SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 |
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OR |
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE TRANSITION PERIOD FROM TO |
Commission file number: 1-14310
IMATION CORP.
(Exact name of registrant as specified in its charter)
Delaware |
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41-1838504 |
(State or other jurisdiction of
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(I.R.S. Employer
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1 Imation
Place
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(Address of principal executive offices) |
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(651) 704-4000 |
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(Registrants telephone number, including area code) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o .
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 34,989,602 shares of Common Stock, par value $0.01 per share, were outstanding at August 9, 2002.
IMATION CORP.
INDEX
2
IMATION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
|
|
Three months ended
|
|
Six months ended
|
|
||||||||
|
|
2002 |
|
2001 |
|
2002 |
|
2001 |
|
||||
Net revenues |
|
$ |
274.3 |
|
$ |
283.4 |
|
$ |
558.0 |
|
$ |
583.3 |
|
Cost of goods sold |
|
192.6 |
|
197.1 |
|
394.4 |
|
409.8 |
|
||||
Gross profit |
|
81.7 |
|
86.3 |
|
163.6 |
|
173.5 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses (income): |
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative (1) |
|
45.3 |
|
57.0 |
|
91.5 |
|
121.6 |
|
||||
Research and development |
|
12.3 |
|
16.4 |
|
23.7 |
|
32.9 |
|
||||
Litigation settlements - net |
|
(6.4 |
) |
|
|
(6.4 |
) |
|
|
||||
Restructuring |
|
(2.1 |
) |
|
|
(2.1 |
) |
|
|
||||
Total |
|
49.1 |
|
73.4 |
|
106.7 |
|
154.5 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating income |
|
32.6 |
|
12.9 |
|
56.9 |
|
19.0 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Other (income) and expense: |
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
(2.0 |
) |
(3.9 |
) |
(3.9 |
) |
(7.6 |
) |
||||
Interest expense |
|
0.3 |
|
0.3 |
|
0.6 |
|
0.6 |
|
||||
Other, net |
|
1.1 |
|
2.0 |
|
1.2 |
|
4.3 |
|
||||
Total |
|
(0.6 |
) |
(1.6 |
) |
(2.1 |
) |
(2.7 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Income before taxes |
|
33.2 |
|
14.5 |
|
59.0 |
|
21.7 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Income tax provision |
|
11.7 |
|
4.6 |
|
20.7 |
|
6.9 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
21.5 |
|
$ |
9.9 |
|
$ |
38.3 |
|
$ |
14.8 |
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per basic common share |
|
$ |
0.62 |
|
$ |
0.28 |
|
$ |
1.10 |
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per diluted common share |
|
$ |
0.61 |
|
$ |
0.28 |
|
$ |
1.09 |
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average basic shares outstanding |
|
34.9 |
|
34.8 |
|
34.9 |
|
34.7 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Weighted average diluted shares outstanding |
|
35.4 |
|
35.0 |
|
35.3 |
|
34.9 |
|
(1) Selling, general and administrative expenses for the six month period ended June 30, 2001 include $5.7 million of amortization related to abandoned computer software (see Note 11 to Consolidated Financial Statements).
The accompanying notes to consolidated financial statements are an integral part of these statements.
3
IMATION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
|
|
June 30,
|
|
December 31,
|
|
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|
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(Unaudited) |
|
|
|
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ASSETS |
|
|
|
|
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Current assets |
|
|
|
|
|
||
Cash and equivalents |
|
$ |
414.7 |
|
$ |
389.8 |
|
Accounts receivable - net |
|
155.9 |
|
150.3 |
|
||
Inventories |
|
129.7 |
|
130.3 |
|
||
Other current assets |
|
99.0 |
|
86.5 |
|
||
Total current assets |
|
799.3 |
|
756.9 |
|
||
Property, plant and equipment - net |
|
175.9 |
|
171.2 |
|
||
Other assets |
|
113.9 |
|
125.6 |
|
||
Total assets |
|
$ |
1,089.1 |
|
$ |
1,053.7 |
|
|
|
|
|
|
|
||
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
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Current liabilities |
|
|
|
|
|
||
Accounts payable |
|
$ |
101.5 |
|
$ |
81.8 |
|
Accrued payroll |
|
22.3 |
|
29.2 |
|
||
Short-term debt |
|
8.4 |
|
12.8 |
|
||
Other current liabilities |
|
208.3 |
|
223.4 |
|
||
Total current liabilities |
|
340.5 |
|
347.2 |
|
||
|
|
|
|
|
|
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Other liabilities |
|
49.2 |
|
50.8 |
|
||
|
|
|
|
|
|
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Shareholders equity |
|
699.4 |
|
655.7 |
|
||
|
|
|
|
|
|
||
Total liabilities and shareholders equity |
|
$ |
1,089.1 |
|
$ |
1,053.7 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
4
IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
|
Six months ended
|
|
||||
|
|
2002 |
|
2001 |
|
||
Cash Flows from Operating Activities: |
|
|
|
|
|
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Net income |
|
$ |
38.3 |
|
$ |
14.8 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
18.4 |
|
30.1 |
|
||
Deferred income taxes |
|
12.9 |
|
(4.2 |
) |
||
Restructuring and Litigation settlements - net |
|
(8.5 |
) |
|
|
||
|
|
|
|
|
|
||
Accounts receivable |
|
1.2 |
|
2.2 |
|
||
Inventories |
|
4.3 |
|
(22.7 |
) |
||
Other current assets |
|
(6.3 |
) |
15.3 |
|
||
Accounts payable |
|
17.5 |
|
24.6 |
|
||
Accrued payroll and other current liabilities |
|
(28.2 |
) |
24.9 |
|
||
Working capital changes |
|
(11.5 |
) |
44.3 |
|
||
|
|
|
|
|
|
||
Other |
|
(1.0 |
) |
4.2 |
|
||
Net cash provided by operating activities |
|
48.6 |
|
89.2 |
|
||
|
|
|
|
|
|
||
Cash Flows from Investing Activities: |
|
|
|
|
|
||
Capital expenditures |
|
(21.4 |
) |
(20.7 |
) |
||
Other |
|
(0.9 |
) |
(2.6 |
) |
||
Net cash used in investing activities |
|
(22.3 |
) |
(23.3 |
) |
||
|
|
|
|
|
|
||
Cash Flows from Financing Activities: |
|
|
|
|
|
||
Net change in short-term debt |
|
(4.8 |
) |
(8.8 |
) |
||
Purchases of treasury stock |
|
(9.9 |
) |
|
|
||
Exercise of stock options and other |
|
4.5 |
|
0.4 |
|
||
Decrease in unearned ESOP shares |
|
2.5 |
|
3.3 |
|
||
Net cash used in financing activities |
|
(7.7 |
) |
(5.1 |
) |
||
|
|
|
|
|
|
||
Effect of exchange rate changes on cash |
|
6.3 |
|
(8.1 |
) |
||
|
|
|
|
|
|
||
Net change in cash and equivalents |
|
24.9 |
|
52.7 |
|
||
Cash and equivalents - beginning of period |
|
389.8 |
|
269.7 |
|
||
Cash and equivalents - end of period |
|
$ |
414.7 |
|
$ |
322.4 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
5
IMATION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. FINANCIAL STATEMENTS
The interim consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented. 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 results for the full year. The consolidated financial statements and notes are presented as permitted by the requirements for Form 10-Q and do not contain certain information included in the Companys annual consolidated financial statements and notes. This Form 10-Q should be read in conjunction with the Companys consolidated financial statements and notes included in its 2001 Annual Report on Form 10-K.
2. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of shares outstanding during the period, adjusted for ESOP shares not allocated to employee accounts. Under the applicable accounting rules, unallocated shares held in the Companys ESOP trust, which was established in 1996 as a way of funding certain employee retirement savings benefits, are not considered outstanding for purposes of calculating earnings per share. Diluted earnings per share is computed on the basis of the weighted average basic shares outstanding plus the dilutive effect of outstanding stock options using the treasury stock method. The following table sets forth the computation of the weighted average basic and diluted shares outstanding:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
||||
(In millions) |
|
2002 |
|
2001 |
|
2002 |
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
35.1 |
|
35.2 |
|
35.1 |
|
35.2 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average ESOP shares not yet allocated |
|
(0.2 |
) |
(0.4 |
) |
(0.2 |
) |
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding |
|
34.9 |
|
34.8 |
|
34.9 |
|
34.7 |
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of employee stock options |
|
0.5 |
|
0.2 |
|
0.4 |
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
35.4 |
|
35.0 |
|
35.3 |
|
34.9 |
|
As of June 30, 2002, and 2001, certain options to purchase approximately 0.4 million and 1.8 million shares, respectively, of the Companys common stock were outstanding that were not included in the computation of potential common shares because the effect of the options would be antidilutive.
6
3. SUPPLEMENTAL BALANCE SHEET INFORMATION
(In millions) |
|
June 30,
|
|
December 31,
|
|
||
|
|
(Unaudited) |
|
|
|
||
|
|
|
|
|
|
||
Accounts Receivable |
|
|
|
|
|
||
Accounts receivable |
|
$ |
172.5 |
|
$ |
163.9 |
|
Less allowances |
|
(16.6 |
) |
(13.6 |
) |
||
Accounts receivable - net |
|
$ |
155.9 |
|
$ |
150.3 |
|
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
||
Finished goods |
|
$ |
88.2 |
|
$ |
86.1 |
|
Work in process |
|
15.0 |
|
14.5 |
|
||
Raw materials and supplies |
|
26.5 |
|
29.7 |
|
||
Total inventories |
|
$ |
129.7 |
|
$ |
130.3 |
|
|
|
|
|
|
|
||
Other Current Assets |
|
|
|
|
|
||
Deferred income taxes |
|
$ |
33.0 |
|
$ |
35.6 |
|
Restricted cash |
|
10.0 |
|
10.0 |
|
||
Other |
|
56.0 |
|
40.9 |
|
||
Total other current assets |
|
$ |
99.0 |
|
$ |
86.5 |
|
|
|
|
|
|
|
||
Property, Plant and Equipment |
|
|
|
|
|
||
Property, plant and equipment |
|
$ |
728.7 |
|
$ |
773.7 |
|
Less accumulated depreciation |
|
(552.8 |
) |
(602.5 |
) |
||
Property, plant and equipment net |
|
$ |
175.9 |
|
$ |
171.2 |
|
|
|
|
|
|
|
||
Other Assets |
|
|
|
|
|
||
Deferred income taxes |
|
$ |
80.9 |
|
$ |
91.3 |
|
Capitalized software |
|
11.8 |
|
15.8 |
|
||
Other |
|
21.2 |
|
18.5 |
|
||
Total other assets |
|
$ |
113.9 |
|
$ |
125.6 |
|
|
|
|
|
|
|
||
Other Current Liabilities |
|
|
|
|
|
||
Employee separation costs |
|
$ |
18.4 |
|
$ |
27.3 |
|
Rebates |
|
32.3 |
|
35.7 |
|
||
Income taxes |
|
38.3 |
|
37.2 |
|
||
Other accruals and various liabilities |
|
119.3 |
|
123.2 |
|
||
Total other current liabilities |
|
$ |
208.3 |
|
$ |
223.4 |
|
|
|
|
|
|
|
||
Other Liabilities |
|
|
|
|
|
||
Pension |
|
$ |
31.1 |
|
$ |
32.8 |
|
Other |
|
18.1 |
|
18.0 |
|
||
Total other liabilities |
|
$ |
49.2 |
|
$ |
50.8 |
|
7
4. LITIGATION, COMMITMENTS AND CONTINGENCIES
In the second quarter of 2002, the Company recorded a $6.4 million net litigation benefit. This consisted of a $7.4 million litigation benefit from Quantum Corporation and Maxell legal settlements, net of associated legal expenses, and a $1.0 million charge for an unrelated litigation matter related to optical disk royalties in Spain. Discussion of these and other legal matters are cross-referenced to this Form 10-Q, Part II, Item 1, Legal Proceedings, and should be considered an integral part of the Consolidated Financial Statements and Notes. Also, see information on claims related to divestitures in Note 6 to Consolidated Financial Statements.
5. RESTRUCTURING
2001 Restructuring Program
In the fourth quarter of 2001, the Company recorded $54.5 million of restructuring and other charges to reduce its administrative structure, improve the profitability of the remaining, non-data storage businesses, and rationalize its data storage manufacturing. The charges include $29.0 million for employee separation programs related to a headcount reduction of approximately 500 employees, of which approximately 40 percent relate to administrative structure and 55 percent relate to the non-data storage businesses . The cost per employee for this program was higher than the Companys previous restructuring programs because it involved employees with higher average pay. From the inception of this program through June 30, 2002, the Company has reduced its headcount by approximately 300 related to this program. During the first six months of 2002, the Company made cash payments of $10.1 million related to this program, bringing the cumulative cash payments since the inception of the program to $12.5 million. In the second quarter of 2002, the Company adjusted the restructuring reserve by $0.8 million for lower than expected costs in severance and other areas. The majority of the severance and other payments associated with this restructuring program are expected to be completed in 2002.
The following table represents the activity related to the 2001 restructuring program:
(In millions) |
|
Program
|
|
Cumulative
|
|
Adjustment |
|
Balance as
of
|
||||
Severance |
|
$ |
29.0 |
|
$ |
(10.8 |
) |
$ |
(0.2 |
) |
$ |
18.0 |
Asset impairments |
|
18.8 |
|
(18.8 |
) |
|
|
|
||||
Other |
|
6.7 |
|
(3.2 |
) |
(0.6 |
) |
2.9 |
||||
Total |
|
$ |
54.5 |
|
$ |
(32.8 |
) |
$ |
(0.8 |
) |
$ |
20.9 |
|
|
|
|
|
|
|
|
|
8
2000 Restructuring Program
In 2000, the Company recorded a $24.6 million restructuring charge to rationalize its manufacturing operations, streamline its organizational structure, and write-down impaired assets. The charges included $15.9 million for employee separation programs related to a headcount reduction of approximately 430 employees.
During 2002, the Company made cash payments of $2.3 million related to the 2000 restructuring program. In the second quarter of 2002, the Company made restructuring related adjustments of $1.3 million, primarily due to lower than expected closing costs to streamline the international organizational structure. The remaining restructuring balance related to this program as of June 30, 2002 consists of $0.4 million for severance and $0.1 million for other payments. The remaining activities associated with this program are expected to be completed in 2002. Since the inception of this restructuring program through June 30, 2002, the Company has reduced its headcount approximately 400, which includes both voluntary and involuntary employee reductions, related to this program.
6. DIVESTITURES
On December 31, 2001, the Company consummated the sale of its worldwide color proofing and color software business to Kodak Polychrome Graphics LLC and Kodak Polychrome Graphics Company LTD (collectively referred to as KPG). KPG acquired substantially all the assets and assumed substantially all the liabilities associated with this business. Under the terms of the agreement, KPG paid the Company $50 million in cash on December 31, 2001. The Company recorded a pre-tax gain of $1.9 million ($1.3 million after taxes), net of related costs in the fourth quarter of 2001.
On November 30, 1998, the Company sold its worldwide Medical Imaging Systems business (the Medical Imaging Sale) to Eastman Kodak Company (Kodak). Excluded from the Medical Imaging Sale was the Companys medical imaging/photo color manufacturing facility in Ferrania, Italy (the Ferrania Facility), at which the Company agreed to manufacture wet laser and x-ray film and hardware pursuant to an exclusive supply agreement (the Ferrania Supply Agreement) with Kodak. In exchange for retaining the Ferrania Facility and pursuant to certain conditions, Kodak agreed to pay the Company up to $25.0 million at such time as it was sold or closed.
On August 2, 1999, the Company closed on the sale of its worldwide Photo Color Systems business, together with the Ferrania Facility, the Ferrania Supply Agreement and certain other associated businesses, to Schroder Ventures, through Schroder Ventures wholly owned affiliate, Ferrania Lux, S.A.R.L.
9
Kodak has challenged the Companys claim for the full $25.0 million as well as claims for other amounts, which the Company believes are due from Kodak in connection with the Medical Imaging Sale. The Company has retained cash, as reflected in its financial statements in both Cash and equivalents and Restricted cash, which it collected on behalf of Kodak in an amount approximately equal to the disputed items. While the Company cannot predict with certainty the outcome of these disputes, it believes its positions are supported by the applicable contractual terms.
7. PLANNED SALE OF NORTH AMERICA DIGITAL SOLUTIONS AND SERVICES
On August 8, 2002, the Company announced the planned sale of its North America Digital Solutions and Services business for cash. Subject to certain pre-closing conditions, the transaction is expected to close during the third quarter of 2002. For the six months ended June 30, 2002, the North America Digital Solutions and Services business had $26.0 million in revenue and $1.7 million in operating income. For the year ended December 31, 2001, it had $57.2 million in revenue and a $0.9 million operating loss. The Company expects the 2002 impact of this transaction to be approximately break-even in terms of both income and cash flows. Upon consummating the sale of the North America Digital Solutions and Services business, previous periods will be restated in compliance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets to reclassify the operating results of this business, absent allocated corporate overhead, to discontinued operations. The Company anticipates that, after adjusting the North America Digital Solutions and Services business operating income noted above for allocated corporate overhead, the Companys operating income will be reduced by approximately $4.0 million for the six months ended June 30, 2002, and $6.5 million for the year ended December 31, 2001, as a result of this reclassification. Overall, net income will not be affected.
8. COMPREHENSIVE (LOSS) INCOME
Accumulated other comprehensive (loss) income represents certain items which according to the respective accounting rules are required to be recorded directly to equity accounts and consists of the following:
|
|
Cumulative
|
|
Cash
|
|
Minimum
|
|
Accumulated
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Balance, December 31, 2001 |
|
$ |
(98.8 |
) |
$ |
0.8 |
|
$ |
(6.3 |
) |
$ |
(104.3 |
) |
First quarter 2002 change |
|
(1.4 |
) |
(0.1 |
) |
|
|
(1.5 |
) |
||||
Balance, March 31, 2002 |
|
$ |
(100.2 |
) |
$ |
0.7 |
|
$ |
(6.3 |
) |
$ |
(105.8 |
) |
Second quarter 2002 change |
|
10.8 |
|
(1.1 |
) |
|
|
9.7 |
|
||||
Balance, June 30, 2002 |
|
$ |
(89.4 |
) |
$ |
(0.4 |
) |
$ |
(6.3 |
) |
$ |
(96.1 |
) |
10
Comprehensive income for the three and six months ended June 30, 2002 and 2001 consists of the following:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
||||||||
(In millions) |
|
2002 |
|
2001 |
|
2002 |
|
2001 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
21.5 |
|
$ |
9.9 |
|
$ |
38.3 |
|
$ |
14.8 |
|
Changes in cumulative translation adjustments |
|
10.8 |
|
(4.6 |
) |
9.4 |
|
(12.6 |
) |
||||
Cash flow hedging net |
|
(1.1 |
) |
0.3 |
|
(1.2 |
) |
0.9 |
|
||||
Unrealized loss on available-for-sale securities |
|
|
|
0.2 |
|
|
|
0.3 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive income |
|
$ |
31.2 |
|
$ |
5.8 |
|
$ |
46.5 |
|
$ |
3.4 |
|
9. BUSINESS SEGMENT INFORMATION
The Companys current businesses are organized, managed and internally reported as segments differentiated primarily by their products and services and the markets they serve. These segments, whose results are shown below, are Data Storage and Information Management, providing removable data storage media, services and solutions for use in the mobile and desktop, network and enterprise data center markets; Digital Solutions and Services, which provides technical service and support for equipment sold by the Company as well as by other third party equipment vendors, and document imaging products for large format engineering documentation; Specialty Papers, which includes carbonless paper, such as multi-part business forms, and videodisc replication. Videodisc replication was closed at the end of the first quarter of 2002. Color Technologies, whose principal products included printing and color proofing systems, printing films and plates for the graphic arts marketplace, was sold to KPG on December 31, 2001. In 2001, Specialty Papers and Color Technologies were combined and presented as a single segment. Beginning in 2002, they have been separated and the prior period presentation has been restated to conform to the new presentation as a result of the sale of the color proofing and color software business to KPG.
11
Business
|
|
Second
|
|
Data
|
|
Digital
|
|
Specialty
|
|
Color
|
|
Corporate,
|
|
Total
|
|
||||||
Net revenues |
|
2002 |
|
$ |
245.3 |
|
$ |
16.7 |
|
$ |
12.2 |
|
$ |
|
|
$ |
0.1 |
|
$ |
274.3 |
|
|
|
2001 |
|
206.3 |
|
21.0 |
|
12.6 |
|
43.3 |
|
0.2 |
|
283.4 |
|
||||||
Operating |
|
2002 |
|
$ |
23.1 |
|
$ |
(0.8 |
) |
$ |
1.2 |
|
$ |
|
|
$ |
9.1 |
|
$ |
32.6 |
|
income(loss) |
|
2001 |
|
12.0 |
|
(3.0 |
) |
(0.2 |
) |
4.3 |
|
(0.2 |
) |
12.9 |
|
Business
|
|
Six
|
|
Data
|
|
Digital
|
|
Specialty
|
|
Color
|
|
Corporate,
|
|
Total
|
|
||||||
Net revenues |
|
2002 |
|
$ |
497.5 |
|
$ |
34.6 |
|
$ |
25.8 |
|
$ |
|
|
$ |
0.1 |
|
$ |
558.0 |
|
|
2001 |
|
425.9 |
|
43.8 |
|
24.7 |
|
86.9 |
|
2.0 |
|
583.3 |
|
|||||||
Operating income(loss) |
|
2002 |
|
$ |
45.3 |
|
$ |
(1.9 |
) |
$ |
3.4 |
|
$ |
|
|
$ |
10.1 |
|
$ |
56.9 |
|
|
2001 |
|
21.6 |
|
(4.5 |
) |
(0.3 |
) |
8.2 |
|
(6.0 |
) |
19.0 |
|
(1) The Company is in the process of disposing of the Digital Solutions and Services business outside of North America as part of the Companys 2001 restructuring program, which is expected to be completed during the remainder of 2002. As discussed in Note 7 to the Consolidated Financial Statements , the Company has entered into an agreement to sell its North America Digital Solutions and Services business.
(2) The operating loss for the six months ended June 30, 2001, includes $5.7 million of accelerated software amortization discussed in Note 11 to the Consolidated Financial Statements . The operating income for the three and six months ended June 30, 2002, includes $8.5 million of special items, consisting of income from net legal settlements discussed in Note 4 to the Consolidated Financial Statements and adjustments to the restructuring reserves discussed in Note 5 to the Consolidated Financial Statements .
Intersegment revenues are not material. The proportion of total assets by segment has not changed materially from December 31, 2001.
10. DERIVATIVES AND HEDGING ACTIVITIES
The Company maintains a foreign currency exposure management policy that allows for the use of derivative instruments, principally foreign currency forward and option contracts, to manage risks associated with exchange rate volatility. These contracts are entered into to fix the U.S. dollar amount of the eventual cash flows resulting from such transactions. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge items. This process includes linking all derivatives to booked or forecasted transactions. The Company also formally assesses, both at the hedges inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.
12
When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be highly effective as a hedge, the Company discontinues hedge accounting prospectively, with gains and losses that were accumulated in other comprehensive income (loss) recognized in current period operations. The Company does not hold or issue derivative financial instruments for trading purposes and is not a party to leveraged derivatives.
The Company enters into foreign currency forward-exchange contracts to hedge foreign currency exposure of its firm commitments to purchase and sell goods that qualify as fair-value hedges. These forward-exchange contracts mature in twelve months or less.
Beginning January 1, 2001, substantially all of the Companys intercompany sales to Europe are denominated in Euros. The Company purchased options as hedges of a portion of the anticipated 2002 and 2001 sales that qualify as cash-flow hedges. As of June 30, 2002, these option contracts range in duration from one to six months and totaled $30.4 million. Hedge costs, representing the premium paid on expired options net of hedge gains, of $0.1 million were reclassified into operations for the quarter ended June 30, 2002. Amounts reclassified into operations for the quarter ended June 30, 2001 totaled $0.6 million.
The amount of net deferred losses on foreign currency cash flow hedges included in accumulated other comprehensive loss in shareholders equity as of June 30, 2002 was $0.4 million, net of tax, all of which is expected to reverse in 2002.
As of June 30, 2002, the fair value of the Companys foreign currency forward and option contracts outstanding was negative $0.2 million. The estimated fair market values were determined using available market information or other appropriate valuation methodologies.
The Company is exposed to credit loss in the event of nonperformance by counter-parties in foreign currency forward and option contracts, but does not anticipate nonperformance by any of these counter-parties. The Company actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as counter-parties.
11. CAPITALIZED SOFTWARE AMORTIZATION
During the last half of 2000, the Company determined that it would ab andon certain components of its computer software system. Accordingly, the Company shortened the estimated useful life of a large portion of capitalized software such that this portion of the software would be fully amortized by the end of the first quarter of 2001. The Company recorded the remaining $5.7 million of non-cash, pre-tax charges in first quarter 2001 for amortization related to software being abandoned.
13
****
PricewaterhouseCoopers LLP, the Companys independent accountants, has performed a review of the unaudited interim consolidated financial statements included herein and their report thereon accompanies this filing. This report is not a report within the meaning of Sections 7 and 11 of the 1933 Act and the independent accountants liability under Section 11 does not extend to it.
14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Imation Corp.:
We have reviewed the accompanying condensed consolidated balance sheet of Imation Corp. (the Company) as of June 30, 2002 and the related consolidated statements of operations for each of the three-month and six-month periods ended June 30, 2002 and 2001 and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 2002 and 2001. These financial statements are the responsibility of the Companys management.
We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2001, and the related consolidated statements of operations, shareholders equity and comprehensive income, and of cash flows for the year then ended (not presented herein), and in our report dated January 29, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2001, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
|
/s/ PricewaterhouseCoopers LLP |
|
PricewaterhouseCoopers LLP |
|
|
Minneapolis, Minnesota |
|
July 23, 2002 |
|
15
IMATION CORP.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
On December 31, 2001, the Company consummated the sale of its worldwide color proofing and color software business to Kodak Polychrome Graphics LLC and Kodak Polychrome Graphics Company LTD (collectively referred to as KPG). KPG acquired substantially all the assets and assumed substantially all the liabilities associated with this business. The financial results for the three months and six months ended June 30, 2001 include the color proofing and color software business.
Results of Operations
Net revenues of $274.3 million declined 3.2 percent from last years revenues of $283.4 million. Excluding the color proofing and color software business from prior years revenues, net revenues increased 14.2 percent from last years adjusted revenues of $240.1 million. This increase is driven by total volume increases of 22.4 percent. Effects of currency exchange rates also increased net revenues by 0.6 percent. The volume and currency rate increases were offset by price declines of approximately 8.8 percent.
Data Storage and Information Management (DS&IM) second quarter revenues increased $39.0 million, or 18.9 percent, to $245.3 million from $206.3 million a year ago. Significant volume increases occurred in all major product categories and across all geographic areas while pricing pressures were similar to second quarter 2001. For the period, growth was especially strong in Ultrium tape, optical products, and 9840 and 9940 cartridges. The revenue increase also was driven by the incremental IBM Brand business, which began in the third quarter of 2001, across multiple product lines.
Digital Solutions and Services (DSS) second quarter 2002 revenues were $16.7 million as compared with $21.0 million a year ago. The $4.3 million decline from second quarter 2001 resulted primarily from customers transitioning from analog document imaging products, primarily microfilm, to digital document processing systems, where the Company has fewer product offerings and due to discontinuing certain DSS operations in regions outside North America. The Company has entered into an agreement to sell its North America Digital Solutions and Services business as discussed in Note 7 to the Consolidated Financial Statements.
Specialty Papers revenues were $12.2 million in second quarter 2002 as compared with $12.6 million in second quarter 2001. Specialty Papers includes carbonless paper, such as multi-part business forms, and videodisc replication. Revenues for 2001 include $0.9 million for videodisc replication, which was closed at the end of the first quarter of 2002.
16
Gross profit in second quarter 2002 was $81.7 million or 29.8 percent of revenues, compared to $86.3 million, or 30.5 percent of revenues in the year earlier quarter. The quarter over quarter gross profit margin comparison was negatively affected by approximately 3.1 percentage points due to the divestiture of the relatively higher gross margin color proofing and color software business. This was substantially offset by strong volume growth which helped lower unit costs and improved product mix in DS&IM.
Selling, general and administrative (SG&A) expenses in second quarter 2002 were $45.3 million or 16.5 percent of revenues, compared to $57.0 million or 20.1 percent of revenues in the year earlier quarter. The quarter over quarter 3.6 percentage point decrease in SG&A as a percent of revenues was a result of divesting the relatively higher SG&A color proofing and color software business, the benefit received from the Companys 2001 restructuring program and increased DS&IM revenue in second quarter of 2002. In addition, transition services fees from KPG which totaled approximately $2.2 million in second quarter 2002 offset certain costs previously allocated to the color proofing and color software business. However, the level of KPG transition services payments is expected to decline to nearly zero by the fourth quarter of 2002, putting upward pressure on SG&A expenses as reflected in the Companys full year SG&A guidance discussed in the Forward-Looking Statements section.
Research and development (R&D) costs were $12.3 million, or 4.5 percent of revenues, as compared to $16.4 million, or 5.8 percent of revenues for the prior year quarter. The decrease in both amount and percentage points is due primarily to the divestiture of the color proofing and color software business which had carried a higher R&D percentage of revenues.
In the second quarter of 2002, the Company recorded a benefit of $8.5 million of special items, consisting of $7.4 million in a litigation benefit from the May 29, 2002, legal settlements with Quantum and Maxell, net of associated legal expenses, a $1.0 million charge for an unrelated litigation matter related to optical disk royalties in Spain and $2.1 million in restructuring reserve adjustments due primarily to lower than expected costs in the Companys restructuring programs. The Quantum and Maxell litigation settlement also contained provisions which are expected to benefit the Companys ongoing business results.
Operating income in the second quarter of 2002 was $32.6 million, compared with operating income of $12.9 million for the same period last year. Excluding special items of $8.5 million, operating income for the quarter ended June 30, 2002 would have been $24.1 million. The quarter over quarter increase in operating income is due to the factors discussed above.
Other income for the second quarter of 2002 was $0.6 million, comprised primarily of interest earned on cash balances. This compares with $1.6 million a year ago. The quarter over quarter decrease is due to a decline in interest income in 2002 due to lower short-term interest rates.
17
The tax rate for the second quarter of 2002 was 35 percent. This compares with a tax rate of 32 percent for the second quarter 2001. The higher 2002 rate is driven by increased profits earned domestically.
Net income in the second quarter of 2002 was $21.5 million, or $0.62 per basic share and $0.61 per diluted share, compared with net income of $9.9 million, or $0.28 per basic and diluted share in the second quarter 2001. Excluding special items of $8.5 million, second quarter 2002 net income would have been $16.0 million, or $0.46 per basic share and $0.45 per diluted share. The increase of $0.18 per basic and $0.17 per diluted share resulted from higher operating income as discussed above.
Comparison of Six Months Ended June 30, 2002 and 2001
On a year to date basis, net revenues of $558.0 million declined 4.3 percent from last years $583.3 million. Excluding the color proofing and color software business from prior years revenues, net revenues increased 12.4 percent from last years adjusted revenues of $496.4 million. This increase is driven by volume increases of 20.9 percent. Volume increases were offset by price declines of approximately 7.4 percent and negative effects of changes in currency exchange rates of 1.1 percent.
Data Storage and Information Management revenues increased 16.8 percent to $497.5 million from $425.9 million a year ago. Significant volume increases occurred in all major product categories and across all geographic areas while pricing pressures were less than in 2001. For the period, growth was especially strong in Ultrium tape cartridges, optical products, and 9840 and 9940 cartridges. The revenue increase also was driven by the incremental IBM Brand business, which began in the third quarter of 2001, across multiple product lines.
Digital Solutions and Services revenues declined $9.2 million to $34.6 million. The $9.2 million decline from the first half of 2001 resulted primarily from customers transitioning from analog document imaging products, primarily microfilm, to digital document processing systems, where the Company has fewer product offerings and due to discontinuing DSS operations in all regions outside North America. The Company has entered into an agreement to sell its North America Digital Solutions and Services business as discussed in Note 7 to the Consolidated Financial Statements.
Specialty Papers revenues were $25.8 million as compared with $24.7 million a year ago. Revenues in 2001 include $1.8 million for videodisc replication, which was closed at the end of the first quarter of 2002.
Gross profit was $163.6 million, or 29.3 percent of sales, for the first six months of 2002. This compared with $173.5 million, or 29.7
18
percent of sales, a year ago. The year over year gross profit margin comparison was negatively affected by approximately 3.2 percentage points due to the divestiture of the relatively higher gross margin color proofing and color software business. This was substantially offset by strong volume growth which helped lower unit costs and improved product mix in DS&IM.
In the first quarter of 2001, the Company recorded special items related to accelerated amortization associated with the abandonment of certain capitalized software (see Note 11 to Consolidated Financial Statements). The $5.7 million charge for this amortization is recorded in selling, general and administrative expenses.
Selling, general and administrative expenses for the first six months of 2002 were $91.5 million or 16.4 percent of revenue, compared to $121.6 million or 20.8 percent of revenue for the same period a year ago. Excluding special items in 2001, SG&A declined $24.4 million in 2002 from $115.9 million last year. The year over year 3.5 percentage point decrease in SG&A excluding special items as a percent of revenues was a result of divesting the relatively higher SG&A color proofing and color software business, the benefit received from the Companys 2001 restructuring program and increased DS&IM revenue in first six months of 2002. In addition, transition services fees from KPG which totaled approximately $5.3 million during the first six months of 2002 offset certain costs previously allocated to the color proofing and color software business. However, the level of KPG transition services payments is expected to decline to nearly zero by the fourth quarter of 2002, putting upward pressure on SG&A expenses as reflected in the Companys full year SG&A guidance discussed in the Forward-Looking Statements section.
Research and development costs for the first six months of 2002 were $23.7 million, or 4.2 percent of revenues, as compared to $32.9 million, or 5.6 percent of revenues for the prior year. The decrease in both amount and percentage points is due primarily to the divestiture of the color proofing and color software business which had carried a higher R&D percentage of revenues.
In the second quarter of 2002, the Company recorded a benefit of $8.5 million of special items, consisting of $7.4 million in a litigation benefit from the May 29, 2002, legal settlements with Quantum and Maxell, net of associated legal expenses, a $1.0 million charge for an unrelated litigation matter related to optical disk royalties in Spain and $2.1 million in restructuring reserve adjustments due primarily to lower than expected costs in the Companys restructuring programs. The Quantum and Maxell litigation settlement also contained provisions which are expected to benefit the Companys ongoing business results.
Operating income for the first six months of 2002 was $56.9 million as compared to $19.0 million for the same period last year. Excluding special items from second quarter 2002 and first quarter 2001, operating income for the first six months of 2002 was $48.4 million as compared to $24.7 million for the same period last year. This increase is due to the factors discussed above.
19
Other income for the first six months of 2002 was $2.1 million, as compared with $2.7 million for the same period last year. The year over year decrease was due to a decline in interest income in 2002 due to lower short-term interest rates.
The tax rate for the first six months is 35 percent. This compares with a 32 percent tax rate for the first six months of 2001. The higher 2002 rate is driven by increased profits earned domestically.
Net income for the first six months of 2002 was $38.3 million, or $1.10 per basic share and $1.09 per diluted share, as compared to $14.8 million, or $0.43 per basic share and $0.42 per diluted share for the first six months of 2001. Excluding special items from second quarter 2002 and first quarter 2001, net income for the first six months of 2002 was $32.8 million, or $0.94 per basic share and $0.93 per diluted share. This compares with net income of $18.7 million, or $0.54 per basic share and $0.53 per diluted share, for the same period in 2001. The increase of $0.40 per basic and diluted share resulted from higher operating income as discussed above.
Financial Position
Accounts receivable days sales outstanding was 49 days as of June 30, 2002, an increase of one day over 48 days as of December 31, 2001. The Company had 64 days of inventory supply on hand as of June 30, 2002 compared to 67 days as of December 31, 2001. Total current assets increased by $42.4 million, driven by an increase of $24.9 million in cash and equivalents and $12.5 million in other current assets. Other current assets increased due primarily to expected future receipts from the $7.4 million legal settlement agreed to in second quarter 2002. See Note 4 to the Consolidated Financial Statements.
Liquidity Critical Accounting Policies and Estimates
For discussion on critical accounting policies and estimates, see the Companys 2001 Annual Report on Form 10-K.
Cash provided by operating activities was $48.6 million in the first six months of 2002. The major driver was net income as adjusted for non-cash items of $61.1 million, offset by working capital usage of $11.5 million. Net income as adjusted for significant non-cash items includes net income of $38.3 million adjusted for depreciation and amortization of $18.4 million and deferred income taxes of $12.9 million, less restructuring and other special items of $8.5 million (see Notes 4 and 5 to Consolidated Financial Statements). Cash used in the first six months of 2002 related to total working capital increases was $11.5 million. The cash used in 2002 was due largely to payments related to restructuring programs of $12.4 million and payments related to employee incentive compensation of $13.8 million, offset by an increase in accounts payable of $17.5 million.
20
For the first six months of 2001, cash provided by operating activities was $89.2 million. This consisted of $40.7 million of net income as adjusted for non-cash items, $44.3 million of working capital decreases, and $4.2 million of other sources. Net income as adjusted for significant non-cash items includes net income of $14.8 million adjusted for deprecation and amortization of $30.1 million, less non-cash deferred income taxes of $4.2 million. Depreciation and amortization include $5.7 million of accelerated amortization in 2001 (see Note 11 to Consolidated Financial Statements) and $1.9 million depreciation in 2001 related to the color proofing and color software business which was sold at the end of 2001. It also includes depreciation in 2001 for assets that were written off as part of the fourth quarter 2001 restructuring. Cash provided by working capital of $44.3 million in 2001 included a $24.6 million increase in accounts payable, a $15.1 million income tax refund, and the reclassification of $11.0 million of restricted cash from other current assets to cash and equivalents, which was previously used as collateral for local borrowings of debt in an international subsidiary. Cash was used to increase inventories $22.7 million primarily due to higher optical media inventory in DS&IM as well as a planned build-up of tape products at one manufacturing plant in anticipation of the relocation of some of the work to another facility.
Cash used by investing activities was $22.3 million in first six months of 2002 and $23.3 million in first six months of 2001. Substantially all investing activities relate to capital spending.
The Company has a Loan and Security Agreement (the Loan Agreement) with a group of banks. The Loan Agreement provides for revolving credit, including letters of credit, with borrowing availability based on eligible accounts receivable, inventory, and manufacturing machinery and equipment, not to exceed $100 million. Borrowing availability as of June 30, 2002 was $68.1 million. No borrowings were outstanding under the Loan Agreement as of June 30, 2002. The Loan Agreement expires December 31, 2003.
In addition, certain international subsidiaries have arranged borrowings locally outside of the agreement discussed above. As of June 30, 2002, $8.4 million of short-term borrowings were outstanding under such arrangements. As of June 30, 2002, the Companys ratio of debt to total capital was 1.2 percent as compared with 1.9 percent as of December 31, 2001.
The Companys Board of Directors has authorized the repurchase of up to 10 million shares of the Companys common stock. The Company repurchased 0.4 million shares during the first half of 2002. As of June 30, 2002, the Company had repurchased 7.2 million shares under this authorization and held, in total, 7.8 million shares of treasury stock acquired at an average price of $22.41 per share.
21
The Companys Board of Directors has authorized an additional $49.0 million in capital expenditures to develop advanced media coating capabilities in the Companys Weatherford, Oklahoma, facility, expected to be completed in 2004. With less than five percent of the expenditure occurring in the current fiscal year, the investment is not expected to change the Companys outlook for 2002 capital spending.
The Companys liquidity needs for 2002 include: capital expenditures in 2002 targeted to be in the range of $50 million; cash payments related to restructuring of approximately $20.9 million; short-term debt of $8.4 million; certain operating leases as discussed in the Companys 2001 Annual Report on Form 10-K; and any amounts associated with the repurchase of common stock under the authorization discussed above. The Company expects that cash and equivalents, together with cash flow from operations and availability of borrowings under its current and future sources of financing, will provide liquidity sufficient to meet these needs and operate the Company. Other than the operating lease commitments, the Company is not using off-balance sheet arrangements, including the use of special purpose entities. The Company does not have any contractual obligations or commercial commitments with terms greater than one year that would significantly impact its liquidity.
Forward-Looking Statements
The following statements are based on the Companys current outlook subject to the risks and uncertainties outlined below.
Full-year 2002 data storage segment revenues are targeted to grow greater than ten percent over the $875.9 million reported in 2001;
Gross margin for 2002 is targeted to remain in the range of 29 to 30 percent of revenues;
Research and Development spending is targeted in the range of five percent of revenues for the full year of 2002;
Selling, General, and Administrative spending is targeted in the range of 17 to 18 percent of revenues for the full year of 2002 which is up from the first half of 2002 in anticipation of the impact of declining KPG transition services as well as the impact of the planned sale of the North America Digital Solutions and Services business (see Note 7 to the Consolidated Financial Statements);
The Company is targeting operating income (from continuing operations) for the full year of 2002, including special items recorded in the second quarter and the impact of the planned sale of the North America Digital Solutions and Services business (see Note 7 to the Consolidated Financial Statements), in the range of $90 million, up from previous guidance of $80 million;
Net non-operating income is targeted to be approximately $750,000 per quarter for the remainder of the year, down from previous guidance of $1 million per quarter;
Tax rate for the full year of 2002 is targeted to be approximately 35 percent;
22
Based on achieving the above targets, earnings per share for continuing operations is anticipated to be in the range of $0.30 for the third quarter and in the range of $1.70 for the full year of 2002;
Capital expenditures for the full year of 2002 are targeted to be in the range of $50 million;
Depreciation and amortization expense is targeted to be in the range of $35 to $40 million; and
Longer range, the Company has established goals of achieving revenue growth in the range of 10 percent and operating margin in the range of 10 percent.
Certain information contained in this report which does not relate to historical financial information, including the 2002 Outlook, may be deemed to constitute forward-looking statements. The words or phrases is targeted to, will likely result, are expected to, will continue, is anticipated, estimate, project, believe or similar expressions identify forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from historical results, and those presently anticipated or projected.
The Company wishes to caution investors not to place undue reliance on any such forward looking statements, which speak only as of the date made. Among the factors that could cause the Companys actual results in the future to differ materially from any opinions or statements expressed with respect to future periods are continuing uncertainty in global economic conditions that make it particularly difficult to predict product demand, the Companys ability to meet its cost reduction and revenue growth targets, its ability to implement its restructuring programs for the estimated costs on a timely basis and to achieve the projected benefits, its ability to introduce new offerings in a timely manner either independently or in association with OEMs or other third parties, the amount and timing of transition service payments received, the competitive pricing environment, foreign currency fluctuations, the outcome of litigation, the ability of Imation to secure adequate supply of certain high demand products, the ready availability and price of energy, the market acceptance of newly introduced product and service offerings, the rate of decline for certain existing products, as well as various factors set forth in the Companys filings with the Securities and Exchange Commission.
23
Item 1. Legal Proceedings
Reference is made to Item 3. Legal Proceedings included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
The Company is the subject of various pending or threatened legal actions in the ordinary course of its business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. Consequently, as of June 30, 2002, the Company is unable to ascertain the ultimate aggregate amount of any monetary liability or financial impact that may be incurred by the Company with respect to these matters. While these matters, certain of which are described below, could materially affect operating results when resolved in future periods, it is managements opinion that after final disposition, any monetary liability to the Company beyond that provided in the Consolidated Balance Sheet as of June 30, 2002 would not be material to the Companys financial position.
On May 10, 1999, Jazz Photo Corp. (Jazz Photo) served the Company and its affiliate, Imation S.p.A., with a civil complaint filed in New Jersey Superior Court. The complaint charges breach of contract, breach of warranty, fraud, and racketeering activity in connection with the Companys sale of allegedly defective film to Jazz Photo by its Photo Color Systems business which was sold in 1999 (see Note 7 to Consolidated Financial Statements). In the complaint, Jazz Photo seeks unspecified compensatory damages, treble damages, punitive damages, and equitable relief. The Company disputes any liability to Jazz Photo and is vigorously defending the action. In 2002, the parties continue to litigate the scope of document production and discovery that will be required in the action. Depositions are scheduled to begin in the third quarter of 2002.
On October 1, 2001, the Company filed a lawsuit in the Federal District Court in St. Paul, Minnesota, charging Quantum Corporation with violations of Sections 1 and 2 of the Sherman Antitrust Act, including price fixing and conspiracy to monopolize the production and sale of data storage tape compatible with Quantums digital linear tape (DLT) tape drives. The Company amended the complaint to include Hitachi Maxell, Ltd. as an additional defendant and to add Quantums attempt to monopolize the production and sale of data storage tape compatible with Quantums S-DLT tape drives. The lawsuit specifically charged that Quantum had fixed prices on DLT-compatible tape, invited Imation to join an illegal tape cartel, inappropriately extended patents on licensed DLT tape drives to tape media as a way to enforce its monopoly hold on the tape market, and misrepresented DLT-compatible tape as an open standard with competitive pricing. The complaint sought an injunction barring Quantum from further violations of antitrust law in this market and recovery of damages of at least $150 million.
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On October 3, 2001, Quantum Corporation filed a lawsuit in the Superior State Court in California in Santa Clara County seeking to prohibit Imation from selling its digital linear tape for use on Quantum DLT tape drives. The lawsuit accused Imation of misappropriation of trade secrets, deceptive and misleading advertising, and unfair business practices. Quantum also filed a motion for a preliminary injunction to block Imation from selling Black Watch Digital Linear Tape IV cartridges. The court issued a preliminary injunction that allowed the Company to sell its Black Watch Digital Linear Tape IV cartridges but required that the Company pay Quantum a 30 percent royalty on those revenues (as set forth in the license agreement between the parties) during the interim until the claims are resolved.
On May 29, 2002, the Company, Quantum, and Maxell settled all legal claims between the companies over the qualification, production, and sale of DLT tape media products. Quantum and the Company also have committed to completing the qualification process of the Company as a manufacturer of DLT tape media. The antitrust lawsuit and all counterclaims have been withdrawn.
The Company is a defendant in a lawsuit filed by a Spanish collecting society demanding copyright levies for recording artists to be paid on all CDR-Data discs that have been sold during 1998 and 1999. Presently, there is an agreed upon levy that is assessed on all CDR-Audio discs sold but no agreement has been reached regarding CDR-Data discs. The Spanish collecting society has sued the Company and at least three other companies alleging that consumers are using CDR-Data discs to make copies of music for private use and, therefore, the same levy that applies to CDR-Audio discs sales should also apply to CDR-Data discs sales. The Company continues to defend the action vigorously.
Items 2-3. Not Applicable
Item 4.
Submission of Matters to a Vote of Security Holders
At the Companys 2002 Annual Meeting of Shareholders held on May 8, 2002, the shareholders approved the following:
(a) A proposal to elect three Class III directors of the Company to serve for three-year terms ending in 2005, as follows:
Directors |
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Votes For |
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Votes Withheld |
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Richard E. Belluzzo |
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22,267,277 |
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8,794,933 |
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Linda W. Hart |
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30,517,760 |
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544,450 |
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William T. Monahan |
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30,466,245 |
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595,965 |
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There were no broker non-votes. In addition, the terms of the following directors continued after the meeting: Class I directors for a term ending in 2003 - Lawrence E. Eaton, Michael S. Fields, Ronald T. Le May; and Class II directors for a term ending in 2004 - Marvin L. Mann, Glen A. Taylor and Daryl J. White. Effective August 2, 2002, Richard E. Belluzzo resigned as a Director of the Company. He will be the Chief Executive Officer of Quantum Corporation effective September 3, 2002.
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(b) A proposal to ratify the appointment of PricewaterhouseCoopers LLP to serve as independent accountants of the Company for the year ending December 31, 2002. The proposal received 30,443,495 votes for, and 543,217 against, ratification. There were 75,498 abstentions and no broker non-votes.
Item 5. Not Applicable
Item 6(a). Exhibits
The following documents are filed as exhibits to this Report.
10.1 1996 Directors Stock Compensation Program, as amended May 8, 2002.
15.1 An awareness letter from the Companys independent accountants regarding unaudited interim financial statements.
99.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002
(b) No reports on Form 8-K were filed during the quarter ended June 30, 2002.
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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.
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Imation Corp. |
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(REGISTRANT) |
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Date: August 14, 2002 |
By: |
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/s/ Robert L. Edwards |
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Robert L. Edwards |
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Senior
Vice President,
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27
Exhibit
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Description |
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10.1 |
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1996 Directors Stock Compensation Program, as amended May 8, 2002. |
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15.1 |
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An awareness letter from the Companys independent accountants regarding unaudited interim financial statements. |
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99.1 |
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Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 |
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99.2 |
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Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 |
28
Exhibit 10.1
IMATION CORP.
1996 DIRECTORS STOCK COMPENSATION PROGRAM
(As Amended - May 8, 2002)
SECTION 1. PURPOSE
The purpose of the Program is to attract and retain well-qualified persons for service as nonemployee directors of the Company and to promote identity of interest between directors and stockholders of the Company. It is intended that the 1996 Directors Stock Compensation Program will provide for the granting to participants of stock options, restricted stock, restricted stock units, common stock and/or other stock-based awards.
The Program is designed and intended to comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended, as such Rule may be amended from time to time, and shall be interpreted in a manner consistent with the requirements thereof, as now or hereafter construed, interpreted and applied by regulations, rulings and cases.
SECTION 2. DEFINITIONS
(a) Accounting Date shall mean the first business day following the annual meeting of stockholders of the Company; provided, that for the Plan Year that begins on the Effective Date, Accounting Date shall mean the Effective Date.
(b) Basic Fee shall mean the annual retainer payable to an Eligible Director with respect to each Plan Year (at the annual rate in effect on the Accounting Date of such Plan Year) for such Eligible Directors services on the Board, excluding any retainer as the chairperson of any committee of the Board (exclusive of any Meeting Fees).
(c) Board shall mean the Board of Directors of the Company.
(d) Chairperson Fee shall mean the annual retainer payable to an Eligible Director with respect to each Plan Year (at the annual rate in effect on the Accounting Date of such Plan Year) for such Eligible Directors services as the chairperson of any committee of the Board.
(e) Change in Control Price of the Common Stock shall equal the higher of (i) if applicable, the price paid for the Common Stock in the transaction constituting a Change in Control (as defined in Section 10) and (ii) the Fair Market Value of the Common Stock as of the last trading day preceding the date of the Change in Control.
(f) Committee shall mean the Compensation and Corporate Organization Committee of the Board.
(g) Common Stock shall mean the common stock, par value $.01 per share, of the Company.
(h) Company shall mean Imation Corp.
(i) Distribution shall mean the distribution by Minnesota Mining and Manufacturing Company to its stockholders of shares of Common Stock of the Company.
(j) Dividend Equivalent Right shall mean a right, described in Section 7(b) hereof, of a holder of Restricted Stock Units with respect to certain dividends paid on outstanding shares of Common Stock.
(k) Effective Date shall mean the effective date of the Distribution.
(l) Election Form shall mean the Election Form attached as Exhibit A hereto or such other form as may be deemed acceptable by the Secretary of the Company from time to time.
(m) Eligible Director shall mean each member of the Board who is not at the time of reference an employee of the Company or any of its subsidiaries.
(n) Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
(o) Fair Market Value as of any date shall mean the average of the high and low prices for Common Stock on such date, as reported on the New York Stock Exchange Composite Transactions, rounded upwards to the nearest $0.05; provided, however that the Fair Market Value as of the Effective Date shall mean the average of the daily averages of the high and low prices for Common Stock, as reported on the New York Stock Exchange Composite Transactions, on each day during the five consecutive trading days commencing on the Effective Date, rounded upwards to the nearest $0.05.
(p) Meeting Fees shall mean the amounts payable to an Eligible Director in arrears on any Quarterly Payment Date with respect to attendance at meetings of the Board or any committee of the Board (exclusive of any Basic Fee).
(q) Options shall mean the stock options issued pursuant to Section 5 or 8 hereof.
(r) Plan Year shall mean the twelve-month period commencing on the Accounting Date; provided, that the first Plan Year of the Program shall commence on the Effective Date and end on the date of the first annual meeting of stockholders of the Company.
(s) Program shall mean the Companys 1996 Directors Stock Compensation Program, as amended from time to time.
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(t) Proration Fraction shall mean a fraction, the numerator of which is the number of days from the date an Eligible Director first becomes an Eligible Director to the date of the next succeeding annual meeting of stockholders and the denominator of which is 365.
(u) Quarterly Payment Date shall mean the date established by the Company from time to time for payment, in arrears, of all Meeting Fees earned by Eligible Directors during the preceding three-month period.
(v) Restricted Stock Unit shall mean a right to receive payment of the Fair Market Value of one share of Common Stock in accordance with the conditions set forth in Section 7 hereof or conditions established by the Committee pursuant to Section 8 hereof.
(w) Restricted Stock shall mean Common Stock subject to the restrictions set forth in Section 6 hereof or restrictions established by the Committee pursuant to Section 8 hereof.
(x) Rule 16b-3 shall mean Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to time.
SECTION 3. ADMINISTRATION
The Program shall be administered by the Committee. In administering the Program, it will be necessary to follow various laws and regulations. It may be necessary from time to time to change or waive requirements of the Program to conform with the law, to meet special circumstances not anticipated or covered in the Program, or to carry on successful operation of the Program, and in connection therewith, the Committee shall have the full power and authority to:
(a) Prescribe, amend, and rescind rules and regulations relating to the Program, establish procedures deemed appropriate for its administration, and make any and all other determinations not herein specifically authorized which may be necessary or advisable for its effective administration;
(b) Make any amendments to or modifications of the Program which may be required or necessary to make the Program set forth herein comply with the provisions of any laws, federal or state, or any regulations issued thereunder, and to cause the Company at its expense to take any action related to the Program which may be required under such laws or regulations;
(c) Contest on behalf of the Eligible Directors or the Company, at the sole discretion of the Committee and at the expense of the Company, any ruling or decision on any issue related to the Program, and conduct any such contest and any resulting litigation to a final determination, ruling, or decision; and
(d) Grant other stock-based awards under the Program, as provided in Section 8 hereof.
3
SECTION 4. SHARES SUBJECT TO THE PROGRAM
(a) No more than 800,000 shares of Common Stock, subject to adjustment pursuant to Section 9 hereof, shall be available for issuance under the Program.
(b) Shares of Common Stock issued under the Program may consist in whole or in part of authorized and unissued shares or of treasury shares, and no fractional shares shall be issued under the Program. Cash shall be paid in lieu of any fractional shares issuable under the Program.
SECTION 5. ANNUAL GRANT OF OPTIONS
(a) Annual Grant .
(i) As of the Effective Date, each Eligible Director shall automatically be granted an Option pursuant to the Program to purchase 10,000 shares of Common Stock.
(ii) Following the Effective Date, each new Eligible Director (one who has not previously been granted Options under this Section 5) shall automatically be granted an Option pursuant to this Section 5 to purchase the number of whole shares of Common Stock equal to 10,000 multiplied by the Proration Fraction, as of the date such Eligible Director first becomes an Eligible Director.
(iii) Following the Effective Date, each Eligible Director who continues to serve on the Board immediately following an annual meeting of stockholders shall be granted an Option to purchase 10,000 shares of Common Stock as of the date of such meeting.
(iv) All Options granted under this Section 5 shall be granted at an option price equal to the Fair Market Value of the Common Stock on the date of grant.
(b) Terms and Conditions of Options .
(i) Subject to paragraph (ii) below, each Option granted under this Section 5 shall vest and become exercisable as to all shares of Common Stock underlying such Option on the date of the annual meeting of stockholders next succeeding the date of grant.
(ii) Notwithstanding paragraph (i) above, all outstanding and previously unvested Options of an Eligible Director granted under this Section 5 shall immediately vest and become fully exercisable upon the Eligible Directors death or disability or upon a Change of Control (as defined in Section 10). If an Eligible Director otherwise terminates service as an Eligible Director, any Options granted under this Section 5 that have not become exercisable shall be forfeited as of the date of such termination of service. Subject to the foregoing, each Option shall expire on the date that is ten years following the date of grant (the Expiration Date).
4
(iii) Options shall be exercised by written notice to the Secretary of the Company in such form as is from time to time prescribed by the Committee and by the payment in full, in cash or previously owned shares of Common Stock, of the aggregate option price of the shares of Common Stock for which the Option is being exercised. To the extent that an Option is not exercised by an optionee when it becomes initially exercisable, it shall not expire but shall be carried forward and shall be exercisable until the Expiration Date. Partial exercise shall be permitted from time to time, provided that partial exercises shall be in multiples of one hundred shares of Common Stock.
(iv) If for any reason during the term of a vested, unexercised and unexpired Option, the Eligible Director shall cease to be a member of the Board, such Option may be exercised, to the extent exercisable at the time of such termination of service, by the Eligible Director (or, in the event of such Eligible Directors death, such Eligible Directors estate) until the earlier of (A) the second anniversary of the date that the Eligible Director ceases to be a member of the Board and (B) the Expiration Date.
SECTION 6. ANNUAL GRANT OF RESTRICTED STOCK
(a) Annual Grant .
(i) As of each Accounting Date commencing with the Effective Date, each Eligible Director shall automatically be granted a number of shares of Restricted Stock (excluding fractional shares, which shall be paid in cash), the number of which shall be calculated by dividing 30% of his or her Basic Fee and 25% of his or her Chairperson Fee payable with respect to the Plan Year that commences on such Accounting Date by the Fair Market Value of one share of Common Stock on such Accounting Date.
(ii) Each new Eligible Director who is first elected to the Board between annual meetings of stockholders shall automatically be granted a number of shares of Restricted Stock (excluding fractional shares, which shall be paid in cash), the number of which shall be calculated by (A) multiplying the sum of 30% of his or her Basic Fee and 25% of his or her Chairperson Fee payable with respect to the Plan Year in which the Eligible Director is first elected to the Board by the Proration Fraction and (B) dividing the product resulting from clause (A) by the Fair Market Value of one share of Common Stock on the date that the Eligible Director is first elected to the Board.
(b) Terms and Conditions of Restricted Stock .
(i) Vesting . Each share of Restricted Stock granted under this Section 6 shall vest in full on the third anniversary of the date of grant; provided, however, that all outstanding and previously unvested shares of Restricted Stock of an Eligible Director granted under this Section 6 shall immediately vest in full upon the Eligible Directors death or disability or upon a Change of Control (as defined in Section 10).
5
(ii) Restrictions on Transfer . Until shares of Restricted Stock vest in accordance with paragraph (b)(i) of this Section 6, such shares may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of or encumbered, and no attempt to transfer such shares, whether voluntary or involuntary, by operation of law or otherwise, shall vest the transferee with any interest or right in or with respect to such shares.
(iii) Issuance and Custody of Certificate . The Company shall cause to be issued one or more stock certificates, registered in the name of the Eligible Director, evidencing the shares of Restricted Stock. Each such certificate shall bear the following legend:
The transferability of this certificate and the shares of Common Stock represented hereby are subject to the restrictions, terms and conditions (including restrictions against transfer) contained in the Imation Corp. 1996 Directors Stock Compensation Program. Copies of such Program are on file with the Secretary of Imation Corp. at the principal executive offices of Imation Corp.
Each certificate issued pursuant to this Section 6 shall be deposited by the Company with the Secretary of the Company or a custodian designated by the Secretary. Upon request, the Secretary or such custodian shall issue a receipt to the Eligible Director evidencing the certificate or certificates held which are registered in the name of the Eligible Director. After any shares of Restricted Stock vest in accordance with paragraph (b)(i) of this Section 6, the Company shall promptly cause to be issued a certificate or certificates evidencing such vested shares, free of the legend provided above and shall cause such certificate or certificates and any additional shares of Common Stock, any securities and any other property held in custody with respect to such vested shares pursuant to paragraph (b)(iv) of this Section 6 to be delivered to the Eligible Director or the Eligible Directors legal representatives, beneficiaries or heirs.
(iv) Distributions and Adjustments . If all or any portion of the shares of Restricted Stock vest in the Eligible Director subsequent to any change in the number or character of the shares of Common Stock (through merger, consolidation, reorganization, recapitalization, stock dividend or otherwise), the Eligible Director shall then receive upon such vesting the number and type of securities or other consideration which the Eligible Director would have received if such shares had vested prior to the event changing the number or character of outstanding shares of Common Stock. Any additional shares of Common Stock, any other securities of the Company and any other property (except for cash dividends or other cash distributions) distributed with respect to the shares of Restricted Stock prior to the date the shares of Restricted Stock vest shall be subject to the same restrictions, terms and conditions as the shares of Restricted Stock.
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Any cash dividends or other cash distributions payable with respect to the shares of Restricted Stock shall be distributed to the Eligible Director at the same time cash dividends or other cash distributions are distributed to stockholders of the Company generally. Any additional shares of Common Stock, any securities and any other property (except for cash dividends or other cash distributions) distributed with respect to the shares of Restricted Stock prior to the date such shares vest shall be promptly deposited with the Secretary or the custodian designated by the Secretary to be held in custody in accordance with paragraph (b)(iii) of this Section 6.
(v) Rights of Holder . Eligible Directors shall have none of the rights of a shareholder with respect to shares of Restricted Stock until such shares shall have vested in the Eligible Director as provided herein, except the rights to receive all cash dividends or other cash distributions and the right to vote.
SECTION 7. ELECTIONS TO RECEIVE COMMON STOCK OR RESTRICTED STOCK UNITS
(a) Elections .
(i) For the Plan Year commencing with the Effective Date, each Eligible Director shall have the option, at his or her election, to receive as of November 14, 1996, in lieu of cash payment therefor, a number of shares of Common Stock (excluding fractional shares, which shall be paid in cash) and/or Restricted Stock Units (including fractional Restricted Stock Units), up to the number which is calculated by dividing 50% of his or her Basic Fee payable with respect to such Plan Year by the Fair Market Value of one share of Common Stock on November 14, 1996. To be effective, any such election shall be made by submitting a completed and executed Election Form to the Secretary of the Company prior to November 14, 1996.
(ii) As of each Accounting Date following the Effective Date, each Eligible Director shall have the option, at his or her election, to receive, in lieu of cash payment therefor, a number of shares of Common Stock (excluding fractional shares, which shall be paid in cash) and/or Restricted Stock Units (including fractional Restricted Stock Units) up to the number which is calculated by dividing the sum of (i) 70% of his or her Basic Fee and (ii) 75% of his or her Chariperson Fee payable with respect to the Plan Year that commences on such Accounting Date by the Fair Market Value of one share of Common Stock on such Accounting Date. To be effective, any such election shall be made by submitting a completed and executed Election Form to the Secretary of the Company prior to such Accounting Date.
7
(iii) Each new Eligible Director who is first elected to the Board between annual meetings of stockholders shall have the option, at his or her election, to receive, in lieu of cash payment therefor, a number of shares of Common Stock (excluding fractional shares, which shall be paid in cash) and/or Restricted Stock Units (including fractional Restricted Stock Units) up to the number which is calculated by (A) multiplying the sum of (i) 70% of his or her Basic Fee and (ii) 75% of his or her Chariperson Fee payable with respect to the Plan Year in which the Eligible Director is first elected to the Board by the Proration Fraction and (B) dividing the product resulting from clause (A) by the Fair Market Value of one share of Common Stock on the date that the Eligible Director is first elected to the Board. To be effective, any such election shall be made by submitting a completed and executed Election Form to the Secretary of the Company prior to the date that the Eligible Director is first elected to the Board.
(iv) As of each Quarterly Payment Date following November 14, 1996, each Eligible Director shall have the option, at his or her election, to receive, in lieu of cash payment therefor, a number of shares of Common Stock (excluding fractional shares, which shall be paid in cash) and/or Restricted Stock Units (including fractional Restricted Stock Units) up to the number which is calculated by dividing the amount of his or her Meeting Fees payable on such Quarterly Payment Date by the Fair Market Value of one share of Common Stock on such Quarterly Payment Date. To be effective, any such election shall be made by submitting a completed and executed Election Form to the Secretary of the Company prior to the immediately preceding Quarterly Payment Date or, in the case of the first Quarterly Payment Date following November 14, 1996, prior to November 14, 1996.
(b) Terms and Conditions of Restricted Stock Units .
(i) Restricted Stock Unit Account . Upon the grant of Restricted Stock Units to an Eligible Director, such units shall be credited to an account established for such Eligible Director. Each Eligible Director shall receive an annual statement showing the number of Restricted Stock Units that have been credited to the Eligible Directors account under the Program.
(ii) Dividend Equivalent Rights . Outstanding Restricted Stock Units shall be credited with Dividend Equivalent Rights based upon dividends paid on outstanding shares of Common Stock from the date such Restricted Stock Units are granted to the date of payment in respect of such Restricted Stock Units. Such Dividend Equivalent Rights, once credited, shall be converted into an equivalent number of Restricted Stock Units (including fractional Restricted Stock Units). If a dividend is paid in cash, each Eligible Director shall be credited, as of each applicable dividend payment date, in accordance with the following formula:
(A x B) / C
8
in which A equals the number of Restricted Stock Units held by the Eligible Director on the dividend payment date, B equals the cash dividend per share and C equals the Fair Market Value per share of Common Stock on the dividend payment date. If a dividend is paid in property other than cash, Dividend Equivalent Rights shall be credited, as of the applicable dividend payment date, in accordance with the formula set forth above, except that B shall equal the fair market value per share of the property that the Eligible Director would have received in respect of the number of shares of Common Stock equal to the number of Restricted Stock Units held by the Eligible Director as of the dividend payment date, had such shares been owned as of the record date for such dividend.
(iii) Time of Payment . All payments in respect of an Eligible Directors Restricted Stock Units shall be made as soon as practicable following the earlier of (A) the date the Eligible Director has elected to receive payment pursuant to the applicable Election Form and (B) the occurrence of a Change in Control.
(iv) Form of Payment . Payment in respect of Restricted Stock Units shall be made in one lump sum payment in the form of shares of Common Stock. For purposes of the preceding sentence, any payment made upon the occurrence of a Change in Control in full or partial payment of Restricted Stock Units shall equal the Change in Control Price multiplied by the number of shares (including fractional shares) of Common Stock relating to the Restricted Stock Units with respect to which such cash payment is being made.
SECTION 8. OTHER STOCK-BASED AWARDS
The Committee is hereby authorized to grant Eligible Directors such other awards under the Program that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of Common Stock, as are deemed by the Committee to be consistent with the purpose of the Program (including, without limitation, Options, Restricted Stock or Restricted Stock Units in lieu of or in addition to those granted pursuant to Sections 5, 6 and 7 hereof, respectively); provided, however, that such grants must comply with Rule 16b-3 and applicable law. Subject to the terms of the Program and any applicable award agreement, the Committee shall determine the terms and conditions of any such awards.
SECTION 9. EFFECTS OF CERTAIN CHANGES IN CAPITALIZATION
In the event of any recapitalization, stock split, reverse stock split, stock dividend, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event affecting the Common Stock, the maximum number or class of shares available under the Program, the number or class of shares, and exercise price, of Common Stock subject to outstanding Options, the number or class of shares of Common Stock to be subject to Options automatically granted to Eligible Directors, the number or class of shares of Restricted Stock or Restricted Stock Units to be granted, delivered or credited hereunder, and the number or class of shares and the terms of any other outstanding stock-based awards granted hereunder, as the case may be, shall be adjusted by the Committee to reflect any such event.
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SECTION 10. CHANGE IN CONTROL
(a) For purposes of this Section 10, the following words and phrases shall have the meanings indicated below, unless the context clearly indicates otherwise:
(i) Person shall have the meaning associated with that term as it is used in Sections 13(d) and 14(d) of the Act.
(ii) Affiliates and Associates shall have the meanings assigned to such terms in Rule 12b-2 promulgated under Section 12 of the Act.
(iii) Act shall mean the Securities Exchange Act of 1934.
(iv) Continuing Directors shall have the meaning assigned to such term in Article Thirteenth of the Companys Restated Certificate of Incorporation.
(v) Code shall mean the Internal Revenue Code of 1986, as amended.
(b) For purposes of the Program, a Change in Control of the Company shall be deemed to have occurred if:
(i) any Person (together with its Affiliates and Associates), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the beneficial owner (as that term is defined in Rule 13d-3 promulgated under the Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Companys then outstanding securities, unless a majority of the Continuing Directors of the Companys Board of Directors prior to that time have determined in their sole discretion that, for purposes of this Program, a Change in Control of the Company has not occurred; or
(ii) the Continuing Directors of the Companys Board of Directors shall at any time fail to constitute a majority of the members of such Board of Directors.
SECTION 11. TERM OF PROGRAM
The Program was approved by Minnesota Mining and Manufacturing Company, as sole stockholder of the Company, and shall become effective as of the Effective Date. This Program shall remain in effect until all authorized shares have been issued, unless sooner terminated by the Board.
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SECTION 12. AMENDMENT; TERMINATION
The Board may at any time and from time to time alter, amend, suspend, or terminate the Program in whole or in part; provided, however, that no amendment which requires stockholder approval in order for the exemptions available under Rule 16b-3 to be applicable to the Program and the Eligible Directors shall be effective unless the same shall be approved by the stockholders of the Company entitled to vote thereon.
SECTION 13. RIGHTS OF ELIGIBLE DIRECTORS
Nothing contained in the Program or with respect to any grant shall interfere with or limit in any way the right of the stockholders of the Company to remove any Eligible Director from the Board pursuant to the bylaws of the Company, nor confer upon any Eligible Director any right to continue in the service of the Company as a director.
SECTION 14. GENERAL RESTRICTIONS
(a) Investment Representations . The Company may require any Eligible Director to whom Common Stock is issued, as a condition of receiving such Common Stock, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Common Stock for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws.
(b) Compliance with Securities Laws . Each issuance shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance of shares thereunder, such issuance may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification.
(c) Nontransferability . Unless otherwise determined by the Committee, awards under this Program shall not be transferable by an Eligible Director other than by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code, or Title I of ERISA, or the rules thereunder.
SECTION 15. WITHHOLDING
The Company may defer making payments or delivering shares of Common Stock under the Program until satisfactory arrangements have been made for the payment of any federal, state or local income or employment taxes required to be withheld with respect to such payment or delivery.
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SECTION 16. GOVERNING LAW
The Program and all rights hereunder shall be construed in accordance with and governed by the laws of the State of Delaware.
SECTION 17. UNFUNDED PROGRAM
Unless otherwise determined by the Committee, the Program shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Program shall not establish any fiduciary relationship between the Company and any Eligible Director or other person. To the extent any person holds any rights by virtue of a grant under the Program, such right shall be no greater than the right of an unsecured general creditor of the Company.
SECTION 18. HEADINGS
The headings of sections and subsections herein are included solely for convenience of reference and shall not affect the meaning of any of the provisions of the Program.
12
EXHIBIT A
IMATION CORP.
1996 DIRECTORS STOCK COMPENSATION PROGRAM
ELECTION FORM
(As Amended Effective May 8, 2002)
THIS ELECTION is made by (the Eligible Director), as of the day of , 200 .
WHEREAS, Imation Corp., a Delaware corporation (the Company) has adopted the Imation Corp. 1996 Directors Stock Compensation Program (As Amended) (the Program);
WHEREAS, the Eligible Director has the option under the Program to receive Common Stock and/or Restricted Stock Units (as defined in the Program) in lieu of payment of certain cash compensation for service as a director of the Company;
NOW, THEREFORE, in accordance with the terms and conditions of the Program, the Eligible Director hereby agrees as follows:
The Program
This Election is entered into pursuant to the Program, which is incorporated herein by reference and made a part hereof. The Eligible Director hereby acknowledges receipt of a copy of the Program. All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Program.
Basic Fee and Chairperson Fee (Annual Grant)
The prorated Basic Fee and Chairperson Fee is payable on the date first elected to the Board of Directors (if other than at an annual meeting of stockholders). Thereafter, the Basic Fee and Chairperson Fee is payable on each Accounting Date following the Annual Meeting of Stockholders.
Subject to the terms and conditions of the Program, the Eligible Director hereby elects to receive the Basic Fee compensation and the Chairperson Fee, if applicable in the following manner:
BASIC FEE:
_____% Election to receive Common Stock in lieu of Cash
_____% Election to receive Restricted Stock Units in lieu of Cash
_____% Election to receive Cash
+ 30 % Automatically payable in Restricted Stock
Total: 100%
CHAIRPERSON FEE: (if applicable)
_____% Election to receive Common Stock in lieu of Cash
_____% Election to receive Restricted Stock Units in lieu of Cash
_____% Election to receive Cash
+ 25 % Automatically payable in Restricted Stock
Total: 100%
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Meeting Fees
Subject to the terms and conditions of the Program, the Eligible Director elects to receive Meeting Fees compensation in the following manner, with such fees payable on each Quarterly Payment Date:
_____% Election to receive Common Stock
_____% Election to receive Restricted Stock Units
_____% Election to receive Cash
Total: 100%
The election to receive Restricted Stock Units shall be payable as set forth in the Program on the earlier to occur of a Change in Control or the following date:
_____ _____ anniversary of the grant date (please specify)
_____ The date the Eligible Directors service on the Board terminates for any reason
_____ Other (please specify):____________________________________________
Term of Election
This Election will remain in effect until terminated or changed by the Eligible Director pursuant to written notice to the Secretary of the Company or filing of a new Election Form.
IN WITNESS WHEREOF, the Eligible Director has entered into this Election on the day and year first above written, and the Company has accepted this Election as of such day and year.
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Signature |
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Accepted and Agreed to by IMATION CORP. |
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Title: |
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14
Exhibit 15.1
(PricewaterhouseCoopers LLP Letterhead)
(Minneapolis, MN)
August 14, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated July 23, 2002 on our reviews of the interim consolidated financial statements of Imation Corp. (the Company) for the three and six months ended June 30, 2002 and 2001, and included in the Companys Form 10-Q for the quarter ended June 30, 2002, is incorporated by reference in the Companys Registration Statements on Form S-8 (Registration Nos. 333-15273, 333-15275, 333-15277, 333-35591, 333-38196, and 333-66030).
Yours very truly,
/s/ PricewaterhouseCoopers LLP |
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PricewaterhouseCoopers LLP |
Exhibit 99.1
Certification Pursuant To
18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Imation Corp. (the Company) on Form 10-Q for the period ending June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, William T. Monahan, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ William T. Monahan |
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William T. Monahan |
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Chairman and
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August 14, 2002 |
Exhibit 99.2
Certification Pursuant To
18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Imation Corp. (the Company) on Form 10-Q for the period ending June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Robert L. Edwards, Imation Senior Vice President, Chief Financial Officer, and Chief Administrative Officer , certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Robert L. Edwards |
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Robert L. Edwards |
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Senior Vice President,
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August 14, 2002 |