $13.1 million, respectively. Taxes collected from customers and remitted to governmental authorities that were included in revenue for the six months ended June 30, 2010 and 2009 were $15.8 million and $26.1 million, respectively.

Note 10 — Segment Information

     Effective in the second quarter of 2010, we realigned our corporate segments and reporting structure with how the business will be managed going forward. As part of this reorganization, we combined our Electronic Products segment with our Americas segment, and we separated our Asia Pacific segment into North Asia and South Asia regions. Each of these segments has responsibility for selling all of our product lines.

• Our Americas segment includes North America, South America and the Caribbean.

• Our Europe segment includes Europe and all of Africa.

• Our North Asia segment includes Japan, China, Hong Kong, Korea and Taiwan.

• Our South Asia segment includes Australia, Singapore, India, and the Middle East.

     We revised the segment information for the prior year within this Form 10-Q to conform to the new presentation.

     We evaluate segment performance based on revenue and operating income. Revenue for each segment is generally based on customer location where the product is shipped. The operating income reported in our segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results, they are included in reported consolidated earnings. Corporate and unallocated amounts include litigation settlement expense, goodwill impairment expense, research and development expense, corporate expense, stock-based compensation expense and restructuring and other expenses which are not allocated to the segments.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2010		2009		2010		2009
Net Revenue
Americas	$	181.2	$	210.6	$	342.9	$	394.6
Europe		64.5		85.5		151.2		184.0
North Asia		73.0		70.3		154.3		151.3
South Asia		35.7		33.6		71.8		66.6
Total	$	354.4	$	400.0	$	720.2	$	796.5

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2010			2009			2010			2009
Operating Income (Loss)
Americas	$	9.4		$	13.2		$	18.5		$	21.5
Europe		(1.5	)		0.4			0.3			1.8
North Asia		2.4			2.9			5.5			7.6
South Asia		1.0			(0.1	)		2.0			0.6
Corporate and unallocated		(35.1	)		(75.7	)		(49.9	)		(99.4	)
Total	$	(23.8	)	$	(59.3	)	$	(23.6	)	$	(67.9	)

     Corporate and unallocated amounts above include goodwill impairment, litigation settlement, restructuring and other expense of $26.9 million and $58.8 million for the three month periods ended June 30, 2010 and 2009, respectively, and $30.9 million and $64.3 million for the six month periods ended June 30, 2010 and 2009, respectively.

     We have three major product categories: traditional storage, emerging storage, and electronics and accessories. Traditional storage products include optical products, magnetic products and other traditional storage media products. Optical products include primarily DVDs, CDs and Blu-ray disc recordable media. Magnetic products include primarily data storage tape media. Other traditional storage products include primarily optical drives and audio and video tape media. Emerging storage products include flash memory and hard disk drive products, including USB flash drives, external hard disk drives, removable hard disk drives, flash memory cards and solid state drives.

15

Electronics and accessories products include primarily audio electronics such as portable CD players and iPod clock radios, video electronics such as DVD and Blu-ray players, and storage accessories such as CD and DVD jewel cases and headphones.

     Net revenue by product category was as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2010		2009		2010		2009
Net Revenue
Traditional storage
Optical products	$	153.2	$	179.4	$	310.6	$	361.0
Magnetic products		84.2		98.6		174.2		203.6
Other traditional storage		16.7		18.3		32.8		38.9
Total traditional storage		254.1		296.3		517.6		603.5
Emerging storage		48.9		37.3		106.4		77.5
Electronics and accessories		51.4		66.4		96.2		115.5
Total	$	354.4	$	400.0	$	720.2	$	796.5

Note 11 — Fair Value Measurements

     At June 30, 2010 and 2009, our financial instruments included cash and cash equivalents, accounts receivable, accounts payable and derivative contracts. The fair values of cash and cash equivalents, accounts receivable and accounts payable approximated carrying values due to the short-term nature of these instruments. In addition, certain derivative instruments are recorded at fair value as discussed below.

     Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets for identical assets); Level 2 (significant observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:

     The assets in our postretirement benefit plans are measured at fair value on a recurring basis (at least annually). See Note 7 herein for additional discussion concerning pension and postretirement benefit plans.

     We maintain a foreign currency exposure management policy that allows the use of derivative instruments, principally foreign currency forward, option contracts and option combination strategies to manage risks associated with foreign exchange rate volatility. Generally, these contracts are entered into to fix the U.S. dollar amount of the eventual cash flows. The derivative instruments range in duration at inception from less than one to fourteen months. We do not hold or issue derivative financial instruments for speculative or trading purposes and we are not a party to leveraged derivatives.

     We are exposed to the risk of nonperformance by our counter-parties, but we do not anticipate nonperformance by any of these counter-parties. We actively monitor our exposure to credit risk through the use of credit approvals and credit limits and by using major international banks and financial institutions as counter-parties.

     As of June 30, 2010, we held derivative instruments that are required to be measured at fair value on a recurring basis. Our derivative instruments consist of currency forward, option contracts and option combination strategies. The fair value of our derivative instruments is determined based on inputs that are observable in the public market, but are other than publicly quoted prices (Level 2).

     Hedge gains of $0.4 million and losses of $4.6 million were reclassified into the Condensed Consolidated Statement of Operations during the three months ended June 30, 2010 and 2009, respectively. Hedge gains of $0.5 million and $0.5 million were reclassified into the Condensed Consolidated Statement of Operations during the six months ended June 30, 2010 and 2009, respectively. The amount of net deferred gains on foreign currency cash flow hedges included in accumulated other comprehensive income (loss) in shareholders’ equity as of June 30, 2010 was $0.9 million, pre-tax, which, depending on market factors, is expected to reverse in the Condensed Consolidated Balance Sheet or be reclassified into operations during the next three to six months.

16

     Our financial assets and liabilities that are measured at fair value on a recurring basis were as follows:

	June 30, 2010							December 31, 2009
(In millions)	Level 1		Level 2			Level 3		Level 1		Level 2			Level 3
Derivative assets
Foreign currency option contracts	$	—	$	0.4		$	—	$	—	$	0.9		$	—
Foreign currency forward contracts		—		—			—		—		0.1			—
Derivative liabilities
Foreign currency option contracts		—		(0.1	)		—		—		—			—
Foreign currency forward contracts		—		(0.1	)		—		—		(0.3	)		—
Total	$	—	$	0.2		$	—	$	—	$	0.7		$	—

Cash Flow Hedges

     We attempt to substantially mitigate the risk that forecasted cash flows denominated in foreign currencies may be adversely affected by changes in currency exchange rates through the use of option, forward and combination option contracts. The degree of our hedging can fluctuate based on management judgment and forecasted projections. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking the hedge items. This process includes linking all derivatives to forecasted transactions.

     We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in the cash flows of hedged items. Gains and losses related to cash flow hedges are deferred in accumulated other comprehensive income (loss) with a corresponding asset or liability. When the hedged transaction occurs, the gains and losses in accumulated other comprehensive income (loss) are reclassified into the Condensed Consolidated Statement of Operations in the same line as the item being hedged. If at any time it is determined that a derivative is not highly effective as a hedge, we discontinue hedge accounting prospectively, with deferred gains and losses being recognized in current period operations.

Other Hedges

     We enter into foreign currency forward contracts, generally with durations of less than two months, to manage the foreign currency exposure related to our monetary assets and liabilities denominated in foreign currencies. We record the estimated fair value of these forwards within other current assets or other current liabilities in the Condensed Consolidated Balance Sheets, and all changes in their fair value are immediately recognized in the Condensed Consolidated Statement of Operations.

     The notional amounts and fair values of our derivative instruments in the Condensed Consolidated Financial Statements were as follows:

	June 30, 2010							December 31, 2009
			Fair Value							Fair Value
			Other		Other					Other		Other
	Notional		Current		Current			Notional		Current		Current
(In millions)	Amount		Assets		Liabilities			Amount		Assets		Liabilities
Cash flow hedges designated as hedging instruments	$	56.0	$	0.4	$	(0.2	)	$	48.0	$	0.8	$	—
Other hedges not receiving hedge accounting		28.0		—		—			88.8		0.2		(0.3	)
Total	$	84.0	$	0.4	$	(0.2	)	$	136.8	$	1.0	$	(0.3	)

     On June 30, 2010 we entered into certain fair value hedges not receiving hedge accounting treatment. In accordance with trade date accounting, these hedges and related exposures are recorded as of June 30, 2010, but do not have a value until the subsequent day.

17

     The derivative gains and losses in the Condensed Consolidated Statement of Operations were as follows:

				Pretax Gain on
	Pretax Gain			Effective Portion of
	(Loss) Recognized			Derivative		Pretax Loss
	in Other			Reclassification from		Recognized in the
	Comprehensive			Accumulated Other		Condensed
	Income on			Comprehensive		Statement of
	Effective Portion			Income to Cost of		Operations in Other
(In millions)	of Derivative			Goods Sold, net		Expense, net
For the three months ended June 30, 2010
Cash flow hedges designated as hedging instruments	$	0.1		$	0.3	$	—
Other hedges not receiving hedge accounting		—			—		(0.3	)
Total	$	0.1		$	0.3	$	(0.3	)
For the three months ended June 30, 2009
Cash flow hedges designated as hedging instruments	$	(4.6	)	$	—	$	—
Other hedges not receiving hedge accounting		—			—		(10.4	)
Total	$	(4.6	)	$	—	$	(10.4	)
For the six months ended June 30, 2010
Cash flow hedges designated as hedging instruments	$	0.8		$	0.4	$	—
Other hedges not receiving hedge accounting		—			—		(1.2	)
Total	$	0.8		$	0.4	$	(1.2	)
For the six months ended June 30, 2009
Cash flow hedges designated as hedging instruments	$	0.5		$	0.8	$	—
Other hedges not receiving hedge accounting		—			—		(9.7	)
Total	$	0.5		$	0.8	$	(9.7	)

Note 12 — Litigation, Commitments and Contingencies

     In the normal course of business, we periodically enter into agreements that incorporate general indemnification language. Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a third-party claim. There has historically been no material losses related to such indemnifications. In accordance with accounting principles generally accepted in the United States of America, we record a liability in our consolidated financial statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated.

     We are the subject of various pending or threatened legal actions in the ordinary course of our business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. Additionally, our electronics and accessories business is subject to allegations of patent infringement by our competitors as well as by non-practicing entities (NPEs), sometimes referred to as “patent trolls,” who may seek monetary settlements from us, our competitors, suppliers, and resellers. Consequently, as of June 30, 2010, we are unable to ascertain the ultimate aggregate amount of any monetary liability or financial impact that we may incur with respect to these matters. While these matters could materially affect operating results depending upon the final resolution in future periods, it is our opinion that after final disposition, any monetary liability beyond that provided in the Condensed Consolidated Balance Sheet as of June 30, 2010 would not be material to our financial position.

18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

     Imation Corp., a Delaware corporation, is a leading global technology company dedicated to helping people and organizations store, protect, and connect their digital world. Our portfolio of data storage and security products, electronics and accessories reaches customers in more than 100 countries through our global distribution network. Imation Corp.’s global brand portfolio includes the Imation, Memorex, XtremeMac, and TDK Life on Record brands. As used herein, the terms “Imation,” “Company,” “ we,” “us,” or “our” mean Imation Corp. and its subsidiaries unless the context indicates otherwise.

Factors Affecting Comparability of our Financial Results

Discontinued Operations

     The Global Data Media (GDM) joint venture was wound down in 2009, and the GDM current and historic results have been reclassified into discontinued operations.

Executive Summary

Consolidated Results of Operations for the Six Months Ended June 30, 2010

• Net revenue from continuing operations of $720.2 million for the six months ended June 30, 2010 was down 9.6 percent compared with $796.5 million in the same period last year.

• Goodwill impairment expense of $23.5 million was recorded for the six months ended June 30, 2010.

• Operating loss was $23.6 million for the six months ended June 30, 2010, compared with operating loss of $67.9 million in the same period last year which included the Philips litigation settlement of $49.0 million.

• Diluted loss per share from continuing operations was $0.48 for the six months ended June 30, 2010, compared with diluted loss per share from continuing operations of $1.36 for the same period last year.

Cash Flow/Financial Condition for the Six Months Ended June 30, 2010

• Cash and cash equivalents totaled $251.3 million as of June 30, 2010, compared with $163.4 million at December 31, 2009.

• Cash flow provided by operating activities was $102.5 million for the six months ended June 31, 2010, compared with $6.3 million in the same period last year.

Results of Operations

Net Revenue

	Three Months Ended							Six Months Ended
	June 30,				Percent			June 30,				Percent
(Dollars in millions)	2010		2009		Change			2010		2009		Change
Net revenue	$	354.4	$	400.0		-11.4	%	$	720.1	$	796.5		-9.6	%

     Our worldwide revenue for the three months ended June 30, 2010 was negatively impacted by overall price erosion of nine percent and overall volume declines of three percent, offset partially by a favorable foreign currency impact of one percent. From a product perspective, the revenue decrease was due to declines in traditional storage products of $42.2 million, including $26.2 million from optical products and $14.4 million from magnetic products, as well as $15.0 million from electronics and accessories which was driven by planned rationalization of lower gross margin video products, offset partially by increases in emerging storage products of $11.6 million.

     Our worldwide revenue for the six months ended June 30, 2010 was negatively impacted by overall price erosion of ten percent and overall volume declines of two percent, offset partially by a favorable foreign currency impact of two percent. From a product perspective, the revenue decrease was due to declines in traditional storage products of $85.9 million, including $50.4 million from optical products and $29.4 million from magnetic products, as well as $19.3 million from electronics and accessories which was driven by planned rationalization of lower gross margin video products, offset partially by increases in emerging storage products of $28.9 million.

19

Gross Profit

	Three Months Ended									Six Months Ended
	June 30,						Percent			June 30,						Percent
(Dollars in millions)	2010			2009			Change			2010			2009			Change
Gross profit	$	58.5		$	63.4			-7.7	%	$	120.2		$	130.3			-7.8	%
Gross margin		16.5	%		15.9	%					16.7	%		16.4	%

     Our gross margin as a percent of revenue increased for the three and six months ended June 30, 2010, compared with the same periods last year, due to higher gross margins on emerging storage products and electronics and accessories. Gross margins on traditional storage products were stable with higher gross margins on optical products and lower gross margins on magnetic products.

Selling, General and Administrative (SG&A)

	Three Months Ended									Six Months Ended
	June 30,						Percent			June 30,						Percent
(Dollars in millions)	2010			2009			Change			2010			2009			Change
Selling, general and administrative	$	51.5		$	59.2			-13.0	%	$	104.6		$	123.9			-15.6	%
As a percent of revenue		14.5	%		14.8	%					14.5	%		15.6	%

     SG&A expense decreased for the three months ended June 30, 2010, compared with the same period last year, due to lower legal expenses of $5.9 million related to the Philips litigation settled in July 2009 and reduced expenses due to restructuring activities and cost control actions.

     SG&A expense decreased for the six months ended June 30, 2010, compared with the same period last year, due to lower legal expenses of $11.6 million related to the Philips litigation settled in July 2009 and reduced expenses due to restructuring activities and cost control actions.

Research and Development (R&D)

	Three Months Ended									Six Months Ended
	June 30,						Percent			June 30,						Percent
(Dollars in millions)	2010			2009			Change			2010			2009			Change
Research and development	$	3.9		$	4.7			-17.0	%	$	8.3		$	10.0			-17.0	%
As a percent of revenue		1.1	%		1.2	%					1.2	%		1.3	%

     R&D expense decreased for the three months ended June 30, 2010, compared with the same period last year, due to continued cost savings from restructuring activities and cost control actions. R&D expense as a percent of revenue for the three months ended June 30, 2010 remained relatively flat compared with the same period last year.

     R&D expense decreased for the six months ended June 30, 2010, compared with the same period last year, due to continued cost savings from restructuring activities and cost control actions. R&D expense as a percent of revenue for the six months ended June 30, 2010 remained relatively flat compared with the same period last year.

Goodwill impairment

     We made certain changes to our business segments effective in the second quarter of 2010. Our reporting units for goodwill are our operating segments with the exception of the Americas segment which is further divided between the Americas-Consumer and Americas-Commercial reporting units as determined by sales channel. As a result of the segment change, the $23.5 million of goodwill which was previously allocated to the Electronics Products segment was merged into the Americas-Consumer reporting unit. See Note 10 to the Condensed Consolidated Financial Statements for further information about the changes of our segments.

     The Americas-Consumer reporting unit had a fair value that was significantly less than its carrying amount prior to the combination, which is a triggering event for an interim goodwill impairment test. Goodwill is considered impaired when its carrying amount exceeds its implied fair value. A two-step impairment test was performed to identify a potential impairment and measure an impairment loss to be recognized. Based on the goodwill test performed, we determined that the carrying amount of the reporting unit significantly exceeded its fair value and that the $23.5 million of goodwill was fully impaired. See Note 4 to the Condensed Consolidated Financial Statements for further information about the goodwill impairment.

20

Litigation Settlement

     There were no Litigation Settlement charges for the three and six month periods ended June 30, 2010.

     For the three and six month periods ended June 30, 2009, we recorded a litigation settlement charge of $49.0 million. We entered into a confidential settlement agreement ending all legal disputes with Philips Electronics N.V., U.S. Philips Corporation and North American Philips Corporation (collectively, Philips). We had been involved in a complex series of disputes in multiple jurisdictions regarding cross-licensing and patent infringement related to recordable optical media. The settlement provided resolution of all claims and counterclaims filed by the parties without any finding or admission of liability or wrongdoing by any party. As a term of the settlement, we agreed to pay Philips $53 million over a period of three years. As a result of the settlement, we recorded a charge in the second quarter of 2009, based on the present value of these payments, of $49.0 million.

Restructuring and Other

	Three Months Ended									Six Months Ended
	June 30,						Percent			June 30,						Percent
(Dollars in millions)	2010			2009			Change			2010			2009			Change
Restructuring and other	$	3.4		$	9.8			-65.3	%	$	7.4		$	15.3			-51.6	%
As a percent of revenue		1.0	%		2.5	%					1.0	%		1.9	%

     Restructuring expense for the three and six month periods ended June 30, 2010 was mainly related to our 2008 corporate redesign restructuring program and included severance related costs of $3.3 million and $4.9 million, respectively, and $0.1 and $0.3 million of lease termination costs, respectively. Other expenses for the six months ended June 30, 2010 included costs associated with the announced retirement of our former Vice Chairman and Chief Executive Officer, Mr. Russomanno, including a severance related charge of $1.4 million and a charge of $0.8 million related to the accelerated vesting of his unvested options and restricted stock.

     During the three months ended June 30, 2009 we recorded severance and severance-related expense of $2.2 million for personnel reductions and severance and severance-related costs of $0.1 million related to our TDK recording media restructuring program which began during the third quarter of 2007. Other expense during the three months ended June 30, 2009 included $5.2 million in pension settlement costs as well as $2.3 million of asset impairment related to our Anaheim facility. Restructuring and other expense for the six months ended June 30, 2009 included severance and severance-related costs of $6.7 million and $0.2 million of other activities along with lease termination costs of $0.9 million, $5.2 million in pension settlement costs as well as $2.3 million of asset impairment related to our Anaheim facility. See Note 8 to the Condensed Consolidated Financial Statements herein.

Operating Income (Loss)

	Three Months Ended							Six Months Ended
	June 30,						Percent	June 30,						Percent
(Dollars in millions)	2010			2009			Change	2010			2009			Change
Operating (loss) income	$	(23.8	)	$	(59.3	)	NM	$	(23.6	)	$	(67.9	)	NM
As a percent of revenue		(6.7)	%		(14.8)	%			(3.3)	%		(8.5)	%

NM — Not Meaningful

     Operating loss decreased for the three months ended June 30, 2010, compared with the same period last year, driven by the litigation settlement expense of $49.0 million in 2009 offset partially by the goodwill impairment of $23.5 million in 2010, lower operating expenses of $8.5 million and lower restructuring and other expenses of $6.4 million, offset partially by lower revenues resulting in lower gross profit of $4.9 million, each as discussed above.

     Operating loss decreased for the six months ended June 30, 2010, compared with the same period last year, driven by the litigation settlement expense of $49.0 million in 2009 offset partially by the goodwill impairment of $23.5 million in 2010, lower operating expenses of $21.0 million, and lower restructuring and other of $7.9 million, offset partially by lower revenues resulting in lower gross profit of $10.1 million, each as discussed above.

21

Other (Income) and Expense

	Three Months Ended									Six Months Ended
	June 30,						Percent			June 30,						Percent
(Dollars in millions)	2010			2009			Change			2010			2009			Change
Interest income	$	(0.2	)	$	(0.2	)		0.0	%	$	(0.4	)	$	(0.4	)		0.0	%
Interest expense		1.0			0.3			233.3	%		2.1			0.7			200.0	%
Other expense, net		2.1			3.3			-36.4	%		5.0			10.7			-53.3	%
Total		2.9			3.4			-14.7	%		6.7			11.0			-39.1	%
As a percent of revenue		0.8	%		0.9	%					0.9	%		1.4	%

     Interest expense for the three months ended June 30, 2010 included $0.6 million of fees and amortization of fees related to our credit agreement and $0.4 million of imputed interest related to our liability for the Philips litigation settlement, which was recorded at the present value of the future payments. Interest expense for the three months ended June 30, 2009 included $0.2 million related to fees and amortization of fees related to our credit agreement and $0.1 million related to interest on borrowings.

     Other expense, net for the three months ended June 30, 2010 included $1.2 million related to foreign currencies and $0.9 million of other expenses. Other expense, net for the three months ended June 30, 2009 included $2.6 million related to foreign currencies and $0.7 million of other expenses.

     Interest expense for the six months ended June 30, 2010 included $1.3 million of fees and amortization of fees related to our credit agreement and $0.8 million of imputed interest related to our liability for the Philips litigation settlement, which was recorded at the present value of the future payments. Interest expense for the six months ended June 30, 2009 included $0.4 million related to interest on borrowings and $0.3 million related to fees and amortization of fees related to our credit agreement.

     Other expense, net for the six months ended June 30, 2010 included $3.0 million related to foreign currencies, $0.8 million related to bank fees, and $1.2 million of other expenses. Other expense, net for the six months ended June 30, 2009 included $5.6 million related to foreign currencies, $4.0 million for a reserve established related to a note receivable from one of our commercial partners and $1.0 million of other expenses.

Income Tax Benefit

	Three Months Ended							Six Months Ended
	June 30,						Percent	June 30,						Percent
(Dollars in millions)	2010			2009			Change	2010			2009			Change
Income tax benefit	$	(11.0	)	$	(24.4	)	NM	$	(12.1	)	$	(27.9	)	NM
Effective tax rate		41.2	%		38.9	%			39.9	%		35.4	%

NM - Not Meaningful

     The effective rate of income tax benefit for the three and six month periods ended June 30, 2010 increased compared with the same periods last year, due primarily to the mix of taxable income/loss by country, as well as the tax effects associated with our goodwill impairment, restructuring and other charges and discretionary items.

     Prior to 2007 we had a history of profits, excluding litigation charges and related expenses and goodwill impairments. Our profitability has declined and we recorded losses in 2008 and 2009 in the United States where $72.7 million of our deferred tax assets are recorded. If we do not achieve at least moderate levels of pretax income in the final six months of 2010, it is likely that we will need to establish a valuation allowance for some or all of the deferred tax assets in the United States, which could materially impact our income tax provision, financial position and results of operations. As of both June 30, 2010 and December 31, 2009 we had valuation allowances of $22.9 million to account for uncertainties regarding the realizability of certain foreign operating loss carryforwards and state tax credit carryforwards.

Segment Results

     During the second quarter of 2010, we realigned our corporate segments and reporting structure with how we will be managing the business in the future. As part of this reorganization, we combined our Electronic Products segment with our Americas segment, and we separated our Asia Pacific segment into North Asia and South Asia regions. Each of these segments has responsibility for selling all of our product lines.

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• Our Americas segment includes North America, South America and the Caribbean.

• Our Europe segment includes Europe and all of Africa.

• Our North Asia segment includes Japan, China, Hong Kong, Korea and Taiwan.

• Our South Asia segment includes Australia, Singapore, India, and the Middle East.

     We revised the segment information for the prior year within this Form 10-Q to conform to the new presentation.

     We evaluate segment performance based on revenue and operating income. Revenue for each segment is generally based on customer location where the product is shipped. The operating income reported in our segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results, they are included in reported consolidated earnings. Corporate and unallocated amounts include litigation settlement expense, goodwill impairment expense, research and development expense, corporate expense, stock-based compensation expense and restructuring and other expenses which are not allocated to the segments.

     Information related to our segments is as follows:

     Americas

	Three Months Ended									Six Months Ended
	June 30,						Percent			June 30,						Percent
(Dollars in millions)	2010			2009			Change			2010			2009			Change
Net revenue	$	181.2		$	210.6			-14.0	%	$	342.9		$	394.6			-13.1	%
Operating income		9.4			13.2			-28.8	%		18.5			21.5			-14.0	%
As a percent of revenue		5.2	%		6.3	%					5.4	%		5.4	%

     The Americas segment is our largest segment comprising 51.1 percent of our revenue for the three months ended June 30, 2010. The Americas segment revenue decreased for the three months ended June 30, 2010, compared with the same period last year, due to price erosion of 10 percent and overall volume declines of 4 percent. From a product perspective, the decrease in revenue was driven primarily by the planned rationalization of lower gross margin video products resulting in lower revenue of $9.6 million, and lower revenue from optical products of $7.8 million and magnetic products of $5.7 million. Revenue decreased for the six months ended June 30, 2010, compared with the same period last year, due to price erosion of 10 percent and overall volume declines of 3 percent. From a product perspective, the decrease in revenue was driven primarily by the planned rationalization of lower gross margin video products resulting in lower revenue of $10.8 million, and lower revenue from optical products of $18.1 million and magnetic products of $15.4 million.

     Operating income decreased for the three months ended June 30, 2010, compared with the same period last year, driven mainly by lower revenue and lower gross margins on optical and magnetic products, offset partially by lower SG&A. Operating income decreased for the six months ended June 30, 2010, compared with the same period last year, driven primarily by lower revenue and lower gross margins on optical and magnetic products, offset partially by lower SG&A.

     Europe

	Three Months Ended									Six Months Ended
	June 30,						Percent			June 30,						Percent
(Dollars in millions)	2010			2009			Change			2010			2009			Change
Net revenue	$	64.5		$	85.5			-24.6	%	$	151.2		$	184.0			-17.8	%
Operating income		-1.5			0.4		NM				0.3			1.8			-83.3	%
As a percent of revenue		-2.3	%		0.5	%					0.2	%		1.0	%

NM — Not Meaningful

     The Europe segment comprised 18.2 percent of our revenue for the three months ended June 30, 2010. The Europe segment revenue decreased for the three months ended June 30, 2010, compared with the same period last year, due to price erosion of 6 percent, overall volume decreases of 15 percent and unfavorable foreign currency impacts of 4 percent. From a product perspective, the decrease in revenue was driven by declines in optical products of $15.5 million and magnetic products of $8.1 million, offset partially by increases in flash products of $3.0 million. Revenue decreased for the six months ended June 30, 2010, compared with the same period last year, due to price erosion of 5 percent, overall volume decreases of 14 percent and favorable foreign currency impacts of 1 percent. From a product perspective, the decrease in revenue was driven by declines in optical products of $25.9 million and magnetic products of $9.6 million, offset partially by increases in flash products of $4.3 million.

23

     Operating income decreased for the three months ended June 30, 2010, compared with the same period last year, driven by the lower revenue and gross margin on magnetic and optical products, offset partially by lower SG&A costs. Operating income decreased for the six months ended June 30, 2010, compared with the same period last year, driven by the lower revenue on magnetic and optical products, offset partially by lower SG&A costs.

     North Asia

	Three Months Ended									Six Months Ended
	June 30,						Percent			June 30,						Percent
(Dollars in millions)	2010			2009			Change			2010			2009			Change
Net revenue	$	73.0		$	70.3			3.8	%	$	154.3		$	151.3			2.0	%
Operating income		2.4			2.9			-17.2	%		5.5			7.6			-27.6	%
As a percent of revenue		3.3	%		4.1	%					3.6	%		5.0	%

     The North Asia segment comprised 20.6 percent of our revenue for the three months ended June 30, 2010. The North Asia segment revenue increased for the three months ended June 30, 2010, compared with the same period last year, due to overall volume increases of 14 percent and favorable foreign currency impacts of 7 percent, offset partially by price erosion of 17 percent. From a product perspective, the increase in revenue was driven primarily by an increase in flash products of $2.7 million. Revenue increased for the six months ended June 30, 2010, compared with the same period last year, due to overall volume increases of 15 percent and favorable foreign currency impacts of 5 percent, offset partially by price erosion of 18 percent. From a product perspective, the increase in revenue was driven primarily by an increase in flash products.

     Operating income decreased for the three months ended June 30, 2010, compared with the same period last year, driven by increased SG&A costs, offset partially by increased revenue and gross margin on flash products. Operating income decreased for the six months ended June 30, 2010, compared with the same period last year, driven by increased SG&A costs.

     South Asia

	Three Months Ended									Six Months Ended
	June 30,						Percent			June 30,						Percent
(Dollars in millions)	2010			2009			Change			2010			2009			Change
Net revenue	$	35.7		$	33.6			6.3	%	$	71.8		$	66.6			7.8	%
Operating income		1.0			(0.1	)	NM				2.0			0.6		NM
As a percent of revenue		2.8	%		(0.3	)%					2.8	%		0.9	%

NM - Not Meaningful

     The South Asia segment comprised 10.1 percent of our revenue for the three months ended June 30, 2010. The South Asia segment revenue increased for the three months ended June 30, 2010, compared with the same period last year, due to favorable foreign currency impacts of 9 percent, offset partially by price erosion of 1 percent and overall volume decreases of 2 percent. From a product perspective, the increase in revenue was driven by increases in flash products of $4.6 million offset partially by decreases in optical products of $3.0 million. Revenue increased for the six months ended June 30, 2010, compared with the same period last year, due to overall volume increases of 3 percent and favorable foreign currency impacts of 10 percent, offset partially by price erosion of 5 percent. From a product perspective, the increase in revenue was driven by increases in flash products of $10.0 million offset partially by decreases in optical products of $5.9 million.

     Operating income increased for the three and six month periods ended June 30, 2010, compared with the same periods last year, driven by higher gross margins across all product categories, offset partially by increased SG&A costs.

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Corporate and Unallocated

	Three Months Ended							Six Months Ended
	June 30,						Percent	June 30,						Percent
(Dollars in millions)	2010			2009			Change	2010			2009			Change
Operating costs	$	(35.1	)	$	(75.7	)	NM	$	(49.9	)	$	(99.4	)	NM

NM - Not Meaningful

     The corporate and unallocated operating loss includes amounts which are not allocated to the business units in management’s evaluation of segment performance such as litigation settlement expense, goodwill impairment expense, R&D expense, corporate expense, stock-based compensation expense and restructuring and other expense. The corporate and unallocated operating loss decreased for the three months ended June 30, 2010, compared with the same period last year, driven by lower expense related to the Philips litigation, which was settled in July 2009, lower SG&A and R&D as a result of our restructuring activities and cost control actions, as well as lower restructuring and other expense. We recorded $23.5 million of goodwill impairment expense for the three and six months ended June 30, 2010 and $49.0 of litigation settlement expense for the three and six month periods ended June 30, 2009.

Impact of Changes in Foreign Currency Rates

     We have a market presence in more than 100 countries and we sell products on a local currency basis through a variety of distribution channels. We source optical, flash and other finished goods from manufacturers located primarily in Asia, although much of this sourcing is on a U.S. dollar basis. Further, we produce a significant portion of our magnetic tape products in our own manufacturing facility in the United States. Comparisons of revenue and gross profit from foreign countries are subject to various fluctuations due to the impact of translating results at differing exchange rates in different periods.

     Changes in foreign currency exchange rates for the three months ended June 30, 2010 positively impacted worldwide revenue by one percent compared with negative five percent the same period last year. The impact on profit is more difficult to determine due to the influence of other factors that we believe are also impacted by currency rate changes.

     Our foreign currency hedging program attempts to manage some of the foreign currency risks over near term periods; however, these risk management activities cannot ensure that the program will offset more than a portion of the adverse financial impact resulting from unfavorable movements in foreign exchange rates or that medium and longer term effects of exchange rates will not be significant (see Part 1, Item 3. Quantitative and Qualitative Disclosures about Market Risk in this Form 10-Q).

Financial Position

     Our cash and cash equivalents balance as of June 30, 2010 was $251.3 million, an increase of $87.9 million from $163.4 million as of December 31, 2009. The increase was attributable to reductions of receivables due to the collection of our seasonally strong fourth quarter revenues as well as significant progress within our working capital initiatives, especially the increase in days payable.

     Accounts receivable balance as of June 30, 2010 was $238.1 million, a decrease of $76.8 million from $314.9 million as of December 31, 2009 due to our working capital initiatives. Days sales outstanding was 59 days as of June 30, 2010, down 1 day from December 31, 2009. Days sales outstanding is calculated using the count-back method, which calculates the number of days of most recent revenue that is reflected in the net accounts receivable balance.

     Days of inventory supply was 69 days as of June 30, 2010, down 6 days from December 31, 2009. Days of inventory supply is calculated using the current period inventory balance divided by an estimate of the inventoriable portion of cost of goods sold expressed in days. The decrease in days of inventory supply was driven by efforts to reduce excess inventories.

     Our accounts payable balance as of June 30, 2010 was $222.5 million, an increase of $21.1 million from $201.4 million as of December 31, 2009. The increase in accounts payable was primarily due to the increase of 21 days of payables from 51 days as of December 31, 2009 to 72 days as of June 30, 2010.

     Our other current liabilities balance as of June 30, 2010 was $127.6 million, a decrease of $23.2 million from $150.8 million as of December 31, 2009. The decrease was primarily due to timing of annual payments in programs associated with rebate accruals.

25

Liquidity and Capital Resources

Cash Flows Provided by Operating Activities:

	Six Months Ended
	June 30,
(Dollars in millions)	2010			2009
Net loss	$	(18.3	)	$	(48.5	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		20.9			21.3
Deferred income taxes		(6.3	)		(20.4	)
Goodwill impairment		23.5			—
Stock-based compensation		3.2			3.8
Asset impairments		—			2.3
Note receivable reserve		—			4.0
Pension settlement		—			5.2
Litigation settlement		—			49.0
Other		2.4			0.7
Changes in operating assets and liabilities		77.1			(11.1	)
Net cash provided by operating activities	$	102.5		$	6.3

     Cash flows from operating activities can fluctuate significantly from period to period as many items can significantly impact cash flows. Cash provided by operating activities of $102.5 million for the six months ended June 30, 2010 was driven by net loss of $18.3 million as adjusted by the non-cash goodwill impairment charge of $23.5 million, cash payments of approximately $10 million related to our 2009 annual bonus program, $6.9 million under our restructuring programs and $2.4 million of pension funding. Cash provided by operating activities for the six months ended June 30, 2009 was driven by net loss of $48.5 million as adjusted by non-cash items including the Philips litigation settlement charge of $49.0 million, and cash payments of $19.4 million to TDK for a post-closing purchase price adjustment for previously unfiled European value added tax (VAT) returns, $16.1 million under our restructuring programs and $2.3 million of pension funding, offset partially by an income tax refund of $6.4 million.

Cash Flows Used in Investing Activities:

	Six Months Ended
	June 30,
(Dollars in millions)	2010			2009
Capital expenditures	$	(3.5	)	$	(7.2	)
License agreement payment		(5.0	)		—
Other, net		0.1			0.8
Net cash used in investing activities	$	(8.4	)	$	(6.4	)

     Cash used in investing activities for the six months ended June 30, 2010, included $5.0 million to extend our license agreement with ProStor Systems related to RDX removable hard disk systems and $3.5 million of capital expenditures. Cash used in investing activities for the six months ended June 30, 2009, included $7.2 million of capital expenditures of which $2.9 million related to tenant improvements associated with office space we leased out in our Oakdale, Minnesota headquarters.

Cash Flows Used in Financing Activities:

	Six Months Ended
	June 30,
(Dollars in millions)	2010		2009
Debt issuance costs		—		(2.9	)
Net cash used in financing activities	$	—	$	(2.9	)

     There was no cash used in financing activities for the six month ended June 30, 2010. Cash used in financing activities for the six months ended June 30, 2009 was due to payments made to obtain our line of credit during the second quarter of 2009.

     On January 28, 2008, the Board of Directors authorized a share repurchase program increasing the total outstanding authorization to 3.0 million shares of common stock, of which 2.3 million shares remain outstanding as of June 30, 2010. We did not repurchase shares during 2009 or during the six months ended June 30, 2010.

26

     We maintain a credit agreement which expires on March 29, 2012. As of June 30, 2010, our total availability under the credit facility was $103.7 million. The agreement contains covenants which are customary for similar credit arrangements, including covenants relating to financial reporting and notification; payment of indebtedness, taxes and other obligations; compliance with applicable laws; and limitations regarding additional liens, indebtedness, certain acquisitions, investments and dispositions of assets. We were in compliance with all covenants as of June 30, 2010. Our obligations under the Credit Agreement are guaranteed by the material domestic subsidiaries of Imation Corp. (the Guarantors) and are secured by a first priority lien (subject to customary exceptions) on the real property comprising Imation Corp.’s corporate headquarters and all of the personal property of Imation Corp., its subsidiary Imation Enterprises Corp., which is also an obligor under the Credit Agreement, and the Guarantors. Advances under the Credit Facility are limited to the lesser of (a) $200,000,000 and (b) the “Borrowing Base.” The Borrowing Base is equal to the following:

• up to 85 percent of eligible accounts receivable; plus

• up to the lesser of 65 percent of eligible inventory or 85 percent of the appraised net orderly liquidation value of eligible inventory; plus

• up to 60 percent of the appraised fair market value of eligible real estate (the Original Real Estate Value), such Original Real Estate Value to be reduced each calendar month by 1/84th, provided, that the Original Real Estate Value shall not exceed $40,000,000; plus

• such other classes of collateral as may be mutually agreed upon and at advance rates as may be determined by the Agent; minus

• such reserves as the Agent may establish in good faith.

     No borrowings were outstanding as of June 30, 2010 or June 30, 2009. Further, as of June 30, 2010 we had no credit facilities available outside the United States. Other than operating lease commitments, we are not using off balance sheet arrangements, including special purpose entities.

     Our remaining liquidity needs for the remaining six months of 2010 include the following: the Philips litigation settlement payment of $8.2 million, capital expenditures of approximately $9 million, operating lease payments of approximately $7 million, restructuring payments of approximately $8 million, pension funding of approximately $3 million to $8 million and any amounts associated with the repurchase of common stock under the authorization discussed above. We expect that cash and cash equivalents, together with cash flow from operations and availability of borrowings under our current sources of financing, will provide liquidity sufficient to meet these needs and for our operations.

Contractual Obligations

     A table of our contractual obligations was provided in Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. There were no significant changes to our contractual obligations for the first six months of 2010.

Fair Value Measurements

     See Note 11 to the Condensed Consolidated Financial Statements in Part I, Item 1 herein for further information.

Critical Accounting Policies and Estimates

     A discussion of the Company’s critical accounting policies was provided in Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. There were no significant changes to these accounting policies for the first six months of 2010.

     As discussed in Note 10 to the Condensed Consolidated Financial Statements in Part 1, Item 1 herein, in the second quarter of 2010 we realigned our corporate segments and reporting structure with how the business will be managed going forward. As part of this reorganization, we combined our Electronic Products segment with our Americas segment, and we separated our Asia Pacific segment into North Asia and South Asia regions.

• Our Americas segment includes North America, South America and the Caribbean.

• Our Europe segment includes Europe and all of Africa.

• Our North Asia segment includes Japan, China, Hong Kong, Korea and Taiwan.

• Our South Asia segment includes Australia, Singapore, India, and the Middle East.

     Our reporting units for goodwill are our operating segments with the exception of the Americas segment which is further divided between the Americas-Consumer and Americas-Commercial reporting units as determined by sales channel.

27

As a result of the segment change, the goodwill of $23.5 million which was previously allocated to the Electronics Products segment was merged into the Americas-Consumer reporting unit. The Americas-Consumer reporting unit had a fair value that was significantly less than its carrying amount prior to the combination, which is a triggering event for an interim goodwill impairment test. Goodwill is considered impaired when its carrying amount exceeds its implied fair value. A two-step impairment test was performed to identify a potential impairment and measure an impairment loss to be recognized. Based on the goodwill test performed, we determined that the carrying amount of the reporting unit significantly exceeded its fair value and that the goodwill was fully impaired.

     The first step of the impairment test involves comparing the fair value of the reporting unit to which goodwill was assigned to its carrying amount. In calculating fair value, we used a weighting of the valuations calculated using the income approach and a market approach. In determining the fair value of reporting units, we weighted values under the income approach 75 percent and values determined from market comparables 25 percent. The basis of this weighting is due to the income approach being tailored to the circumstances of the business, and the market approach being completed as a secondary test to ensure that the results of the income approach are reasonable and in line with comparable companies in the industry. The summation of our reporting units’ fair values is compared and reconciled to our market capitalization as of the date of our impairment test.

     In determining the fair value of the Americas-Consumer reporting unit under the income approach, our expected cash flows are affected by various assumptions. Fair value on a discounted cash flow basis uses forecasts over a 10 year period with an estimation of residual growth rates thereafter. We use our business plans and projections as the basis for expected future cash flows. The most significant assumptions incorporated in these forecasts for the most recent goodwill impairment test included annual revenue changes with an average annual growth rate of 3 percent and with a terminal growth rate of 3.5 percent. A discount rate of 14 percent was used to reflect the relevant risks of the higher growth assumed for this reporting unit.

     Based on the goodwill test performed, we determined that the carrying amount of the reporting unit significantly exceeded its fair value. The indicated excess in carrying amount over fair value of the Americas-Consumer reporting unit and goodwill is as follows:

			Reporting unit		Excess of carrying		Percentage of carrying
(In millions)	Goodwill		carrying amount		amount over fair value		amount over fair value
Americas-Consumer	$	23.5	$	336.5	$	173.5		206	%

     The second step of the impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill is greater than the implied fair value of the reporting unit’s goodwill an impairment loss must be recognized for the excess. This involves measuring the fair value of the reporting unit’s assets and liabilities (both recognized and unrecognized) at the time of the impairment test. The difference between the reporting unit’s fair value and the fair values assigned to the reporting unit’s individual assets and liabilities is the implied fair value of the reporting unit’s goodwill. Based on this step of the impairment test, we determined that the full amount of remaining goodwill, $23.5 million, was impaired.

Recent Accounting Pronouncements

     See Note 1 to the Condensed Consolidated Financial Statements in Part I, Item 1 herein for further information.

Forward-Looking Statements and Risk Factors

     We may from time to time make written or oral forward-looking statements with respect to our future goals, including statements contained in this Form 10-Q, in our other filings with the Securities and Exchange Commission and in our reports to shareholders.

     Certain information which does not relate to historical financial information may be deemed to constitute forward-looking statements. The words or phrases “is targeting,” “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 that could cause our actual results in the future to differ materially from our historical results and those presently anticipated or projected. We wish to caution investors not to place undue reliance on any such forward-looking statements.

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Any forward-looking statements speak only as of the date on which such statements are made and we undertake no obligation to update such statements to reflect events or circumstances arising after such date. Risk factors include our ability to successfully implement our strategy; our ability to grow our business in new products with profitable margins; the possibility that our deferred tax assets, or other assets may become further impaired; our ability to introduce new offerings in a timely manner either independently or in association with OEMs or other third parties; the market acceptance of newly introduced product and service offerings; the potential dependence on third parties for new product introductions or technologies in order to introduce our own new products; continuing uncertainty in global and regional economic conditions; foreign currency fluctuations; the volatility of the markets in which we operate; our ability to successfully manage multiple brands globally; our ability to achieve the expected benefits from our strategic relationships and distribution agreements; the competitive pricing environment and its possible impact on profitability and inventory valuations; the ready availability and price of energy and key raw materials or critical components; our ability to meet our revenue growth and cost reduction targets; our ability to secure adequate supply of certain high demand products at acceptable prices; the rate of revenue decline for certain existing products; our ability to efficiently source, warehouse and distribute our products globally; significant changes in discount rates and other assumptions used in the valuation of our pension plans; our ability to continue realizing the benefits from our global manufacturing strategy for magnetic data storage products and the related restructuring; our ability to secure and maintain adequate shelf and display space over time at retailers which conduct semi-annual or annual line reviews; the future financial and operating performance of major customers and industries served, our ability to successfully defend our intellectual property rights and the ability or willingness of our suppliers to provide adequate protection against third party intellectual property or product liability claims; the outcome of any pending or future litigation; the volatility of our stock price due to our results or market trends, as well as various factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and from time to time in our filings with the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     Except for the paragraph noted below, there has been no material change since our Annual Report on Form 10-K for the year ended December 31, 2009. For further information, see Item 7A. Quantitative and Qualitative Disclosures about Market Risk included in our Annual Report on Form 10-K for the year ended December 31, 2009.

     As of June 30, 2010, we had $84 million notional amount of foreign currency forward and option contracts of which $28 million hedged recorded balance sheet exposures. This compares to $136.8 million notional amount of foreign currency forward and option contracts as of December 31, 2009, of which $88.8 million hedged recorded balance sheet exposures. An immediate adverse change of 10 percent in quarter-end foreign currency exchange rates with all other variables (including interest rates) held constant would reduce the fair value of foreign currency contracts outstanding as of June 30, 2010 by $5.5 million.

Item 4. Controls and Procedures.

     Based on an evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of June 30, 2010, the end of the period covered by this report, the President and Chief Executive Officer, Mark E. Lucas, and the Senior Vice President and Chief Financial Officer, Paul R. Zeller, have concluded that the disclosure controls and procedures were effective.

     During the quarter ended June 30, 2010, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

     In the normal course of business, we periodically enter into agreements that incorporate general indemnification language. Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a third-party claim. There has historically been no material losses related to such indemnifications. In accordance with accounting principles generally accepted in the United States of America, we record a liability in our consolidated financial statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated.

     We are the subject of various pending or threatened legal actions in the ordinary course of our business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. Additionally, our electronics and accessories business is subject to allegations of patent infringement by our competitors as well as by non-practicing entities (NPEs), sometimes referred to as “patent trolls,” who may seek monetary settlements from us, our competitors, suppliers, and resellers. Consequently, as of June 30, 2010, we are unable to ascertain the ultimate aggregate amount of any monetary liability or financial impact that we may incur in the future with respect to these matters. While these matters could materially affect operating results depending upon the final resolution in future periods, it is our opinion that after final disposition, any monetary liability beyond that provided in the Condensed Consolidated Balance Sheet as of June 30, 2010 would not be material to our financial position.

Item 1A. Risk Factors.

     There has been no material change in the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. For further information, see Item 1A. “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

     Not applicable

Item 3. Defaults Upon Senior Securities.

     Not Applicable

Item 4. (Removed and Reserved)

Item 5. Other Information.

     Not Applicable

Item 6. Exhibits.

     The following documents are filed as part of this report:

Exhibit
Number	Description of Exhibit
3.1	Amended and Restated Bylaws of Imation Corp., effective May 5, 2010 (incorporated by reference to Exhibit 3.1 to Imation’s Form 8-K Current Report filed on May 7, 2010)
10.1	Director Compensation Program Effective May 4, 2005 (As amended May 5, 2010) (incorporated by reference to Exhibit 10.1 to Imation’s Form 8-K Current Report filed on July 6, 2010)
10.2	Form of Performance-Based Option Award Agreement for Executive Officers
10.3	Form of Performance-Based Restricted Stock Award Agreement for Executive Officers
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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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.
Date: August 6, 2010	/s/ Paul R. Zeller
	Paul R. Zeller
	Senior Vice President and Chief Financial Officer (duly authorized officer and principal financial officer)

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EXHIBIT INDEX

The following exhibits are filed as part of this report:

Exhibit
Number	Description of Exhibit
3.1	Amended and Restated Bylaws of Imation Corp., effective May 5, 2010 (incorporated by reference to Exhibit 3.1 to Imation’s Form 8-K Current Report filed on May 7, 2010)
10.1	Director Compensation Program Effective May 4, 2005 (As amended May 5, 2010) (incorporated by reference to Exhibit 10.1 to Imation’s Form 8-K Current Report filed on July 6, 2010)
10.2	Form of Performance-Based Option Award Agreement for Executive Officers
10.3	Form of Performance-Based Restricted Stock Award Agreement for Executive Officers
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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EX-10.2

Exhibit 10.2

Imation Corp. 2008 Stock Incentive Plan
Performance-Based Stock Option Agreement

     This PERFORMANCE-BASED STOCK OPTION AGREEMENT (the “Agreement”) effective as of «GrantDt» is between Imation Corp., a Delaware corporation (the “Company”), and «Name», an employee of the Company or one of its Affiliates (the “Participant”), pursuant to and subject to the terms and conditions of the Imation Corp. 2008 Stock Incentive Plan (the “Plan”).

     The Company desires to provide the Participant with an opportunity to purchase shares of the Company’s common stock, par value $.01 per share (the “Common Stock”), as provided in this Agreement in order to carry out the purpose of the Plan. The purpose of this Agreement is to evidence the terms and conditions of a Non-Qualified Performance-Based Stock Option granted to the Participant under the Plan.

     Accordingly, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Participant hereby agree as follows:

     Section 1. Grant of Non-qualified Performance-Based Stock Option. Effective «GrantDt» (the “Effective Date”), the Company granted to the Participant the right and option to purchase all or any part of an aggregate of «Shares» («NbrShares») shares of Common Stock on the terms and conditions set forth in this Agreement and in accordance with the terms of the Plan (the “Option”). The Option is not intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

     Section 2. Purchase Price. The purchase price of the shares of Common Stock subject to the Option shall be «Price» per share.

     Section 3. Term of the Option. The term of the Option (the “Option Period”) shall be for a period of ten (10) years from the Effective Date, terminating at the close of business on the tenth anniversary of the Effective Date (the “Expiration Date”) or such shorter period as provided in Section 6 hereof.

     Section 4. Vesting of the Option. Subject to Section 6 hereof, the Option may be exercised at any time or from time to time during the Option Period, as to any part or all of the shares covered thereby in accordance with the performance criteria and vesting schedule set forth on Exhibit A.

     The Committee shall validate whether the performance criteria described Exhibit A were achieved. Such validation shall be made at a meeting of the Committee as promptly as practicable after                     , shall be based on the Company’s audited financial statements and shall be final and conclusive with respect to the achievement of the performance criteria.

     Section 5. Transferability. The Option may not be assigned, transferred (other than by will or the laws of descent and distribution), pledged, hypothecated (whether by operation of law or otherwise) or otherwise conveyed or encumbered, and shall not be subject to execution, attachment or similar process.

Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions of the Plan or this Agreement, or the levy of any execution, attachment or similar process upon the Option, shall be void and unenforceable against the Company and shall constitute an immediate cancellation of the Option.

     Section 6. Effect of Termination of Employment.

          (a) In the event the Participant shall cease to be employed by the Company and all subsidiaries of the Company for any reason other than (i) Termination for Cause, (ii) Retirement, (iii) death or Disability or (iv) termination by the Company or a subsidiary of the Participant’s employment with the Company and its subsidiaries within two (2) years following a Change in Control, the Participant may exercise the Option to the extent of (but only to the extent of) the number of vested shares the Participant was entitled to purchase under the Option on the date of such termination of employment, and the exercise of the Option to that limited extent may be effected at any time within thirty (30) days after the date of such termination of employment but not thereafter; provided, however, that the Option may not be exercised after the Expiration Date.

          (b) In the event the Participant shall cease to be employed by the Company and its subsidiaries upon Termination for Cause, the Option shall be terminated as of the date of such termination.

          (c) Except as otherwise provided in Sections 6(b), 6(d) and 6(e), in the event the Participant shall cease to be employed by the Company and all subsidiaries of the Company because of Retirement, the Option, to the extent not previously exercised or forfeited, shall be exercisable to the extent of (but only to the extent of) the number of vested shares the Participant was entitled to purchase under the Option on the date of the Participant’s Retirement, and the exercise of the Option to that limited extent may be effected at any time within three (3) years after the date of the Participant’s Retirement but not thereafter; provided, however, that the Option may not be exercised after the Expiration Date. If a Participant who has thus retired dies within three (3) years after the date of the Participant’s Retirement and prior to the Expiration Date, the exercise of the Option to the limited extent provided for in the first sentence of this Section 6(c) may be effected by the Participant’s estate or by any Person or Persons to whom the Option has been transferred by will or the applicable laws of descent and distribution at any time within two (2) years after the date of the Participant’s death, but not after the Expiration Date.

          (d) In the event the Participant dies or is deemed to suffer a Disability while employed by the Company or a subsidiary, the Option, to the extent not previously exercised or forfeited, shall be exercisable to the extent of (but only to the extent of) the number of vested shares the Participant was entitled to purchase under the Option on the date of the Participant’s death or Disability. In the event of Participant’s death, the exercise of the Option to the limited extent provided for in the first sentence of this Section 6(d) may be effected by the Participant’s estate or by any Person or Persons to whom the Option has been transferred by will or the applicable laws of descent and distribution at any time within two (2) years after the date of the Participant’s death, but not after the Expiration Date.

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In the event of the Participant’s Disability, the exercise of the Option to the limited extent provided for in the first sentence of this Section 6(d) may be effected by the Participant at any time within two (2) years after the date of the Participant’s Disability, but not after the Expiration Date.

          (e) In the event the Company or a subsidiary terminates the Participant’s employment with the Company and all subsidiaries of the Company for any reason other than death, Disability or Termination for Cause within two (2) years following a Change in Control and, if (and only if) the required performance criteria described in Exhibit A has been met such that the only remaining criteria for vesting is the passage of time, then the entire Option shall become immediately exercisable in full on the date of such termination of employment, and the exercise of the Option may be effected at any time within six (6) months after the date of the Participant’s termination of employment, but not after the Expiration Date. In the event that the provisions of this Section 6(e) result in “payments” that are finally and conclusively determined by a court or Internal Revenue Service proceeding to be subject to the excise tax imposed by Section 4999 of the Code, and the Participant has not received any additional cash payment from the Company relating thereto under the provisions of Section 6 of the Severance Agreement between the Company and the Participant (the “Severance Agreement”), the Company shall pay to the Participant an additional amount such that the net amount retained by the Participant following realization of all compensation under the Plan that resulted in such “payments,” after allowing for the amount of such excise tax and any additional federal, state and local income and employment taxes paid on the additional amount, shall be equal to the net amount that would otherwise have been retained by the Participant if there were no excise tax imposed by Section 4999 of the Code. If the Participant receives any additional cash payment from the Company under Section 6 of the Severance Agreement, the foregoing sentence shall be of no force or effect and the provisions of the Severance Agreement shall be deemed to supersede the foregoing sentence in its entirety.

     Section 7. Anti-Dilution and Fundamental Change Adjustments.

          (a) In the event that any dividend or other distribution (whether in the form of cash, shares of Common Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities of the Company, issuance of warrants or other rights to purchase shares of Common Stock or other securities of the Company or other similar corporate transaction or event affects the shares of Common Stock covered by the Option such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Agreement, then the Committee shall, in such manner as it may deem equitable, adjust any or all of the number and type of the shares covered by the Option and the exercise price of the Option.

          (b) In the event of a proposed Fundamental Change, the Committee may, but shall not be obligated to:

     (i) with respect to a Fundamental Change that involves a merger or consolidation, make appropriate provision for the protection of the Option by the substitution of options and appropriate voting common stock of the corporation surviving any such merger or consolidation or, if appropriate, the “parent corporation” (as defined in Section 424(e) of the Code, or any successor provision) of the Company or such surviving corporation, in lieu of the Option and shares of Common Stock of the Company, or

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     (ii) with respect to any Fundamental Change, including, without limitation, a merger or consolidation, declare, prior to the occurrence of the Fundamental Change, and provide written notice to the holder of the Option of the declaration, that the Option, whether or not then exercisable, shall be canceled at the time of, or immediately prior to the occurrence of, the Fundamental Change in exchange for payment to the holder of the Option, within 20 days after the Fundamental Change, of cash (or, if the Committee so elects in lieu of solely cash, of such form(s) of consideration, including cash and/or property, singly or in such combination as the Committee shall determine, that the holder of the Option would have received as a result of the Fundamental Change if the holder of the Option had exercised the Option immediately prior to the Fundamental Change) equal to, for each share of Common Stock covered by the canceled Option, the amount, if any, by which the Fair Market Value (as defined in this Section 7(b)) per share of Common Stock exceeds the exercise price per share of Common Stock covered by the Option. At the time of the declaration provided for in the immediately preceding sentence, the Option shall immediately become exercisable in full and the holder of the Option shall have the right, during the period preceding the time of cancellation of the Option, to exercise the Option as to all or any part of the shares of Common Stock covered thereby in whole or in part, as the case may be. In the event of a declaration pursuant to this Section 7(b), the Option, to the extent that it shall not have been exercised prior to the Fundamental Change, shall be canceled at the time of, or immediately prior to, the Fundamental Change, as provided in the declaration. Notwithstanding the foregoing, the holder of the Option shall not be entitled to the payment provided for in this Section 7(b) if such Option shall have expired or been forfeited. For purposes of this Section 7(b) only, “Fair Market Value” per share of Common Stock means the fair market value, as determined in good faith by the Committee, of the consideration to be received per share of Common Stock by the shareholders of the Company upon the occurrence of the Fundamental Change, notwithstanding anything to the contrary provided in this Agreement.

     Section 8. Forfeiture. In the event that after the grant of the Option but prior to a Change in Control (1) the Company issues a material restatement of an initial financial statement, and (2) the Participant engaged in intentional misconduct that caused or contributed to the need for such a restatement because of material noncompliance by the Company with applicable financial reporting requirements (a “Forfeiture Event”), the Participant, at the request of the Committee made within 90 days after the restatement, shall forfeit (and shall not be entitled to exercise) the portion of the Option, if any, which has not been exercised prior to the Committee’s request. If all or any portion of the Option shall have been exercised prior to the Committee’s request, the Participant, at the request of the Committee made within 90 days after the restatement, shall forfeit those Shares, if any, purchased by the Participant upon the exercise of the Options that are owned by the Participant at the time of the initial financial statement that is subsequently restated (the “Forfeitable Shares”) and promptly remit to the Company cash equal to the Net Dividends (as hereinafter defined) received by the Participant at any time on the Forfeitable Shares.

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If the Forfeitable Shares are not owned by the Participant at the time of the Committee’s request, the Participant shall promptly remit to the Company the “Net Proceeds” (as hereinafter defined) from any sale, after the issuance of an initial financial statement that is subsequently restated, of Forfeitable Shares in lieu of the Forfeitable Shares. “Net Dividends” or “Net Proceeds” shall mean dividends or proceeds, as the case may be net of taxes paid or payable by the Participant as a result of the receipt of such dividends and the sale of such Shares in an amount reasonably determined by the Committee but including interest on the amount of cash repaid from the date of the receipt by Participant of such dividends or sale proceeds to the date of payment of such amount to the Company at a rate reasonably determined by the Committee. The Committee may, but shall not be required by Participant to, reduce the forfeiture, return and/or payment obligations hereunder to the extent that the Committee, in its sole and absolute discretion, shall deem appropriate. Nothing herein shall limit any other rights the Company shall have by law for misconduct of the Participant that caused or contributed to the need for such restatement.

     Section 9. Manner of Exercise. Subject to the terms and conditions of this Agreement, the Option may be exercised by delivering written notice to the Stock Plan Administrator pursuant to procedures prescribed by the Company from time to time. Such notice shall state the election to exercise the Option and the number of shares in respect of which it is being exercised and shall be signed by the Participant or such other Person entitled to exercise the Option. Such notice shall be accompanied by payment of the full purchase price of such shares and applicable federal, state, local and foreign withholding taxes, if any. The Participant shall deliver to the Company consideration with a value equal to such purchase price and applicable withholding taxes, if any, payable in whole or in part as follows: (a) cash, check, bank draft, money order or wire transfer payable to the order of the Company, (b) shares of Common Stock owned by the Participant at the time of exercise and/or (c) in any other form of valid consideration that is acceptable to the Committee in its sole discretion. The value of any share of Common Stock delivered in payment of all or part of the purchase price or applicable withholding taxes upon the exercise of the Option shall be the closing sale price of a share of Common Stock on the New York Stock Exchange as reported on the consolidated transaction reporting system on the date the Option shall be exercised or, if such Exchange is not open for trading on such date, on the most recent preceding date on which such Exchange is open for trading. In the event that the Option shall be exercised pursuant to Section 6(c) or 6(d) hereof by any Person or Persons other than the Participant, such notice shall be accompanied by appropriate proof of the right of such Person or Persons to exercise the Option. If the Participant fails to pay the full purchase price of such shares or applicable withholding taxes, then the Option, and right to purchase such shares, may be forfeited by the Participant, in the sole discretion of the Committee. The Option may be exercised in whole or in part to the extent the Option is exercisable in accordance with the terms of this Agreement, but only with respect to full shares of Common Stock. No fractional shares of Common Stock shall be issued upon exercise of the Option, but the Company will pay, in lieu thereof, the Fair Market Value of such fractional share.

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     Section 10. Issuance of Shares. Upon exercise of all or any portion of the Option, the Company will cause to be issued to the Participant the shares of Common Stock purchased. Notwithstanding anything to the contrary in this Agreement, the Company’s obligation to issue shares of Common Stock shall be subject to (i) all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required, including, without limitation, the effectiveness of a registration statement under the Securities Act of 1933, as amended, and (ii) the condition that such shares shall have been duly listed on the New York Stock Exchange. The Participant shall not have any of the rights and privileges of a shareholder of the Company with respect to the shares of Common Stock subject to this Option unless and until such shares are issued to the Participant upon due exercise of the Option.

     Section 11. Taxes. The Participant acknowledges that the Participant will consult with the Participant’s personal tax adviser regarding the income tax consequences of exercising the Option or any other matters related to this Agreement. In order to comply with all applicable federal, state, local or foreign income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state, local or foreign payroll, withholding, income or other taxes, which are the Participant’s sole and absolute responsibility, are withheld or collected from the Participant.

     Section 12. Definitions. Terms not defined in this Agreement shall have the meanings given to them in the Plan, and the following terms shall have the following meanings when used in this Agreement:

          (a) “Change in Control” means any one of the following events:

     (i) the consummation of a transaction or series of related transactions in which a person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than the Company or a subsidiary of the Company, or any employee benefit plan of the Company or a subsidiary of the Company, acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the Company’s then outstanding shares of Common Stock or the combined voting power of the Company’s then outstanding voting securities (other than in connection with a Business Combination in which clauses (1), (2) and (3) of paragraph (a)(iii) apply); or

     (ii) individuals who, as of the Effective Date hereof, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to the Effective Date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than a nomination of an individual whose initial assumption of office is in connection with a solicitation with respect to the election or removal of directors of the Company in opposition to the solicitation by the Board of Directors of the Company) shall be deemed to be a member of the Incumbent Board; or

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     (iii) the consummation of a reorganization, merger, statutory share exchange, consolidation or similar transaction involving the Company, a sale or other disposition in a transaction or series of related transactions of all or substantially all of the Company’s assets or the issuance by the Company of its stock in connection with the acquisition of assets or stock of another entity (each, a “Business Combination”) in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Company’s outstanding Common Stock and the Company’s outstanding voting securities immediately prior to such Business Combination beneficially own immediately after the transaction or transactions, directly or indirectly, more than 50% of the then outstanding shares of common stock and more than 50% of the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination (including an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one of more subsidiaries) in substantially the same proportions as their ownership of the Company’s Common Stock and voting securities immediately prior to such Business Combination, (2) no person, entity or group (other than a direct or indirect parent entity of the Company that, after giving effect to the Business Combination, beneficially owns 100% of the outstanding voting securities (or comparable equity interests) of the entity resulting from the Business Combination) beneficially owns, directly or indirectly, 35% or more of the outstanding shares of common stock or the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination and (3) at least a majority of the members of the board of directors (or similar governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors of the Company providing for such Business Combination; or

     (iv) approval by the stockholders of the dissolution of the Company.

          (b) “Fundamental Change” means a dissolution or liquidation of the Company, a sale of substantially all of the assets of the Company, or a merger or consolidation of the Company with or into any other corporation, regardless of whether the Company is the surviving corporation.

          (c) “Disability” shall be as defined under the Imation Corp. Long Term Disability Income Protection Plan.

          (d) “Retirement” means retirement as defined under the Imation Corp. Cash Balance Pension Plan.

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          (e) “Stock Plan Administrator” means the Committee or any Director, officer or agent of the Company designated by the Committee from time to time.

          (f) “Termination for Cause” means termination of Participant’s employment with the Company or an Affiliate for the following acts: (i) the Participant’s gross incompetence or substantial failure to perform his or her duties, (ii) misconduct by the Participant that causes or is likely to cause harm to the Company or that causes or is likely to cause harm to the Company’s reputation, as determined by the Company’s Board of Directors in its sole and absolute discretion (such misconduct may include, without limitation, insobriety at the workplace during working hours or the use of illegal drugs), (iii) failure to follow directions of the Company’s Board of Directors that are consistent with the Participant’s duties, (iv) the Participant’s conviction of, or entry of a pleading of guilty or nolo contendre to, any crime involving moral turpitude, or the entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter permanently prohibiting the Participant from participating in the conduct of the affairs of the Company or (v) any breach of this Agreement that is not remedied within thirty (30) days after receipt of written notice from the Company specifying such breach in reasonable detail.

     Section 13. Governing Law. The internal law, and not the law of conflicts, of the State of Delaware will govern all questions concerning the validity, construction and effect of this Agreement.

     Section 14. Plan Provisions. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are also provisions of this Agreement. If there is a difference or conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. By accepting this Option, the Participant confirms that the Participant has received a copy of the Plan and represents that the Participant is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all the terms and provisions of the Plan.

     Section 15. No Right to Continue Service or Employment. Nothing herein shall be construed as giving the Participant the right to continue in the employ or to provide services to the Company or any Affiliate, whether as an employee or as a consultant or otherwise, or interfere with or restrict in any way the right of the Company or any Affiliate to discharge the Participant, whether as an employee or consultant or otherwise, at any time, with or without cause. In addition, the Company or any Affiliate may discharge the Participant free from any liability or claim under this Agreement, unless otherwise expressly provide herein.

     Section 16. Entire Agreement. Except as specifically provided herein with regard to the Severance Agreement, (i) this Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to said subject matter; (ii) all prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement; and (iii) each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

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     Section 17. Modification. No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties. Notwithstanding the preceding sentence, the Plan, this Agreement and the Option may be amended, altered, suspended, discontinued or terminated to the extent permitted by the Plan.

     Section 18. Shares Subject to Agreement. The shares covered by the Option shall be subject to the terms and conditions of this Agreement. Except as otherwise provided in Section 7, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such shares. The Company shall at all times during the Option Period reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement.

     Section 19. Severability. In the event that any provision that is contained in the Plan or this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or this Agreement for any reason and under any law as deemed applicable by the Committee, the invalid, illegal or unenforceable provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or this Agreement, such provision shall be stricken as to such jurisdiction or Option, and the remainder of the Plan or this Agreement shall remain in full force and effect.

     Section 20. Headings. Headings are given to the sections and subsections of this Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Agreement or any provision hereof.

     Section 21. Participant’s Acknowledgments. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee or the Board of Directors of the Company, as appropriate, upon any questions arising under the Plan or this Agreement. Notwithstanding any of the provisions hereof, the Participant hereby agrees that the Participant will not exercise the Option granted hereby, and that the Company will not be obligated to issue any shares to the Participant hereunder, if the exercise thereof or the issuance of such shares shall constitute a violation by the Participant or the Company of any provision of any law or regulation of any governmental authority. Any determination in this connection by the Company, including the Board of Directors of the Company or the Committee, shall be final, binding and conclusive. The obligations of the Company and the rights of the Participant are subject to all applicable laws, rules and regulations.

     Section 22. Parties Bound. The terms, provisions, and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein. This Agreement shall have no force or effect unless it is duly executed and delivered by the Company.

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     The Company has caused this Agreement to be signed (which may be by electronic signature) and delivered and the Participant has caused this Agreement to be accepted (which may be by electronic acceptance) as of the date set forth above.

IMATION CORP.
By:
	Name:
	Title:

10

Exhibit A

11

EX-10.3

Exhibit 10.3

Imation Corp. 2008 Stock Incentive Plan
Performance-Based Restricted Stock Award Agreement

     This PERFORMANCE-BASED RESTRICTED STOCK AWARD AGREEMENT (the “Agreement”) effective as of «GrantDt» is between Imation Corp., a Delaware corporation (the “Company”), and , «Name» an employee of the Company or one of its Affiliates (the “Participant”), pursuant to and subject to the terms and conditions of the Imation Corp. 2008 Stock Incentive Plan (the “Plan”).

     The Company desires to award to the Participant a number of shares of the Company’s common stock, par value $.01 per share (the “Common Stock”), subject to certain restrictions as provided in this Agreement, in order to carry out the purpose of the Plan. The purpose of this Agreement is to evidence the terms and conditions of an award of Performance-Based restricted stock granted to the Participant under the Plan.

     Accordingly, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Participant hereby agree as follows:

     Section 1. Award of Performance-Based Restricted Stock. Effective «GranDt» (the “Effective Date”), the Company granted to the Participant a restricted stock award of «Shares»(«NbrShares») shares of Common Stock (the “Shares”), subject to the terms and conditions set forth in this Agreement and in accordance with the terms of the Plan (the “Restricted Stock Award”).

     Section 2. Rights with Respect to the Shares.

          (a) Stockholder Rights. With respect to the Shares, the Participant shall be entitled at all times on and after the date of issuance of the Shares to exercise the rights of a stockholder of Common Stock of the Company, including the right to vote the Shares and the right to receive dividends on the Shares as provided in Section 2(b) hereof, unless and until the Shares are forfeited pursuant to Section 3 hereof. However, the Shares shall be nontransferable and subject to a risk of forfeiture to the Company at all times prior to the dates on which such Shares become vested, and the restrictions with respect to the Shares lapse, in accordance with Section 3 of this Agreement.

          (b) Dividends. As a condition to receiving the Shares under the Plan, the Participant hereby agrees to defer the receipt of dividends paid on the Shares. Cash dividends or other cash distributions paid with respect to the Shares prior to the date or dates the Shares vest shall be subject to the same restrictions, terms and conditions as the Shares to which they relate, shall be promptly deposited with the Secretary of the Company or a custodian designated by the Secretary, and shall be forfeited in the event that the Shares with respect to which the dividends were paid are forfeited.

          (c) Issuance of Shares. The Company shall cause the Shares to be issued in the Participant’s name or in a nominee name on the Participant’s behalf, either by book-entry registration or issuance of a stock certificate or certificates evidencing the Shares, which certificate or certificates shall be held by the Secretary of the Company or the stock transfer agent or brokerage service selected by the Secretary of the Company to provide such services for the Plan.

The Shares shall be restricted from transfer and shall be subject to an appropriate stop-transfer order. If any certificate is issued, the certificate shall bear an appropriate legend referring to the restrictions applicable to the Shares. The Participant hereby agrees to the retention by the Company of the Shares and, if a stock certificate is issued, the Participant agrees to execute and deliver to the Company a blank stock power with respect to the Shares as a condition to the receipt of this Restricted Stock Award. After any Shares vest pursuant to Section 3 hereof, and following payment of the applicable withholding taxes pursuant to Section 6 of this Agreement, the Company shall promptly cause to be issued a certificate or certificates, registered in the Participant’s name, evidencing such vested whole Shares (less any Shares withheld to pay withholding taxes) and shall cause such certificate or certificates to be delivered to the Participant free of the legend and the stop-transfer order referenced above. The Company will not deliver any fractional Share but will pay, in lieu thereof, the Fair Market Value of such fractional Share at the time certificates evidencing the Shares are delivered to the Participant.

     Section 3. Vesting; Forfeiture.

          (a) Vesting. Subject to the terms and conditions of this Agreement, and except as otherwise provided in Section 3(c) hereof, the Shares shall vest, and the restrictions with respect to the Shares shall lapse, in accordance with the performance criteria and vesting schedule set forth on Exhibit A if the Participant remains continuously employed by the Company or a subsidiary of the Company until such respective vesting dates.

     The Committee shall validate whether the performance criteria described Exhibit A were achieved. Such validation shall be made at a meeting of the Committee as promptly as practicable after                                         , shall be based on the Company’s audited financial statements and shall be final and conclusive with respect to the achievement of the performance criteria.

          (b) Forfeiture. Except as otherwise provided in Section 3(c) hereof, if the Participant ceases to be employed by the Company and all subsidiaries of the Company for any reason prior to the vesting of the Shares pursuant to Section 3(a) hereof, Participant’s rights to all of the unvested Shares shall be immediately and irrevocably forfeited, including the right to vote such Shares and the right to receive dividends on such Shares.

          (c) Change in Control. Notwithstanding the vesting and forfeiture provisions contained in Sections 3(a) and 3(b) hereof, but subject to the other terms and conditions set forth in this Agreement, in the event the Company or a subsidiary terminates the Participant’s employment with the Company and all subsidiaries of the Company for any reason other than death, Disability or Termination for Cause within two (2) years following a Change in Control and, if (and only if) the required performance criteria described in Exhibit A has been met such that the only remaining criteria for vesting is the passage of time, the Participant shall become immediately vested in all of the Shares, and the restrictions with respect to the Shares shall lapse, as of the date of such termination of employment.

2

In the event that the provisions of this Section 3(c) result in “payments” that are finally and conclusively determined by a court or Internal Revenue Service proceeding to be subject to the excise tax imposed by Section 4999 of the Code, and the Participant has not received any additional cash payment from the Company relating thereto under the provisions of Section 6 of the Severance Agreement between the Company and the Participant (the “Severance Agreement”), the Company shall pay to the Participant an additional amount such that the net amount retained by the Participant following realization of all compensation under the Plan that resulted in such “payments,” after allowing for the amount of such excise tax and any additional federal, state and local income and employment taxes paid on the additional amount, shall be equal to the net amount that would otherwise have been retained by the Participant if there were no excise tax imposed by Section 4999 of the Code. If the Participant receives any additional cash payment from the Company under Section 6 of the Severance Agreement, the foregoing sentence shall be of no force or effect and the provisions of the Severance Agreement shall be deemed to supersede the foregoing sentence in its entirety.

          (d) Early Vesting. Except as provided in Section 3(c) hereof or unless otherwise determined by the Committee in its sole discretion, and notwithstanding any provisions contained in the Severance Agreement, in no event will any of the Shares vest prior to their respective vesting dates set forth in Section 3(a) hereof.

          (e) Clawback. In the event that after the grant of the Restricted Stock Award but prior to a Change in Control (1) the Company issues a material restatement of an initial financial statement, and (2) the Participant engaged in intentional misconduct that caused or contributed to the need for such a restatement because of material noncompliance by the Company with applicable financial reporting requirements (a “Forfeiture Event”), the Participant, at the request of the Committee made within 90 days after the restatement, shall forfeit those Shares, if any, owned by the Participant at the time of the initial financial statement that is subsequently restated, regardless of whether those Shares are subject to restrictions at such time or whether the restrictions on such Shares shall have lapsed (the “Forfeitable Shares”). In addition, if a Forfeiture Event occurs, the Participant, at the Committee’s request (which request must be made within 90 days after the restatement), shall forfeit all dividends deferred pursuant to Section 2(b) with respect to the Forfeitable Shares that then remain subject to restrictions prior to the Committee’s request and promptly remit to the Company cash equal to the Net Dividends (as hereinafter defined) received by the Participant at any time on the Forfeitable Shares. If the Forfeitable Shares are not owned by the Participant at the time of the Committee’s request, the Participant shall promptly remit to the Company the “Net Proceeds” (as hereinafter defined) from any sale, after the issuance of an initial financial statement that is subsequently restated, of Forfeitable Shares in lieu of the Forfeitable Shares. “Net Dividends” or “Net Proceeds” shall mean dividends or proceeds, as the case may be net of taxes paid or payable by the Participant as a result of the receipt of such dividends and the sale of such Shares in an amount reasonably determined by the Committee but including interest on the amount of cash repaid from the date of the receipt by Participant of such dividends or sale proceeds to the date of payment of such amount to the Company at a rate reasonably determined by the Committee. The Committee may, but shall not be required by Participant to, reduce the forfeiture, return and/or payment obligations hereunder to the extent that the Committee, in its sole and absolute discretion, shall deem appropriate. Nothing herein shall limit any other rights the Company shall have by law for misconduct of the Participant that caused or contributed to the need for such restatement.

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     Section 4. Restrictions on Transfer. Until the Shares vest pursuant to Section 3 hereof, neither the Shares, nor any right with respect to the Shares under this Agreement, may be sold, assigned, transferred, pledged, hypothecated (by operation of law or otherwise) or otherwise conveyed or encumbered and shall not be subject to execution, attachment or similar process. Any attempted sale, assignment, transfer, pledge, hypothecation or other conveyance or encumbrance shall be void and unenforceable against the Company or any Affiliate of the Company.

     Section 5. Distributions and Adjustments.

          (a) If any Shares vest subsequent to any change in the number or character of the Common Stock of the Company through any stock dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities of the Company, issuance of warrants or other rights to purchase shares of Common Stock or other securities of the Company or other similar corporate transaction or event such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Agreement, then the Committee shall, in such manner as it may deem equitable, adjust any or all of the number and type of such Shares.

          (b) Any additional shares of Common Stock of the Company, any other securities of the Company and any other property distributed with respect to the Shares prior to the date or dates the Shares vest shall be subject to the same restrictions, terms and conditions as the Shares to which they relate and shall be promptly deposited with the Secretary of the Company or a custodian designated by the Secretary.

     Section 6. Taxes.

          (a) The Participant acknowledges that the Participant will consult with the Participant’s personal tax adviser regarding the income tax consequences of the grant of the Shares, payment of dividends on the Shares, the vesting of the Shares and any other matters related to this Agreement. In order to comply with all applicable federal, state, local or foreign income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state, local or foreign payroll, withholding, income or other taxes, which are the Participant’s sole and absolute responsibility, are withheld or collected from the Participant.

          (b) In accordance with the terms of the Plan, and such rules as may be adopted by the Committee administering the Plan, the Participant may elect to satisfy tax withholding obligations arising from the receipt of, or the lapse of restrictions relating to, the Shares by (i) delivering cash, check, bank draft, money order or wire transfer payable to the order of the Company, (ii) having the Company withhold a portion of the Shares otherwise to be delivered having a Fair Market Value equal to the amount of such taxes, or (iii) delivering to the Company shares of Common Stock having a Fair Market Value equal to the amount of such taxes. The Company will not deliver any fractional Share but will pay, in lieu thereof, the Fair Market Value of such fractional Share. The Participant’s election must be made on or before the date that the amount of tax to be withheld is determined.

4

If the Participant does not make an election, the Company will withhold a portion of the Shares otherwise to be delivered having a Fair Market Value equal to the amount of such taxes.

     Section 7. Definitions. Terms not defined in this Agreement shall have the meanings given to them in the Plan, and the following terms shall have the following meanings when used in this Agreement:

          (a) “Change in Control” means any one of the following events:

     (i) the consummation of a transaction or series of related transactions in which a person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than the Company or a subsidiary of the Company, or any employee benefit plan of the Company or a subsidiary of the Company, acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the Company’s then outstanding shares of Common Stock or the combined voting power of the Company’s then outstanding voting securities (other than in connection with a Business Combination in which clauses (1), (2) and (3) of paragraph (a)(iii) apply); or

     (ii) individuals who, as of the Effective Date hereof, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to the Effective Date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than a nomination of an individual whose initial assumption of office is in connection with a solicitation with respect to the election or removal of directors of the Company in opposition to the solicitation by the Board of Directors of the Company) shall be deemed to be a member of the Incumbent Board; or

     (iii) the consummation of a reorganization, merger, statutory share exchange, consolidation or similar transaction involving the Company, a sale or other disposition in a transaction or series of related transactions of all or substantially all of the Company’s assets or the issuance by the Company of its stock in connection with the acquisition of assets or stock of another entity (each, a “Business Combination”) in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Company’s outstanding Common Stock and the Company’s outstanding voting securities immediately prior to such Business Combination beneficially own immediately after the transaction or transactions, directly or indirectly, more than 50% of the then outstanding shares of common stock and more than 50% of the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination (including an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one of more subsidiaries) in substantially the same proportions as their ownership of the Company’s Common Stock and voting securities immediately prior to such Business Combination, (2) no person, entity or group (other than a direct or indirect parent entity of the Company that, after giving effect to the Business Combination, beneficially owns 100% of the outstanding voting securities (or comparable equity interests) of the entity resulting from the Business Combination) beneficially owns, directly or indirectly, 35% or more of the outstanding shares of common stock or the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination and (3) at least a majority of the members of the board of directors (or similar governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors of the Company providing for such Business Combination; or

5

     (iv) approval by the stockholders of the dissolution of the Company.

          (b) “Disability” shall be as defined under the Imation Corp. Long Term Disability Income Protection Plan.

          (c) “Termination for Cause” means termination of Participant’s employment with the Company or an Affiliate for the following acts: (i) the Participant’s gross incompetence or substantial failure to perform his or her duties, (ii) misconduct by the Participant that causes or is likely to cause harm to the Company or that causes or is likely to cause harm to the Company’s reputation, as determined by the Company’s Board of Directors in its sole and absolute discretion (such misconduct may include, without limitation, insobriety at the workplace during working hours or the use of illegal drugs), (iii) failure to follow directions of the Company’s Board of Directors that are consistent with the Participant’s duties, (iv) the Participant’s conviction of, or entry of a pleading of guilty or nolo contendre to, any crime involving moral turpitude, or the entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter permanently prohibiting the Participant from participating in the conduct of the affairs of the Company or (v) any breach of this Agreement that is not remedied within thirty (30) days after receipt of written notice from the Company specifying such breach in reasonable detail.

     Section 8. Governing Law. The internal law, and not the law of conflicts, of the State of Delaware will govern all questions concerning the validity, construction and effect of this Agreement.

     Section 9. Plan Provisions. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are also provisions of this Agreement. If there is a difference or conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. By signing this Agreement, the Participant confirms that the Participant has received a copy of the Plan and represents that the Participant is familiar with the terms and provisions thereof, and hereby accepts this Restricted Stock Award subject to all the terms and provisions of the Plan.

6

     Section 10. No Rights to Continue Service or Employment. Nothing herein shall be construed as giving the Participant the right to continue in the employ or to provide services to the Company or any Affiliate, whether as an employee or as a consultant or otherwise, or interfere with or restrict in any way the right of the Company or any Affiliate to discharge the Participant, whether as an employee or consultant or otherwise, at any time, with or without cause. In addition, the Company or any Affiliate may discharge the Participant free from any liability or claim under this Agreement, unless otherwise expressly provided herein.

     Section 11. Entire Agreement. Except as specifically provided herein with regard to the Severance Agreement, (i) this Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to said subject matter; (ii) all prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement; and (iii) each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

     Section 12. Modification. No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties. Notwithstanding the preceding sentence, the Plan, this Agreement and the Restricted Stock Award may be amended, altered, suspended, discontinued or terminated to the extent permitted by the Plan.

     Section 13. Shares Subject to Agreement. The Shares shall be subject to the terms and conditions of this Agreement. Except as otherwise provided in Section 5, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of the Shares. The Company shall not be required to deliver any Shares until the requirements of any federal or state securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Committee to be applicable are satisfied.

     Section 14. Severability. In the event that any provision that is contained in the Plan or this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or this Agreement for any reason and under any law as deemed applicable by the Committee, the invalid, illegal or unenforceable provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or this Agreement, such provision shall be stricken as to such jurisdiction or Shares, and the remainder of the Plan or this Agreement shall remain in full force and effect.

     Section 15. Headings. Headings are given to the sections and subsections of this Agreement solely as a convenience to facilitate reference.

7

Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Agreement or any provision hereof.

     Section 16. Participant’s Acknowledgments. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee or the Board of Directors of the Company, as appropriate, upon any questions arising under the Plan or this Agreement. Any determination in this connection by the Company, including the Board of Directors of the Company or the Committee, shall be final, binding and conclusive. The obligations of the Company and the rights of the Participant are subject to all applicable laws, rules and regulations.

     Section 17. Parties Bound. The terms, provisions and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein. This Agreement shall have no force or effect unless it is duly executed and delivered by the Company and the Participant or until such Agreement is delivered and accepted through any electronic medium in accordance with procedures established by the Company.

     The Company has caused this Agreement to be signed (which may be by electronic signature) and delivered and the Participant has caused this Agreement to be accepted (which may be by electronic acceptance) as of the date set forth above.

IMATION CORP.
By:
	Name:
	Title:

8

Exhibit A

9

EX-31.1

Exhibit 31.1

Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002

     I, Mark E. Lucas, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Imation Corp.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d - -15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a -15(f) and 15d -15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 6, 2010

By:	/s/ MARK E. LUCAS
	Mark E. Lucas,
	President and Chief Executive Officer

33

EX-31.2

Exhibit 31.2

Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002

     I, Paul R. Zeller, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Imation Corp.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d - -15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a -15(f) and 15d -15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 6, 2010

By:	/s/ PAUL R. ZELLER
	Paul R. Zeller,
	Senior Vice President and Chief Financial Officer

34

EX-32.1

Exhibit 32.1

Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

     In connection with the Quarterly Report of Imation Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Mark E. Lucas, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 6, 2010

/s/ MARK E. LUCAS  

Mark E. Lucas, 

President and Chief Executive Officer 

35

EX-32.2

Exhibit 32.2

Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

     In connection with the Quarterly Report of Imation Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Paul R. Zeller, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 6, 2010

/s/ PAUL R. ZELLER  

Paul R. Zeller, 

Senior Vice President and Chief Financial Officer 

36