Commitments and Contingencies

Litigation

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 December 31, 2011, 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 Consolidated Balance Sheet as of December 31, 2011 would not be material to our Consolidated Financial Statements.

On June 14, 2011, Trek 2000 International Ltd and certain of its affiliates (“Trek”) filed a complaint asking the International Trade Commission (“ITC”) to commence an investigation against us and various others. Trek alleges that Imation and others unlawfully import and sell into the United States certain universal serial bus (“USB”) portable storage devices that allegedly infringe several of Trek's U.S. patents. Trek seeks to block the importation of the allegedly offending products into the United States. On August 15, 2011, we filed an answer to Trek's complaint, denying liability and asserting that Trek fails to meet certain requirements to bring its complaint to the ITC. This investigation is in the discovery phase. The hearing is scheduled for May 9-16, 2012; the initial determination is expected July 19, 2012; and the target date for the completion of this investigation is November 19, 2012. Although this proceeding is subject to the uncertainties inherent in the litigation process, based on the information presently available to us, management does not expect that the ultimate resolution of this action will have a material adverse effect on our financial condition, results of operations or cash flows.

On January 11, 2011, we signed a patent cross-license agreement with SanDisk to settle two patent cases filed by SanDisk in Federal District Court against our flash memory products, including USB drives and solid state disk (SSD) drives. Under the terms of the cross-license, we will pay SanDisk royalties on certain flash memory products that were previously not licensed. The specific terms of the cross-license are confidential. The cross-license agreement required us to make a one-time payment of $2.6 million in 2011, which was included in litigation settlement expense in the Consolidated Statements of Operations during 2010.

On June 19, 2009 Advanced Research Corp. (ARC) sued Imation in Ramsey County District Court for breach of contract relating to a supply agreement under which we purchased our requirements for magnetic heads to write servo patterns on magnetic tape prior to sale of the finished cartridges, requesting the court to order that Imation pay damages and return the purchased heads to ARC. In September 2011 we agreed to a settlement by which we agreed to pay ARC $2.0 million, which is included in litigation settlement expense in the Consolidated Statements of Operations during 2011.

A litigation settlement charge of $49.0 million was recorded in 2009. 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 $53.0 million over a period of three years. Based on the present value of these settlement payments, we recorded a charge of $49.0 million in the second quarter of 2009. We made payments of $8.3 million, $8.2 million and $20.0 million in 2011, 2010 and 2009, respectively. Interest accretion of $1.2 million, $1.5 million and $0.8 million was recorded in 2011, 2010 and 2009, respectively. The interest accretion is included in the interest expense on our Consolidated Statements of Operations.

Operating Leases

We incur rent expense under operating leases, which primarily relate to equipment and office space. Most long-term leases include one or more options to renew at the then fair rental value for a period of approximately one to three years. The following table sets forth the components of rent expense for the years ended December 31:



	2011			2010			2009
	(In millions)
Minimum lease payments	$	8.7		$	9.6		$	10.3
Contingent rentals	4.5			7.2			18.0
Rental income	(3.1		)	(2.9		)	(2.8		)
Sublease income	(0.8		)	(0.5		)	(0.3		)
Total rental expense	$	9.3		$	13.4		$	25.2

Minimum lease payments and contingent rental expenses incurred due to agreements with warehouse providers are included as a component of cost of goods sold in the Consolidated Statements of Operations. The minimum lease payments under such arrangements were $0.8 million, $2.0 million and $2.2 million in 2011, 2010 and 2009, respectively. The contingent rental expenses under such arrangements were $1.7 million, $3.6 million and $5.8 million in 2011, 2010 and 2009, respectively.

The following table sets forth the minimum rental payments under operating leases with non-cancelable terms in excess of one year as of December 31, 2011:



	2012		2013		2014		2015		2016		Thereafter		Total
	(In millions)
Minimum lease payments	$	7.8	$	6.3	$	2.4	$	1.0	$	0.3	$	0.1	$	17.9

Minimum payments have not been reduced by minimum sublease rentals of approximately $1.1 million due in the future under non-cancelable lease agreements.

Environmental Matters

Our operations are subject to a wide range of federal, state and local environmental laws. Environmental remediation costs are accrued when a probable liability has been determined and the amount of such liability has been reasonably estimated. These accruals are reviewed periodically as remediation and investigatory activities proceed and are adjusted accordingly. Compliance with environmental regulations has not had a material adverse effect on our financial results. As of December 31, 2011, we had environmental-related accruals totaling $0.5 million recorded in other liabilities and we have minor remedial activities underway at one of our prior manufacturing facilities. We believe that our accruals are adequate, though there can be no assurance that the amount of expense relating to remediation actions and compliance with applicable environmental laws will not exceed the amounts reflected in our accruals.