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Imation Corp. Reports EPS of $0.56 vs. $0.09; Operating Income up Almost Four Times From Year Ago; Gross Margin Improves to 31.2 Percent; Significant Reduction in Tax Rate - Company Financial Information

Edge: Work-Group Computing Report, May 1, 2000

Imation Corp (NYSE:IMN), Tuesday reported operating income of $18.4 million, almost four times higher than a year ago, for the first quarter ended March 31, 2000. Net income for the quarter was $20.5 million or $0.56 per diluted share on revenue of $328.8 million and a 22 percent tax rate. This compares with operating income of $4.7 million and income from continuing operations of $3.5 million or $0.09 per diluted share on revenue of $341.2 million for the comparable period a year ago.

Operating margin rose to 5.6 percent, up from 1.4 percent in the comparable quarter. EBITDA increased by over 40 percent from the prior year, to $36.6 million. Cash flow from operating activities was approximately $60 million.

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The revenue decline was due to several factors including foreign currency impacts and softness in some mature businesses. This was partially offset by continued growth in the Company's Data Storage and Information Management business, particularly the 9840 tape cartridge and strong optical media sales. Revenue outside of North America was up in all geographies in local currency. On a dollar basis, the Company reported particular strength in Latin America and Asia, where reported revenues grew 19 percent and 10 percent respectively.

In commenting on the results, CEO Bill Monahan said, "Our first quarter results are on track to deliver significant earnings growth in 2000 and establish a solid platform for revenue growth. I am pleased that the operating leverage we have established is delivering substantially improved year-over-year gross margins and operating income margins.

"We continued to grow in Data Storage and Information Management, which represented 71 percent of revenue in the quarter. We saw growth in all segments of the business. We are building new revenue growth platforms with SuperDLT and Ultrium tape media in the mid-range network space, as well as ramping up capacity to deliver other high capacity tape media. These new offerings will contribute top line growth later this year and into the future."

Gross profit margin for the quarter was 31.2 percent, up from 30.2 percent in the fourth quarter and the year-ago quarter. Sales, general & administrative (SG&A) expenses of $67.2 million, or 20.4 percent of revenue, were down $11.8 million or 15 percent from the comparable quarter last year.

The Company's tax rate for the first quarter and expected full-year 2000 rate is 22 percent, down from the 1999 full-year rate of 39 percent. The tax rate decline resulted from tax benefits associated with changes to the Company's European structure following the sales of Imation's Medical Imaging Systems and Photo Color Systems businesses and Italian manufacturing facility. The Company also reported $7.9 million in non-operating income, primarily from distribution gains received from venture capital investments made by Imation.

Foreign currency exchange rates had a negative effect during the quarter. On a local currency basis, data revenues were up by 9 percent. Total media sales grew 13.6 percent, fueled by growth in all market segments, and increased by 16.5 percent on a local currency basis. Foreign currency exchange rates had a negative impact of approximately $6 to 7 million on total company operating income.

In Color Technologies, the planned out-sourcing of plates and film products, which began in 1999, accounted for a significant portion of the revenue decrease. In addition, the graphic arts industry reportedly experienced a soft Q1, and the implementation of tighter inventory management methods by some distributors impacted the Company in the quarter. Early second quarter results are showing improvement compared to the first quarter.

Mr. Monahan expects Imation to deliver excellent performance in 2000. "Continued improvements in our manufacturing processes, cost control, and tax rate resulted in increased earnings and cash flow in the first quarter. For the full year 2000, we continue to look for 20 percent plus growth in operating profit. We also are pleased that our continued improvements are expected to deliver a significant tax rate reduction in 2000 and bring our tax rate below the 39 percent level in future years. We will continue to deliver improved earnings to our shareholders as we build Imation's new offerings to drive revenue growth in data storage and information management, color management solutions, and associated services," he concluded.

The Company repurchased 1.6 million shares of its common stock during the quarter for a total of $47.7 million. The Company has authorization for the repurchase of an additional 4 million shares remaining on its existing share repurchase program.

Technology Industry

Imation Corp. Reports EPS of $0.56 vs. $0.09; Operating Income up Almost Four Times From Year Ago; Gross Margin Improves to 31.2 Percent; Significant Reduction in Tax Rate - Company Financial Information

Edge: Work-Group Computing Report, May 1, 2000

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