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| IMN > SEC Filings for IMN > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
Executive Summary
Consolidated Results of Operations for the Three Months Ended March 31, 2009
• Revenue of $426.2 million for the three months ended March 31, 2009 was down
19.7 percent compared with $530.9 million in the same period last year.
• Operating loss of $7.4 million for the three months ended March 31, 2009, compared with operating income of $19.5 million in the same period last year.
• Diluted loss per share was $0.31 for the three months ended March 31, 2009, compared with diluted earnings per share of $0.29 for the same period last year.
Cash Flow/Financial Condition for the Three Months Ended March 31, 2009
• Cash totaled $103.0 million as of March 31, 2009, compared with
$96.6 million at December 31, 2008.
• Cash flow provided by operating activities was $15.7 million for the three months ended March 31, 2009, compared with $32.8 million in the same period last year.
Results of Operations
Net Revenue
Three Months Ended March 31, Percent (In millions) 2009 2008 Change Net revenue $ 426.2 $ 530.9 -19.7 %
Our worldwide revenue for the three months ended March 31, 2009 was
negatively impacted by overall price erosion of 9.0 percent, volume decreases of
approximately 6.3 percent and unfavorable foreign currency impacts of
4.4 percent. The revenue decrease was driven primarily by revenue declines in
our legacy storage media products due to the soft global economy, offset partly
by revenue growth in electronic products as well as external and removable hard
disk products.
Gross Profit
Three Months Ended March 31, Percent
(In millions) 2009 2008 Change
Gross profit $ 69.0 $ 98.7 -30.1 %
Gross margin 16.2 % 18.6 %
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Our gross margin as a percent of revenue decreased for the three months ended March 31, 2009, compared with the same period last year, driven by changes in product mix associated mainly with revenue declines in higher margin tape products, partly offset by improved gross margins on optical media. Our gross margin for the three months ended March 31, 2009 benefited from our restructuring actions along with a one time value added tax benefit and was negatively impacted by additional net inventory reserves on consumer electronic products. Our gross margin for the three months ended March 31, 2008 benefited from a higher percentage of magnetic revenue and was prior to the economic slowdown which began in the second half of 2008. Selling, General and Administrative (SG&A)
Three Months Ended March 31, Percent
(In millions) 2009 2008 Change
Selling, general and administrative $ 65.6 $ 71.9 -8.8 %
As a percent of revenue 15.4 % 13.5 %
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The decrease in SG&A expense for the three months ended March 31, 2009, compared with the same period last year, was due to benefits from our restructuring actions and aggressive cost control actions, partially offset by additional legal expense related to the Philips litigation.
Research and Development (R&D)
Three Months Ended
March 31, Percent
(In millions) 2009 2008 Change
Research and development $ 5.3 $ 6.6 -19.7 %
As a percent of revenue 1.2 % 1.2 %
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R&D expense as a percent of revenue for the three months ended March 31, 2009 remained flat compared with the same period last year. The decrease in expense was due to our restructuring actions and aggressive cost control actions. Restructuring and Other
Three Months Ended
March 31, Percent
(In millions) 2009 2008 Change
Restructuring and other $ 5.5 $ 0.7 685.7 %
As a percent of revenue 1.3 % 0.1 %
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Restructuring and other expense was $5.5 million for the three months ended
March 31, 2009, primarily related to our 2008 corporate redesign restructuring
program initiated during the fourth quarter of 2008. This program further
accelerates the alignment of our cost structure with our strategic direction by
reducing SG&A expense. See note 8 to the Condensed Consolidated Financial
Statements herein.
Restructuring and other expense was $0.7 million for the three months ended
March 31, 2008, primarily related to restructuring charges of $2.7 million
offset by income of $2.3 million associated with the TDK post-closing purchase
price adjustment. Restructuring charges for the three months ended March 31,
2008 were related to lease termination costs of $1.6 million associated with the
full settlement of a leased office space no longer utilized and severance and
severance-related costs of $1.1 million. The TDK post-closing purchase price
adjustment was associated with the finalization of certain acquisition-related
working capital amounts as negotiated with TDK.
Operating (Loss) Income
Three Months Ended
March 31, Percent
(In millions) 2009 2008 Change
Operating (loss) income $ (7.4 ) $ 19.5 -137.9 %
As a percent of revenue (1.7 )% 3.7 %
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Our operating loss for the three months ended March 31, 2009 was driven by lower revenues and lower gross margins discussed above as well as higher restructuring and other charges. Total operating loss for the three months ended March 31, 2009 included restructuring and other expense of $5.5 million. Total operating income for the three months ended March 31, 2008 included restructuring and other expense of $0.7 million. Other (Income) and Expense
Three Months Ended
March 31, Percent
(In millions) 2009 2008 Change
Interest income $ (0.2 ) $ (0.9 ) -77.8 %
Interest expense 0.4 0.7 -42.9 %
Other expense, net 7.6 1.4 442.9 %
Total 7.8 1.2
As a percent of revenue 1.8 % 0.2 %
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The increase in other expense for the three months ended March 31, 2009 was driven by a reserve of $4.0 million related to a note receivable from one of our commercial partners whose financial condition has significantly deteriorated, as well as foreign currency exchange losses.
Income Tax Provision
Three Months Ended
March 31, Percent
(In millions) 2009 2008 Change
Income tax (benefit) provision $ (3.6 ) $ 7.3 -149.3 %
Effective tax rate 23.7 % 39.9 %
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The effective income tax rate for the three months ended March 31, 2009 was
23.7 percent compared with 39.9 percent in the same period last year. The
effective rate decline was due primarily to the mix of taxable income/loss by
country, as well as the tax effects associated with our restructuring and other
charges.
Segment Results
We operate in two broad market categories: (1) removable data storage media
products and accessories (Data Storage Media) and (2) audio and video consumer
electronic products and accessories (Electronic Products).
Our data storage media business is organized, managed and internally and
externally reported as segments differentiated by the regional markets we serve:
Americas, Europe and Asia Pacific. Each of these segments has responsibility for
selling virtually all Imation product lines except for consumer electronic
products. Consumer electronic products are sold primarily through our Electronic
Products segment. The Electronic Products segment is currently focused primarily
in North America and primarily under the Memorex brand name.
We evaluate segment performance based on revenue and operating income.
Revenue for each segment is generally based on customer location where the
product is shipped. The operating income reported in our segments excludes
corporate and other unallocated amounts. Although such amounts are excluded from
the business segment results, they are included in reported consolidated
earnings. Corporate and unallocated amounts include research and development
costs, corporate expense, stock-based compensation expense and restructuring and
other costs which are not allocated to the segments.
Information related to our segments is as follows:
Data Storage Media
Americas
Three Months Ended
March 31, Percent
(In millions) 2009 2008 Change
Net revenue $ 156.5 $ 214.7 -27.1 %
Operating income 12.0 23.8 -49.6 %
As a percent of revenue 7.7 % 11.1 %
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The Americas segment is our largest segment comprising 36.7 percent of our
revenue for the three months ended March 31, 2009. Our revenue decrease for the
three months ended March 31, 2009, compared with the same period last year, was
due to overall volume decreases of approximately 17 percent, and price declines
of approximately 10 percent. The volume decrease was driven by a decrease in
magnetic, optical, flash and audio and video tape product sales as a result of
the continuing economic slowdown.
The decrease in operating income as a percentage of revenue for the three
months ended March 31, 2009, compared with the same period last year, was driven
by lower gross margin in our magnetic and flash products, partially offset by
increases in margin for optical products.
Europe
Three Months Ended
March 31, Percent
(In millions) 2009 2008 Change
Net revenue $ 135.3 $ 176.1 -23.2 %
Operating income 1.7 5.7 -70.2 %
As a percent of revenue 1.3 % 3.2 %
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The Europe segment comprised 31.7 percent of our revenue for the three months
ended March 31, 2009. Our revenue decrease for the three months ended March 31,
2009, compared with the same period last year, was due to overall volume
decreases of approximately 12 percent, unfavorable foreign currency impacts of
approximately 6 percent and price declines of approximately 5 percent. The
volume decrease was driven by a decrease in optical, magnetic and audio and
video tape product sales mainly as a result of the continuing economic slowdown
and changes in the products life cycle, offset by increases in flash product
sales.
The decrease in operating income as a percentage of revenue for the three
months ended March 31, 2009, compared with the same period last year, was driven
mainly by lower sales and gross margins in our legacy products.
Asia Pacific (APAC)
Three Months Ended
March 31, Percent
(In millions) 2009 2008 Change
Net revenue $ 102.9 $ 114.3 -10.0 %
Operating income 5.7 7.7 -26.0 %
As a percent of revenue 5.5 % 6.7 %
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The Asia Pacific segment comprised 24.1 percent of our revenue for the three
months ended March 31, 2009. Our revenue decrease for the three months ended
March 31, 2009, compared with the same period last year, was due to price
declines of approximately 15 percent and unfavorable foreign currency impacts of
approximately 10 percent, offset by overall volume increases of approximately
15 percent. The decrease in revenue, compared with the same period last year,
was driven by a decrease in optical, magnetic, audio and video tape and flash
product sales as a result of the continuing economic slowdown, offset by an
increase in hard disk drive and services sales.
The decrease in operating income as a percentage of revenue for the three
months ended March 31, 2009, compared with the same period last year, was driven
by lower sales and gross margins in our legacy products, offset partially by
modest growth in Japan revenue and gross margins.
Electronic Products
Three Months Ended
March 31, Percent
(In millions) 2009 2008 Change
Net revenue $ 31.5 $ 25.8 22.1 %
Operating income (loss) (3.9 ) (2.7 ) 44.4 %
As a percent of revenue (12.4 )% (10.5 )%
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The Electronic Products segment comprised 7.5 percent of our revenue for the
three months ended March 31, 2009. The increase in revenue for the three months
ended March 31, 2009, compared with the same period last year, was driven
primarily by increased sales of audio products.
The increase in the Electronic Products segment's operating loss as a
percentage of revenue for the three months ended March 31, 2009, compared with
the same period last year, was driven by inventory charges associated with
excess inventory due to the continuing economic slowdown.
Corporate and Unallocated
Three Months Ended
March 31, Percent
(In millions) 2009 2008 Change
Operating loss $ 22.9 $ 15.0 52.7 %
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The corporate and unallocated loss includes amounts which are not allocated
to the business units in management's evaluation of segment performance such as
R&D expense, corporate expense, stock-based compensation expense and
restructuring and other expense. Operating loss included restructuring and other
expense of $5.5 million and $0.7 million for the three month periods ended
March 31, 2009 and 2008, respectively.
Impact of Changes in Foreign Currency Rates
We have a market presence in more than 100 countries and we sell products on
a local currency basis through a variety of distribution channels. We source
optical, flash and other finished goods from manufacturers located primarily in
Asia, although much of this sourcing is on a U.S. dollar basis. Further, we
produce a significant portion of our magnetic tape products in our own
manufacturing facilities in the United States. Comparisons of revenue and gross
profit from foreign countries are subject to various fluctuations due to the
impact of translating results at differing exchange rates in different periods.
Changes in foreign currency exchange rates for the three months ended
March 31, 2009 negatively impacted worldwide revenue by 4.4 percent compared
with the three months ended March 31, 2008. The impact on profit is more
difficult to determine due to the influence of other factors that we believe are
also impacted by currency rate changes.
Our foreign currency hedging program attempts to manage some of the foreign
currency risks over near term periods; however, these risk management activities
cannot ensure that the program will offset more than a portion of the adverse
financial impact resulting from unfavorable movements in foreign exchange rates
or that medium and longer term effects of exchange rates will not be significant
(see Part 1, Item 3. Quantitative and Qualitative Disclosures about Market
Riskin this Form 10-Q).
Financial Position
Our cash and cash equivalents balance as of March 31, 2009 was
$103.0 million, an increase of $6.4 million from $96.6 million as of
December 31, 2008. The increase was primarily due to operating cash inflows of
$15.7 million, partially offset by cash paid for capital expenditures of
$5.4 million.
Accounts receivable days sales outstanding was 61 days as of March 31, 2009,
down 2 days from December 31, 2008. Days sales outstanding is calculated using
the count-back method, which calculates the number of days of most recent
revenue that is reflected in the net accounts receivable balance.
Days of inventory supply was 75 days as of March 31, 2009, down 7 days from
December 31, 2008. 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. The decrease
in days of inventory supply was driven by efforts to reduce excess inventories.
Our accounts payable balance as of March 31, 2009 was $230.0 million, a
decrease of $66.1 million from $296.1 million as of December 31, 2008. The
decrease in accounts payable was due to lower purchasing levels.
Our other current liabilities balance as of March 31, 2009 was
$165.7 million, a decrease of $29.3 million from $195.0 million as of
December 31, 2008. The decrease was mainly due to a $19.4 million payment to TDK
for a post-closing purchase price adjustment related to previously unfiled
European value added tax returns, and payments made under our restructuring
programs.
Liquidity and Capital Resources
Financial Position
Cash Flows Provided by Operating Activities:
Three Months Ended
March 31,
2009 2008
Net (loss) income $ (11.6 ) $ 11.0
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 10.7 12.6
Deferred income taxes (0.6 ) 1.9
Stock-based compensation 1.8 2.6
TDK post-closing purchase price adjustment - (2.3 )
Note receivable reserve 4.0 -
Other 1.2 1.2
Changes in operating assets and liabilities, net of effects
from acquisitions 10.2 5.8
Net cash provided by operating activities $ 15.7 $ 32.8
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Cash flows from operating activities can fluctuate significantly from period
to period as many items can significantly impact cash flows. Cash provided by
operating activities of $15.7 million for the three months ended March 31, 2009,
included a cash payment for $19.4 million to TDK for a post-closing purchase
price adjustment for previously unfiled European value added tax returns,
payments of $9.3 million under our restructuring programs and $0.4 million of
pension funding partially offset by an income tax refund of $6.4 million. Cash
provided by operating activities of $32.8 million for the three months ended
March 31, 2008, included $6.5 million of cash paid for a TDK acquisition related
liability, $11.5 million of payments under our restructuring programs and
$0.6 million of pension funding.
Cash Flows Used in Investing Activities:
Three Months Ended
March 31,
2009 2008
Capital expenditures $ (5.4 ) $ (2.4 )
Acquisition of minority interest - (8.0 )
Other, net 0.7 1.0
Net cash used in investing activities $ (4.7 ) $ (9.4 )
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Cash used in operating activities for the three months ended March 31, 2009, included $5.4 million of capital expenditures of which $2.9 million related to tenant improvements associated with some recently leased out office space in our Oakdale, Minnesota headquarters. During the three months ended March 31, 2008, acquisition related activities included $8.0 million in payment for the . . .
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