Diluted EPS of $0.19 includes $0.07 per share of Restructuring Charges
OAKDALE, Minn., July 22 /PRNewswire-FirstCall/ -- Imation Corp. (NYSE:
IMN) today released financial results for the second quarter ended June 30,
2008.
Highlights for Q2 include the following:
-- Revenue of $547.0 million was up 32.5 percent compared with Q2 2007
revenue of $412.8 million. Growth was driven by optical and consumer
electronic products primarily due to the TDK Recording Media and Memcorp
acquisitions which closed in Q3 2007.
-- Gross margin was 17.3 percent for the quarter, relatively unchanged
from last year's second quarter.
-- Q2 2008 operating income of $12.2 million and diluted earnings per
share of $0.19 are compared with $2.6 million of operating loss and diluted
loss per share of $0.04 in Q2 2007. Operating income in Q2 2008 included
restructuring and other charges of $4.0 million or $0.07 per diluted share,
compared with charges of $20.8 million, or $0.37 per share in Q2 2007.
-- Cash generated from operations for the quarter was $45.5 million
compared to $9.3 million in Q2 2007. Approximately 269,000 shares were
repurchased during the quarter for $7.0 million.
The Company also announced today further steps to optimize its
manufacturing operation by focusing all tape coating in its Weatherford, OK
plant. As a result, the Company will exit its Camarillo, CA facility and
incur associated future restructuring and related charges of up to $20
million, the majority of which will be incurred in 2008 (see press release
issued today: Imation Announces Further Manufacturing Optimization Steps).
Commenting on the results, Imation President and CEO Frank Russomanno
said: "While we faced a challenging economic environment during the
quarter, especially with our enterprise class customers, our broad product
portfolio, multiple brands and global footprint enabled us to deliver an
acceptable quarter with strong operating cash flows. The U.S. and Europe
were weak especially in magnetic tape; however, we saw strong results in
Asia Pacific most notably in Japan and also in Latin America. We also were
pleased with our improved margins in optical and flash products, which
offset pressure resulting from declines in higher margin tape products."
"Our tape media business experienced continued softness in the quarter
driven by declines in legacy data center and entry level formats. We expect
this trend to continue. This morning we announced another step in our
strategy to optimize the magnetic tape business and maintain our leadership
position as we shift all coating operations to our facility in Weatherford.
This will result in the exit of our Camarillo coating operation by
year-end."
"We saw growth in optical media driven by our acquisition of the TDK
recording media business. Our multi-brand strategy is working as it is
enabling us to gain share and improve profitability in an overall declining
market. For example, TDK Life on Record has now become the leading optical
media brand in Japan."
"Our consumer electronics and accessories business posted strong
performance during the quarter and is well positioned for the busy year-end
season. We also have a focused effort to expand this business initially in
North America. Our recent acquisition of XtremeMac further strengthens our
brand and product portfolio and adds a new dimension of product design in
consumer electronics and related accessories, especially for Apple
enthusiasts. This acquisition is another building block in our strategy as
we build a portfolio of strong brands that resonate with consumers."
"We have adjusted our 2008 outlook reflecting the restructuring and
related costs associated with our plant exit announced today. Excluding
these impacts, we remain committed to our previously communicated 2008
outlook though we are aware of increasing concerns about possible further
economic weakness near term. We will continue to closely monitor the
external environment and its possible impact on our business as we head
into the critical second half." (See 2008 Business Outlook at the end of
this release.)
"The results for the second quarter reflect the initial benefits of our
strategy and our operational discipline, further reinforcing our confidence
in the long-term value of our strategic direction," Russomanno concluded.
A teleconference is scheduled for 9:00 AM Central Daylight Time today,
July 22, 2008. (See Webcast and Replay Information at the bottom of this
release).
Q2 and YTD 2008 and 2007 Financial Highlights
----------------------------------------------
(Dollars in millions, except
per share amounts) Q2 08 Q2 07 YTD 08 YTD 07
---------------------------- -------- -------- -------- --------
Net Revenue $547.0 $412.8 $1,077.9 $834.7
Gross Profit $94.9 $72.5 $193.6 $154.3
% of Revenue 17.3 % 17.6 % 18.0 % 18.5 %
SG&A $72.7 $44.7 $144.6 $89.9
% of Revenue 13.3 % 10.8 % 13.4 % 10.8 %
R&D $6.0 $9.6 $12.6 $22.0
% of Revenue 1.1 % 2.4 % 1.2 % 2.6 %
Restructuring and Other $4.0 $20.8 $4.7 $21.4
Operating Income (Loss) $12.2 $(2.6) $31.7 $21.0
% of Revenue 2.2 % -0.6 % 2.9 % 2.5 %
Net Income $7.2 $(1.4) $18.2 $14.3
Diluted Earnings per Share $0.19 $(0.04) $0.48 $0.41
Operating Cash Flows $45.5 $9.3 $78.3 $15.5
Reconciliation of GAAP to Adjusted Results
-------------------------------------------
Q2 08 Q2 07
----------------- -----------------
(Dollars in millions, except per Operating Diluted Operating Diluted
share amounts) Income EPS Income EPS
-------------------------------- -------- -------- -------- --------
As Reported - GAAP $12.2 $0.19 $(2.6) $(0.04)
Restructuring and other 4.0 0.07 20.8 0.37
Adjusted - Non-GAAP $16.2 $0.26 $18.2 $0.33
YTD 08 YTD 07
----------------- -----------------
(Dollars in millions, except per Operating Diluted Operating Diluted
share amounts) Income EPS Income EPS
-------------------------------- -------- -------- -------- --------
As Reported - GAAP $31.7 $0.48 $21.0 $0.41
Restructuring and other 4.7 0.11 21.4 0.37
Adjusted - Non-GAAP $36.4 $0.59 $42.4 $0.78
Comparison of GAAP to Non-GAAP Financial Measures
The Non-GAAP financial measurements are provided to assist in
understanding the impact of restructuring and other charges on our actual
results of operations when compared with prior periods. We believe that
adjusting for these items will assist investors in making an evaluation of
our performance on a comparable basis against prior periods. This
information should not be construed as an alternative to the reported
results, which have been determined in accordance with accounting
principles generally accepted in the United States of America.
Net Revenue was $547.0 million, up 32.5 percent from Q2 2007 of $412.8
million, driven by the TDK recording media and Memcorp acquisitions which
closed in Q3 2007. Our Americas region revenue totaled $190 million in the
quarter, down 17 percent from last year. The additional revenue from the
TDK recording media business acquisition was more than off-set by declines
in other areas. European revenue grew 46 percent and totaled $185 million
with growth driven by our TDK recording media business and the GDM joint
venture. Asia Pacific revenue totaled $113 million, up nearly 100 percent
over last year driven by TDK recording media revenue especially in Japan.
Revenue from the Electronic Products segment, the operating segment
resulting from the Memcorp acquisition, was 10.6 percent of total revenue
in the quarter. The Q2 2008 total revenue growth as compared with Q2 2007
was generated by overall volume growth including the impact of the
acquisitions of approximately 34 percent and favorable currency impact of
six percent, partially offset by price erosion of approximately seven
percent. For the six-month period ended June 30, 2008, revenue was $1,077.9
million, up 29.1 percent from revenue of $834.7 million for the comparable
period last year driven primarily by the TDK recording media and Memcorp
acquisitions.
Gross Margin of 17.3 percent in the current quarter was relatively
unchanged from 17.6 percent in Q2 2007.
Selling, General & Administrative (SG&A) spending was $72.7 million or
13.3 percent of revenue, compared with $44.7 million or 10.8 percent of
revenue in Q2 2007. The increase in expense from Q2 2007 was due to several
factors including the addition of expenses and intangible asset
amortization from acquired businesses as well as spending for acquisition
integration and incremental brand investments. These items were partially
offset by synergies achieved to date from acquisition integration as well
as spending declines elsewhere.
Research & Development (R&D) spending was $6.0 million or 1.1 percent
of revenue, compared with $9.6 million or 2.4 percent of revenue reported
in Q2 2007. The favorable comparisons were primarily due to savings from
restructuring actions initiated in the second quarter of 2007 as the
Company focused its R&D activities primarily on development of new magnetic
tape formats.
Restructuring and Other Charges of $4.0 million were recorded in the
second quarter of 2008 compared with charges of $20.8 million in the second
quarter of 2007. These charges related to costs from our previously
announced restructuring programs.
Operating Income for the quarter of $12.2 million included
restructuring and other charges of $4.0 million, compared with an operating
loss of $2.6 million including restructuring and other charges of $20.8
million in Q2 2007. Excluding restructuring and other charges noted above,
operating income would have been $16.2 million in Q2 2008 as compared with
$18.2 million in Q2 2007 (see table entitled Reconciliation of GAAP to
Adjusted Results above).
Non-Operating Income/Expense and Income Taxes: Non-operating expense of
$1.6 million in Q2 2008 is compared with $0.7 million of non-operating
income in Q2 2007 due primarily to a reduction in interest income. The
effective tax rate in Q2 2008 was 32.1 percent compared with 26.3 percent
in Q2 2007 which included tax benefits associated with restructuring and
other charges in Q2 2007.
Diluted Earnings per Share was $0.19 for Q2 2008 compared with a $0.04
loss per diluted share for Q2 2007. Adjusting for the above noted impacts
of restructuring and other charges, diluted earnings per share would have
been $0.26 for Q2 2008 compared with $0.33 for Q2 2007 (see table entitled
Reconciliation of GAAP to Adjusted Results above).
Cash Flow, Working Capital and Balance Sheet: Ending cash and cash
equivalents totaled $117.7 million as of June 30, 2008. Cash flow from
operations for Q2 2008 was $45.5 million, driven by earnings and
improvements in working capital. During the quarter we repurchased
approximately 269,000 shares of common stock for $7.0 million and paid
dividends of $6.0 million. We also paid $7.0 million to acquire XtremeMac.
Capital spending was $4.1 million and depreciation and amortization was
$12.7 million for the quarter.
2008 Business Outlook
This business outlook, except where noted, is unchanged from the
outlook issued in January 2008, and is subject to the risks and
uncertainties described below.
-- Revenue is targeted at approximately $2.4 billion, representing
growth of approximately 16 percent over 2007.
-- Operating income, including restructuring and other charges, is
targeted to be in the range of $80 million to $90 million. We anticipate
restructuring and other charges to be in the range of $17 million to $22
million for 2008. This change in outlook is the result of the anticipated
2008 restructuring and related charges of $13 million to $16 million
associated with the manufacturing restructuring announced today.
Previously, operating income was targeted to be in the range of $95 million
to $105 million with restructuring and other charges in the range of $4
million to $6 million for 2008. Our outlook for operating income excluding
restructuring and related charges is unchanged.
-- Diluted earnings per share is targeted between $1.26 and $1.43 which
includes the negative impact of approximately $0.33 from restructuring and
related charges. This outlook reflects the restructuring and related
charges discussed above. Previously, diluted earnings per share was
targeted between $1.51 and $1.68 which included the negative impact of
approximately $0.08 from restructuring and other charges. Our outlook for
diluted earnings per share excluding the impacts of restructuring and
related charges is unchanged.
-- Capital spending is targeted in the range of $15 million to $20
million.
-- The tax rate is anticipated to be in the range of 35 percent to 37
percent, absent any one-time tax items that may occur in the future.
-- Depreciation and amortization expense is targeted in the range of
$48 million to $52 million.
Webcast and Replay Information
A webcast of Imation Corp.'s second quarter teleconference will be
available on the Internet on a listen-only basis at http://ir.Imation.com
or http://www.streetevents.com. A taped replay of the teleconference will
be available beginning at 1:00 PM Central Daylight Time on July 22, 2008
until 5:00 PM Central Daylight Time on July 28, 2008 by dialing
866-837-8032 (access code 1249095). All remarks made during the
teleconference will be current at the time of the call and the replay will
not be updated to reflect any subsequent developments.
About Imation Corp.
Imation is a leading global marketer of brands and developer of
products in digital storage and audio and video electronics. Imation
Corp.'s global brand portfolio, in addition to the Imation brand, includes
the Memorex brand, one of the most widely recognized names in the consumer
electronics industry, famous for the slogan, "Is it live or is it Memorex?"
and the XtremeMac brand. Imation is also the exclusive licensee of the TDK
Life on Record brand, one of the world's leading recording media brands.
Additional information about Imation is available at
http://www.imation.com.
Risk and Uncertainties
Certain information contained in this press release which does not
relate to historical financial information may be deemed to constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks
and uncertainties that could cause our actual results in the future to
differ materially from our historical results and those presently
anticipated or projected. We wish to caution investors not to place undue
reliance on any such forward-looking statements. Any forward-looking
statements speak only as of the date on which such statements are made, and
we undertake no obligation to update such statements to reflect events or
circumstances arising after such date. Risk factors include our ability to
successfully integrate our recent acquisitions and achieve the anticipated
benefits, including synergies, in a timely manner; our ability to
successfully manage multiple brands globally; our ability to successfully
defend our intellectual property rights; continuing uncertainty in global
and regional economic conditions; the volatility of the markets in which we
operate; our ability to meet our revenue growth and cost reduction targets;
our ability to successfully implement our global manufacturing strategy for
magnetic data storage products and to realize the benefits expected from
the related restructuring; our ability to introduce new offerings in a
timely manner either independently or in association with OEMs or other
third parties; our ability to efficiently source, warehouse and distribute
our products globally; our ability to secure and maintain adequate shelf
and display space over time at retailers which conduct semi-annual or
annual line reviews; our ability to achieve the expected benefits from our
strategic relationships and distribution agreements; the competitive
pricing environment and its possible impact on profitability and inventory
valuations; foreign currency fluctuations; the outcome of any pending or
future litigation, including the pending Philips litigation; our ability to
secure adequate supply of certain high demand products at acceptable
prices; the ready availability and price of energy and key raw materials or
critical components; the market acceptance of newly introduced product and
service offerings; the rate of decline for certain existing products; the
possibility that our goodwill or other assets may become impaired, as well
as various factors set forth from time to time in our filings with the
Securities and Exchange Commission.
IMATION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except for per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2008 2007 2008 2007
-------- ------- ------- -------
Net revenue $547.0 $412.8 $1,077.9 $834.7
Cost of goods sold 452.1 340.3 884.3 680.4
-------- ------- ------- -------
Gross profit 94.9 72.5 193.6 154.3
Selling, general and administrative 72.7 44.7 144.6 89.9
Research and development 6.0 9.6 12.6 22.0
Restructuring and other 4.0 20.8 4.7 21.4
-------- ------- ------- -------
Total 82.7 75.1 161.9 133.3
Operating income (loss) 12.2 (2.6) 31.7 21.0
Other (income) and expense
Interest income (0.7) (2.5) (1.6) (5.0)
Interest expense 0.3 0.3 1.0 0.6
Other, net 2.0 1.5 3.4 2.2
-------- ------- ------- -------
Total 1.6 (0.7) 2.8 (2.2)
Income before income taxes 10.6 (1.9) 28.9 23.2
Income tax provision (benefit) 3.4 (0.5) 10.7 8.9
-------- ------- ------- -------
Net income (loss) $7.2 $(1.4) $18.2 $14.3
======== ======== ======== ========
Earning per common share
Basic $0.19 $(0.04) $0.48 $0.41
Diluted $0.19 $(0.04) $0.48 $0.41
Weighted average shares outstanding
Basic 37.4 34.9 37.6 34.9
Diluted 37.5 34.9 37.7 35.3
Cash dividend paid per common share $0.16 $0.16 $0.32 $0.30
IMATION CORP.
CONSOLIDATED BALANCE SHEETS
(In millions)
June 30, December 31,
2008 2007
------------ ------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $117.7 $135.5
Accounts receivable, net 394.7 507.1
Inventories, net 346.3 366.1
Other current assets 111.8 109.9
------------ ------------
Total current assets 970.5 1,118.6
Property, plant and equipment, net 163.1 171.5
Intangible assets, net 366.5 371.0
Goodwill 60.7 55.5
Other assets 36.2 34.4
------------ ------------
Total assets $1,597.0 $1,751.0
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $287.1 $350.1
Accrued payroll 15.8 13.5
Other current liabilities 197.2 257.3
Current maturities of long-term debt - 10.0
------------ ------------
Total current liabilities 500.1 630.9
Other liabilities 44.8 45.0
Long-term debt, less current maturities - 21.3
Shareholders' equity 1,052.1 1,053.8
------------ ------------
Total liabilities and shareholders'
equity $1,597.0 $1,751.0
============ ============
IMATION CORP.
SUPPLEMENTAL INFORMATION
(Dollars in millions)
(Unaudited)
Segment and Product Information
-------------------------------
Three months Three months
ended June 30, ended June 30,
2008 2007 % Change
--------------- -------------- --------
Rev $ % Total Rev $ % Total
------- ------- ------- -------
Americas 190.2 34.8% 229.4 55.6% -17.1%
Europe 185.3 33.9% 126.7 30.7% 46.3%
Asia Pacific 113.3 20.7% 56.7 13.7% 99.8%
Electronic Products 58.2 10.6% - NM NM
------- ------- ------- -------
Total 547.0 100.0% 412.8 100.0%
======= ======= ======= =======
Rev $ % Total Rev $ % Total
------- ------- ------- -------
Optical products 264.3 48.3% 192.6 46.7% 37.2%
Magnetic products 166.4 30.4% 150.4 36.4% 10.6%
Flash media products 27.0 4.9% 42.8 10.4% -36.9%
Electronic products, accessories
and other 89.3 16.3% 27.0 6.5% 230.7%
------- ------- ------- -------
Total 547.0 100.0% 412.8 100.0%
======= ======= ======= =======
Op Inc
Op Inc $ OI % (Loss)$ OI %
------- ------- ------- -------
Americas 17.5 9.2% 22.1 9.6% -20.8%
Europe 7.2 3.9% 7.9 6.2% -8.9%
Asia Pacific 8.0 7.1% 4.0 7.1% 100.0%
Electronic Products 0.6 NM - NM NM
Corp/Unallocated (1) (21.1) NM (36.6) NM NM
------- ------- ------- -------
Total 12.2 2.2% (2.6) -0.6%
======= ======= ======= =======
Six months Six months
ended June 30, ended June 30,
2008 2007 % Change
--------------- -------------- --------
Rev $ % Total Rev $ % Total
------- ------- ------- -------
Americas 404.9 37.6% 444.5 55.6% -8.9%
Europe 361.4 33.5% 269.4 30.7% 34.1%
Asia Pacific 227.6 21.1% 120.8 13.7% 88.4%
Electronic Products 84.0 7.8% - NM NM
------- ------- ------- -------
Total 1,077.9 100.0% 834.7 100.0%
======= ======= ======= =======
Rev $ % Total Rev $ % Total
------- ------- ------- -------
Optical products 525.9 48.8% 385.3 46.2% 36.5%
Magnetic products 344.5 32.0% 312.8 37.5% 10.1%
Flash media products 53.9 5.0% 78.5 9.4% -31.3%
Electronic products, accessories
and other 153.6 14.2% 58.1 6.9% 164.4%
------- ------- ------- -------
Total 1077.9 100.0% 834.7 100.0%
======= ======= ======= =======
Op Inc $ OI % Op Inc $ OI %
------- ------- ------- -------
Americas 41.3 10.2% 46.6 10.5% -11.4%
Europe 12.9 3.6% 19.0 7.1% -32.1%
Asia Pacific 15.7 6.9% 10.4 8.6% 51.0%
Electronic Products (2.1) NM - NM NM
Corp/Unallocated (1) (36.1) NM (55.0) NM NM
------- ------- ------- -------
Total 31.7 2.9% 21.0 2.5%
======= ======= ======= =======
NM - Not meaningful
(1) Corporate and unallocated amounts include research and development
expense, corporate expense, stock-based compensation expense and
restructuring and other expense that are not allocated to the segments
we serve. We believe this avoids distorting the operating income for
the segments.
IMATION CORP.
SUPPLEMENTAL INFORMATION
(Dollars in millions)
(Unaudited)
Operations & Cash Flow - Additional Information
-----------------------------------------------
Three Months Ended Six Months Ended
(Dollars in millions) June 30, June 30,
------------------ ------------------
2008 2007 2008 2007
------- ------- ------- -------
Gross Profit $94.9 $72.5 $193.6 $154.3
Gross Margin % 17.3% 17.6% 18.0% 18.5%
Operating Income (Loss) $12.2 $(2.6) $31.7 $21.0
Operating Income % 2.2% -0.6% 2.9% 2.5%
Capital Spending $4.1 $4.0 $6.5 $9.4
Depreciation $6.7 $7.0 $13.4 $14.0
Amortization $6.0 $3.5 $11.9 $7.0
Tax Rate % 32% 26% 37% 38%
Asset Utilization Information *
-------------------------------- June 30, December 31,
2008 2007
------------ ------------
Days Sales Outstanding (DSO) 61 64
Days of Inventory Supply 66 65
Debt to Total Capital 0.0% 3.0%
Other Information
-----------------
Approximate employee count as of June 30, 2008: 1,950
Approximate employee count as of December 31, 2007: 2,250
Book value per share as of June 30, 2008: $28.21
Shares used to calculate book value per share (millions): 37.3
Imation repurchased approximately 269,000 shares of its stock in the
second quarter of 2008 for $7.0 million.
Authorization for repurchase of 2.3 million shares remains outstanding
as of June 30, 2008.
* These operational measures, which we regularly use, are provided to
assist in the investor's further understanding of our operations.
Days Sales Outstanding is calculated using the count-back method, which
calculates the number of days of most recent revenue that are reflected
in the net accounts receivable balance.
Days of Inventory Supply is calculated using the current period
inventory balance divided by the average of the inventoriable portion of
cost of goods sold for the previous 12 months expressed in days.
Debt to Total Capital is calculated by dividing total debt (long term
plus short term) by total shareholders' equity and total debt.
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