10-Q 1 imn0930201310-q.htm 10-Q IMN 09.30.2013 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
R
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
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
incorporation or organization)
 
(I.R.S. Employer
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. R 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). R 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 R
 
Non-accelerated filer o(Do not check if a smaller reporting company)
 
Smaller reporting companyo
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes R No
     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 41,805,568 shares of Common Stock, par value $0.01 per share, were outstanding October 31, 2013.


IMATION CORP.
TABLE OF CONTENTS
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 EX-101


2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

3

IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except for per share amounts)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2013
 
2012
 
2013
 
2012
Net revenue
 
$
191.9

 
$
227.4

 
$
628.0

 
$
739.9

Cost of goods sold
 
155.8

 
184.3

 
494.6

 
593.6

Gross profit
 
36.1

 
43.1

 
133.4

 
146.3

Operating expenses:
 
 
 
 
 
 
 
 
Selling, general and administrative
 
46.3

 
45.8

 
142.1

 
145.4

Research and development
 
4.6

 
4.6

 
14.3

 
15.7

Restructuring and other
 
11.7

 
(3.6
)
 
18.2

 
2.0

Total
 
62.6

 
46.8

 
174.6

 
163.1

Operating loss
 
(26.5
)
 
(3.7
)
 
(41.2
)
 
(16.8
)
Other expense (income):
 
 
 
 
 
 
 
 
Interest income
 
(0.1
)
 
(0.1
)
 
(0.1
)
 
(0.4
)
Interest expense
 
0.7

 
0.6

 
2.0

 
2.4

Other, net
 
1.1

 
(0.4
)
 
1.0

 
2.2

Total
 
1.7

 
0.1

 
2.9

 
4.2

Loss from continuing operations before income taxes
 
(28.2
)
 
(3.8
)
 
(44.1
)
 
(21.0
)
Income tax (benefit) provision
 
(2.0
)
 
—

 
(0.5
)
 
1.5

Loss from continuing operations
 
(26.2
)
 
(3.8
)
 
(43.6
)
 
(22.5
)
Discontinued operations:
 
 
 
 
 
 
 
 
Loss from discontinued businesses, net of income taxes
 
(8.7
)
 
(2.5
)
 
(17.5
)
 
(8.0
)
Net loss
 
$
(34.9
)

$
(6.3
)
 
$
(61.1
)
 
$
(30.5
)
 
 
 
 
 
 
 
 
 
Loss per common share — basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.65
)
 
$
(0.10
)
 
$
(1.08
)
 
$
(0.60
)
Discontinued operations
 
(0.21
)
 
(0.07
)
 
(0.43
)
 
(0.21
)
Net loss
 
(0.86
)
 
(0.17
)
 
(1.51
)
 
(0.81
)
Loss per common share — diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.65
)
 
$
(0.10
)
 
$
(1.08
)
 
$
(0.60
)
Discontinued operations
 
(0.21
)
 
(0.07
)
 
(0.43
)
 
(0.21
)
Net loss
 
(0.86
)
 
(0.17
)
 
(1.51
)
 
(0.81
)
Weighted average shares outstanding — basic:
 
40.5

 
37.4

 
40.5

 
37.6

Weighted average shares outstanding — diluted:
 
40.5

 
37.4

 
40.5

 
37.6

 
 
 
 
 
 
 
 
 

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

4


IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In millions)
(Unaudited)


 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2013
 
2012
 
2013
 
2012
Net loss
 
$
(34.9
)
 
$
(6.3
)
 
$
(61.1
)
 
$
(30.5
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Net unrealized losses on derivative financial instruments:
 
 
 
 
 
 
 
 
Net holding (losses) gains arising during the period
 
(0.5
)
 
(0.6
)
 
4.1

 
0.3

Reclassification adjustment for net realized gains included in net loss
 
(2.0
)
 
(0.5
)
 
(5.2
)
 
(1.2
)
Total net unrealized losses on derivative financial instruments
 
(2.5
)
 
(1.1
)
 
(1.1
)
 
(0.9
)
 
 
 
 
 
 
 
 
 
Net pension adjustments:
 
 
 
 
 
 
 
 
Adjustments for defined benefit plans
 
5.3

 
2.5

 
9.8

 
3.0

 
 
 
 
 
 
 
 
 
Unrealized foreign currency translation gains (losses)
 
5.3

 
3.1

 
(5.6
)
 
1.3

 
 
 
 
 
 
 
 
 
Total other comprehensive income (loss), net of tax
 
8.1

 
4.5

 
3.1

 
3.4

 
 
 
 
 
 
 
 
 
Comprehensive loss
 
$
(26.8
)
 
$
(1.8
)
 
$
(58.0
)
 
$
(27.1
)

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


5

IMATION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
September 30,
 
December 31,
 
 
2013
 
2012
Assets
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
108.4

 
$
108.7

Accounts receivable, net
 
146.9

 
220.8

Inventories
 
113.9

 
166.0

Other current assets
 
55.4

 
61.6

Total current assets
 
424.6

 
557.1

Property, plant and equipment, net
 
52.5

 
58.9

Intangible assets, net
 
70.9

 
81.9

Goodwill
 
71.7

 
73.5

Other assets
 
15.9

 
22.1

Total assets
 
$
635.6

 
$
793.5

Liabilities and Shareholders’ Equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
103.8

 
$
162.7

Short-term debt
 
20.0

 
20.0

Other current liabilities
 
122.2

 
158.4

Total current liabilities
 
246.0

 
341.1

Other liabilities
 
43.4

 
52.0

Total liabilities
 
289.4

 
393.1

Commitments and contingencies (Note 15)
 


 


Shareholders’ equity
 
346.2

 
400.4

Total liabilities and shareholders’ equity
 
$
635.6

 
$
793.5

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



6

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

 
 
Nine Months Ended
 
 
September 30,
 
 
2013
 
2012
Cash Flows from Operating Activities:
 
 
 
 
Net loss
 
$
(61.1
)
 
$
(30.5
)
Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
18.3

 
27.8

Stock-based compensation
 
5.1

 
5.5

Loss on settlement of pension plan
 
10.6

 
—

Loss on disposal group in discontinued operations
 
5.5

 
—

Other, net
 
(6.3
)
 
(4.2
)
Changes in operating assets and liabilities
 
34.7

 
(21.2
)
Net cash provided by (used in) operating activities
 
6.8

 
(22.6
)
Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
 
(5.2
)
 
(8.4
)
Proceeds from purchase price adjustment
 
1.6

 
—

Proceeds from sale of assets
 
0.4

 
1.4

Proceeds from investments
 
—

 
0.9

Net cash used in investing activities
 
(3.2
)
 
(6.1
)
Cash Flows from Financing Activities:
 
 
 
 
Purchase of treasury stock
 
(2.5
)
 
(4.9
)
Debt issuance costs
 
(0.4
)
 
(2.4
)
Contingent consideration payments
 
(0.5
)
 
(1.2
)
Net cash used in financing activities
 
(3.4
)
 
(8.5
)
Effect of exchange rate changes on cash and cash equivalents
 
(0.5
)
 
0.4

Net change in cash and cash equivalents
 
(0.3
)
 
(36.8
)
Cash and cash equivalents — beginning of period
 
108.7

 
223.1

Cash and cash equivalents — end of period
 
$
108.4

 
$
186.3

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



7

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, comprehensive loss 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 (U.S. GAAP) 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, 2012 Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Financial Statements but does not include all disclosures required by U.S. GAAP. 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, 2012.
On February 13, 2013, we announced our plans to divest our XtremeMacTM and MemorexTM consumer electronics businesses. The results of operations for these businesses are presented in our Condensed Consolidated Statements of Operations as discontinued operations for all periods presented. The consumer storage business under the Memorex and TDK Life on RecordTM brands and the consumer electronics business under the TDK Life on Record brand are being retained. See Note 4 - Acquisitions and Divestitures for further information.
Note 2 — Recently Issued or Adopted Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (FASB) issued amendments to allow the Federal Funds Effective Swap Rate (which is the Overnight Index Swap rate, or OIS rate, in the U.S.) to be designated as a benchmark interest rate for hedge accounting purposes under the derivatives and hedging guidance. The amendments also allow for the use of different benchmark rates for similar hedges. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. This amended guidance did not have a material impact on our condensed consolidated financial position and results of operations.
In July 2013, the FASB issued amendments to guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments require entities to present an unrecognized tax benefit netted against certain deferred tax assets when specific requirements are met. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 with early adoption permitted. The amendments only affect gross versus net presentation and do not impact the calculation of the unrecognized tax benefit. The impact of the amended guidance will not have an impact on our consolidated financial position.

Note 3 — (Loss) Earnings per Common Share
Basic (loss) earnings per common share is calculated using the weighted average number of shares outstanding for the period. Diluted (loss) earnings per common share is computed on the basis of the weighted average shares outstanding plus the dilutive effect of our stock-based compensation plans using the “treasury stock” method. Unvested restricted stock and treasury shares are excluded from the calculation of weighted average number of common shares outstanding. Once restricted stock vests, it is included in our common shares outstanding.
Potential common shares are excluded from the computation of diluted (loss) earnings per common share when the effect would be anti-dilutive. All potential common shares are anti-dilutive in periods of net loss available to common shareholders. Stock options are anti-dilutive when the exercise price of these instruments is greater than the average market price of the Company's common stock for the period.
The following table sets forth the computation of the weighted average basic and diluted (loss) earnings per share:

8

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In millions, except for per share amounts)
 
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
 
Loss from continuing operations
 
$
(26.2
)
 
$
(3.8
)
 
$
(43.6
)
 
$
(22.5
)
Loss from discontinued operations
 
(8.7
)
 
(2.5
)
 
(17.5
)
 
(8.0
)
Net loss
 
$
(34.9
)
 
$
(6.3
)
 
$
(61.1
)
 
$
(30.5
)
Denominator:
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding during the period
 
40.5

 
37.4

 
40.5

 
37.6

Dilutive effect of stock-based compensation plans
 
—

 
—

 
—

 
—

Weighted average number of diluted shares outstanding during the period
 
40.5

 
37.4

 
40.5

 
37.6

 
 
 
 
 
 
 
 
 
(Loss) earnings per common share — basic
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.65
)
 
$
(0.10
)
 
$
(1.08
)
 
$
(0.60
)
Discontinued operations
 
(0.21
)
 
(0.07
)
 
(0.43
)
 
(0.21
)
Net loss
 
(0.86
)
 
(0.17
)
 
(1.51
)
 
(0.81
)
(Loss) earnings per common share — diluted
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.65
)
 
$
(0.10
)
 
$
(1.08
)
 
$
(0.60
)
Discontinued operations
 
(0.21
)
 
(0.07
)
 
(0.43
)
 
(0.21
)
Net loss
 
(0.86
)
 
(0.17
)
 
(1.51
)
 
(0.81
)
Anti-dilutive shares excluded from calculation
 
5.9

 
6.5

 
6.3

 
6.2


Note 4 — Acquisitions and Divestitures
Acquisitions
On December 31, 2012, we acquired Nexsan Corporation (Nexsan), a provider of disk-based storage systems with a portfolio of disk-based and hybrid disk-and-solid-state storage systems, for a purchase price of $120.1 million. The acquisition resulted in $65.5 million of goodwill. During the nine months ended September 30, 2013, the purchase price was adjusted to reflect working capital variances in accordance with the merger agreement. This adjustment resulted in a decrease to goodwill of $1.6 million and a cash receipt for this amount. As of September 30, 2013, our purchase price allocation is preliminary pending final evaluation of income tax balances, which will take place by December 31, 2013. See Note 6 - Intangible Assets and Goodwill for more information regarding goodwill.
On June 4, 2011, we acquired the assets of MXI Security (MXI). The purchase price included a contingent consideration arrangement with an estimated fair value of $0.6 million at December 31, 2012. See Note 4 - Acquisitions in our 2012 Annual Report on Form 10-K for further information regarding the contingent consideration.
We remeasure the estimated fair value of the remaining contingent consideration each reporting period. At September 30, 2013, our estimated fair value of this contingent consideration was determined to be $0.2 million. We did not record an adjustment in the fair value of the contingent consideration in the three months ended September 30, 2013. We recorded a decrease of $0.4 million in the fair value of this contingent consideration from December 31, 2012 in the nine months ended September 30, 2013 as a benefit in the restructuring and other line in the Condensed Consolidated Statements of Operations.
On February 28, 2011, we acquired substantially all of the assets of BeCompliant Corporation, doing business as Encryptx (Encryptx). The purchase price included future contingent consideration with an estimated fair value of $0.6 million at December 31, 2012. The final contingent consideration payment of $0.8 million was determined based on certain 2012 milestones and was paid during the first quarter of 2013. In the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2013, $0.5 million was presented in cash flows from financing activities and the remaining $0.3 million was presented in cash flows from operating activities as it pertains to the excess of actual payments over the initially recognized fair value of the contingent consideration.
During the second quarter of 2012, we recorded a working capital adjustment to the purchase price in our acquisition of the secure data hardware of IronKey Systems Inc. in the amount of $0.6 million. As the purchase accounting for this acquisition was finalized in 2011, the adjustment was recorded as a charge to restructuring and other in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2012.

9

Discontinued Operations
On February 13, 2013, we announced our plans to divest our XtremeMac and Memorex consumer electronics businesses. The consumer storage business under the Memorex and TDK Life on Record brands and the consumer electronics business under the TDK Life on Record brand are being retained. These expected divestitures are part of the acceleration of our strategic transformation that we announced during the fourth quarter of 2012 in conjunction with our plan to increase focus on data storage and security. As a part of exiting these disposal groups, we plan to sell the assets directly associated with these businesses, which primarily include inventory, tooling and intangible assets.
On October 15, 2013 we completed the sale of the Memorex consumer electronics business. We do not expect a loss in the fourth quarter of 2013 on this transaction. In addition, we currently have a signed term sheet for the sale of the XtremeMac business and we anticipate that a sale will be completed by December 31, 2013. Based on the estimated value of the expected consideration to be received, we have adjusted the carrying value of the XtremeMac disposal group as of September 30, 2013 and recorded a charge of $5.5 million in the three and nine months ended September 30, 2013 as an element of discontinued operations. We do not expect a loss in the fourth quarter of 2013 upon the closing of this transaction. Total proceeds to be received from discontinuing these businesses are estimated at approximately $19 million, with approximately $10 million spread between the fourth quarter of 2013 and early 2014, and the balance over the next several years. Proceeds expected to be received consist of various forms of consideration including up-front payments, notes receivable, guaranteed minimum royalties and a percent of the value of inventory transferred.
The operating results for these businesses are presented in our Condensed Consolidated Statements of Operations as discontinued operations for all periods presented and reflect revenues and expenses that are directly attributable to these businesses that will be eliminated from ongoing operations. See Note 7 - Restructuring and Other for disclosure of severance expense that was recorded relating to these planned divestitures.
The key components of discontinued operations were as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In millions)
 
2013
 
2012
 
2013
 
2012
Net revenue
 
$
10.5

 
$
20.8

 
$
33.9

 
$
60.6

 
 
 
 
 
 
 
 
 
Loss from operations of discontinued businesses, before income taxes
 
$
(3.2
)
 
$
(2.8
)
 
$
(12.0
)
 
$
(8.9
)
Adjustment to carrying value of disposal group
 
(5.5
)
 
—

 
(5.5
)
 
—

Income tax benefit
 
—

 
(0.3
)
 
—

 
(0.9
)
Loss from discontinued businesses, net of income taxes
 
$
(8.7
)
 
$
(2.5
)
 
$
(17.5
)
 
$
(8.0
)


10

Note 5 — Supplemental Balance Sheet Information
 
 
September 30,
 
December 31,
(In millions)
 
2013
 
2012
Accounts Receivable
 
 
 
 
Accounts receivable
 
$
163.5

 
$
238.8

Less reserves and allowances1
 
(16.6
)
 
(18.0
)
Accounts receivable, net
 
$
146.9

 
$
220.8

Inventories
 
 
 
 
Finished goods
 
$
102.9

 
$
146.9

Work in process
 
5.1

 
6.4

Raw materials and supplies
 
5.9

 
12.7

Total inventories
 
$
113.9

 
$
166.0

Other Current Assets
 
 
 
 
Non-trade receivables
 
$
6.1

 
$
15.1

Deferred income taxes
 
5.0

 
4.7

Prepaid expenses
 
5.5

 
5.4

Hedging asset
 
4.0

 
5.5

Assets held for sale2
 
14.3

 
2.5

Restricted cash3
 
—

 
7.5

Other
 
20.5

 
20.9

Total other current assets
 
$
55.4

 
$
61.6

Property, Plant and Equipment
 
 
 
 
Property, plant and equipment
 
$
208.0

 
$
222.6

Less accumulated depreciation
 
(155.5
)
 
(163.7
)
Property, plant and equipment, net
 
$
52.5

 
$
58.9


1Accounts receivable reserves and allowances include estimated amounts for customer returns, discounts on payment terms and the inability of certain customers to make the required payment.
2Assets held for sale include assets in our XtremeMac and Memorex consumer electronics businesses transferred to held for sale during 2013 as a result of the planned divestiture of these businesses. See Note 4 - Acquisitions and Divestitures for more information on these planned divestitures.
3Restricted cash at December 31, 2012 primarily included cash acquired from Nexsan that was previously restricted for certain obligations of Nexsan. Such obligations were fulfilled during the first quarter of 2013.



11

 
 
September 30,
 
December 31,
(In millions)
 
2013
 
2012
Other Assets
 
 
 
 
Deferred income taxes
 
$
10.5

 
$
9.3

Pension assets1
 
—

 
6.6

Credit facility fees
 
1.9

 
2.3

Other
 
3.5

 
3.9

Total other assets
 
$
15.9

 
$
22.1

Other Current Liabilities
 
 
 
 
Rebates
 
$
31.7

 
$
44.8

Accrued European consumer copyright levies
 
18.8

 
27.7

Accrued payroll
 
16.4

 
11.4

Accrued royalties
 
6.4

 
7.5

Deferred revenue
 
8.0

 
6.9

Accrued employee severance and related
 
3.0

 
16.7

Hedging liability
 
1.2

 
1.3

Other
 
36.7

 
42.1

Total other current liabilities
 
$
122.2

 
$
158.4

Other Liabilities
 
 
 
 
Pension liabilities
 
$
21.2

 
$
28.1

Deferred revenue
 
2.5

 
2.5

Deferred income taxes
 
2.3

 
2.1

Other
 
17.4

 
19.3

Total other liabilities
 
$
43.4

 
$
52.0

 
1The reduction in pension assets as of September 30, 2013 is a result of the settlement of our UK Pension Plan. See Note 9 - Retirement Plans for more information.

Note 6 — Intangible Assets and Goodwill
Intangible Assets
The components of our amortizable intangible assets were as follows:
(In millions)
 
Trade Names
 
Software
 
Customer Relationships
 
Other
 
Total
September 30, 2013
 
 
 
 
 
 
 
 
 
 
Gross carrying amount
 
$
33.9

 
$
58.6

 
$
20.5

 
$
26.7

 
$
139.7

Accumulated amortization
 
(7.9
)
 
(53.1
)
 
(1.9
)
 
(5.9
)
 
(68.8
)
Intangible assets, net
 
$
26.0

 
$
5.5

 
$
18.6

 
$
20.8

 
$
70.9

December 31, 2012
 
 
 
 
 
 
 
 
 
 
Gross carrying amount
 
$
37.7

 
$
58.4

 
$
21.2

 
$
26.8

 
$
144.1

Accumulated amortization
 
(6.0
)
 
(52.0
)
 
(1.0
)
 
(3.2
)
 
(62.2
)
Intangible assets, net
 
$
31.7

 
$
6.4

 
$
20.2

 
$
23.6

 
$
81.9

Other net intangible assets as of September 30, 2013 consists primarily of $18.8 million of developed technology.
Amortization expense for intangible assets consisted of the following:

12

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In millions)
 
2013
 
2012
 
2013
 
2012
Amortization expense
 
$
3.4

 
$
7.2

 
$
10.3

 
$
21.7

Based on the intangible assets in service as of September, 2013, estimated amortization expense for the remainder of 2013 and each of the next five years is as follows:
(In millions)
 
 2013 (Remainder)
 
2014
 
2015
 
2016
 
2017
 
2018
Amortization expense
 
$
3.8

 
$
12.7

 
$
11.2

 
$
9.2

 
$
8.2

 
$
6.5

Goodwill
During the nine months ended September 30, 2013, we recorded a decrease in goodwill of $1.6 million due to the working capital adjustment to the Nexsan acquisition purchase price. Additionally, goodwill decreased $0.2 million due to foreign currency translation. See Note 4 - Acquisitions and Divestitures for further information regarding the Nexsan acquisition and this adjustment.
We test the carrying amount of a reporting unit's goodwill for impairment on an annual basis during the fourth quarter of each year and if an event occurs or circumstances change that would warrant impairment testing during an interim period. Through September 30, 2013, our actual 2013 results for the Mobile Security reporting unit are lower than originally planned, primarily because of factors that we believe are short-term and temporary in nature. Despite the lower than anticipated results for 2013, we currently do not believe there are significant changes to the longer-term cash flow projections for the Mobile Security reporting unit. Our internal business plan associated with Mobile Security is being updated during the fourth quarter of 2013. While we presently believe our longer-term forecasts associated with Mobile Security have not been negatively impacted compared to previous projections, it is reasonably possible that, upon the completion of our fourth quarter 2013 internal business plan update, we may incur an impairment charge related to goodwill in the Mobile Security reporting unit. The Mobile Security reporting unit contains $8.0 million of goodwill as of September 30, 2013.

Note 7 — Restructuring and Other Expense
The components of our restructuring and other expense included in the Condensed Consolidated Statements of Operations were as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In millions)
 
2013
 
2012
 
2013
 
2012
Restructuring
 
 
 
 
 
 
 
 
Severance and related
 
$
(0.2
)
 
$
—

 
$
1.0

 
$
2.8

Lease termination costs
 
0.1

 
—

 
0.7

 
0.5

Gain on sale of fixed assets held for sale
 
—

 
—

 
—

 
(0.7
)
Other
 
0.6

 
0.1

 
1.9

 
1.2

Total restructuring
 
$
0.5

 
$
0.1

 
$
3.6

 
$
3.8

Other
 
 
 
 
 
 
 
 
Contingent consideration fair value adjustment
 
—

 
(5.5
)
 
(0.4
)
 
(8.3
)
Intangible asset abandonment
 
—

 
—

 
—

 
1.3

Acquisition and integration related costs
 
0.6

 
0.1

 
1.8

 
1.3

Pension settlement
 
0.2

 
0.5

 
1.7

 
2.0

Settlement of UK pension plan
 
10.6

 
—

 
10.6

 
—

Other
 
(0.2
)
 
1.2

 
0.9

 
1.9

Total
 
$
11.7

 
$
(3.6
)
 
$
18.2

 
$
2.0

During the three and nine months ended September 30, 2013, severance expense of $0.3 million and $1.7 million, respectively, related to employees directly associated with XtremeMac and Memorex consumer electronics businesses was

13

recorded in discontinued operations. See Note 4 - Acquisitions and Divestitures for additional information related to our discontinued operations. This expense is excluded from the table above.
2012 Global Process Improvement Restructuring Program
On October 22, 2012, the Board of Directors approved the Global Process Improvement Restructuring Program (GPI Program) related to the realignment of our business structure and the reduction of our operating expenses in excess of 25 percent over time. This program addresses product line rationalization and infrastructure, and is anticipated to include a reduction of approximately 20 percent of our global workforce. Since the inception of this program, we have recorded a total of $14.9 million of severance and related expenses, $5.1 million of inventory write-offs, $2.8 million of other charges and $0.8 million of lease termination costs. Inventory write-offs are included in cost of goods sold in our Consolidated Statements of Operations. Restructuring charges under this plan will continue to be incurred throughout the remainder of 2013.
Changes in the 2012 GPI Program accruals were as follows:
(In millions)
 
Severance and Related
 
Lease Termination Costs
 
Other
 
Total
Accrued balance at December 31, 2012
 
$
15.4

 
$
0.5

 
$
1.0

 
$
16.9

Charges
 
1.7

 
0.1

 
0.8

 
2.6

Usage and payments
 
(5.0
)
 
(0.1
)
 
(0.2
)
 
(5.3
)
Currency impacts
 
(0.2
)
 
—

 
(0.1
)
 
(0.3
)
Accrued balance at March 31, 2013
 
$
11.9

 
$
0.5

 
$
1.5

 
$
13.9

Charges
 
0.9

 
0.5

 
0.5

 
1.9

Usage and payments
 
(6.5
)
 
(0.2
)
 
(0.4
)
 
(7.1
)
Currency impacts
 
0.1

 
(0.1
)
 
—

 
—

Accrued balance at June 30, 2013
 
$
6.4

 
$
0.7

 
$
1.6

 
$
8.7

Charges
 
0.1

 
0.1

 
0.7

 
0.9

Usage and payments
 
(3.9
)
 
(0.2
)
 
(0.4
)
 
(4.5
)
Currency impacts
 
0.1

 
—

 
(0.1
)
 
—

Accrued balance at September 30, 2013
 
$
2.7

 
$
0.6

 
$
1.8

 
$
5.1

We have land in Camarillo, California, related to a manufacturing facility that was previously closed and demolished as part of a prior restructuring program. This land continues to meet the criteria for held for sale accounting and, therefore, remains classified in other current assets on the Consolidated Balance Sheet as of September 30, 2013 at a book value of $0.2 million. On October 7, 2011 we entered into an agreement to sell the land for $10.5 million, contingent upon the change of certain zoning requirements for the land as well as other standard conditions. If these conditions are met, the sale is expected to close in the fourth quarter of 2013.

Note 8 — Stock-Based Compensation
Stock compensation consisted of the following:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In millions)
 
2013
 
2012
 
2013
 
2012
Stock compensation expense
 
$
1.9

 
$
1.9

 
$
5.1

 
$
5.5

We have stock-based compensation awards consisting of stock options and restricted stock outstanding under five plans (collectively, the Stock Plans) which are described in detail in our 2012 Annual Report on Form 10-K. On May 8, 2013, at the Company's 2013 Annual Meeting of Shareholders, the Company's shareholders approved various amendments to our 2011 Stock Incentive Plan (2011 Incentive Plan) including increasing the number of shares of our common stock that may be issued pursuant to stock-based awards made under the 2011 Incentive Plan by 1,543,000 shares to a total of 6,043,000 shares. As of September 30, 2013 there were 2,082,057 shares available for grant under the 2011 Incentive Plan. No further shares were available for grant under any other stock incentive plan.
On September 24, 2013 we granted 2.9 million stock appreciation rights (SARs) under the 2011 Incentive Plan to certain employees associated with our Nexsan and Mobile Security operations. These awards expire in five years and only vest when

14

both of the market and performance conditions specified by the terms of the SARs are met. For the market conditions, based on the terms of the awards, 50 percent of the SARs may vest if the 30-day average Imation stock price reaches $10 per share or more by December 31, 2016 and the remaining 50 percent of the SARs may vest if the 30-day average Imation stock price reaches $15 per share or more by December 31, 2016. Additionally, for the performance condition, as a condition necessary for vesting, the net revenue of Nexsan or Mobile Security (depending on the award) must reach certain specified stretch targets by December 31, 2016. If exercised, the SARs require a cash payment to the holder in an amount based on the Imation stock price at the date of exercise as compared to $4.03. As of September 30, 2013 we have not recorded any compensation expense associated with these SARs based on the applicable accounting rules. We will continue to assess these SARs each quarter to determine if any expense should be recorded.
Stock Options
The following table summarizes our stock option activity:
 
 
Stock Options
 
Weighted Average Exercise Price
Outstanding December 31, 2012
 
5,818,472

 
$
16.57

Granted
 
1,034,406

 
3.85

Exercised
 
—

 
—

Canceled
 
(1,001,382
)
 
25.67

Forfeited
 
(382,493
)
 
7.22

Outstanding September 30, 2013
 
5,469,003

 
$
13.14

Exercisable as of September 30, 2013
 
3,411,153

 
$
17.65

The outstanding options are non-qualified and generally have a term of ten years. The weighted average grant date fair value of options that were granted for the nine months ended September 30, 2013 was $1.61 per award. The following table summarizes our weighted average assumptions used in the valuation of options:
 
2013
Volatility
42.8
%
Risk-free interest rate
1.1
%
Expected life (months)
72

Dividend yield
—

As of September 30, 2013, there was $3.7 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 1.6 years.
Restricted Stock
The following table summarizes our restricted stock activity:
 
 
Restricted Stock
 
Weighted Average Grant Date Fair Value Per Share
Nonvested as of December 31, 2012
 
1,025,804

 
$
7.12

Granted
 
837,443

 
3.75

Vested
 
(511,796
)
 
7.22

Forfeited
 
(80,203
)
 
7.25

Nonvested as of September 30, 2013
 
1,271,248

 
$
4.86

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.
As of September 30, 2013, there was $4.4 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 1.5 years.

Note 9 — Retirement Plans

15

Pension Plans
During the three and nine months ended September 30, 2013 we contributed $0.3 million and $1.0 million, respectively, to our worldwide pension plans. We presently anticipate contributing $0.0 million to $2.0 million to fund our worldwide pension plans during the remainder of 2013.
In connection with actions taken under our announced restructuring programs, the number of employees accumulating benefits under our pension plan in the United States continues to decline. Participants in our U.S. defined benefit pension plan have the option of receiving cash lump sum payments when exiting the plan, which a number of participants exiting the plan have elected to receive. Lump sum payments for the nine months ended September 30, 2013 have exceeded our expected 2013 service and interest costs. As a result, a partial settlement event occurred during the three and nine months ended September 30, 2013 and we recognized a settlement loss of $0.2 million and $1.7 million, respectively. A settlement loss of $0.5 million and $2.0 million was also recognized for the three and nine months ended September 30, 2012. These settlement losses are included in restructuring and other in our Condensed Consolidated Statements of Operations. Additionally, in connection with the settlement and as required by pension accounting, we remeasured the funded status of our U.S. defined benefit plan as of September 30, 2013 and have adjusted the funded status on our Condensed Consolidated Balance Sheets as of September 30 2013, accordingly.
We have a defined benefit pension plan located in the United Kingdom (UK Plan) for former employees with no current employees in the plan. On September 17, 2013 we settled our UK Plan by way of a transaction with Pension Insurance Corporation (PIC) whereby PIC fully assumed the projected benefit obligation and underlying plan assets. The net balance assumed by PIC represents an asset balance of $6.4 million and no cash consideration took place between Imation and PIC associated with this transaction. As a result of this transaction, we removed this net asset and related unrecognized net actuarial loss in other comprehensive loss and recorded a loss of $10.6 million in restructuring and other in the Condensed Consolidated Statements of Operations during the three and nine months ended September 30, 2013. Additionally, the settlement of the UK Plan resulted in the removal of a deferred tax liability related to the plan resulting in a $2.3 million credit to income tax expense for the three and nine months ended September 30, 2013. See Note 10 - Income Taxes for further discussion of the impact on the income tax rate. It is a standard practice in the United Kingdom (UK) for a review process by the UK government, entailing a review of the plan obligations and participant data, to occur upon a transaction such as this one involving a transfer of a pension plan. We expect that this government review will be completed within the next twelve months. Upon the conclusion of this regulatory review, we will record a true-up, if necessary, in the period in which it occurs.
Components of net periodic pension cost included the following:
 
 
United States
 
International
 
United States
 
International
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Service cost
 
$
—

 
$
—

 
$
0.1

 
$
0.1

 
$
—

 
$
—

 
$
0.3

 
$
0.3

Interest cost
 
0.9

 
0.8

 
—

 
—

 
2.4

 
2.4

 
—

 
—

Expected return on plan assets
 
(1.2
)
 
(1.4
)
 
—

 
—

 
(3.7
)
 
(4.3
)
 
—

 
—

Amortization of net actuarial loss
 
0.4

 
0.4

 
0.1

 
0.1

 
1.3

 
1.0

 
0.3

 
0.3

Net periodic pension cost (credit)
 
$
0.1

 
$
(0.2
)
 
$
0.2

 
$
0.2

 
$
—

 
$
(0.9
)
 
$
0.6

 
$
0.6

Settlement
 
0.2

 
0.5

 
10.6

 
—

 
1.7

 
2.0

 
10.6

 
—

Total pension cost
 
$
0.3

 
$
0.3

 
$
10.8

 
$
0.2

 
$
1.7

 
$
1.1

 
$
11.2

 
$
0.6


Note 10 — Income Taxes
For interim income tax reporting, we are required to estimate our annual effective tax rate and apply it to year-to-date pre-tax ordinary income/loss excluding unusual or infrequently occurring discrete items. Tax jurisdictions with losses for which tax benefits cannot be realized are excluded.
For the three and nine months ended September 30, 2013 we recorded income tax benefit of $2.0 million and $0.5 million, respectively. For the three months ended September 30, 2012, we recorded no income tax expense. For the nine months ended September 30, 2012, we recorded income tax expense of $1.5 million. The increase in tax benefit for the three and nine months ended September 30, 2013 was driven by a discrete tax benefit of $2.3 million resulting from the removal of a deferred tax liability related to the settlement of our UK pension plan, changes in withholding tax expense and the mix of taxable income (loss) by country. See Note 9 - Retirement Plans for further information on the settlement of our UK pension plan. The effective income tax rate for the three and nine months ended September 30, 2013 differs from the U.S. federal statutory rate of

16

35 percent primarily due to the full valuation allowance on U.S. deferred tax assets and the effects of foreign tax rate differential.
We conduct business globally. As a result, we file income tax returns in multiple jurisdictions and are subject to review by various U.S and foreign taxing authorities. Our U.S. federal income tax returns for 2010 and 2011 are subject to examination by the Internal Revenue Service (IRS). With few exceptions, we are no longer subject to examination by foreign tax jurisdictions or state and city tax jurisdictions for years before 2006. In the event that we have determined not to file tax returns with a particular state or city, all years remain subject to examination by the tax jurisdiction.
We accrue for the effects of uncertain tax positions and the related potential penalties and interest. Our liability related to uncertain tax positions, which is presented within the other liabilities line on our Condensed Consolidated Balance Sheets and which includes interest and penalties, was $4.6 million and $4.7 million as of September 30, 2013 and December 31, 2012, respectively. 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; however it is not possible to reasonably estimate the effect upon the unrecognized tax benefits at this time.
Note 11 — Debt
Our Credit Agreement entered into in 2006 and its amendments (the Credit Agreement) are described in Note 11 - Debt of our Annual Report on Form 10-K for the year ended December 31, 2012. As of September 30, 2013, our borrowing capacity under this arrangement, after consideration of amounts outstanding, was $71.7 million, consisting of $59.5 million in the United States and $12.2 million in Europe.
As of September 30, 2013, we had $20.0 million of borrowings outstanding under the Credit Agreement, all of which was borrowed in the United States and bears an interest rate of 2.2 percent. We are in compliance with all covenant requirements as of September 30, 2013.
On July 16, 2013, we entered into an additional credit agreement for a revolving credit facility with a lender in Japan with Imation Corporation Japan as the borrower and Imation Corp. as the guarantor. We intend to use the credit facility for general operating purposes. The credit agreement is a three year asset-based revolving credit facility with a borrowing base consistent with our existing Credit Agreement that allows for the borrowing of amounts up to 2.0 billion Japanese Yen, or approximately $20.0 million. Borrowings under the credit facility will bear interest at an interest rate equal to the base rate based on LIBOR or TIBOR plus the applicable margins provided for in the credit agreement. The credit agreement contains financial covenants applicable to Imation Corporation Japan including a fixed charge coverage ratio requirement. As of September 30, 2013, our borrowing capacity under this arrangement was $10.1 million and we did not have any borrowings outstanding under this credit facility. We are in compliance with all covenant requirements as of September 30, 2013.
Note 12 — Fair Value Measurements
Derivative Financial Instruments
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 the currency exchange rates through the use of option, forward and combination option contracts. Gains and losses related to cash flow hedges are deferred in accumulated other comprehensive loss with a corresponding asset or liability. When the hedged transaction occurs, the gains and losses in accumulated other comprehensive loss are reclassified into the Condensed Consolidated Statements of Operations in the same line as the item being hedged. The following table sets forth our cash flow hedges which are measured at fair value on a recurring basis.

17

 
 
September 30, 2013
 
December 31, 2012
(In millions)
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Unobservable
Inputs
(Level 3)
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Unobservable
Inputs
(Level 3)
Derivative assets
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency option contracts
 
$
—

 
$
3.9

 
$
—

 
$
—

 
$
5.5

 
$
—

Foreign currency forward contracts
 
—

 
0.1

 
—

 
—

 
—

 
—

Derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency option contracts
 
—

 
(1.2
)
 
—

 
—

 
(1.2
)
 
—

Foreign currency forward contracts
 
—

 
—

 
—

 
—

 
(0.1
)
 
—

Total
 
$
—

 
$
2.8

 
$
—

 
$
—

 
$
4.2

 
$
—

Other Derivative Instruments
We use foreign currency forward contracts 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 forward contracts within other current assets or other current liabilities on our Condensed Consolidated Balance Sheets and because we do not receive hedge accounting for these derivatives, changes in their value are recognized every reporting period in the Condensed Consolidated Statements of Operations.
For the three months ended September 30, 2013 and 2012, we recorded foreign currency losses of $0.6 million and $0.1 million, respectively, in other expense (income) in the Condensed Consolidated Statements of Operations. These losses reflect changes in foreign exchange rates on foreign denominated assets and liabilities and are net of gains of $0.2 million and losses of $0.1 million from the related foreign currency forward contracts for the three months ended September 30, 2013 and 2012, respectively.
For the nine months ended September 30, 2013 and 2012, there were no foreign currency gains (losses) and losses of $1.8 million, respectively, in other expense (income) in the Condensed Consolidated Statements of Operations. These gains and losses reflect changes in foreign exchange rates on foreign denominated assets and liabilities and are net of gains of $1.3 million and losses of $0.2 million from the related foreign currency forward contracts for the nine months ended September 30, 2013 and 2012, respectively.
The notional amounts and fair values of our derivative instruments recorded in other current assets and other current liabilities in the Condensed Consolidated Financial Statements were as follows:
 
 
September 30, 2013
 
December 31, 2012
 
 
 
 
Fair Value
 
 
 
Fair Value
(In millions)
 
Notional Amount
 
Other Current Assets
 
Other Current Liabilities
 
Notional Amount
 
Other Current Assets
 
Other Current Liabilities
Cash flow hedges designated as hedging instruments
 
$
117.5

 
$
4.0

 
$
(1.2
)
 
$
248.6

 
$
5.5

 
$
(1.3
)
Other hedges not receiving hedge accounting
 
73.1

 
—

 
—

 
46.5

 
—

 
—

Total
 
$
190.6

 
$
4.0

 
$
(1.2
)
 
$
295.1

 
$
5.5

 
$
(1.3
)
On September 30, 2013, we entered into certain hedges not receiving hedge accounting treatment and the estimated fair value of these hedges was immaterial as of September 30, 2013.

Note 13 — Shareholders' Equity
Treasury Stock
On May 2, 2012, our Board of Directors authorized a share repurchase program that allowed for the repurchase of 5.0 million shares of common stock. For the nine months ended September 30, 2013, we have repurchased 0.6 million shares of common stock for $2.5 million. Since the authorization of this program, we have repurchased 1.8 million shares of common stock for $9.0 million, and as of September 30, 2013 we had remaining authorization to repurchase up to 3.2 million additional shares. The treasury stock held as of September 30, 2013 was acquired at an average price of $23.31 per share.
Following is a summary of treasury share activity:

18

 
 
Treasury Shares
Balance as of December 31, 2012
 
1,563,321

  Purchases
 
616,581

  Exercise of stock options
 
—

  Restricted stock grants and other
 
(656,413
)
  401(k) matching contribution
 
(378,511
)
Balance as of September 30, 2013
 
1,144,978

Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss and related activity consisted of the following:
(In millions)
 
Gains (Losses) on Derivative Financial Instruments
 
Defined Benefit Plans
 
Foreign Currency Translation
 
Total
Balance as of December 31, 2012
 
$
2.7

 
$
(27.8
)
 
$
(49.1
)
 
$
(74.2
)
Other comprehensive (loss) income before reclassifications, net of tax 1
 
4.1

 
5.4

 
(5.6
)
 
3.9

Amounts reclassified from accumulated other comprehensive loss, net of tax
 
(5.2
)
 
4.4

 
—

 
(0.8
)
Net current-period other comprehensive income (loss)
 
(1.1
)
 
9.8

 
(5.6
)
 
3.1

Balance as of September 30, 2013
 
$
1.6

 
$
(18.0
)
 
$
(54.7
)
 
$
(71.1
)
1Income tax benefit of $0.2 million was recorded for unrealized losses on derivative financial instruments for the three months ended September 30, 2013 and income tax expense of $2.6 million was recorded for unrealized gains on derivative financial instruments for the nine months ended September 30, 2013, respectively.
Details of amounts reclassified from Accumulated other comprehensive loss and the line item in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2013 are as follows:
(In millions)
 
Amounts Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item in the Statement Where Net Loss is Presented
 
 
 
 
 
(Gains) Losses on cash flow hedges
 
$
(8.4
)
 
Cost of goods sold
 
 
3.2

 
Income tax provision
 
 
(5.2
)
 
Net of tax
Amortization of net actuarial loss
 
1.4

 
Selling, general and administrative
Pension settlement loss
 
3.0

 
Restructuring and other
 
 
—

 
Income tax benefit
 
 
4.4

 
Net of tax
Total reclassifications for the period
 
$
(0.8
)
 
 

Note 14 — Segment Information
As of January 1, 2013, we revised our segment reporting to reflect changes in how we manage our business, review operating performance and allocate resources. We now manage our business through two reporting segments, Consumer Storage and Accessories (CSA) and Tiered Storage and Security Solutions (TSS). Our new reporting segments are aligned with our key commercial and consumer channels.
We have two major product categories under our CSA segment: Consumer storage media and Audio and accessories. Consumer storage media products include primarily optical products such as DVDs, CDs and Blu-ray disc recordable media as well as flash media. Audio and accessories include primarily headphones, audio electronics and accessories. We have two

19

major product categories under our TSS segment: Commercial storage media and Storage and security solutions. Commercial storage media products consist mainly of magnetic data storage tape media and RDX media. Storage and security solutions includes storage hardware products, services and software for backup and archiving as well as primary storage; encrypted and biometric flash drives and hard disk drives; secure portable desktop solutions; and software solutions, including products which contain various security features such as password authentication, encryption and remote manageability.
We evaluate segment performance based on revenue and operating income (loss). The operating income (loss) 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 results. Corporate and unallocated amounts include depreciation and amortization, litigation settlement expense, goodwill impairment, intangible impairments, intangible asset abandonment, corporate expense, contingent consideration adjustments, inventory write-offs related to our restructuring programs and restructuring and other expenses which are not allocated to the segments.
On February 13, 2013, we announced our plans to divest our XtremeMac and Memorex consumer electronics businesses. The operating results for these businesses are presented in our Condensed Consolidated Statements of Operations as discontinued operations and are not included in segment results for any periods presented. The consumer storage business under the Memorex and TDK Life on Record brands and the consumer electronics business under the TDK Life on Record brand will be retained. See Note 4 - Acquisitions and Divestitures for further information.
Net revenue and operating income (loss) by segment were as follows:

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In millions)
 
2013
 
2012
 
2013
 
2012
Net Revenue
 
 
 
 
 
 
 
 
Consumer Storage and Accessories
 
 
 
 
 
 
 
 
Consumer storage media
 
$
97.3

 
$
133.5

 
$
318.8

 
$
437.3

Audio and accessories
 
11.0

 
8.7

 
28.2

 
27.5

Total Consumer Storage and Accessories
 
108.3

 
142.2

 
347.0

 
464.8

Tiered Storage and Security Solutions
 
 
 
 
 
 
 
 
Commercial storage media
 
54.3

 
72.9

 
183.0

 
234.2

Storage and security solutions
 
29.3

 
12.3

 
98.0

 
40.9

Total Tiered Storage and Security Solutions
 
83.6

 
85.2

 
281.0

 
275.1

Total Net Revenue
 
$
191.9

 
$
227.4

 
$
628.0

 
$
739.9


 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
(In millions)
 
2013
 
2012
 
2013
 
2012
Operating Income (Loss)
 
 
 
 
 
 
 
 
Consumer Storage and Accessories
 
$
3.3

 
$
12.9

 
$
30.0

 
$
45.5

Tiered Storage and Security Solutions
 
(8.2
)
 
(6.6
)
 
(14.1
)
 
(19.1
)
Total segment operating income
 
(4.9
)
 
6.3

 
15.9

 
26.4

Corporate and unallocated
 
(21.6
)
 
(10.0
)
 
(57.1
)
 
(43.2
)
Total operating loss
 
(26.5
)
 
(3.7
)
 
(41.2
)
 
(16.8
)
Interest income
 
(0.1
)
 
(0.1
)
 
(0.1
)
 
(0.4
)
Interest expense
 
0.7

 
0.6

 
2.0

 
2.4

Other, net
 
1.1

 
(0.4
)
 
1.0

 
2.2

Loss from continuing operations before income taxes
 
$
(28.2
)
 
$
(3.8
)
 
$
(44.1
)
 
$
(21.0
)

Note 15 — Litigation, Commitments and Contingencies
Litigation

20

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 businesses are 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, including the One-Blue litigation described below. Consequently, as of September 30, 2013, we are unable to reasonably estimate the ultimate aggregate amount of any monetary liability or financial impact that we may incur with respect to these matters. It is reasonably possible that the ultimate resolution of these matters could materially affect our financial condition, results of operations and cash flows.
On May 22, 2013, Imation was sued in U.S. District Court for the District of Delaware by five entities: One-Blue, LLC (One-Blue), which is an entity with licensing authority for a pool of patents relating to Blu-ray discs, and four members of One-Blue, Koninklijke Philips N.V., Panasonic Corporation, Pioneer Corporation and Sony Corporation. The plaintiffs allege that Imation's sales of certain Blu-ray discs infringe one or more of those patents and seek unspecified damages, treble damages and attorney's fees. On June 13, 2013, Imation filed an Answer, Affirmative Defenses, and Counterclaims, naming various defenses including that plaintiffs are barred, in whole or in part, from any recovery or relief by their refusal to license the patents-in-suit under fair, reasonable, and nondiscriminatory terms. Imation intends to vigorously defend the case. This matter is now in the discovery phase. In addition, Imation has a dispute with One-Blue regarding One-Blue's refusal to license its Japanese Blu-ray patents under fair, reasonable, and nondiscriminatory terms in Japan where the sale of Blu-ray discs is more material. Imation Corporation Japan, Imation's Japanese subsidiary, has sued One-Blue in Japan regarding its unlawful interference with certain of our customer relationships. Imation has notified its manufacturers of indemnity obligations that it believes cover a portion of its liability, if any, to One-Blue and the other associated patent holders.
Copyright Levies
In many European Union (EU) member countries, the sale of recordable optical media is subject to a private copyright levy. The levies are intended to compensate copyright holders with "fair compensation" for the harm caused by private copies made by natural persons of protected works under the European Copyright Directive, which became effective in 2002 (Directive). Levies are generally charged directly to the importer of the product upon the sale of the products. Payers of levies remit levy payments to collecting societies which, in turn, are expected to distribute funds to copyright holders. Levy systems of EU member countries must comply with the Directive, but individual member countries are responsible for administering their own systems. Since implementation, the levy systems have been the subject of numerous litigation and law making activities. On October 21, 2010, the European Court of Justice (ECJ) ruled that fair compensation is an autonomous European law concept that was introduced by the Directive and must be uniformly applied in all EU member states. The ECJ stated that fair compensation must be calculated based on the harm caused to the authors of protected works by private copying. The ECJ also stated that the indiscriminate application of the private copying levy to devices not made available to private users and clearly reserved for uses other than private copying is incompatible with the Directive. The ECJ ruling made clear that copyright holders are only entitled to fair compensation payments (funded by levy payments made by importers of applicable products, including the Company) when sales of optical media are made to natural persons presumed to be making private copies. Within this disclosure, we use the term "commercial channel sales" when referring to products intended for uses other than private copying and "consumer channel sales" when referring to products intended for uses including private copying.
Since the Directive was implemented in 2002, we estimate that we have paid in excess of $100 million in levies to various ongoing collecting societies related to commercial channel sales. Based on the ECJ's October 2010 ruling and subsequent litigation and law making activities, we believe that these payments were not consistent with the Directive and should not have been paid to the various collecting societies. Accordingly, subsequent to the October 21, 2010 ECJ ruling, we began withholding levy payments to the various collecting societies and, in 2011, we released our existing accruals (totaling $7.8 million) for unpaid levies related to commercial channel sales. However, we continue to accrue, but not pay, a liability for levies arising from consumer channel sales, in all applicable jurisdictions except Italy due to a recent Italian Court ruling that is explained below. As of March 31, 2013 and December 31, 2012, we had accrued liabilities of $29.1 million and $27.7 million, respectively, associated with levies related to consumer channel sales for which we are withholding payment.
Since the October 2010 ECJ ruling, we evaluate quarterly on a country-by-country basis whether: (i) levies should be accrued on current period commercial and/or consumer channel sales; and, (ii) accrued, but unpaid, copyright levies on prior period consumer channel sales should be reversed. Our evaluation is made on a jurisdiction-by-jurisdiction basis and considers ongoing and cumulative developments related to levy litigation and law making activities within each jurisdiction as well as throughout the EU. For the three months ended March 31, 2013 and the three and six months ended June 30, 2012 we did not reverse any amounts associated with prior period copyright levies. To the extent any reversals were to occur, they would be recorded as a reduction to costs of sales, which is the same income statement account in which our levy expense is initially recorded.
During the second quarter of 2013, an Italian court rendered a decision associated with a copyright levy matter to which Imation was not a party. This decision (i) confirmed and provided further specificity to the October 21, 2010 ruling of the ECJ

21

that levies should not be paid on commercial channel sales and (ii) evaluated, via audit, the plaintiff's documentation and evidence for distinguishing between levies paid on commercial and consumer channel sales. Based on the ruling of this Italian court, in combination with other applicable levy and law-making activities within the EU, including Italy, we believe there is sufficient evidence that we may offset with the Italian collecting society the estimated $39 million we have overpaid for copyright levies in Italy (due to us paying levies on commercial channel sales prior to the October 21, 2010 ECJ ruling) against the amounts owed to the Italian collecting society for unpaid levies on consumer channel sales. As such, our liability for Italian copyright levies in the amount of $13.6 million (existing at the time of the of the second quarter 2013 Italian court decision) that arose from consumer channel sales that had been accrued but not paid was reversed and recorded as a reduction of cost of sales during the three months ended June 30, 2013. We did not record a receivable for the remaining estimated $25.4 million that we believe is owed to us by the Italian collection society for our historical over payment on levies associated with commercial channel sales as we are not assured of its collectability. Rather, going forward, such amount will be realized as a reduction to cost of sales upon the incurrence of (and for the same amount of) valid levies for consumer channel sales. Our annual expense for copyright levies in Italy was $5.1 million and $7.4 million for the years ended December 31, 2012 and 2011, respectively.
The Italian court required sufficient documentation and evidence to support the determination of levies between those paid on commercial versus consumer channel sales. We believe that we have utilized a methodology, and have sufficient documentation and evidence, to fully support our estimates that we have overpaid $39 million to the Italian collection society of levies on commercial channel sales and that we have incurred (but not paid) $13.6 million of levies on consumer channel sales in Italy. However, such amounts could be subject to challenge in court and there is no certainty that our estimates would be upheld and supported. Additionally, due to the expected continued decline in our sales associated with optical media products, we cannot be assured that we will ever be able to fully realize the estimated amounts owed to us by the Italian collection society through offsetting such amounts against levies incurred on future consumer channel sales or other measures.
At September 30, 2013, the recovery of some or all of the copyright levies previously paid on commercial sales in EU jurisdictions other than Italy represents a gain contingency that has not yet met the required criteria for recognition in our financial statements. There is no assurance that we will realize any of this gain contingency. We also have an estimated $18.8 million of accrued but unpaid levies associated with consumer sales in EU jurisdictions other than Italy that we continue to carry on our books.
We are subject to several pending or threatened legal actions by the individual European national levy collecting societies in relation to private copyright levies under the Directive. Those actions generally seek payment of the commercial and consumer optical levies withheld by Imation. Imation has corresponding claims in those actions seeking reimbursement of levies improperly collected by those collecting societies. We are also subject to threatened actions by certain customers of Imation seeking reimbursement of funds they allege relate to commercial levies that they claim they should not have paid. Although these actions are 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 these actions will have a material adverse effect on our financial condition, results of operations or cash flows.

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

Overview
Imation is a global data storage and data security company. Our products and solutions help organizations and individuals store, manage and protect their digital content. Imation’s storage and security portfolio includes Nexsan high-density, archive and solid-state optimized unified hybrid storage solutions; IronKey mobile security solutions that address the needs of professionals for secure data transport and mobile workspaces; and consumer storage solutions, audio products and accessories sold under the Imation, Memorex and TDK Life on Record brands. Imation reaches customers in more than 100 countries through a powerful global distribution network operating through two business segments, Tiered Storage and Security Solutions (TSS) and Consumer Storage and Accessories (CSA). As used herein, the terms “Imation,” “Company,” “ we,” “us” or “our” mean Imation Corp. and its subsidiaries unless the context indicates otherwise.

Executive Summary

Consolidated Results of Operations for the Three Months Ended September 30, 2013
•
Net revenue from continuing operations of $191.9 million for the three months ended September 30, 2013 was down 15.6 percent compared with $227.4 million in the same period last year.
•
Operating loss from continuing operations was $26.5 million for the three months ended September 30, 2013, compared with an operating loss of $3.7 million in the same period last year. Operating loss for the three months

22

ended September 30, 2013 included a $10.6 million loss related to the settlement of our UK pension plan (See Note 9 - Retirement Plans in the Notes to Condensed Consolidated Financial Statements for further information on the pension plan settlement).
•
Diluted loss per share from continuing operations was $0.65 for the three months ended September 30, 2013 compared with a diluted loss per share of $0.10 for the same period last year.
Consolidated Results of Operations for the Nine Months Ended September 30, 2013
•
Net revenue from continuing operations of $628.0 million for the nine months ended September 30, 2013 was down 15.1 percent compared with $739.9 million in the same period last year.
•
Operating loss from continuing operations was $41.2 million for the nine months ended September 30, 2013 compared with an operating loss of $16.8 million in the same period last year. Operating loss for the nine months ended September 30, 2013 included a $10.6 million loss related to the settlement of our UK pension plan as discussed above and the reversal of an accrual of $13.6 million for copyright levies as a result of an Italian court ruling (See Note 15 - Litigation, Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements for more information on the levy reversal).
•
Diluted loss per share from continuing operations was $1.08 for the nine months ended September 30, 2013 compared with a diluted loss per share of $0.60 for the same period last year.
Cash Flow/Financial Condition for the Nine Months Ended September 30, 2013
•
Cash and cash equivalents totaled $108.4 million as of September 30, 2013 compared with $108.7 million at December 31, 2012.
•
Cash provided by operating activities was $6.8 million for the nine months ended September 30, 2013 compared with cash used in operating activities of $22.6 million in the same period last year.
Results of Operations
During the first quarter of 2013, we announced our plans to divest our XtremeMacTM and MemorexTM consumer electronics businesses which were historically part of our CSA segment. The operating results for these businesses are presented in our Condensed Consolidated Statements of Operations as discontinued operations. The consumer storage business under the Memorex and TDK Life on RecordTM brands and the consumer electronics business under the TDK Life on Record brand are being retained. On October 15, 2013 we closed on the sale of the Memorex consumer electronics business. See Note 4 - Acquisitions and Divestitures in the Notes to Condensed Consolidated Financial Statements for further information on discontinued operations and the status of these divestitures. The following discussion relates to continuing operations unless indicated otherwise.
Net Revenue
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Percent Change
 
September 30,
 
Percent Change
(Dollars in millions)
 
2013
 
2012
 
 
2013
 
2012
 
Net revenue
 
$
191.9

 
$
227.4

 
(15.6
)%
 
$
628.0

 
$
739.9

 
(15.1
)%
Our worldwide revenue for the three and nine months ended September 30, 2013 decreased compared with the same periods last year, driven primarily by a 27.1 percent decline in our consumer storage media products in our CSA segment in both periods. Revenue in our TSS segment decreased slightly by 1.9 percent in the three months ended September 30, 2013 compared with the same period in 2012, as the increase in revenue due to the addition of Nexsan Corporation (Nexsan), which was acquired on December 31, 2012, was more than offset by lower revenues in our commercial storage media products from revenue declines in our magnetic tape products. Revenue in our TSS segment for the nine months ended September 30, 2013 increased 2.1 percent primarily from the addition of Nexsan revenue but this was partially offset by the declines in tape products as discussed above. See Segment Results for further discussion of our reporting segments including the revision of our segments as of January 1, 2013.
From a product perspective for the three months ended September 30, 2013, the decrease in revenue was caused mainly by secular declines in our consumer storage media products and our commercial storage media products of $36.2 million and $18.6 million, respectively. For the nine months ended September 30, 2013, the decrease in revenue included declines in our consumer storage media products and our commercial storage media products of $118.5 million and $51.2 million, respectively. These decreases were partially offset by an increase in storage and security solutions products of $17.0 million and $57.1 million for the three and nine months ended September 30, 2013, respectively, primarily due to the acquisition of

23

Nexsan. Revenue for the three and nine months ended September 30, 2013 compared to the same periods last year was negatively impacted by foreign currency translation of four percent and three percent, respectively.

Gross Profit
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Percent Change
 
September 30,
 
Percent Change
(Dollars in millions)
 
2013
 
2012
 
 
2013
 
2012
 
Gross profit
 
$
36.1

 
$
43.1

 
(16.2
)%
 
$
133.4

 
$
146.3

 
(8.8
)%
Gross margin
 
18.8
%
 
19.0
%
 
 
 
21.2
%
 
19.8
%
 
 
Gross profit decreased for the three months ended September 30, 2013 compared with the same period last year primarily due to lower overall revenue. For the three months ended September 30, 2013, gross profit in the CSA segment decreased $7.5 million and was partially offset by an increase of $0.5 million in the TSS segment. From a product perspective, lower gross profit in our consumer and commercial storage media products was partially offset by higher gross profit in storage and security solutions products driven primarily by the addition of products from the Nexsan acquisition.
Gross profit decreased for the nine months ended September 30, 2013 compared with the same period last year primarily due to lower overall revenue partially offset by the reversal of an accrual for Italian copyright levies in the second quarter of 2013. See Note 15 - Litigation, Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements for more information on the levy reversal. Gross profit in the CSA segment decreased $16.8 million and was partially offset by a $6.7 million increase in gross profit in the TSS segment. From a product perspective, lower gross profit in our consumer and commercial storage media products was partially offset by the levy reversal and higher gross profit in storage and security solutions products driven primarily by the addition of products from the Nexsan acquisition. Gross profit during the nine months ended September 30, 2013 included inventory write-offs of $2.8 million related to our restructuring programs, which was driven by the rationalization of certain product lines.
Gross margin decreased slightly for the three months ended September 30, 2013 compared with the same period last year. Gross margin in the CSA reporting segment decreased 0.8 points to 18.5 percent and reflects a decline in gross margin in flash and external hard disk products. Gross margin in the TSS reporting segment increased 1.0 point to 19.3 percent due to the addition of Nexsan partially offset by declines in the commercial storage media products due to softness in the tape market.
Gross margin increased for the nine months ended September 30, 2013 compared with the same period last year. Gross margin in the CSA reporting segment increased 2.0 points to 22.2 percent and gross margin in the TSS reporting segment increased 2.0 points to 21.1 percent as higher revenue and gross margin in our storage and security solutions products from the acquisition of Nexsan and the reversal of an accrual for Italian copyright levies discussed above were partially offset by lower gross margin on our consumer and commercial storage media products.
 
Selling, General and Administrative (SG&A)
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Percent Change
 
September 30,
 
Percent Change
(Dollars in millions)
 
2013
 
2012
 
 
2013
 
2012
 
Selling, general and administrative
 
$
46.3

 
$
45.8

 
1.1
%
 
$
142.1

 
$
145.4

 
(2.3
)%
As a percent of revenue
 
24.1
%
 
20.1
%
 
 
 
22.6
%
 
19.7
%
 
 
SG&A expense increased for the three months ended September 30, 2013 compared with the same period last year and decreased for the nine months ended September 30, 2013 compared with the same period last year. SG&A costs were reduced by approximately $8.6 million and $30.9 million for the three and nine months ended September 30, 2013, respectively, from Imation’s cost reduction efforts and prior intangible write-offs. Incremental SG&A from the Nexsan acquisition offset these reductions for the three months ended September 30, 2013 and partially offset these reductions for the nine months ended September 30, 2013. We continue to execute our cost reduction efforts as we focus on cost reduction including reducing staffing levels in our legacy businesses and in administrative areas, but we have increased investment in priority growth initiatives for data storage solutions and data security.

Research and Development (R&D)

24

 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Percent Change
 
September 30,
 
Percent Change
(Dollars in millions)
 
2013
 
2012
 
 
2013
 
2012
 
Research and development
 
$
4.6

 
$
4.6

 
—
%
 
$
14.3

 
$
15.7

 
(8.9
)%
As a percent of revenue
 
2.4
%
 
2.0
%
 
 
 
2.3
%
 
2.1
%
 
 
R&D expense was flat for the three months ended September 30, 2013 and decreased for the nine months ended September 30, 2013 compared with the same periods last year. We continue to reduce legacy R&D and increase investments on high margin projects in TSS primarily through the Nexsan acquisition.

Restructuring and Other
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Percent Change
 
September 30,
 
Percent Change
(Dollars in millions)
 
2013
 
2012
 
 
2013
 
2012
 
Restructuring and other
 
$
11.7

 
$
(3.6
)
 
NM
 
$
18.2

 
$
2.0

 
NM
NM - Not meaningful
For the three months ended September 30, 2013 restructuring and other expense was $11.7 million, due primarily to a $10.6 million loss on the settlement of our UK pension plan (See Note 9 - Retirement Plans in the Notes to Condensed Consolidated Financial Statements for further information on the settlement of our UK pension plan). For the three months ended September 30, 2012 the $3.6 million credit in restructuring and other was driven by a $5.5 million decrease of an acquisition related contingent consideration to fair value.
For the nine months ended September 30, 2013 restructuring and other was $18.2 million and included the loss on the settlement of our UK pension plan discussed above and $3.6 million of restructuring charges. This is compared to $2.0 million for the nine months ended September 30, 2012 that included an $8.3 million decrease of the acquisition related contingent consideration as discussed above and $3.8 million of restructuring charges.
Restructuring expense in 2013 related to our 2012 Global Process Improvement Restructuring Program while 2012 restructuring expense related primarily to our 2011 Corporate Strategy Restructuring Program. See Note 7 - Restructuring and Other Expense in the Notes to Condensed Consolidated Financial Statements for further details of our restructuring and other expense.
Operating Loss

 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Percent Change
 
September 30,
 
Percent Change
(Dollars in millions)
 
2013
 
2012
 
 
2013
 
2012
 
Operating loss
 
$
(26.5
)
 
$
(3.7
)
 
616.2
%
 
$
(41.2
)
 
$
(16.8
)
 
145.2
%
As a percent of revenue
 
(13.8
)%
 
(1.6
)%
 
 
 
(6.6
)%
 
(2.3
)%
 
 
Operating loss increased for the three months and nine months ended September 30, 2013 compared with the same periods last year primarily due to the items discussed above.

Other (Income) and Expense
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Percent Change
 
September 30,
 
Percent Change
(Dollars in millions)
 
2013
 
2012
 
 
2013
 
2012
 
Interest income
 
$
(0.1
)
 
$
(0.1
)
 
—
%
 
$
(0.1
)
 
$
(0.4
)
 
(75.0
)%
Interest expense
 
0.7

 
0.6

 
16.7
%
 
2.0

 
2.4

 
(16.7
)%
Other, net expense (income)
 
1.1

 
(0.4
)
 
NM

 
1.0

 
2.2

 
(54.5
)%
Total
 
$
1.7

 
$
0.1

 
NM

 
$
2.9

 
$
4.2

 
(31.0
)%
As a percent of revenue
 
0.9
%
 
—
%
 
 
 
0.5
%
 
0.6
%
 


NM - Not meaningful

25

Other, net expense (income) primarily includes foreign currency (gains) losses from changes in foreign exchange rates on foreign denominated assets and liabilities. Foreign currency losses of $0.6 million were recorded for the three months ended September 30, 2013 and no net foreign currency (gains) losses were recorded for the nine months ended September 30, 2013. Foreign currency losses of $0.1 million and $1.8 million were recorded for the three and nine months ended September 30, 2012, respectively. We attempt to mitigate the exposure to foreign currency volatility through our hedging program; however, our program is not designed to fully hedge our risk and, as a result, we experience some volatility in other income, especially in periods of significant foreign currency fluctuation.
Income Tax Provision
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Percent Change
 
September 30,
 
Percent Change
(Dollars in millions)
 
2013
 
2012
 
 
2013
 
2012
 
Income tax (benefit) provision
 
$
(2.0
)
 
$
—

 
NM
 
$
(0.5
)
 
$
1.5

 
NM
Effective tax rate
 
7.1
%
 
—
%
 
 
 
1.1
%
 
(7.1
)%
 
 
NM - Not meaningful
For the three and nine months ended September 30, 2013 we recorded income tax benefit of $(2.0) million and $(0.5) million, respectively. For the three months ended September 30, 2012, we recorded no income tax expense. For the nine months ended September 30, 2012, we recorded income tax expense of $1.5 million. The increase in tax benefit for the nine months ended September 30, 2013 was driven by a discrete tax benefit of $2.3 million resulting from the removal of a deferred tax liability related to the settlement of our UK pension plan, changes in withholding tax expense and the mix of taxable income (loss) by country. See Note 9 - Retirement Plans in the Notes to Condensed Consolidated Financial Statements for further information on the pension plan buy-out. The effective income tax rate for the three and nine months ended September 30, 2013 differs from the U.S. federal statutory rate of 35 percent primarily due to the full valuation allowance on U.S. deferred tax assets and the effects of foreign tax rate differential.

Loss from Discontinued Operations
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Percent Change
 
September 30,
 
Percent Change
(Dollars in millions)
 
2013
 
2012
 
 
2013
 
2012
 
Loss from operations of discontinued businesses, net of income taxes
 
$
(8.7
)
 
$
(2.5
)
 
NM
 
$
(17.5
)
 
$
(8.0
)
 
NM
NM - Not meaningful
Loss from discontinued operations represents operations from our XtremeMac and Memorex consumer electronics businesses and a $5.5 million write-down of the carrying value of the XtremeMac disposal group to its estimated fair value based on the anticipated sale transaction in the three and nine months ended September 30, 2013. The increase in operating loss for the three and nine months ended September 30, 2013 compared with the same periods last year reflects the write-down of the carrying value discussed above, lower revenues and lower gross margins in these businesses in addition to severance expense of $0.3 million and $1.7 million recorded in three and nine months ended September 30, 2013, respectively. See Note 4 - Acquisitions and Divestitures in the Notes to Condensed Consolidated Financial Statements for more information on the status of the divestitures of these two businesses.
Segment Results
As of January 1, 2013, we revised our segment reporting to reflect changes in how we manage our business, review operating performance and allocate resources. We now manage our business through two reporting segments, Consumer Storage and Accessories (CSA) and Tiered Storage and Security Solutions (TSS). Our new reporting segments are aligned with our key commercial and consumer channels.
We have two major product categories under our CSA segment: Consumer storage media and Audio and accessories. Consumer storage media products include primarily optical products such as DVDs, CDs and Blu-ray disc recordable media as well as flash media. Audio and accessories include primarily headphones, audio electronics and accessories. We have two major product categories under our TSS segment: Commercial storage media and Storage and security solutions. Commercial storage media products consist mainly of magnetic data storage tape media and RDX media. Storage and security solutions includes storage hardware products, services and software for backup and archiving as well as primary storage; encrypted and

26

biometric flash drives and hard disk drives; secure portable desktop solutions; and software solutions, including products which contain various security features such as password authentication, encryption and remote manageability.
We evaluate segment performance based on revenue and operating income (loss). The operating income (loss) 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 results. Corporate and unallocated amounts include depreciation and amortization, litigation settlement expense, goodwill impairment, intangible impairments, intangible asset abandonment, corporate expense, contingent consideration adjustments, inventory write-offs related to our restructuring programs and restructuring and other expenses which are not allocated to the segments.
Information related to our segments is as follows:
     
Consumer Storage and Accessories
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Percent Change
 
September 30,
 
Percent Change
(Dollars in millions)
 
2013
 
2012
 
 
2013
 
2012
 
Net revenue
 
$
108.3

 
$
142.2

 
(23.8
)%
 
$
347.0

 
$
464.8

 
(25.3
)%
Operating income
 
3.3

 
12.9

 
(74.4
)%
 
30.0

 
45.5

 
(34.1
)%
As a percent of revenue
 
3.0
%
 
9.1
%
 
 
 
8.6
%
 
9.8
%
 
 
The decrease in CSA segment revenue for the three and nine months ended September 30, 2013 compared with the same periods last year was driven primarily by a 27.1 percent revenue decline in consumer storage media products for both periods. From a product perspective, revenue declines were primarily due to the expected secular declines of $31.3 million and $98.8 million in optical media products for the three and nine months ended September 30, 2013, respectively. Partially offsetting the decrease in consumer storage media was an increase in audio and accessories products as we saw revenue increase in consumer electronic accessories and TDK consumer electronic products.
Operating income decreased for the three and nine months ended September 30, 2013 compared with the same periods last year driven primarily by lower gross profit in consumer storage media products and higher SG&A, partially offset by lower R&D. Operating income for the nine months ended September 30, 2013 also reflects the reversal of an accrual for Italian copyright levies of $13.6 million in the second quarter of 2013. We plan to continue our operating expense reduction efforts in this segment.

Tiered Storage and Security Solutions
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Percent Change
 
September 30,
 
Percent Change
(Dollars in millions)
 
2013
 
2012
 
 
2013
 
2012
 
Net revenue
 
$
83.6

 
$
85.2

 
(1.9
)%
 
$
281.0

 
$
275.1

 
2.1
 %
Operating loss
 
(8.2
)
 
(6.6
)
 
24.2
 %
 
(14.1
)
 
(19.1
)
 
(26.2
)%
As a percent of revenue
 
(9.8
)%
 
(7.7
)%
 
 
 
(5.0
)%
 
(6.9
)%
 
 
TSS segment revenue was down slightly for the three months ended September 30, 2013 with a slight increase for the nine months ended September 30, 2013 compared with the same periods last year. Revenue for both periods increased from the addition of Nexsan, which was acquired on December 31, 2012. Lower revenue in our commercial storage media products, more than offset the incremental revenue from Nexsan for the three months ended September 30, 2013 and partially offset the incremental revenue from Nexsan for the nine months ended September 30, 2013. Commercial storage media product revenue decreased $18.6 million and $51.2 million for the three and nine months ended September 30, 2013, respectively.
From a product perspective, the decrease in commercial storage media product revenue was primarily composed of lower revenue from magnetic tape products of $18.0 million and $46.8 million for the three and nine months ended September 30, 2013, respectively. Magnetic tape products are in long-term secular decline, however, in the third quarter of 2013 we saw higher declines than expected. We believe we are holding our market share, but the overall market has been impacted by industry wide dynamics including competing formats as well as continuing improvements in compression and deduplication technologies. For our storage solutions products we continue to invest in our Nexsan business with hiring of sales personnel, introducing new products and promoting the brand globally, however, during the three months ended September 30, 2013 we did see some effect from the disruption in U.S. government spending. Additionally, our Nexsan business as well as other storage solution providers saw weakness in revenues due to some marketplace sluggishness in the third quarter with certain

27

customers delaying orders. Revenue in our mobile security products showed a slight increase from the three months September 30, 2012, although they were also constrained by the disruption in U.S. government spending.
Operating loss increased for the three months ended September 30, 2013 compared with the same period last year as an increase in gross profit driven by the addition of higher margin storage and security solutions primarily due to the addition of Nexsan was more than offset by lower gross profit on commercial storage media products and higher R&D and SG&A expense. Operating loss decreased for the nine months ended September 30, 2013 compared with the same period last year as an increase in gross profit driven by the acquisition of Nexsan was only partially offset by lower gross profit on commercial storage media products and higher R&D and SG&A expense. We expect gross margins to continue increasing as the mix shifts to higher margin Nexsan and IronKey products.
     
Corporate and Unallocated
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Percent Change
 
September 30,
 
Percent Change
(Dollars in millions)
 
2013
 
2012
 
 
2013
 
2012
 
Operating loss
 
$
(21.6
)
 
$
(10.0
)
 
116.0
%
 
$
(57.1
)
 
$
(43.2
)
 
32.2
%
The Corporate and Unallocated operating loss increased for the three and nine months ended September 30, 2013 compared with the same periods last year. In Corporate and Unallocated we recorded a $10.6 million loss on the buy-out of a pension plan outside the U.S. during the three months ended September 30, 2013. See Note 9 - Retirement Plans in the Notes to Condensed Consolidated Financial Statements for further information on the pension plan buy-out. This loss, as well as higher restructuring costs and other expenses, were the primary drivers of the increased operating loss in Corporate and Unallocated.

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. Additionally, 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 translation rates negatively impacted worldwide revenue by four percent and three percent for the three and nine months ended September 30, 2013, respectively, while changes in foreign currency translation rates impacted worldwide revenue by two and one percent for the three and nine months ended September 30, 2012, respectively. 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 September 30, 2013 was $108.4 million compared to $108.7 million as of December 31, 2012. Cash was relatively flat as cash generated from working capital reductions was offset by $16.2 million of cash paid for restructuring, $5.2 million of capital expenditures and $2.5 million spent on the purchase of treasury stock.
Our accounts receivable balance as of September 30, 2013 was $146.9 million, a decrease of $73.9 million from $220.8 million as of December 31, 2012 as a result of lower sales during the period. Days sales outstanding was 61 days as of September 30, 2013, up 2 days from December 31, 2012. 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.
Our inventory balance as of September 30, 2013 was $113.9 million, a decrease of $52.1 million from $166.0 million as of December 31, 2012. Days of inventory supply was 66 days as of September 30, 2013, down 23 days from December 31, 2012. 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 declines in inventory and days of inventory supply were primarily due to our overall focus on reducing inventory levels but particularly in our consumer electronics and accessories inventory as well as the reclassification of inventory to assets held for sale related to our divestitures of XtremeMac and Memorex consumer electronics businesses which hold higher than average inventory balances. Additionally, we focused on improving our days of inventory supply in our core CSA businesses.

28

Our accounts payable balance as of September 30, 2013 was $103.8 million, a decrease of $58.9 million from $162.7 million as of December 31, 2012. The decrease in accounts payable is primarily due to reduced purchases related to the expected secular decline in our business as discussed earlier.

Liquidity and Capital Resources
Cash Flows Used in Operating Activities:
 
 
Nine Months Ended
 
 
September 30,
(Dollars in millions)
 
2013
 
2012
Net loss
 
$
(61.1
)
 
$
(30.5
)
Adjustments to reconcile net loss to net cash provided by operating activities
 
33.2

 
29.1

Changes in operating assets and liabilities
 
34.7

 
(21.2
)
Net cash provided by (used in) operating activities
 
$
6.8

 
$
(22.6
)
Cash flows from operating activities can fluctuate significantly from period to period as many items can impact cash flows. Cash provided by operating activities was $6.8 million for the nine months ended September 30, 2013 reflecting changes in working capital and included restructuring payments of $16.2 million.
Cash used in operating activities was $22.6 million for the nine months ended September 30, 2012 and included litigation settlement payments of $18.5 million, restructuring payments of $7.3 million and pension funding of $4.3 million.
Cash Flows Provided by (Used in) Investing Activities:
 
 
Nine Months Ended
 
 
September 30,
(Dollars in millions)
 
2013
 
2012
Capital expenditures
 
$
(5.2
)
 
$
(8.4
)
Proceeds from purchase price adjustment
 
1.6

 
—

Proceeds from sale of assets
 
0.4

 
1.4

Proceeds from investments
 
—

 
0.9

Net cash used in investing activities
 
$
(3.2
)
 
$
(6.1
)
Cash used in investing activities for the nine months ended September 30, 2013 included capital expenditures of $5.2 million partially offset by $1.6 million received as a result of a working capital adjustment to the Nexsan purchase price and proceeds from the sale of assets held for sale. See Note 4 - Acquisitions and Divestitures to the Condensed Consolidated Financial Statements for further information regarding our acquisitions.
Cash used in investing activities for the nine months ended September 30, 2012 included capital expenditures of $8.4 million, partially offset by proceeds of $1.4 million from the sale of fixed assets held for sale as a result of the closure of our Weatherford facility in April 2011 and proceeds of $0.9 million from the recovery of an investment which had no book value.
Cash Flows Used in Financing Activities:
 
 
Nine Months Ended
 
 
September 30,
(Dollars in millions)
 
2013
 
2012
Purchase of treasury stock
 
$
(2.5
)
 
$
(4.9
)
Contingent consideration payments
 
(0.5
)
 
(1.2
)
Debt issue costs
 
(0.4
)
 
(2.4
)
Net cash used in financing activities
 
$
(3.4
)
 
$
(8.5
)
On May 2, 2012, our Board of Directors authorized a share repurchase program that allowed for the repurchase of 5.0 million shares of common stock, which replaced our previous authorization. For the nine months ended September 30, 2013, we have repurchased 0.6 million shares of common stock for $2.5 million. Since the authorization of this program, we have

29

repurchased 1.8 million shares of common stock for $9.0 million, and as of September 30, 2013 we had remaining authorization to repurchase up to 3.2 million additional shares.
Our Credit Agreement entered into in 2006 and its amendments (the Credit Agreement) are described in Note 11 - Debt of our Annual Report on Form 10-K for the year ended December 31, 2012. As of September 30, 2013, our borrowing capacity under this arrangement, after consideration of amounts outstanding, was $71.7 million, consisting of $59.5 million in the United States and $12.2 million in Europe.
As of September 30, 2013, we had $20.0 million of borrowings outstanding under the Credit Agreement, all of which was borrowed in the United States and bears an interest rate of 2.2 percent. We are in compliance with all covenant requirements as of September 30, 2013.
On July 16, 2013, we entered into an additional credit agreement for a revolving credit facility with a lender in Japan with Imation Corporation Japan as the borrower and Imation Corp. as the guarantor. We intend to use the credit facility for general operating purposes. The credit agreement is a three year asset-based revolving credit facility with a borrowing base consistent with our existing Credit Agreement that allows for the borrowing of amounts up to 2.0 billion Japanese Yen, or approximately $20.0 million. Borrowings under the credit facility will bear interest at an interest rate equal to the base rate based on LIBOR or TIBOR plus the applicable margins provided for in the credit agreement. The credit agreement contains financial covenants applicable to Imation Corporation Japan including a fixed charge coverage ratio requirement. As of September 30, 2013, our borrowing capacity under this arrangement was $10.1 million and we did not have any borrowings outstanding under this credit facility.
Our liquidity needs for the remaining three months of 2013 include the following: up to $20 million to repay borrowings under our credit facility, payments related to our previously announced restructuring programs of $5 million to $10 million, capital expenditures of $1.5 million to $2.5 million, operating lease payments of approximately $2 million, pension funding of $0 million to $2 million, any amounts associated with strategic acquisitions, any amounts associated with organic investment opportunities 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
As of September 30, 2013, there have been no material changes to our contractual obligations as of December 31, 2012 as presented in our Annual Report on Form 10-K for the year ended December 31, 2012.
Copyright Levies
See Note 15 - Litigation, Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 herein for further information.

Fair Value Measurements
See Note 12 - Fair Value Measurements in the Notes to 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, 2012. There were no significant changes to these accounting policies for the first nine months of 2013.

Recent Accounting Pronouncements
See Note 2 - Recently Issued or Adopted Accounting Pronouncements in the Notes to 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 (SEC) and in our reports to shareholders.
Certain information which does not relate to historical financial information may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words or phrases "is targeting," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "believe," or similar expressions

30

identify "forward looking statements." 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. 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 including our global restructuring plan; our ability to grow our business in new products with profitable margins and the rate of revenue decline for certain existing products; the ability to quickly develop, source, introduce and deliver differentiated and innovative products; our potential dependence on third parties for new product introductions or technologies in order to introduce our own new products; foreign currency fluctuations; the ready availability and price of energy and key raw materials or critical components including the effects of natural disasters and our ability to pass along raw materials price increases to our customers; continuing uncertainty in global and regional economic conditions; our ability to identify, value, integrate and realize the expected benefits from any acquisition which has occurred or may occur in connection with our strategy; the possibility that our goodwill and intangible assets or any goodwill or intangible assets that we acquire may become impaired; the ability of our security products to withstand cyber-attacks; the seasonality and volatility of the markets in which we operate; changes in European law or practice related to the imposition or collectability of optical levies; significant changes in discount rates and other assumptions used in the valuation of our pension plans; changes in tax laws, regulations and results of inspections by various tax authorities; 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; ability to access financing to achieve strategic objectives and growth due to changes in the capital and credit markets; limitations in our operations that could arise from compliance with the debt covenants in our credit facility; our ability to retain key employees; increased compliance with changing laws and regulations potentially affecting our operating results; failure to adequately protect our information systems from cyber-attacks; our ability to meet our revenue growth, gross margin and earnings targets and 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 year ended December 31, 2012 and in our filings with the SEC.

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, 2012. 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, 2012.
As of September 30, 2013 we had $190.6 million notional amount of foreign currency forward and option contracts of which $73.1 million hedged recorded balance sheet exposures. This compares to $295.1 million notional amount of foreign currency forward and option contracts as of December 31, 2012, of which $46.5 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 September 30, 2013 by $1.2 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 September 30, 2013, 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 September 30, 2013, 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.

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 have 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 Condensed Consolidated Financial Statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated.

31

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 businesses are 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, including the One-Blue litigation described below. Consequently, as of September 30, 2013, we are unable to reasonably estimate the ultimate aggregate amount of any monetary liability or financial impact that we may incur with respect to these matters. It is reasonably possible that the ultimate resolution of these matters could materially affect our financial condition, results of operations and cash flows.
On May 22, 2013, Imation was sued in U.S. District Court for the District of Delaware by five entities: One-Blue, LLC (One-Blue), which is an entity with licensing authority for a pool of patents relating to Blu-ray discs, and four members of One-Blue, Koninklijke Philips N.V., Panasonic Corporation, Pioneer Corporation and Sony Corporation. The plaintiffs allege that Imation's sales of certain Blu-ray discs infringe one or more of those patents and seek unspecified damages, treble damages and attorney's fees. On June 13, 2013, Imation filed an Answer, Affirmative Defenses, and Counterclaims, naming various defenses including that plaintiffs are barred, in whole or in part, from any recovery or relief by their refusal to license the patents-in-suit under fair, reasonable, and nondiscriminatory terms. Imation intends to vigorously defend the case. This matter is now in the discovery phase. In addition, Imation has a dispute with One-Blue regarding One-Blue's refusal to license its Japanese Blu-ray patents under fair, reasonable, and nondiscriminatory terms in Japan where the sale of Blu-ray discs is more material. Imation Corporation Japan, Imation's Japanese subsidiary, has sued One-Blue in Japan regarding its unlawful interference with certain of our customer relationships. Imation has notified its manufacturers of indemnity obligations that it believes cover a portion of its liability, if any, to One-Blue and the other associated patent holders.
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, 2012. For further information, see Item 1A. “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 (a) - (b)
Not applicable
(c) Issuer Purchases of Equity Securities
 
 
 
 
 
 
 
 
(c)
 
 
 
 
 
 
Total Number of
 
Maximum Number
 
 
(a)
 
(b)
 
Shares Purchased
 
of Shares that May
 
 
Total Number
 
Average
 
as Part of Publicly
 
Yet Be Purchased
 
 
of Shares
 
Price Paid
 
Announced Plans
 
Under the Plan or
Period
 
Purchased
 
per Share
 
or Programs
 
Programs
July 1, 2013 - July 31, 2013
 
1,278

 
$
4.37

 
—

 
3,147,258

August 1, 2013 - August 31, 2013
 
2,292

 
4.61

 
—

 
3,147,258

September 1, 2013 - September 30, 2013
 
—

 
—

 
—

 
3,147,258

Total
 
3,570

 
$
4.52

 
—

 
3,147,258

(a) The purchases in this column were shares that were surrendered to Imation by participants in our stock-based compensation plans (the Plans) to satisfy the tax obligations related to the vesting of restricted stock awards.
(b) The average price paid in this column related to shares that were surrendered to Imation by participants in the Plans to satisfy the tax obligations related to the vesting of restricted stock awards.
(c) On May 3, 2012, the Company announced that on May 2, 2012 its Board of Directors authorized a share repurchase program of 5 million shares of common stock. The authorization has no expiration date. The Company's previous authorization, which had 1.2 million shares remaining for purchase, was canceled with the new authorization.

Item 3. Defaults Upon Senior Securities.
 Not Applicable

32


Item 4. Mine Safety Disclosures
Not Applicable

Item 5. Other Information.
 On November 7, 2013, the Board of Directors approved an amendment to Imation Corp.’s (the “Corporation”) Bylaws, effective November 7, 2013, to add a new Article XV to provide that, unless the Corporation consents in writing to the selection of an alternative forum, the state and federal courts of Delaware (the Corporation's state of incorporation) will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s Certificate of Incorporation or Bylaws (as either may be amended from time to time), or (iv) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation governed by the internal affairs doctrine.
The changes described above are qualified in their entirety by reference to the full text of the Amended and Restated Bylaws, a copy of which is attached as Exhibit 3.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
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 November 7, 2013.

10.1
 
Fifth Amendment, dated as of August 27, 2013 to the Amended and Restated Credit Agreement among Imation Corp., Imation Enterprises Corp and Imation Europe B.V., as borrowers, Bank of America, N.A., as administrative agent and l/c issuer, and a consortium of Lenders, dated as of August 3, 2010.
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
101
 
The following financial information from Imation Corp.’s Quarterly Report on Form 10-Q for the period ended September 30, 2013, filed with the SEC on November 8, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012, (ii) the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2013 and 2012, (iii) the Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, and (v) the Notes to Condensed Consolidated Financial Statements.



33

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:
November 8, 2013
 
/s/ Paul R. Zeller
 
 
 
Paul R. Zeller
 
 
 
Senior Vice President and Chief Financial Officer
(duly authorized officer and principal financial officer)


34

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 November 7, 2013.

10.1
 
Fifth Amendment, dated as of August 27, 2013 to the Amended and Restated Credit Agreement among Imation Corp., Imation Enterprises Corp and Imation Europe B.V., as borrowers, Bank of America, N.A., as administrative agent and l/c issuer, and a consortium of Lenders, dated as of August 3, 2010.
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
101
 
The following financial information from Imation Corp.’s Quarterly Report on Form 10-Q for the period ended September 30, 2013, filed with the SEC on November 8, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012, (ii) the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2013 and 2012, (iii) the Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012, and (v) the Notes to Condensed Consolidated Financial Statements.



35