Retirement Plans

Pension Plans

We have various non-contributory defined benefit pension plans covering substantially all United States employees and certain employees outside the United States. Total pension expense was $2.4 million, $4.5 million and $15.1 million in 2011, 2010 and 2009, respectively. Total pension expense decreased year over year due primarily to lower service and interest costs. The measurement date of our pension plans is December 31. We expect to contribute approximately $7 million to $10 million to our pension plans in 2012. It is our general practice, at a minimum, to fund amounts sufficient to meet the requirements set forth in applicable benefits laws and local tax laws. From time to time, we contribute additional amounts, as we deem appropriate.

In connection with actions taken under our previously announced restructuring programs, the number of employees accumulating benefits under our pension plan in the United States has declined significantly. Participants in our U.S. pension plan have the option of receiving cash lump sum payments when exiting the plan, which a number of participants exiting the pension plan have elected to receive. Lump sum payments in 2011 exceeded our 2010 service and interest costs; as a result a partial settlement event occurred and we recognized a pro-rata portion of the previously unrecognized net actuarial loss. We incurred partial settlement losses of $2.5 million, $2.5 million and $7.1 million in 2011, 2010 and 2009, respectively, which are included in restructuring and other expense on our Consolidated Statements of Operations. Further, as required by GAAP, we remeasured the funded status of our United States plan as of the date of the settlements.

Effective January 1, 2010, the U.S. pension plan was amended to exclude new hires and rehires from participating in the plan. Furthermore, we eliminated benefit accruals under the United States defined benefit pension plan as of January 1, 2011, thus “freezing” the defined benefit pension plan. Under the plan freeze, no pay credits will be made to a participant’s account balance after December 31, 2010. However, interest credits will continue in accordance with the annual update process. These actions resulted in the recognition of all prior service cost as a curtailment loss of $0.3 million in 2010, included as a component of restructuring and other in the Consolidated Statements of Operations. Due to the timing of this plan amendment we remeasured the funded status of our U.S. pension plan in conjunction with the annual remeasurement as of December 31, 2010.

In connection with actions taken under our previously announced restructuring programs, we fully terminated a defined benefit pension plan in Canada during the year ended December 31, 2009. We purchased annuities to fully fund our obligation and removed the Company from future liability. A full settlement event occurred and we recognized the previously unrecognized net actuarial position and incurred a settlement loss of $4.6 million, which is included in restructuring and other expense on our Consolidated Statements of Operations.

For the U.S. pension plan, employees who have completed three years or more of service, including service with 3M Company before July 1, 1996, or who have reached age 65, are entitled to pension benefits beginning at normal retirement age (65) based primarily on employees’ pay credits and interest credits. Through December 31, 2009, pay credits were made to each eligible participant’s account equal to six percent of that participant’s eligible earnings for the year. Beginning on January 1, 2010 and through December 31, 2010, pay credits were reduced to three percent of each participant’s eligible earnings. In conjunction with the plan freeze, no additional pay credits will be made to a participant’s account balance after December 31, 2010. A monthly interest credit is made to each eligible participant’s account based on the participant’s account balance as of the last day of the preceding year. The interest credit rate is established annually and is based on the interest rate of certain low-risk debt instruments. The interest credit rate was 4.19 percent for 2011. In accordance with the annual update process, the interest credit rate will be 3.02 percent for 2012.

The U.S. pension plan permits four payment options: a lump-sum option, a life income option, a survivor option or a period certain option. If a participant terminates prior to completing three years of service, the participant forfeits the right to receive benefits under the pension plan unless the participant has reached the age of 65 at the time of termination.

The benefit obligations and plan assets, changes to the benefit obligations and plan assets, and the funded status of the defined benefit plan were as follows:



	United States						International
	As of December 31,						As of December 31,
	2011			2010			2011			2010
	(In millions)
Change in benefit obligation
Benefit obligation, beginning of year	$	93.8		$	96.7		$	58.9		$	59.2
Service cost	—			1.7			0.7			0.6
Interest cost	4.2			4.8			2.5			2.8
Actuarial (gain) loss	5.1			1.9			4.4			(1.5		)
Benefits paid	(8.4		)	(1.6		)	(2.2		)	(2.1		)
Settlements	(2.5		)	(9.0		)	(8.4		)	—
Foreign exchange rate changes	—			—			(0.3		)	(1.4		)
Plan amendments	—			—			—			1.3
Curtailments	—			(0.7		)	—			—
Projected benefit obligation, end of year	$	92.2		$	93.8		$	55.6		$	58.9
Change in plan assets
Fair value of plan assets, beginning of year	$	70.9		$	64.1		$	61.2		$	59.0
Actual return on plan assets	(0.9		)	9.3			1.6			4.2
Foreign exchange rate changes	—			—			(0.3		)	(1.7		)
Company contributions	10.5			8.1			3.8			1.8
Benefits paid	(8.4		)	(1.6		)	(2.2		)	(2.1		)
Settlements	(2.5		)	(9.0		)	(10.6		)	—
Fair value of plan assets, end of year	$	69.6		$	70.9		$	53.5		$	61.2
Funded status of the plan, end of year	$	(22.6	)	$	(22.9	)	$	(2.1	)	$	2.3

Amounts recognized in the Consolidated Balance Sheets consisted of the following:



	United States						International
	As of December 31,						As of December 31,
	2011			2010			2011			2010
	(In millions)
Noncurrent assets	$	—		$	—		$	4.6		$	6.4
Noncurrent liabilities	(22.6		)	(22.9		)	(6.7		)	(4.1		)
Accumulated other comprehensive loss — pre-tax	30.2			21.6			8.6			2.7

Amounts recognized in accumulated other comprehensive loss consisted of the following:



	United States				International
	As of December 31,				As of December 31,
	2011		2010		2011			2010
	(In millions)
Net actuarial loss	$	30.2	$	21.6	$	13.3		$	7.3
Prior service cost (credit)	—		—		(6.5		)	(6.7		)
Transition asset obligation	—		—		1.8			2.1
Total	$	30.2	$	21.6	$	8.6		$	2.7

The following table includes information for pension plans with an accumulated benefit obligation in excess of plan assets. This excludes our plans which have plan assets in excess of accumulated benefit obligations.



	United States				International
	As of December 31,				As of December 31,
	2011		2010		2011		2010
	(In millions)
Projected benefit obligation, end of year	$	92.2	$	93.8	$	31.7	$	29.0
Accumulated benefit obligation, end of year	92.2		93.7		31.4		28.8
Plan assets at fair value, end of year	69.6		70.9		25.1		25.1

Components of net periodic benefit costs included the following:



	United States									International
	Years Ended December 31,									Years Ended December 31,
	2011			2010			2009			2011			2010			2009
	(In millions)
Service cost	$	—		$	1.7		$	2.8		$	0.7		$	0.6		$	0.7
Interest cost	4.2			4.8			5.4			2.5			2.8			3.2
Expected return on plan assets	(6.3		)	(5.7		)	(6.5		)	(3.0		)	(3.1		)	(3.0		)
Amortization of net actuarial loss	1.2			0.4			0.2			0.2			0.2			0.4
Amortization of prior service cost (credit)	—			0.1			0.1			(0.5		)	(0.4		)	(0.2		)
Amortization of transition obligation	—			—			—			0.3			0.3			0.3
Net periodic benefit cost	$	(0.9	)	$	1.3		$	2.0		$	0.2		$	0.4		$	1.4
Settlements and curtailments	2.5			2.8			7.1			0.6			—			4.6
Total pension costs	$	1.6		$	4.1		$	9.1		$	0.8		$	0.4		$	6.0

The estimated net actuarial loss, prior service credit and net obligations at transition for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit costs over the next fiscal year are $1.7 million loss, $0.5 million credit and $0.3 million obligation, respectively.

Weighted-average assumptions used to determine benefit obligations were as follows:



	United States				International
	As of December 31,				As of December 31,
	2011		2010		2011		2010
Discount rate	3.75	%	5.00	%	4.07	%	4.77	%
Rate of compensation increase	—	%	4.75	%	3.05	%	1.30	%

Weighted-average assumptions used to determine net periodic benefit costs were as follows:



	United States						International
	As of December 31,						As of December 31,
	2011		2010		2009		2011		2010		2009
Discount rate	4.75	%	5.30	%	5.60	%	4.56	%	5.00	%	5.79	%
Expected return on plan assets	8.00	%	8.00	%	8.00	%	4.92	%	5.52	%	5.07	%
Rate of compensation increase	—	%	4.75	%	4.75	%	2.77	%	2.98	%	3.56	%

The discount rate is determined through a modeling process utilizing a customized portfolio of high-quality bonds whose annual cash flows cover the expected benefit payments of the plan, as well as comparing the results of our modeling to other corporate bond and pension liability indices. Beginning in 2011, the projected salary increase assumption was not applicable in the United States due to the elimination of benefit accruals as of January 1, 2011. The expected long-term rate of return on plan assets is chosen from the range of likely results of compounded average annual returns over a 10-year time horizon based on the plans’ current investment policy. The expected return and volatility for each asset class is based on historical equity, bond and cash market returns. While this approach considers recent fund performance and historical returns, the assumption is primarily a long-term, prospective rate.

The plans’ asset allocations by asset category were as follows:



	United States				International
	As of December 31,				As of December 31,
	2011		2010		2011		2010
Short-term investments	2	%	3	%	1	%	1	%
Fixed income securities	15	%	19	%	41	%	36	%
Equity securities	65	%	66	%	24	%	32	%
Absolute return strategy equity funds	18	%	12	%	—	%	—	%
Insurance contracts	—	%	—	%	34	%	31	%
Total	100	%	100	%	100	%	100	%

In the United States, we maintain target allocation percentages among various asset classes based on an investment policy established for the plan, which is designed to achieve long-term objectives of return, while mitigating against downside risk and considering expected cash flows. The current target asset allocation includes equity securities at 50 to 80 percent, fixed income securities at 15 to 25 percent and other investments at 10 to 20 percent. Other investments include absolute return strategies investments and insurance contracts. Management reviews our United States investment policy for the plan at least annually. Outside the United States, the investment objectives are similar to the United States, subject to local regulations. In some countries, a higher percentage allocation to fixed income securities is required and certain investment objectives are coordinated through insurance contract strategies for all contracts rather than individual Imation insurance contracts.

The following benefit payments as of December 31, 2011, reflect expected future services and are expected to be paid in each of the next five years and in the aggregate for the five years thereafter:



	United States		International
	(In millions)
2012	$	19.6	$	2.1
2013	5.0		2.2
2014	4.7		2.3
2015	5.0		2.4
2016	5.7		2.6
2017-2021	27.9		14.3

The assets of our pension plans are valued at fair value. 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).

Short-term investments:

Carrying value of these assets approximates fair value because maturities are generally less than three months.

Equity securities:

Valued at the closing price reported on the major market on which the individual securities are traded.

Fixed income securities:

Valued using quoted prices of the securities or, if unavailable, using quoted prices of securities with similar characteristics in an active market.

Other investments include absolute return strategy funds which consist primarily of private partnership interests in hedge funds and foreign government insurance contracts.

Mutual funds and absolute return strategy funds are valued using net asset value (NAV) of shares held as of December 31, 2011. The NAV is a quoted transactional price for participants in the fund which do not represent an active market. In relation to these investments, there are no unfunded commitments and shares can be redeemed with minimal restrictions and can do so daily. Events that may lead to a restriction to transact with the funds are not considered probable.

These methods may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, while we believe the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different value measurement as of December 31, 2011. Investments, in general, are subject to various risks, including credit, interest and overall market volatility risks. The December 31, 2010 fair value leveling disclosures were revised to correct the presentation of certain investments in the U.S. pension plan as Level 2 equity securities rather than as Level 3 equity securities, as previously disclosed. The effects of the change in disclosures are not considered material to the financial statements. There were no transfers into or out of Level 1 or Level 2 during the year ended December 31, 2011.

The fair value of the plan assets by asset category were as follows:



	December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Short-term investments:
Money markets	$	1.5	$	1.5	$	—	$	—
Commingled trust funds	—		—		—		—
Mutual funds	0.1		—		0.1		—
Other short-term investments	0.2		—		0.2		—
Fixed income securities:
Mutual funds	32.6		10.7		21.9		—
Equity securities:
Blended mutual funds	19.8		6.8		13.0		—
Large-cap growth funds	18.0		—		18.0		—
Small-cap growth funds	6.7		6.7		—		—
Small-cap value funds	6.6		6.6		—		—
Commingled trust funds	7.1		—		7.1		—
Growth mutual funds	—		—		—		—
Other investments:
Insurance contracts	18.3		—		18.3		—
Absolute return strategy funds	12.2		—		12.2		—
Total	$	123.1	$	32.3	$	90.8	$	—



	December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Short-term investments:
Money markets	$	1.5	$	1.5	$	—	$	—
Commingled trust funds	—		—		—		—
Mutual funds	0.2		—		0.2		—
Other short-term investments	0.2		—		0.2		—
Fixed income securities:
Mutual funds	35.6		13.2		22.4		—
Equity securities:
Blended mutual funds	26.4		7.9		18.5		—
Large-cap growth funds	18.3		—		18.3		—
Small-cap growth funds	6.9		6.9		—		—
Small-cap value funds	6.8		6.8		—		—
Commingled trust funds	7.2		—		7.2		—
Growth mutual funds	1.1		1.1		—		—
Other investments:
Insurance contracts	18.8		—		18.8		—
Absolute return strategy funds	8.7		—		8.7		—
Total	$	131.7	$	37.4	$	94.3	$	—

Employee Retirement Savings Plans

We sponsor a 401(k) retirement savings plan under which eligible United States employees may choose to save up to 20 percent of eligible compensation on a pre-tax basis, subject to certain IRS limitations. From January 1 to March 31, 2009, we matched 100 percent of employee contributions up to the first three percent of eligible compensation plus 50 percent on the next two percent of eligible compensation. Between April 2009 and December 31, 2009, we matched 50 percent of employee contributions on the first three percent of eligible compensation and 25 percent on the next two percent of eligible compensation in our stock. In November 2009, we determined it was appropriate to reinstate our 401(k) Plan matching contribution to the rate applied prior to April 2009. The reinstatement became effective January 1, 2010 and continued through December 31, 2010. Effective January 1, 2011, we match 100 percent of employee contributions up to the first five percent of eligible compensation.

We also sponsor a variable compensation program in which we may, at our discretion, contribute up to three percent of eligible employee compensation to employees’ 401(k) retirement accounts, depending upon total company performance. No contributions have been made under the variable compensation program for the years ended 2011, 2010 or 2009.

We used shares of treasury stock to match employee 401(k) contributions for 2011, 2010 and 2009. Total expense related to the use of shares of treasury stock to match employee 401(k) contributions was $2.1 million, $1.7 million and $1.3 million in 2011, 2010 and 2009, respectively.