GlassBridge Enterprises, Inc. (GLA)

FORM 10-K | Annual Report
IMATION CORP (Form: 10-K, Received: 03/15/2016 16:04:47)
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________
Form 10-K
________________________________________________
(Mark One)
 
 
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the fiscal year ended December 31, 2015
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from           to          
Commission file number: 1-14310
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Click to enlarge
IMATION CORP.
(Exact name of registrant as specified in its charter)
Delaware
 
41-1838504
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1 Imation Way
Oakdale, Minnesota
(Address of principal executive offices)
 
55128
(Zip Code)
( 651) 704-4000
(Registrant’s telephone number, including area code)
________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
 
 
 
Common Stock, $.01 per share
 
New York Stock Exchange, Inc.;
Chicago Stock Exchange, Incorporated
________________________________________________
Securities registered pursuant to Section 12(g) of the Act: None
________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o      No  þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o      No  þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 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  þ  No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ      No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one).
Large accelerated filer
o
Accelerated filer
þ
Non-accelerated filer
o
Smaller reporting company
o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o      No  þ
Aggregate market value of voting and non-voting stock of the registrant held by non-affiliates of the registrant, based on the closing price of $4.06 as reported on the New York Stock Exchange on June 30, 2015 , was $165.0 million .
The number of shares outstanding of the registrant’s common stock on February 29, 2016 was 37,267,442 .
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of registrant’s Proxy Statement for registrant’s 2016 Annual Meeting are incorporated by reference into Part III.



IMATION CORP.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2015
TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 


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PART I

Item 1.
Business.
General
Imation Corp., a Delaware Corporation, is a global data storage and data security company. With a 60-year history of technology leadership, the Company's mission is to help organizations create an integrated storage, private cloud, file sync and share enterprise solution. The Company historically operated in two reportable segments: Consumer Storage and Accessories (which consisted of our Consumer Storage Media and Audio and Accessories businesses) and Tiered Storage and Security Solutions (which consisted of our Commercial Storage Media and Storage and Security Solutions (i.e. Nexsan and IronKey) businesses.
The company is executing on a restructuring plan whereby it is in the final phases of winding down its Consumer Storage and Accessories, Audio and Accessories, and Commercial Storage Media businesses (combined the "legacy businesses"). Additionally, in January 2016, we sold our IronKey business (which was part of our historical Tiered Storage and Security Solutions reportable segment). Going forward, we will focus on our Nexsan business as well as explore strategic alternatives to deploy our excess capital.
As used in this document, the terms “Imation”, “the Company”, “we”, “us”, and “our” mean Imation Corp. and its subsidiaries and consolidated entities unless the context indicates otherwise.
Strategic Direction
Imation was formed in 1996 from the spin-off of substantially all the businesses that comprised the data storage and imaging systems groups of 3M Company. The Company had historically undertaken a series of strategic transformations to leverage Imation’s global footprint and deep roots in data storage to become a leading player in data storage and security solutions.
In May, 2015, through a proxy contest, shareholders elected three directors nominated by the Clinton Group, Inc. ("Clinton") to the Imation Board of Directors. These directors comprised half of the seats of the Imation board.
In August 2015, Imation formed a Strategic Alternatives Committee of its Board to develop initiatives for strategic value creation and to work with management to make recommendations to the Board regarding the Company’s use of excess capital. On October 19, 2015, the Company announced that it will actively explore alternative uses for its excess capital. Interim Chief Executive Officer, Robert B. Fernander is leading the evaluation and deployment of capital in conjunction with the Strategic Alternatives Committee. The scope of the opportunities to consider may be outside Imation’s historical focus, and may be sourced in the private or public markets. The Company generally expects to evaluate opportunities to acquire businesses that we can actively manage and oversee, but the Company may also invest in opportunities that we will not control, such as index funds, mutual funds and other investment funds that offer attractive returns without significantly compromising liquidity.
On September 27, 2015, the Company adopted a restructuring plan which began the termination process of its legacy businesses including commercial storage media (magnetic tape), consumer storage media (optical disc and flash drive) and audio and accessories. The plan also called for the aggressive rationalization of Imation’s corporate overhead. The strategic shift resulted from continued losses due to secular declines in Imation’s legacy businesses, and it aimed to reduce the cost structure and streamline the organization in light of these declines. The Company expects that it will incur approximately $120 million in total charges for the restructuring plan excluding tax impact. The charges are mostly non-cash, with cash charges expected to be approximately $35 million. The Company will complete the majority of the restructuring plan during the first quarter of 2016, with most of the charges already incurred in the third and fourth quarters of 2015.
On October 14, 2015, Imation acquired substantially all of the equity of Connected Data, Inc. (CDI), an emerging enterprise-class, private cloud sync and share company, in a transaction valued at $6.7 million. The acquisition of CDI augments Imation’s vision to deliver a comprehensive and secure storage, backup and collaboration ecosystem.
During the third quarter of 2015, management and the Board of Directors evaluated the Nexsan and IronKey businesses. As a result of this assessment, we significantly revised our previous business strategy by narrowing our product portfolio and reducing the operating expenses associated with these businesses.
In late December 2015, the Company also amended its cash investment policy to permit investment activity in public company stock, index funds, mutual funds, and other investment funds that offer attractive returns without significantly compromising liquidity, at all times considering the applicable risks. In January 2016, the Board of

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Directors approved investing up to 25 percent of the Company’s cash in investment funds with the focus on producing attractive risk-adjusted rates of return while maintaining liquidity. On February 8, 2016, the Company entered into a subscription agreement to invest up to $20 million of its excess cash in the Clinton Lighthouse Equity Strategies Fund (Offshore) Ltd. (“Clinton Lighthouse”). Clinton Lighthouse is a market neutral, statistical arbitrage fund which provides daily liquidity to its investors. The Fund is managed by Clinton Group Inc., a shareholder of the Company. One of Clinton’s senior portfolio managers is Joseph A. De Perio, Imation’s Chairman of the Board. Due to the arrangement, Clinton waived its customary management fee and agreed to receive incentive compensation in the form of shares of Imation common stock at a value of $1.00 per share, which may be reset from time to time. The Board of Directors, in conjunction with management, reviewed various funds and voted to approve this investment, with Mr. De Perio abstaining from the vote. Management will continue to seek out and evaluate other attractive investment options under its cash management policy.
On January 4, 2016, Imation completed the sale of its corporate headquarters facility in Oakdale, Minnesota, to Larson Family Real Estate LLLP for a gross purchase price of $11.5 million, with net proceeds of approximately $11 million. As previously described in the Company’s Form 10-Q for the quarter ended September 30, 2015, the Company classified its corporate headquarters facility as an asset held for sale. The Company will keep a small team and its headquarters in Minnesota.
Also on January 4, 2016, the Company also sold its Memorex trademark and two associated trademark licenses to DPI Inc., a St. Louis-based branded consumer electronics company for $9.4 million.
On February 2, 2016, the Company sold its IronKey business to Kingston Digital, Inc. and DataLocker Inc. in two asset purchase agreements. To Kingston Digital, Inc., we sold the assets representing the Company’s business of developing, designing, manufacturing and selling IronKey mobile security solutions. This includes Windows to Go USB flash drives, Windows to Go use cases and encrypted USB flash drives and external USB hard drives. The sale specifically excluded the software and services aspect of the IronKey business . Kingston Digital, Inc. paid a purchase price of $4.25 million at closing for certain assets, including inventory, and the Company retained accounts receivable and accounts payable relating to that business. To DataLocker, Imation sold the assets of the Company’s business of software and services for its IronKey products, including services related to Windows to Go USB flash drives. DataLocker paid a purchase price of $0.4 million at closing and agreed to assume certain service obligations in the amount of approximately $2 million, as well as pay the Company earn-outs in the event certain service revenue targets are achieved .
Our current business segments were formed in 2015 to align with our go-forward and legacy operations. A description of our 2015 segments follows directly below. Upon completion of Imation’s restructuring plan in 2016, there will be one operating business segment: Nexsan.
Nexsan Segment
This segment operates as its own product line. Our storage systems portfolio ranges from high volume, dense storage products to innovative unified hybrid storage solutions for small and medium commercial businesses, enterprise and government customers.
This product line offers strong growth potential and is the main target of our investment spending. It consists of Imation Nexsan and Connected Data products, There are more than 11,000 Nexsan customers worldwide with over 38,000 systems deployed since 1999. Imation’s Nexsan portfolio features solid-state optimized unified hybrid storage systems, secure automated archive solutions and high-density enterprise storage arrays. Our solutions are ideal for mission-critical IT applications such as virtualization, cloud, databases and collaborations and energy efficient, high-density storage for backup and archiving. Nexsan systems are delivered through a worldwide network of cloud service providers, value-added resellers (VARs) and solutions integrators. We offer global customers four main solution sets:
The NST® hybrid storage line (SAN & NAS) which addresses the high-growth hybrid storage market by combining solid state technology with spinning disk for high performance and capacity;
The Nexsan E-Series disk arrays which provide industry-leading storage density, reliability and power management to the block-based storage market;
The Assureon® line which delivers secure archive systems for data offload, compliance and secure cloud deployment; and
The Transporter line, which delivers private cloud sync and share services for connected workers in security and cost-sensitive work environments. Transporter, which came from the CDI acquisition, is a secure, on-

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site alternative to Dropbox and provides mobile access, file sync-and-share and global replication. Unlike Dropbox, Transporter enables an enterprise to create a private cloud. Transporter extends existing file servers and NAS systems, is non-disruptive to current systems and processes and has a much higher capacity and performance, while being significantly less expensive than public cloud storage.
This product family addresses growth segments of the data storage market. We have added sales, engineering resources and value-added resellers around the world to build Nexsan’s presence in key geographies. Recently, we have rationalized the infrastructure to concentrate on the strongest opportunities. Our targeted vertical markets include government, healthcare, and media and entertainment.
IronKey Segment
The IronKey portfolio, which was part of Imation in 2015 but was sold in early 2016, met the challenge of protecting today’s mobile workforce, featuring secure USB solutions for data transport and mobile workspaces. The IronKey line includes the world’s leading hardware encrypted USB drives, PC on a Stick® workspaces for Microsoft® Windows To Go®, and cloud-based or on-premises centralized secure device management solutions.
Storage Media and Accessories (Legacy Business) Business Segment
The Storage Media and Accessories business segment distributes differentiated products through retail and commercial channels across the globe. Storage Media and Accessories consist of the Commercial Storage Media, Consumer Storage Media and Audio and Accessories product categories. This business continues to be impacted by lower revenues from the expected secular declines in magnetic tape and optical media products. Due to the declines in the business, in 2015, we adopted a restructuring plan in which the Company will terminate sales and operations of this legacy business. The strategic shift of winding down the legacy business is still in process and is expected to be complete in Q1 2016. Our strategy is to maximize cash flows, extract working capital from this business and manage our cost structure efficiently as the business winds down.
Commercial Storage Media
Our magnetic tape media products are used for business and operational continuity planning, disaster recovery, data backup, near-line data storage and retrieval, and for cost-effective mass and archival storage. Our magnetic tape revenues decreased consistent with the overall market and we are in the process of terminating this business.
Consumer Storage Media
Our Consumer Storage Media product line includes optical products, USB flash drives, flash cards and external hard disk drives. Imation’s optical products consist of DVDs, CDs and Blu-ray™ recordable media. Our strategy is to maximize cash flows, extract working capital from this business and manage our cost structure efficiently as the business winds down. We marketed our optical media brands as well as USB flash drives, flash cards and external hard disk drives under our Imation, Memorex and TDK Life on Record brands. We sourced these products from manufacturers primarily in Asia and sold them through a variety of retail and commercial distribution channels globally.
Our Brands
The Nexsan brand was acquired by Imation at the end of 2012. We began operations in 2013. Imation Nexsan Storage Solutions are ideal for a broad range of applications including virtual machine storage, cloud storage, database, surveillance, bulk storage, backup and recovery, disaster recovery and archive. The Nexsan products are sold to small and medium-size enterprise customers across a range of vertical markets exclusively through our worldwide network of VARs.
The Transporter brand was acquired by Imation in 2015 though Connected Data, Inc. Transporter is a secure, on-premise, cost-efficient alternative to Dropbox that allows users to bypass the cloud when sharing business files to their mobile devices. Transporter products allow us to fill the growing demand for secure file synchronization to mobile devices.
The Imation brand has been at the forefront of data storage and digital technology for many years. Imation brand products include magnetic tape media, recordable CDs, DVDs and Blu-ray discs, flash products and hard disk drives.
The IronKey brand was purchased in 2011 for its secure storage and workspace management software and service. In 2012, we consolidated our Mobile Security portfolio around the IronKey brand. Our products included hardware encrypted USB drives, PC on a Stick IronKey Workspaces for Microsoft Windows To Go and cloud-based

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or on-premises centralized secure device management solutions. On February 2, 2016, we closed on the sale of our IronKey business.
The Memorex brand included recordable CDs, DVDs and Blu-ray discs, optical drives and optical storage accessories. We sold consumer electronics products under the Memorex brand until October 15, 2013 when we divested our Memorex consumer electronics business. On January 4, 2016, we sold the Memorex trademark and two associated trademark licenses.
The TDK Life on Record logo is a trademark owned by TDK Corporation and had been licensed exclusively to Imation since 2007. TDK Life on Record brand products include recordable CDs, DVDs and Blu-ray discs, flash drives, tape cartridges, headphones and speakers which are sold to commercial customers and individual consumers. TDK Life on Record brand products are sold across the globe. On September 28, 2015, we entered into an agreement to terminate our license agreement with TDK Corporation.
Geographic Regions
Both of our reporting segments serve customers in all geographic regions worldwide. The United States represents the largest current individual market for our products and offers several sophisticated channels of distribution including VARs, OEMs and retail outlets. However, most of our revenue comes from markets outside the United States. Western Europe exhibits traits similar to North America in terms of overall breadth of product offerings, high penetration of end user markets and range of sophistication of distribution channels. Emerging markets in Eastern Europe represent potential growth markets for our products as Information Technology (IT) end user and consumer markets grow. Our Asian and Pacific region serves China, Hong Kong, Korea, Australia, Singapore, India and Taiwan. Japan is the single largest market outside the United States. We also sell our products in the Middle East and parts of Africa.
Seasonality
Our revenues are subject to some levels of seasonality. Historically, our fourth quarter has been the highest revenue quarter of the year due to stronger consumer and information technology spending in the fourth quarter of the calendar year. Our revenues are also subject to secular decline of the markets for magnetic tape products as well as for optical media products.
Customers, Marketing and Distribution
Our products are sold to businesses and individual consumers. No one customer accounted for 10   percent or more of our revenue in 2015, 2014 or 2013.
We market Imation products through a combination of distributors, wholesalers, VARs, OEMs and retail outlets. Worldwide, approximately 68 percent of our 2015 revenue came from distributors and VARs, 28 percent came from the retail channel and 4 percent came from OEMs. We maintain a Company sales force and a network of distributors and VARs to generate sales of our products around the world.
Market and Competition
The global market for our products is highly competitive and characterized by continuing technology changes, frequent new product introductions and performance improvements, diverse distribution channels, aggressive marketing and pricing practices and ongoing variable price erosion. Competition is based on many factors, including product design, brand strength, distribution presence and capability, channel knowledge and expertise, geographic availability, breadth of product line, product cost, media capacity, access speed and performance, durability, reliability, scalability, intellectual property, compatibility and global product support capability.
Imation Nexsan storage system products operate in a large and competitive data storage market. Demand for data storage capacity is expected to increase, and customers require flexible solutions that include data security and protection, performance and scalability. We believe we have a diverse and competitive product portfolio that addresses a wide range of customer needs. Our primary competitors for our Nexsan products include mid-range storage systems and products from EMC, NetApp, Pure Storage, Overland, Violin, Dot Hill, Nimble and a number of smaller, privately held storage system companies.
Imation Nexsan Transporter appliances compete in the file Sync and Share market. Cloud storage continues to increase in usage, but concerns about security, availability and cost are growing. Primary competitors are Dropbox, Box and Google Drive. We are highly differentiated with our patented peer to peer synchronization approach which provides for lower overall cost and greatly enhanced data availability and security.

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Imation IronKey products compete in the mobile workspace market and the secure mobile security market. Demand for mobile workspace, especially given the BYOD trend, is expected to grow, and customers require solutions that include security, ease of use, performance and central management, which IronKey products provide. Secure storage demand is flat but is seeing an extended life. Our primary competitors for our IronKey products include other Microsoft Windows-certified providers, such as Spyrus and Kingston.
The magnetic tape industry has consistently addressed the growth in demand for storage capacity with higher capacity cartridges, resulting in a lower cost per gigabyte, which leads to a decline in the actual number of media units shipped. In addition, lower cost disk and storage optimization strategies, such as virtual tape and de-duplication, continue to compete with magnetic tape. Therefore, tape revenue continues to decline. Our major competitors include Fuji, Sony, Maxell and HP.
Our main competitors in recordable optical media include Maxell, JVC, Sony and Verbatim. The optical market is in secular decline as digital streaming, hard disk and flash media replace optical media in some applications such as music and video recording. Our different brands have varying strengths in different regions of the world.
In standard flash media, Imation’s primary competitors include Kingston, SanDisk, Lexar and PNY. In standard external and removable hard drives, our major competitors are Western Digital and Seagate. The traditional flash media market is competitive, with highly variable price swings driven by NAND chip manufacturing volume and capacity as well as market demand in the much larger embedded flash market. Focused and efficient sourcing and distribution, as well as diligent management of portfolio size, inventories, channel placement and promotional activity are critical elements for success.
Audio and accessories products are sold based on a range of factors, including brand and reputation, product features and designs, distribution coverage, innovation and price. Our competitors in the audio and accessories products market consist of numerous manufacturers and brands. The global audio and accessories products market is very large and highly diverse in terms of competitors, channels and products.
Product Sourcing
We contract for the manufacturing of all products we sell and distribute from a variety of third-party providers that manufacture predominantly outside the United States. When required, we manufacture in a manner consistent with Country of Origin Guidelines. We seek to differentiate our products through unique designs, product positioning, packaging, merchandising and branding.
Our legacy businesses purchased finished and semi-finished products, including optical media and USB flash drives, and consumer electronic products, primarily from Asian suppliers. For our optical media, we procured our supply primarily from three companies.
Our go-forward Nexsan business purchases the components and semi-finished products from the various suppliers, primarily in the US and Mexico.
Research, Development and Engineering
Our success depends on the development and timely introduction of new products. Beginning in 2013, we narrowed our research and development efforts to priority projects in our growth areas of data protection and management, storage hardware, removable hard drive systems, disk-based storage systems and related software. We maintain advanced research facilities and invest both in researching, developing and engineering potential new products, as well as improving existing products. Our research and development expense was $19.2 million, $18.8 million and $18.4 million for 2015, 2014 and 2013, respectively. We invest in focused research, development, engineering and capital equipment in order to remain competitive and successfully develop and source products that meet market requirements. While the total amount of the research and development expense may decrease following the sale of the IronKey business in February, 2016, the percentage of expense dedicated to research and development will likely increase in 2016 as we continue to focus on Nexsan/CDI research and development.

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Intellectual Property
We rely on a combination of patent, trademark and copyright laws, trade secret protection, and confidentiality and license agreements to protect the intellectual property rights related to our products. We register our patents and trademarks in the United States and in a number of other countries where we do business. United States patents are currently granted for a term of 20 years from the date a patent application is filed. United States trademark registrations are for a term of 10 years and are renewable every 10 years as long as the trademarks are used in the regular course of trade. On September 28, 2015, we entered into an agreement to terminate our license agreement with TDK Corporation pursuant to which TDK had granted the Company and its affiliates a long-term exclusive license to use the TDK Life on Record brand for current and future recordable magnetic, optical, flash media and accessory products globally.
During 2015, we were awarded 17 United States patents and acquired two key patents with the acquisition of Connected Data. At the end of 2015, Imation held over 180 patents in the United States. Currently, we are pursuing strategies to market non-core patents with the goal of monetizing these assets.
Employees
At December 31, 2015 , we employed approximately 600 people worldwide, with approximately 280 employed in the United States and approximately 320 employed internationally. We expect the number of worldwide employees to be reduced to approximately 200 by the end of Q1 2016.
Environmental Matters
Our operations are subject to a wide range of federal, state and local environmental laws. Environmental remediation costs are accrued when a probable liability has been determined and the amount of that liability has been reasonably estimated. We review these accruals periodically as remediation and investigatory activities proceed and adjust them accordingly. Compliance with environmental regulations has not had a material adverse effect on our financial results. We did not have any environmental accruals as of December 31, 2015.
International Operations
Approximately 61   percent of our total revenue in 2015 came from sales outside the United States, primarily through subsidiaries, sales offices, distributors, VARs and relationships with OEMs throughout Europe, Asia, Latin America and Canada. We do not own any manufacturing facilities. See Note   14 - Business Segment Information and Geographic Data in our Notes to Consolidated Financial Statements for further information on our international operations .
As discussed under Risk Factors in Item   1A of this Form   10-K, our international operations are subject to various risks and uncertainties that are not present in our domestic operations.
Executive Officers of the Registrant
Information regarding our executive officers, as of March 15, 2016 is set forth below:
Robert B. Fernander , age 57, is Interim Chief Executive Officer. Mr. Fernander has served on the Board of Directors of the Company since May 22, 2015. Since September 2014, Mr. Fernander has served as an advisor and provided consulting services for I/O Switch Technologies, Inc., a developer of data center technologies, Storage Strategies NOW, an industry analyst firm that offers written publications and analysis for IT users, business and technology leaders and venture capitalists, and FLM.TV, a company focused on delivering, distributing, and marketing independent film. Prior to that, Mr. Fernander served as the Chief Revenue Officer of Datagres Technologies Inc., a data storage optimization software company, from September 2013 until September 2014. During his time at Datagres Technologies Inc., Mr. Fernander also served on its board of directors. Mr. Fernander served as the CEO and a member of the board of directors of Gnodal Limited, a storage and computer networking company, from 2012 until 2013 when it was acquired by Cray Inc. From 2007 until 2012, Mr. Fernander served on the board of directors and as the CEO of Pivot3 Inc., a hyper converged storage and compute platform. Prior to serving at Pivot3, Mr. Fernander served as an executive at several private startup companies. For over four years, Mr. Fernander served as a Vice President at Compaq Computer Corporation, a company that developed, sold and supported computers and related products and services. For over nine years, Mr. Fernander also held several sales and marketing leadership positions at Sun Microsystems, Inc., a company that sold computers, computer components, computer software and information technology services.

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Barry L. Kasoff , age 58, is Chief Restructuring Officer and Interim Chief Financial Officer. Mr. Kasoff has served on the Board of Directors of the Company since May 22, 2015. Mr. Kasoff currently serves as the President of Realization Services, Inc. (RSI), a full-service management consulting firm specializing in assisting companies and capital stakeholders in troubled business environments, and has served in such capacity since founding RSI in 1997.
Gregory J. Bosler, age 54, is Senior Vice President and Group President, Consumer Storage and Accessories. Mr. Bosler will leave the Company by the end of March 2016 when the legacy business wind down is substantially completed. From October 2010 to December 2015, he was Senior Vice President of Global Business Management. From May 2010 to October 2010 he was Vice President, Americas, and from January 2009 to April 2010 he was Vice President, Americas Consumer. Prior to joining Imation in January 2009, he was with TTE Corporation, a global consumer electronics manufacturer, where he held the position of Executive Vice President, North America Business Center from August 2004 until February 2008. Prior to that, Mr. Bosler held a series of senior sales and general management positions at Thomson Inc., Pioneer Electronics (USA) and Duracell Inc.
Availability of SEC Reports
The Securities and Exchange Commission (SEC) maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including Imation Corp., that file electronically with the SEC. The public can obtain any documents that we file with the SEC at www.sec.gov. We file annual reports, quarterly reports, proxy statements and other documents with the SEC under the Exchange Act. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We also make available free of charge through our website (www.imation.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

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Item 1A.
Risk Factors.
Our business faces many risks.  Any of the risks discussed below, or elsewhere in this Form 10-K or our other SEC filings, could have a material impact on our business, financial condition or results of operations.
We must make strategic decisions from time to time as to the products, technologies and businesses in which we invest and if we focus on products, technologies or business that do not perform in line with our strategic expectations or if market conditions change, our financial results could be adversely impacted.   In February 2011 we announced our transformation strategy, which includes improving gross margins, exiting low margin products, introducing new products in secure and scalable storage, and organic and inorganic growth. In October 2012, we announced the acceleration of our transformation by reorganizing our businesses into two channel-focused business segments, and increasing our focus on data storage and data security. In August 2015, we formed a Strategic Alternatives Committee of our Board and, in October 2015, announced that the Strategic Alternatives Committee would work with management to make recommendations to the Board regarding our use of excess capital. Specifically, the Strategic Alternatives Committee will examine acquisition opportunities and develop initiatives for strategic value creation which may include opportunities outside of industries that comprised the Company's historical focus. If we are not successful in implementing these strategies or if market conditions change adversely for our chosen products or technologies, our financial results could be negatively impacted.
The future revenue growth of our business depends in part on the development and performance of our new products. We have experienced revenue declines over the prior year in 2015, 2014 and 2013 of $200.3 million or 27.5 percent, $131.3 million or 15.3 percent and $145.9 million or 14.5 percent, respectively. Historically, magnetic and optical products have provided the majority of our revenues. The overall market for these products has been impacted by industry wide dynamics, including competing formats as well as continuing improvements in compression and deduplication technologies and as such, we have decided to aggressively wind down our legacy business. If we are not successful in growing new product revenues from our acquisitions of Nexsan and Connected Data, Inc., our financial results could be negatively impacted.
Our participation in any future joint investment could be adversely affected by our lack of sole decision-making authority, our reliance on a partner’s financial condition and disputes between us and our partners. We may in the future make acquisitions of partial ownership interests in businesses or otherwise acquire businesses jointly or establish joint ventures with third parties. In such circumstances, we may not be in a position to exercise significant decision-making authority regarding a target business, partnership or other entity if we do not own a substantial majority of the equity interests of the target. These investments may involve risks not present were a third party not involved, including the possibility that partners might become insolvent or fail to fund their shares of required capital contributions. In addition, partners may have economic or other business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such partners, some of which may possess more industry or technical knowledge or have better access to capital and other resources, may also seek similar acquisition targets as us and we may be in competition with them for such business combination targets. Disputes between us and partners may result in litigation or arbitration that would increase our costs and expenses and divert a substantial amount of our management’s time and effort away from our business. Consequently, actions by, or disputes with, partners might result in subjecting assets owned by the partnership to additional risk. We may also, in certain circumstances, be liable for the actions of our third-party partners. For example, in the future, we may agree to guarantee indebtedness incurred by a partnership or other entity. Such a guarantee may be on a joint and several basis with our partner, in which case, we may be liable in the event such partner defaults on its guarantee obligation.
Future acquisitions or business opportunities could involve unknown risks that could harm our business and adversely affect our financial condition. As part of our strategic plan to use excess capital, including through acquisitions, we may acquire interests in a number of different businesses, some of which may be outside of industries that have comprised our historical focus. We have in the past, and may in the future, acquire businesses or make acquisitions, directly or indirectly through our subsidiaries, that involve unknown risks, some of which will be particular to the industry in which the business or acquisition targets operate, including risks in industries with which we are not familiar or experienced. Although we intend to conduct extensive business, financial and legal due diligence in connection with the evaluation of future business or acquisition opportunities, there can be no assurance our due diligence investigations will identify every matter that could have a material adverse effect on us. We may be unable to adequately address the financial, legal and operational risks raised by such businesses or acquisitions, especially if we are unfamiliar with the relevant industry. The realization of any unknown risks could expose us to unanticipated costs and liabilities and prevent or limit us from realizing the projected benefits of the businesses or acquisitions, which could adversely affect our financial condition and

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liquidity. In addition, our financial condition and results of operations may be adversely impacted depending on the specific risks applicable to any business or company we acquire and our ability to address those risks.
We could consume resources in researching acquisitions, business opportunities or financings and capital market transactions that are not ultimately consummated, which could materially adversely affect our financial condition and subsequent attempts to locate and acquire or invest in another business. We anticipate that the investigation of each specific acquisition or business opportunity and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments with respect to such transaction will require substantial management time and attention and substantial costs for financial advisors, accountants, attorneys and other advisors. If a decision is made not to consummate a specific acquisition, business opportunity or financing and capital market transaction, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific acquisition, investment target or financing, we may fail to consummate the investment or acquisition for any number of reasons, including those beyond our control. Any such event could consume significant management time and result in a loss to us of the related costs incurred, which could adversely affect our financial position and our ability to consummate other acquisitions and investments.
We may engage in business combinations that are dilutive to existing shareholders, result in unanticipated accounting charges or otherwise harm our results of operations, and result in difficulties in assimilating and integrating the operations, personnel, technologies, products and information systems of acquired companies or businesses. We use financial assumptions and forecasts to determine the negotiated price we are willing to pay for an acquisition. If those financial assumptions and/or forecasts are not accurate, the price we pay may be too high, resulting in an inefficient use of cash and future goodwill impairment.
No assurance can be given that our previous or future acquisitions will be successful and will not materially adversely affect our business, operating results, or financial condition. Failure to manage and successfully integrate acquired businesses could materially harm our business and operating results. Even when an acquired company has already developed and marketed products, there can be no assurance that such products will be successful after the closing and will not cannibalize sales of our existing products, that product enhancements will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such company. Failed business combinations, or the efforts to create a business combination, can also result in litigation.
Acquisitions may require capital infusions, typically entail many risks and could result in difficulties in assimilating and integrating the operations, personnel, technologies, products and information systems of acquired companies. We may experience delays in the timing and successful integration of acquired technologies and product development, unanticipated costs and expenditures, changing relationships with customers, suppliers and strategic partners, or contractual, intellectual property or employment issues. In addition, key personnel of an acquired company may decide not to work for us. The acquisition of another company or its products and technologies may also result in our entering into a business market in which we have little or no prior experience. These challenges could disrupt our ongoing business, distract our management and employees, harm our reputation, subject us to an increased risk of intellectual property and other litigation and increase our expenses. These challenges are magnified as the size of the acquisition increases, and we cannot ensure that we will realize the intended benefits of any acquisition. Acquisitions may require large one-time charges and can result in contingent liabilities, adverse tax consequences, substantial depreciation or deferred compensation charges, amortization of identifiable purchased intangible assets or impairment of goodwill, any of which could have a material adverse effect on our business, financial condition or results of operations.
Because of the rapid technology changes in our industry, we may not be able to compete if we cannot quickly develop, source, introduce and deliver differentiated and innovative products. We operate in a highly competitive environment against competitors who are both larger and smaller than us in terms of resources and market share. Our industry is characterized by rapid technological change and new product introductions. In these highly competitive and changing markets, our success will depend, to a significant extent, on our ability to continue to develop and introduce differentiated and innovative products cost-effectively and on a timely basis. The success of our offerings is dependent on several factors including our differentiation from competitive offerings, timing of new product introductions, effectiveness of marketing programs and maintaining low sourcing and supply chain costs. No assurance can be given with regard to our ability to anticipate and react to changes in market requirements, actions of competitors or the pace and direction of technology changes.
We may be dependent on third parties for new product introductions or technologies in order to introduce our own new products. We are dependent in some cases upon various third parties for the introduction and acceptance of new products, the timing of which is not entirely in our control. In addition, there can be no

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assurance that we will maintain existing relationships or forge new OEM relationships. There can also be no assurance that we will continue to have access to proprietary technologies through internal development and licensing arrangements with third parties, or that we will continue to have access to new competitive technologies that may be required to introduce new products. If we are not successful in obtaining rights to use competitive technologies, we may become less competitive in certain markets.
If we do not successfully implement restructuring plans and realize the benefits expected from the restructuring, our financial results will be affected. From time to time we have initiated restructuring programs related to our business strategy to, among other things, reduce operating expenses and address product line rationalization and infrastructure. We may not be able to realize the expected benefits and cost savings if we do not successfully implement these plans. If we are unable to restructure our operations successfully as needed, or on a timely basis, our expectations of future results of operations, including certain cost savings expected to result from the restructuring, may not be met. If difficulties are encountered or such cost savings are otherwise not realized, it could have a material adverse effect on our business, financial condition and results of operations.
Our international operations subject us to economic risks including risk of foreign currency fluctuations and negative or uncertain global or regional economic conditions any of which could adversely affect our business and operating results. We conduct our business on a global basis, with approximately 61 percent of our 2015 revenue derived from operations outside of the United States. Our international operations may be subject to various risks which are not present in domestic operations, including political and economic instability, terrorist activity, the possibility of expropriation, trade tariffs or embargoes, unfavorable tax laws, restrictions on royalties, dividend and currency remittances, changes in foreign laws and regulations, requirements for governmental approvals for new ventures and local participation in operations such as local equity ownership and workers' councils. In addition, our business and financial results are affected by fluctuations in world financial markets. Changes in local and regional economic conditions, including fluctuations in exchange rates, may affect product demand in our non-U.S. operations and export markets. Additionally, some of our international suppliers pay us quarterly or annual rebates based on the amount of purchases we make from them. If negative conditions in the global credit markets prevent our customers' access to credit, product orders in these channels may decrease, which could result in lower revenue. Likewise, our suppliers may face challenges in obtaining credit, in selling their products or otherwise in operating their businesses. Foreign currency fluctuations can also affect reported profits of our non-U.S. operations where transactions are generally denominated in local currencies. A recession in any of the regions we serve might affect product demand and cause fluctuations in exchange rates. In addition, currency fluctuations may affect the prices we pay suppliers for materials used in our products. Our financial statements are denominated in U.S. dollars. Accordingly, fluctuations in exchange rates, including exchange rate volatility in the Euro and the Japanese Yen, may give rise to translation gains or losses when financial statements of non-U.S. operating units are translated into U.S. dollars. Given that the majority of our revenues are non-U.S. based, a strengthening of the U.S. dollar against other major foreign currencies could adversely affect our results of operations. While these factors or the impact of these factors are difficult to predict, any one or more of them could adversely affect our business, financial condition or operating results.
We use third-party contract manufacturing services and supplier-provided parts, components, and sub-systems in our businesses and significant shortages, supplier capacity constraints, supplier production disruptions or price increases could increase our operating costs and adversely impact the competitive positions of our products. Our reliance on suppliers and third-party contract manufacturing to secure raw materials, parts and components used in our products exposes us to volatility in the price and availability of these materials. In some instances, we depend upon a single source of supply, manufacturing or assembly or participate in commodity markets that may be subject to allocations by suppliers. A disruption in deliveries from our suppliers or third-party contract manufacturers, supplier capacity constraints, supplier and third-party contract manufacturer production disruptions, price increases or decreased availability of raw materials or commodities could have an adverse effect on our ability to meet our commitments to customers or increase our operating costs. Additionally, we may experience changes in the supply and cost of raw materials and key components of our products resulting from the effects of natural disasters. We believe that our supply management and production practices are based on an appropriate balancing of the foreseeable risks and the costs of alternative practices. No assurances can be given that acceptable cost levels will continue in the future. In addition, some critical raw materials and key components have a limited number of suppliers. If we cannot obtain those raw materials or critical components from the suppliers, we will not be able to produce certain products.
Any potential acquisition or investment in a foreign business or a company with significant foreign operations may subject us to additional risks. Acquisitions or investments by us in a foreign business or other companies with significant foreign operations subject us to risks inherent in business operations outside of the United States. These risks include, for example, currency fluctuations, complex foreign regulatory regimes, punitive

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tariffs, unstable local tax policies, trade embargoes, risks related to shipment of raw materials and finished goods across national borders, restrictions on the movement of funds across national borders and cultural and language differences. If realized, some of these risks may have a material adverse effect on our business, results of operations and liquidity.
We may incur asset impairment charges for intangible assets and goodwill in the future. We evaluate assets on our balance sheet, including such intangible assets and goodwill, annually as of November 30th or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We monitor factors or indicators, such as unfavorable variances from forecasted cash flows, established business plans or volatility inherent to external markets and industries that would require an impairment test. The test for impairment of intangible assets requires a comparison of the carrying value of the asset or asset group with their estimated undiscounted future cash flows. If the carrying value of the asset or asset group is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the asset or asset group exceeds its fair value. The test for impairment of goodwill requires a comparison of the carrying value of the reporting unit for which goodwill is assigned with the fair value of the reporting unit calculated based on discounted future cash flows. If the carrying value of the reporting unit is greater than the fair value a second step is performed to calculate any impairment.
Our security products must provide appropriate levels of security to adequately store and protect our customers' data. Many of our secure storage products include software and hardware security such as user authentication, data encryption, and portable digital identities which are designed to prevent digital security breaches. Third parties may attempt to hack into our products in order to, among other things, compromise the integrity of those products or obtain confidential information. If our products do not provide adequate security and that security is compromised, we could lose existing customers, have difficulty attracting new customers, experience increases in operating expenses, become subject to litigation and loss of reputation or suffer other adverse consequences. There can be no assurance that our efforts to upgrade the security of our products or develop new products to keep pace with continuing changes in technology will be successful or that product issues will not arise in the future. Any significant breakdown, intrusion, interruption, corruption or destruction of our secure storage products could have a material adverse effect on our financial results.
The loss of a major customer, partner, or reseller would adversely affect us. Our future sales are dependent on the success of our customers, partners, and resellers, some of which operate in businesses associated with rapid technological change and consequent product obsolescence. We depend on the sales of our major customers, partners, and resellers and any material delay, cancellation or reduction of orders from these groups would have a material adverse effect on our results of operations. Developments adverse to our major customers, partners, and resellers or their products, or the failure of these groups to pay for components or services, would also have an adverse effect on us.
Changes in European law or practice related to the imposition or collectability of optical levies could adversely affect us. Many European countries impose levies on imports of optical products and other products to compensate copyright owners for legal private copying. Imation is involved in litigation in several of those countries related to its obligation to pay levies on sales of our products to commercial channel customers. Based on current European law, we no longer pay levies on commercial channel sales. Because we have previously paid levies on such sales, we have offset certain levies payable on sales in the consumer channel with amounts previously overpaid with respect to commercial channel sales. If a court were to rule against us on this issue, we may be required to pay all, or a portion of, our unpaid levies to the collecting societies. In addition, any reduction in the current levy rates applicable to consumer channel sales could reduce our ability to offset for past overpayments on commercial channel sales. Other changes in levy rates or structures could impact our ability to compete in certain markets or otherwise reduce our profitability.
In a volatile global economic environment, demand and seasonality may result in our inability to accurately forecast our product purchase requirements. Sales of some of our products are subject to seasonality. For example, sales have typically increased in the fourth quarter of each fiscal year, sometimes followed by significant declines in the first quarter of the following fiscal year. This seasonality makes it more difficult for us to forecast our business, especially in the volatile current global economic environment and its corresponding change in consumer confidence, which may impact typical seasonal trends. If our forecasts are inaccurate, we may lose market share due to product shortages or procure excess inventory or inappropriately increase or decrease our operating expenses, any of which could harm our business, financial condition and results of operations. This seasonality also may lead to the need for working capital investments in receivables and inventory and our need to build inventory levels in advance of our most active selling seasons. The seasonality of our products could change as a result of our acquisitions and divestitures.

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Significant changes in discount rates, rates of return on pension assets, mortality tables and other factors could affect our future earnings, equity and pension funding requirements. Pension obligations and related costs are determined using actual investment results as well as actuarial valuations that involve several assumptions. Our funding requirements are based on these assumptions in addition to the performance of assets in the pension plans. The most critical assumptions are the discount rate, the long-term expected return on assets and mortality. Some of these assumptions, such as the discount rate, are largely outside of our control. Changes in these assumptions could affect our future earnings, equity and funding requirements.
Our results of operations include our determinations of the amount of taxes owed in the various tax jurisdictions in which we operate and are subject to changes in tax laws and regulations, and to inspection by various tax authorities. Changes in tax guidance and related interpretations as well as inspections by tax authorities could materially impact our tax receivables and payables and our deferred tax assets and deferred tax liabilities. Additionally, in the ordinary course of business we are subject to examinations by tax authorities in multiple jurisdictions. Investigations launched in the future by governmental authorities in various jurisdictions and existing investigations could be expanded. While we believe we have adopted appropriate risk management and compliance programs to address and reduce these risks, the global and diverse nature of our operations means that these risks will continue to exist and additional issues will arise from time to time. Our results may be affected by the outcome of such proceedings and other contingencies that cannot be predicted with certainty.
Our success depends in part on our ability to obtain and protect our intellectual property rights and to defend ourselves against intellectual property infringement claims of others. Claims may arise from time to time alleging that we infringe on the intellectual property rights of others. If we are not successful in defending ourselves against those claims, we could incur substantial costs in implementing remediation actions, such as redesigning our products or processes, paying for license rights or paying to settle disputes. The related costs or the disruption to our operations could have a material adverse effect on our results.
In addition, we utilize valuable non-patented technical know-how and trade secrets in our product development. There can be no assurance that confidentiality agreements and other measures we utilize to protect such proprietary information will be effective, that these agreements will not be breached or that our competitors will not acquire the information as a result of or through independent development. We enforce our intellectual property rights against others who infringe those rights.
Additionally, our audio and data storage product categories are subject to allegations of patent infringement by our competitors as well as by non-practicing entities (NPEs), sometimes referred to as “patent trolls,” who may seek monetary settlements from us.
Significant litigation matters could result in large costs. We are subject to various pending or threatened legal actions in the ordinary course of our business, especially regarding patents related to our audio and data storage products. We are often indemnified by our suppliers; litigation, however, is always subject to many uncertainties and outcomes that are not predictable. We use legal and appropriate means to contest litigation threatened or filed against us, but we have found there is a strong tendency toward litigation in the patent area in our industry and this litigation environment poses a business risk. We cannot ascertain the ultimate aggregate amount of any monetary liability or financial impact that may be incurred by us in litigation.
Changes in the capital and credit markets may negatively affect our ability to access financing. Without such financing we may be unable to achieve our objectives for strategic acquisitions and internal growth.  Disruption of the global financial and credit markets may have an effect on our long-term liquidity and financial condition. While we have been able to achieve our past acquisitions through operating cash flows and without permanently borrowing on our outstanding credit facilities, the need may arise to obtain additional funding, in particular as we focus on exploring acquisition opportunities as part of our strategic plan to use excess capital. Based on our current plan of operations we believe our cash will be sufficient to meet our anticipated operating expenses, capital expenditures and debt service obligations for at least the next twelve months; however there is no assurance that circumstances will not change, or that we may require additional capital to fund acquisitions or the operating expenses of acquired businesses.
If we are unable to attract and retain employees and key talent our business and financial results may be materially impacted. We operate in a highly competitive market for employees with specialized skill, experience and industry knowledge. No assurance can be given that we will be able to attract and retain employees and key talent. A failure to attract and retain key personnel could also have a material adverse impact on our business.
Changing laws and regulations have resulted in increased compliance costs for us, which could affect our operating results. Changing laws, regulations and standards relating to corporate governance and

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public disclosure, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, regulations regarding conflict minerals and newly enacted SEC regulations have created additional compliance requirements. We are committed to maintaining high standards of internal controls over financial reporting, corporate governance and public disclosure. As a result, we intend to continue to invest appropriate resources as necessary to comply with evolving standards which may result in increased expenses. Laws enacted that directly or indirectly affect the production, distribution, packaging, cost of raw materials and fuel could impact our business and financial results.
We rely on our aging information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect our business and results of operations. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed. The efficient operation of our business is dependent on computer hardware and software systems. Information systems are vulnerable to security breach by computer hackers and cyber terrorists. We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems. However, these measures and technology may not adequately prevent security breaches. In addition, the unavailability of the information systems or failure of these systems to perform as anticipated for any reason could disrupt our business and could result in decreased performance and increased overhead costs, causing our business and results of operations to suffer. Any interruption or failure of our information systems or any breach of security could adversely affect our business and results of operations.
The announcement of our review of strategic alternatives and our strategic plan to explore acquisition opportunities could adversely affect our business, financial results and operations, and there can be no assurance that any transaction will result from this review or plan. In August 2015, we formed a Strategic Alternatives Committee of our Board and, in October 2015, announced that the Strategic Alternatives Committee would work with management to make recommendations to the Board regarding our use of excess capital. Specifically, the Strategic Alternatives Committee will examine acquisition opportunities and develop initiatives for strategic value creation which may include opportunities outside of industries that comprise the Company's historical focus. There can be no assurance that our strategic plan will result in any transaction or any change to our overall structure or our business model, or that any transaction or change will enhance shareholder value or the value of any of our business units. Any transaction that is identified and pursued would be dependent on factors that may be beyond our control, including, among others, global economic conditions, the market environment, the possible requirement for shareholder approval of the transaction, the interest of third parties in the Company or our businesses and the availability of financing on reasonable terms or at all. We do not intend to provide updates or make any comments regarding the evaluation of strategic alternatives unless our Board of Directors has approved a specific transaction or management otherwise deems disclosure appropriate. We expect to incur expenses associated with identifying and evaluating strategic alternatives. In addition, the process of reviewing strategic alternatives and implementing any course of action ultimately selected may be disruptive to the Company’s business operations, may distract the Company’s management team from their day-to-day responsibilities and could make it more difficult to retain customers, vendors and employees. Any of these risks or uncertainties could adversely affect the Company’s business, financial condition, results of operations or cash flows.
The Company may face risks associated with the transition of its Board of Directors. Shareholders elected three new directors to the Company's Board of Directors at the Annual Meeting of Shareholders on May 20, 2015, replacing three incumbent directors who had been nominated by the Company for reelection. Thereafter, the remaining directors resigned and four new individuals were appointed to the Board of Directors. Following this change, many aspects of the Company's strategies, structure and operating practices have been and will continue to be under review by the Board of Directors and will be subject to change. There can be no assurance that any changes on strategies, structure or operating practices resulting from this review will be successfully implemented or result in an increase in the Company's stock price.
The market price of our common stock is volatile. The market price of our common stock has been, and may continue to be, volatile. Any of the factors discussed above or such as the following may affect the market price of our common stock:
actual or anticipated fluctuations in our operating results;
announcements of technological innovations by us or our competitors which may decrease the volume and profitability of sales of our existing products and increase the risk of inventory obsolescence;
new products introduced by us or our competitors;

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periods of severe pricing pressures due to oversupply or price erosion resulting from competitive pressures or industry consolidation;
developments with respect to patents or proprietary rights;
conditions and trends in the consumer electronics and data storage industries;
contraction in our operating results or growth rates;
the potential impact of activist investors;
changes in financial estimates by securities analysts relating specifically to us or the industries in which we participate in general; and
macroeconomic conditions that affect the market generally.
In addition, general economic conditions may cause the stock market to experience extreme price and volume fluctuations from time to time that particularly affect the stock prices of many high technology companies. These fluctuations often appear to be unrelated to the operating performance of the companies.
If we cannot meet the continued listing requirements of the NYSE, the NYSE may delist our common shares, which would have an adverse impact on the trading volume, liquidity and market price of our common shares.  

On February 2, 2016, the Company received written notice (the “Notice”) from NYSE Regulation, Inc. that the Company fell below the continued listing standards of the New York Stock Exchange (“NYSE”). The Notice indicated that the Company was not in compliance with Section 802.01B of the NYSE Listed Company Manual because its average global market capitalization over a consecutive 30 trading-day period was less than $50 million, and its stockholders’ equity was less than $50 million. The Company has already notified the NYSE that, in accordance with applicable NYSE rules, it intends to submit a plan within 45 days from the Company’s receipt of the Notice to cure the deficiency and return to compliance with NYSE continued listing requirements. The plan will advise the NYSE of definitive action the Company has taken, or is taking, that would bring it into conformity with market capitalization listing standards within 18 months of receipt of the Notice. The NYSE will review the plan and, within 45 days of its receipt, determine whether the Company has made a reasonable demonstration of an ability to conform to the relevant standards in the 18 month period. If the NYSE accepts the plan, the Company’s common stock will continue to be listed and traded on the NYSE during the 18 month cure period, subject to the Company’s compliance with other continued listing standards, and the Company will be subject to quarterly monitoring by the NYSE for compliance with the plan. If the NYSE does not accept the plan, the Company’s common stock would be subject to suspension and delisting proceedings.

On February 16th, 2016, we received a letter from the NYSE notifying us that, for 30 consecutive trading days, the average closing price for our common shares was below the minimum $1.00 per share requirement for continued listing on the NYSE under Item 802.01C of the NYSE’s Listed Company Manual. The notice does not have an immediate effect on the listing of our common shares, and our common shares will continue to trade on the NYSE under the symbol “IMN.” It is also standard for the NYSE to automatically de-list any stock that has any trade (even intra-day) below $0.15 per share. As of February 29, 2016, our common shares closed at a price of $0.861 per share. We have 180 days, or until August 14, 2016, to regain compliance with the NYSE’s $1.00 minimum share price requirement. We can regain compliance at any time during the six-month cure period if on the last trading day of any calendar month during the cure period our common shares have a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of such month. Notwithstanding the foregoing, if we determine that we must cure the price condition by taking an action that will require approval of our shareholders, we may also regain compliance by: (i) obtaining the requisite shareholder approval by no later than our next annual meeting, (ii) implementing the action promptly thereafter and (iii) the price of our common shares promptly exceeding $1.00 per share, and the price remaining above that level for at least the following 30 trading days.

A delisting of our common shares from the NYSE would negatively impact us because it would: (i) reduce the liquidity and market price of our common shares; (ii) reduce the number of investors willing to hold or acquire our common shares, which could negatively impact our ability to raise equity financing; (iii) limit our ability to use a registration statement to offer and sell freely tradeable securities, thereby preventing us from accessing the public capital markets, and (iv) impair our ability to provide equity incentives to our employees.


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The success of our strategic alternatives business strategy is dependent in part on our ability to attract and retain talented personnel. As we explore strategic alternatives to deploy our excess capital, the success of our business strategy will depend in part on the abilities and expertise of our management and other personnel in interpreting and responding to economic, market and other conditions and data in order to, among other things, locate and adopt appropriate opportunities and acquire, monitor and divest businesses and investments. The loss of, or inability to attract, talented individuals to execute our strategic alternatives business strategy could adversely impact our business and results of operations.

T he implementation of a new accounting system for most of our subsidiaries could interfere with our business and operations . We are in the process of implementing a new accounting system, NetSuite, for all of our subsidiaries except for Nexsan. The implementation of new systems and enhancements may be disruptive to our business and can be time-consuming and divert management’s attention. Any disruptions relating to our systems or any problems with the implementation, particularly any disruptions impacting our operations or our ability to accurately report our financial performance on a timely basis during the implementation period, could materially and adversely affect our business and operations.

Decreasing revenues and greater losses in our Nexsan product line may have a material and adverse effect on our business, results of operations and capital resources. For the last three fiscal years the revenues attributable to the Nexsan product line have declined and losses have been significant. As Nexsan is expected to be our go forward business, any further material declines in revenues or increased losses could have a material and adverse effect on our business and results of operations. If we are unable to grow revenue, increase profit margins or cut costs, our capital resources may be negatively impacted.

C linton Group’s investment of some of our excess cash may not be successful and may result in losses. Our recent entry into a subscription agreement with Clinton Group for which they will manage $20 million of our excess cash for investment in Clinton Lighthouse Equities Strategy Fund (Offshore) Ltd. may not produce positive returns and may result in losses. Clinton Group’s investment strategies can perform poorly for a number of reasons, including general market conditions, investment decisions that are made and the performance of the companies and securities in which it invests on our behalf. In addition, volatility may lead to under-performance which could adversely affect our results of operations.

Item 1B.
Unresolved Staff Comments.
None.
Item 2.
Properties.
Our worldwide headquarters is located in Oakdale, Minnesota, in the United States of America. On January 4, 2016, the Company sold its Oakdale, Minnesota facility. See Note 18 - Subsequent Events for further information on the sale. Our principal facilities, and the functions at such facilities, are listed below for each reporting segment. Our facilities are in good operating condition suitable for their respective uses and are adequate for our current needs.


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Facility
Function
Segment(s)
Using Space
 
 
 
Oakdale, Minnesota (owned) (1)
Sales/Administrative/Laboratory facility/Corporate headquarters
All
Thousand Oaks, California (leased)
Sales/Assembly
Nexsan
Campbell, California (leased)
Sales/Distribution center
IronKey
Hoofddorp, Netherlands (leased)
Sales/Administrative/European regional headquarters
Storage Media and Accessories
Tokyo, Japan (leased)
Sales/Administrative/ Japan headquarters
Storage Media and Accessories
Kings Park, Australia (leased)
Sales/Administrative/Distribution center/Asia Pacific regional headquarters
Storage Media and Accessories
Montreal, Canada (leased)
Sales/Research & development
Nexsan
Panama City, Panama (leased)
Sales/Administrative/Latin America regional headquarters
Storage Media and Accessories
Derby, United Kingdom (leased)
Sales/Assembly
Nexsan
(1) On January 4, 2016, the Company sold its Oakdale, Minnesota facility. See Note 18 - Subsequent Events for further information on the sale.
Item 3.
Legal Proceedings.
In the normal course of business, we periodically enter into agreements that incorporate general indemnification language. Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a supportable third-party claim. There have historically been no material losses related to such indemnifications. In accordance with accounting principles generally accepted in the United States of America, we record a liability in our Consolidated Financial Statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated.
We are the subject of various pending or threatened legal actions in the ordinary course of our business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. Additionally, our businesses are subject to allegations of patent infringement by our competitors as well as by non-practicing entities (NPEs), sometimes referred to as “patent trolls,” who may seek monetary settlements from us, our competitors, suppliers and resellers. Consequently, as of December 31, 2015 , we are unable to reasonably estimate the ultimate aggregate amount of any monetary liability or financial impact that we may incur with respect to these matters. It is reasonably possible that the ultimate resolution of these matters could materially affect our financial condition, results of operations and cash flows.
On May 22, 2013, Imation was sued in U.S. District Court for the District of Delaware by five entities: One-Blue, LLC (One-Blue), which is an entity with licensing authority for a pool of patents relating to Blu-ray discs, and four members of One-Blue, Koninklijke Philips N.V., Panasonic Corporation, Pioneer Corporation and Sony Corporation.   The plaintiffs alleged that Imation's sales of certain Blu-ray discs infringed six patents and sought unspecified damages, treble damages, and attorney's fees. The parties entered into a Settlement Agreement covering these U.S. patent claims for a nominal amount, and effective November 12, 2015, these claims were dismissed.
SpearPoint Capital Fund LP et al. v. Mark E. Lucas, et al. This shareholder derivative action was filed in Delaware Chancery Court on February 9, 2015. It names as defendants the Company and the members of its Board of Directors. Plaintiffs contend that the defendants paid excessive compensation to the directors. They seek

17


damages for breaches of fiduciary duties, waste of corporate assets and unjust enrichment. They also seek corporate governance reforms related to the Company’s compensation practices. The Directors have responded to the complaint denying all the allegations; the Company, as the nominal defendant has responded denying the allegations as well. The parties are now engaged in discovery. Trial, should it be necessary, has been scheduled for June 2016.
Copyright Levies
In many European Union (EU) member countries, the sale of recordable optical media is subject to a private copyright levy. The levies are intended to compensate copyright holders with "fair compensation" for the harm caused by private copies made by natural persons of protected works under the European Copyright Directive, which became effective in 2002 (Directive). Levies are generally charged directly to the importer of the product upon the sale of the products. Payers of levies remit levy payments to collecting societies which, in turn, are expected to distribute funds to copyright holders. Levy systems of EU member countries must comply with the Directive, but individual member countries are responsible for administering their own systems. Since implementation, the levy systems have been the subject of numerous litigation and law making activities. On October 21, 2010, the Court of Justice of the European Union (CJEU) ruled that fair compensation is an autonomous European law concept that was introduced by the Directive and must be uniformly applied in all EU member states. The CJEU stated that fair compensation must be calculated based on the harm caused to the authors of protected works by private copying. The CJEU ruling made clear that copyright holders are only entitled to fair compensation payments (funded by levy payments made by importers of applicable products, including the Company) when sales of optical media are made to natural persons presumed to be making private copies. Within this disclosure, we use the term "commercial channel sales" when referring to products intended for uses other than private copying and "consumer channel sales" when referring to products intended for uses including private copying.
Since the Directive was implemented in 2002, we estimate that we have paid in excess of $100 million in levies to various ongoing collecting societies related to commercial channel sales. Based on the CJEU's October 2010 ruling and subsequent litigation and law making activities, we believe that these payments were not consistent with the Directive and should not have been paid to the various collecting societies. Accordingly, subsequent to the October 21, 2010 CJEU ruling, we began withholding levy payments to the various collecting societies and, in 2011, we reversed our existing accruals for unpaid levies related to commercial channel sales. However, we continued to accrue, but not pay, a liability for levies arising from consumer channel sales, in all applicable jurisdictions except Italy and France due to court rulings that are discussed below. As of December 31, 2015 and 2014, we had accrued liabilities of $5.1 million and $9.3 million, respectively, associated with levies related to consumer channel sales for which we are withholding payment.
Since the October 2010 CJEU ruling, we evaluate quarterly on a country-by-country basis whether (i) levies should be accrued on current period commercial and/or consumer channel sales; and (ii) accrued, but unpaid, copyright levies on prior period consumer channel sales should be reversed. Our evaluation is made on a jurisdiction-by-jurisdiction basis and considers ongoing and cumulative developments related to levy litigation and law making activities within each jurisdiction as well as throughout the EU. However, we continued to accrue, but not pay, a liability for levies arising from consumer channel sales, in all applicable jurisdictions except Italy and France due to court rulings. In 2015, we reversed $3.8 million of copyright levies as a reduction of cost of sales. We did not reverse any amounts into cost of goods sold for prior year obligations in 2014. In 2013, we reversed $23.1 million of copyright levies as a reduction of cost of sales. See the following for discussion of reversals of copyright levies in 2015 and 2013.
Italy. During the second quarter of 2013, an Italian court rendered a decision associated with a copyright levy matter to which Imation was not a party. This decision (i) confirmed and provided further specificity to the October 21, 2010 ruling of the CJEU that levies should not be paid on commercial channel sales and (ii) evaluated, via audit, the plaintiff's documentation and evidence for distinguishing between levies paid on commercial and consumer channel sales. During the second quarter of 2013, Imation reversed $13.6 million of Italian copyright levies (existing at the time of a 2013 Italian court decision) that arouse from consumer channel sales that had been accrued but not paid to cost of sales. Based on the ruling of this Italian court, in combination with other applicable levy and law-making activities within the EU, including Italy, we believed there was sufficient evidence that we may offset the ongoing levy liability with the Italian collecting society for Imation's sales in the consumer channel against the estimated $39.0 million we have overpaid for copyright levies in Italy (due to us paying levies on commercial channel sales prior to the October 21, 2010 CJEU ruling). We continued this practice of offsetting until December 2015. In December 2015, we settled our claim for reimbursement of the levies that Imation had paid for sales into

18


its commercial channel with the Italian collecting society, S.I.A.E. The settlement was for $1.0 million and is recorded as a reduction in cost of sales.
France . As the case in Italy, Imation has overpaid levies related to sales into its commercial channel in an amount of $55.1 million. Likewise, Imation has been offsetting the ongoing levy liability with the French collecting society for Imation's sales in the consumer channel against the estimated $55.1 million we have overpaid for copyright levies in France (due to paying levies on commercial channel sales prior to the October 21, 2010 CJEU ruling). During the fourth quarter of 2013, Imation reversed $9.5 million of French copyright levies (existing at the time of a 2013 French court decision) that arouse from consumer channel sales that had been accrued but not paid to cost of sales. To date, Imation has offset approximately $14.4 million.
We believe that we have utilized a methodology, and have sufficient documentation and evidence, to fully support our estimates that we have overpaid $55.1 million to the French collection society of levies on commercial channel sales and that we have incurred (but not paid) $14.4 million of levies on consumer channel sales in France. However, such amounts are currently subjected to challenge in court and there is no certainty that our estimates would be upheld and supported. in December 2012, Imation filed a complaint against the French collecting society, Copie France, for reimbursement of the $55.1 million in commercial channel levies that Imation had paid prior to October 2010. Copie France has counterclaimed for all levies that Imation has not paid since October 2010. On December 8, 2015, there was a hearing in the Paris District Court. A ruling is expected during the first quarter of 2016.
Other Jurisdictions . During the first quarter of 2015, Imation reversed $2.8 million accrual for German copyright levies on optical products as the result of a favorable German court decision retroactively setting levy rates at a level much lower than the rates sought by the German collecting society. The reversal was recorded as a reduction of cost of sales. At December 31, 2015, the recovery of some or all of the copyright levies previously paid on commercial sales in EU jurisdictions other than Italy, France and Germany represents a gain contingency that has not yet met the required criteria for recognition in our financial statements. There is no assurance that we will realize any of this gain contingency. We also have an estimated $5.1 million of accrued but unpaid levies associated with consumer sales in EU jurisdictions other than Italy and France that we continue to carry on our books.
We are subject to several pending or threatened legal actions by the individual European national levy collecting societies in relation to private copyright levies under the Directive. Those actions generally seek payment of the commercial and consumer optical levies withheld by Imation. Imation has corresponding claims in those actions seeking reimbursement of levies improperly collected by those collecting societies. We are subject to threatened actions by certain customers of Imation seeking reimbursement of funds they allege relate to commercial levies that they claim they should not have paid. Although these actions are subject to the uncertainties inherent in the litigation process, based on the information presently available to us, management does not expect that the ultimate resolution of these actions will have a material adverse effect on our financial condition, results of operations or cash flows. We anticipate that additional court decisions may be rendered in 2016 that may directly or indirectly impact our levy exposure in specific European countries which could trigger a review of our levy exposure in those countries.

Item 4.
Mine Safety Disclosures.
Not Applicable.

PART II

Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a) — (b)
As of February 29, 2016, there were 37,267,442  shares of our common stock, $0.01 par value (common stock), outstanding and held by 17,892  shareholders of record. Our common stock is listed on the New York Stock Exchange and the Chicago Stock Exchange under the symbol “IMN.” No dividends were declared or paid during 2015 or 2014 . Future dividend payments will depend on our earnings, capital requirements, financial condition and other factors considered relevant by our Board of Directors.

Unregistered Sales of Equity Securities


19


There were no unregistered sales of equity securities in 2015 and 2014. Additionally, no unregistered securities were sold in 2015 or 2014.
Market for our Common Stock

The following table sets forth, for the periods indicated, the intraday high and low sales prices of common stock as reported on the New York Stock Exchange.

 
2015 Sales Prices
 
2014 Sales Prices
 
High
 
Low
 
High
 
Low
First quarter
$
4.35

 
$
3.48

 
$
6.60

 
$
4.31

Second quarter
$
4.75

 
$
3.63

 
$
6.04

 
$
3.22

Third quarter
$
4.36

 
$
2.04

 
$
3.73

 
$
2.69

Fourth quarter
$
2.70

 
$
1.25

 
$
4.16

 
$
2.80

(c) 
Issuer Purchases of Equity Securities
 
(a)
 
(b)
 
 
 
(c)
Period
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet Be Purchased Under the Plan or Programs
October 1, 2015 - October 31, 2015

 
$

 

 
2,004,542

November 1, 2015 - November 30, 2015

 

 

 
2,004,542

December 1, 2015 - December 31, 2015
306

 
1.84

 

 
2,004,542

Total
306

 
$
1.84

 

 
2,004,542

(a) The purchases in this column were shares that were surrendered to Imation by participants in our stock-based compensation plans (the Plans) to satisfy the tax obligations related to the vesting of restricted stock awards.
(b) The average price paid in this column related to shares that were surrendered to Imation by participants in the Plans to satisfy the tax obligations related to the vesting of restricted stock awards.
(c) On May 3, 2012, the Company announced that on May 2, 2012 our Board of Directors authorized a share repurchase program of 5 million shares of common stock. The authorization has no expiration date.
See Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for additional information regarding the Company's equity compensation plan .
Stock Performance Graph
The graph and table below compare the cumulative total shareholder return on our common stock for the last five fiscal years with the cumulative total return of the ArcaEx Tech 100 Index (formerly known as the Pacific Stock Exchange High Technology Index) and the S&P Small Cap 600 Index, over the same period. The graph and table assume the investment of $100 on December 31, 2010 in each of our common stock, the S&P Small Cap 600 Index and the ArcaEx Tech 100 Index and reinvestment of all dividends.

20


Click to enlarge
(Total Return Index)
12/31/2010
 
12/31/2011
 
12/31/2012
 
12/31/2013
 
12/31/2014
 
12/31/2015
Imation Corp. 
$
100.00

 
55.58

 
45.30

 
47.24

 
36.76

 
13.29

S&P Small Cap 600 Index
$
100.00

 
98.75

 
113.38

 
158.11

 
167.17

 
159.82

ArcaEx Tech 100 Index
$
100.00

 
99.25

 
119.00

 
159.74

 
182.45

 
178.96


The stock performance graph shall not be deemed soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, nor shall it be incorporated by reference into any past or future filing under the Securities Act or the Exchange Act, except to the extent we specifically request that it be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act or the Exchange Act.


21


Item 6.
Selected Financial Data.*

 
2015
 
2014
 
2013
 
2012
 
2011
 
(Dollars in millions, except per share data)
Statement of Operations Data:
 
 
 

 
 

 
 

 
 

Net revenue
$
529.2

 
$
729.5

 
$
860.8

 
$
1,006.7

 
$
1,166.6

Gross profit
101.3

 
138.4

 
188.7

 
189.3

 
205.4

Selling, general and administrative
137.8

 
174.7

 
181.6

 
191.1

 
182.4

Research and development
19.2

 
18.8

 
18.4

 
20.4

 
18.3

Litigation (gain) settlement

 

 
(2.5
)
 

 
2.0

Goodwill impairment
36.1

 
35.4

 

 
23.3

 
1.6

Intangible impairments
37.6

 

 

 
251.8

 

Restructuring and other
47.9

 
13.6

 
11.3

 
21.1

 
21.5

Operating loss
(177.3
)
 
(104.1
)
 
(20.1
)
 
(318.4
)
 
(20.4
)
Loss from continuing operations
(194.0
)
 
(112.4
)
 
(24.4
)
 
(324.8
)
 
(35.2
)
Loss from discontinued operations

 
(2.3
)
 
(20.0
)
 
(15.9
)
 
(11.5
)
Net loss
(194.0
)
 
(114.7
)
 
(44.4
)
 
(340.7
)
 
(46.7
)
Loss per common share from continuing operations:
 
 
 
 
 
 
 

 
 

Basic
(4.84
)
 
(2.74
)
 
(0.60
)
 
(8.67
)
 
(0.93
)
Diluted
(4.84
)
 
(2.74
)
 
(0.60
)
 
(8.67
)
 
(0.93
)
Net loss per common share:
 
 
 
 
 
 
 

 
 

Basic
(4.84
)
 
(2.80
)
 
(1.10
)
 
(9.09
)
 
(1.24
)
Diluted
(4.84
)
 
(2.80
)
 
(1.10
)
 
(9.09
)
 
(1.24
)
Balance Sheet Data:
 
 
 
 
 
 
 

 
 

Cash and cash equivalents
$
70.4

 
$
114.6

 
$
132.6

 
$
108.7

 
$
223.1

Accounts receivable, net
25.4

 
134.4

 
163.3

 
220.8

 
234.9

Inventories
10.5

 
57.7

 
84.3

 
166.0

 
208.8

Property, plant and equipment, net
4.6

 
45.0

 
51.6

 
58.9

 
55.4

Intangible assets, net
4.2

 
57.9

 
68.6

 
81.9

 
321.7

Total assets
168.4

 
499.2

 
641.8

 
793.5

 
1,149.3

Accounts payable
44.3

 
95.5

 
94.7

 
162.7

 
205.2

Long-term debt

 

 

 

 

Total liabilities
144.0

 
258.4

 
268.6

 
393.1

 
425.6

Total shareholders’ equity
24.4

 
240.8

 
373.2

 
400.4

 
723.7

Other Information:
 
 
 
 
 
 
 
 
 
Current ratio
1.4

 
1.6

 
1.9

 
1.6

 
2.0

Days sales outstanding (1)
32

 
55

 
56

 
59

 
58

Days of inventory supply (1)
132

 
44

 
61

 
89

 
85

Capital expenditures
$
3.0

 
$
5.6

 
$
7.0

 
$
10.2

 
$
7.3

Number of employees
600

 
910

 
940

 
1,230

 
1,130

_______________________________________
*    See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding the financial information presented in this table.
(1)  
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 an estimate of the inventoriable portion of cost of goods sold expressed in days.


22



Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Imation Corp., a Delaware Corporation is a global data storage and data security company. With a 60-year history of technology leadership, the Company's mission is to help organizations to create an integrated storage, private cloud, file sync and share enterprise solution. The Company historically operated in three two focused business segments: Nexsan, IronKey and Storage Media and Accessories (the legacy businesses). Going forward, we will focus on our Nexsan product lines. The Company is also exploring strategic alternatives to deploy its excess capital.
The following discussion is intended to be read in conjunction with Item 1. Business and our Consolidated Financial Statements and related Notes that appear elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Imation's actual results could differ materially from those anticipated due to various factors discussed below under “Cautionary Statements Regarding Forward-Looking Statements” and in Item 1A. Risk Factors of this Annual Report on Form 10-K.
The financial statements in this Annual Report on Form 10-K are presented on a consolidated basis and include the accounts of the Company and our subsidiaries. See Note 2 - Summary of Significant Accounting Policies in our Notes to Consolidated Financial Statements for further information regarding consolidation. References to “Imation,” the “Company,” “we,” “us” and “our” are to Imation Corp., and its subsidiaries and consolidated entities unless the context indicates otherwise. Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP).
Overview
Imation was formed in 1996 from the spin-off of substantially all the businesses that comprised the data storage and imaging systems groups of 3M Company. The Company has undertaken a series of strategic transformations to leverage Imation’s global footprint and deep roots in data storage to become a leading player in data storage and security solutions.
In May 2015, through a proxy contest, shareholders elected three directors nominated by the Clinton Group, Inc. (“Clinton”) to the Imation Board of Directors. These directors comprised half of the seats of the Imation board.
In August 2015, Imation formed a Strategic Alternatives Committee of its Board to develop initiatives for strategic value creation and to work with management to make recommendations to the Board regarding the Company’s use of excess capital.
On September 27, 2015, the Company adopted a restructuring plan which began the termination process of its legacy businesses including commercial storage media (magnetic tape), consumer storage media (optical disc and flash drive) and audio and accessories. The plan also called for the aggressive rationalization of Imation’s corporate overhead. The strategic shift resulted from continued losses due to secular declines in Imation’s legacy businesses, and it aimed to reduce the cost structure and streamline the organization in light of these declines. The Company expects that it will incur approximately $120 million in total charges for the restructuring plan excluding tax impact. The charges are mostly non-cash, with cash charges expected to be approximately $35 million. The Company will complete the majority of the restructuring plan during the first quarter of 2016, with most of the charges already incurred in the third and fourth quarters of 2015.
On October 14, 2015, Imation acquired substantially all of the equity of Connected Data, Inc. (CDI), an emerging enterprise-class, private cloud sync and share company, in a transaction valued at $6.7 million. The acquisition of CDI augments Imation’s vision to deliver a comprehensive and secure storage, backup and collaboration ecosystem.
During the third quarter of 2015, management and the Board of Directors evaluated the Nexsan business. As a result of this assessment, we significantly revised our previous business strategy by narrowing our product portfolio and reducing the operating expenses associated with these businesses.
On January 4, 2016, Imation completed the sale of its corporate headquarters facility in Oakdale, Minnesota, to Larson Family Real Estate LLLP for a gross purchase price of $11.5 million, with net proceeds of approximately $11 million. As previously described in the Company’s Form 10-Q for the quarter ended September 30, 2015, the Company classified its corporate headquarters facility as an asset held for sale. The Company will keep a small team and its headquarters in Minnesota.
Also on January 4, 2016, the Company also sold its Memorex trademark and two associated trademark licenses to DPI Inc., a St. Louis-based branded consumer electronics company for $9.4 million.

23


On February 2, 2016, the Company sold its IronKey business to Kingston Digital, Inc. and DataLocker Inc. in two asset purchase agreements. To Kingston Digital, Inc., we sold the assets representing the Company’s business of developing, designing, manufacturing and selling IronKey mobile security solutions. This includes Windows to Go USB flash drives, Windows to Go use cases and encrypted USB flash drives and external USB hard drives. The sale specifically excluded the software and services aspect of the IronKey business . Kingston Digital, Inc. paid a purchase price of $4.3 million at closing for certain assets, including inventory, and the Company retained accounts receivable and accounts payable relating to that business. To DataLocker, Imation sold the assets of the Company’s business of software and services for its IronKey products, including services related to Windows to Go USB flash drives. DataLocker paid a purchase price of $0.4 million at closing and agreed to assume certain service obligations in the amount of approximately $2 million, as well as pay the Company earnouts in the event certain service revenue targets are achieved .
Our current business segments were formed in 2015 to align with our go-forward and legacy operations. A description of our 2015 segments follows directly below. Upon completion of Imation’s restructuring plan in 2016, there will be one operating business segment: Nexsan.
Nexsan Segment
This segment operates as its own product line. Our storage systems portfolio ranges from high volume, dense storage products to innovative unified hybrid storage solutions for small and medium commercial businesses, enterprise and government customers.
This product line offers strong growth potential and is the main target of our investment spending. It consists of Imation Nexsan and Connected Data products. There are more than 11,000 Nexsan customers worldwide with over 38,000 systems deployed since 1999. Imation’s Nexsan portfolio features solid-state optimized unified hybrid storage systems, secure automated archive solutions and high-density enterprise storage arrays. Our solutions are ideal for mission-critical IT applications such as virtualization, cloud, databases and collaborations and energy efficient, high-density storage for backup and archiving. Nexsan systems are delivered through a worldwide network of cloud service providers, value-added resellers (VARs) and solutions integrators. We offer global customers four main solution sets:
The NST® hybrid storage line (SAN & NAS), which addresses the high-growth hybrid storage market by combining solid state technology with spinning disk for high performance and capacity;
The Nexsan E-Series disk arrays, which provide industry-leading storage density, reliability and power management to the block-based storage market;
The Assureon® line, which delivers secure archive systems for data offload, compliance and secure cloud deployment; and
The Transporter line, which delivers private cloud sync and share services for connected workers in security and cost-sensitive work environments. Transporter, which came from the CDI acquisition, is a secure, on-site alternative to Dropbox and provides mobile access, file sync-and-share and global replication. Unlike Dropbox, Transporter enables an enterprise to create a private cloud. Transporter extends existing file servers and NAS systems, is non-disruptive to current systems and processes and has a much higher capacity and performance, while being significantly less expensive than public cloud storage.
This product family addresses growth segments of the data storage market. We have added sales, engineering resources and value-added resellers around the world to build Nexsan’s presence in key geographies. Recently, we have rationalized the infrastructure to concentrate on the strongest opportunities. Our targeted vertical markets include government, healthcare, and media and entertainment.
IronKey Segment
The IronKey portfolio, which was part of Imation in 2015 but was sold in early 2016, met the challenge of protecting today’s mobile workforce, featuring secure USB solutions for data transport and mobile workspaces. The IronKey line includes the world’s leading hardware encrypted USB drives, PC on a Stick® workspaces for Microsoft® Windows To Go®, and cloud-based or on-premises centralized secure device management solutions.
Storage Media and Accessories (Legacy Business) Business Segment
The Storage Media and Accessories business segment distributes differentiated products through retail and commercial channels across the globe. Storage Media and Accessories consist of the Commercial Storage Media, Consumer Storage Media and Audio and Accessories product categories. This business continues to be impacted by lower revenues from the expected secular declines in magnetic tape and optical media products. Due to the

24


declines in the business, in 2015, we adopted a restructuring plan in which the Company will terminate sales and operations of this legacy business. The strategic shift of winding down the legacy business is still in process and is expected to be complete in 2016. Our strategy is to maximize cash flows, extract working capital from this business and manage our cost structure efficiently as the business winds down.
Commercial Storage Media
Our magnetic tape media products are used for business and operational continuity planning, disaster recovery, data backup, near-line data storage and retrieval, and for cost-effective mass and archival storage. Our magnetic tape revenues decreased consistent with the overall market, and we are in the process of terminating this business.
Consumer Storage Media
Our Consumer Storage Media product line includes optical products, USB flash drives, flash cards and external hard disk drives. Imation’s optical products consist of DVDs, CDs and Blu-ray™ recordable media. Our strategy is to maximize cash flows, extract working capital from this business and manage our cost structure efficiently as the business winds down. We marketed our optical media brands, as well as USB flash drives, flash cards and external hard disk drives, under our Imation, Memorex and TDK Life on Record brands. We sourced these products from manufacturers primarily in Asia and sold them through a variety of retail and commercial distribution channels globally.

Executive Summary
Consolidated Results of Operations for the Twelve Months Ended December 31, 2015
Revenue of $529.2 million in 2015 was down 27.5 percent compared with revenue of $729.5 million in 2014 driven by secular declines in our optical and tape products, business divestitures, the announcement to terminate our legacy business and currency impacts. Revenue for 2015 compared to 2014 was negatively impacted by 5.9 percent due to foreign currency impacts.
Gross margin was 19.1 percent in in 2015 and 19.0 percent in 2014. The increase in gross margin was driven primarily by product mix and volumes which was partially offset by $9.7 million of inventory write-offs taken during 2015 as a result of our actions to end sales and operations in our legacy business.
Selling, general and administrative expense was $137.8 million in 2015 , down $36.9 million compared with $174.7 million in 2014 . The decrease from prior year is due to lower costs from business divestitures, lower costs resulting from the wind down of our legacy business, corporate reductions, lower depreciation and amortization from impairments, currency impacts and lower compensation expense. The decrease was partially offset by increased charges for accounts receivable write-offs taken in 2015 and incremental investment in Nexsan and IronKey which included hiring sales resources, introducing new products and promoting the brand globally.
Research and development expense was $19.2 million in 2015 , up $0.4 million , compared with $18.8 million in 2014 which reflects the Company's increased investment in higher margin Nexsan projects. The increase was partially offset by spending reductions in our legacy business.
Restructuring and other expense was $47.9 million in 2015 compared to $13.6 million in 2014 . Restructuring and other expense in 2015 includes restructuring charges of $28.6 million and other expense of $19.3 million. Restructuring charges were primarily related to severance from announcement to terminate our legacy business and further reduce and rationalize our corporate overhead. Other expense relates to asset write downs and consulting costs which is partially offset by the gain on the termination of the TDK license, the gain on the sale of our RDX Storage product line and pension curtailments. Restructuring and other expense in 2014 includes restructuring charges of $5.4 million and other expense of $8.2 million.
Operating loss from continuing operations was $177.3 million  in 2015 compared to $104.1 million in 2014 . Operating loss from continuing operation in 2015 includes a goodwill impairment charge of $36.1 million and intangible asset impairments of $37.6 million. Operating loss from continuing operations in 2014 included a goodwill impairment charge of $35.4 million.
Other expense was $4.2 million in 2015 , down $1.0 million , compared with $5.2 million in 2014 due to currency impacts and hedging benefits. The decrease was partially offset by increased interest expense from the write off of capitalized debt fees from the cancellation of our credit facilities and other expense from losses on trading securities and foreign currency translation losses.

25


The income tax provision was $12.5 million in 2015 as compared to $3.1 million in 2014 . The increase is primarily due to the recording of valuation allowances on deferred tax assets from operations outside the United States offset by reduced income tax liability outside of the United States and reduced liability on unremitted foreign earnings.
Diluted loss per share from continuing operations was $4.84 for 2015 compared with $2.74 for 2014 .
Cash Flow/Financial Condition for the Twelve Months Ended December 31, 2015
Cash and cash equivalents totaled $70.4 million as of December 31, 2015 , down $44.2 million compared with $114.6 million at December 31, 2014 .
Cash used in operating activities was $17.8 million in 2015 compared with cash provided by operating activities of $7.8 million in 2014. Cash used in operating activities in 2015 was primarily related to the Legacy Business restructuring costs and investment in Nexsan and IronKey, which was offset by cash generated by our legacy business.
Cash used in financing activities was $20.2 million in 2015 compared with cash used in financing activities of $2.6 million in 2014. Cash used in financing activities in 2015 was primarily related to the credit facility loan pay off.
Results of Operations
Net Revenue
 
Years Ended December 31,
 
Percent Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(In millions)
 
 
 
 
Net revenue
$
529.2

 
$
729.5

 
$
860.8

 
(27.5
)%
 
(15.3
)%
Our worldwide revenue in 2015 decreased compared with 2014 due to the Legacy Business wind down and declines in Nexsan and IronKey of $197.9 million, $0.7 million and $1.7 million, respectively. Within the Legacy Business, revenue decreased during the first three quarters of the year due to the ongoing declines in magnetic tape and optical media products and decreased in the fourth quarter due to our actions to terminate our global sales and operations. The Legacy Business was also impacted by the termination of our use of TDK licensing rights and the divestiture of the RDX product line. Within the Nexsan and IronKey segment, revenue decrease was due to the business realignment and the foreign currency translation. See Segment Results for further discussion of our reporting segments. Our worldwide revenue for 2015 compared to 2014 was negatively impacted by foreign currency translation of 5.9 percent.
Our worldwide revenue in 2014 decreased compared with 2013 due to declines in the Nexsan, IronKey and Storage Media and Accessories business segments of 18.8 percent, 8.0 percent and 15.1 percent, respectively. Within the Storage and Security Solutions segment, revenue decreased due to marketplace sluggishness in the first half of 2014. Within the Storage Media and Accessories segment, revenue decreased due to declines in the Consumer Storage Media products and Commercial Storage Media products. Optical media has been impacted by declining revenue consistent with the overall market. Tape media has been impacted by industry wide dynamics including competing formats, as well as continuing improvements in compression and deduplication technologies. See Segment Results for further discussion of our reporting segments. Revenue for 2014 compared to 2013 was negatively impacted by foreign currency translation of 2.0 percent.
Gross Profit
 
Years Ended December 31,
 
Percent Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(In millions)
 
 
 
 
Gross profit
$
101.3

 
$
138.4

 
$
188.7

 
(26.8
)%
 
(26.7
)%
Gross margin
19.1
%
 
19.0
%
 
21.9
%
 
 
 
 
Gross profit decreased in 2015 compared with 2014 due to lower revenues and $9.7 million of inventory write-offs taken as a result of our actions to end sales and operations in our legacy business.

26


Total gross margin increased 0.1 percentage points in 2015 compared with 2014 primarily due to our product mix moving towards the higher margins of our Nexsan and IronKey products and the benefit of the accrual reversal of $3.8 million for Italian and German copyright levies in 2015. This was partially offset from inventory write-offs of $9.7 million taken as a result of our actions to end sales and operations in our legacy business.
Gross profit decreased in 2014 compared with 2013 due to lower revenues and the benefit of an accrual reversal of $23.1 million for Italian and French copyright levies in 2013. The levy accrual reversal had a 2.7 percent positive impact on margin in 2013. See Note 15 - Litigation, Commitments and Contingencies in our Notes to Consolidated Financial Statements for more information on the levy reversal. Gross profit during 2014 was also impacted by higher inventory write-offs to rationalize certain product lines.
Total gross margin decreased 2.9 percentage points in 2014 compared with 2013 due to the benefit of the accrual reversal of $23.1 million for Italian and French copyright levies in 2013 discussed above. Excluding the levy reversal, the gross margin for 2013 and 2014 was essentially flat year over year.
Selling, General and Administrative (SG&A)
 
Years Ended December 31,
 
Percent Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(In millions)
 
 
 
 
Selling, general and administrative
$
137.8

 
$
174.7

 
$
181.6

 
(21.1
)%
 
(3.8
)%
As a percent of revenue
26.0
%
 
23.9
%
 
21.1
%
 
 
 
 
SG&A expense decreased in 2015 compared with 2014 due to lower costs from business divestitures, the lower costs resulting from the wind down of our legacy business, corporate reductions, lower depreciation and amortization, currency impacts and lower compensation expense. We reduced legacy operating costs by $28.5 million in 2015 which reflect our continued commitment to cutting costs and right sizing Imation's operations.
SG&A expense decreased in 2014 compared with 2013 due primarily to our cost reduction efforts. We reduced legacy operating costs by $18.2 million in 2014 across the organization in order to operate as a smaller company with more focused product lines and streamlined core operational processes. Incremental investment in Nexsan and IronKey partially offset these reductions in 2014 which included hiring sales resources, introducing new products and promoting the brand globally.

Research and Development (R&D)
 
Years Ended December 31,
 
Percent Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(In millions)
 
 
 
 
Research and development
$
19.2

 
$
18.8

 
$
18.4

 
2.1
%
 
2.2
%
As a percent of revenue
3.6
%
 
2.6
%
 
2.1
%
 
 
 
 
R&D expense increased in 2015 compared with 2014 which reflects the Company's increased investment in higher margin projects in Nexsan business. The increase was partially offset by spending reductions in our legacy business. We reduced legacy R&D expense in this business by $0.6 million leaving total legacy spending of $2.4 million in 2015.
R&D expense increased in 2014 compared with 2013 which reflects the Company's increased investment in higher margin projects in Nexsan and IronKey. We reduced legacy R&D expense by $1.0 million leaving total legacy spending of $3.0 million in 2014.
Goodwill Impairment
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In millions)
Goodwill impairment
$
36.1

 
$
35.4

 
$

2015 Goodwill Analysis

27


We test the carrying amount of a reporting unit's goodwill for impairment on an annual basis during the fourth quarter of each year and during an interim period if an event occurs or circumstances change that would warrant impairment testing. During the third quarter of 2015, management and the Board of Directors engaged in an assessment of the Nexsan and IronKey businesses of the Company. As a result of this assessment, we significantly revised our previous business strategy by adjusting our product portfolio to a smaller product offering as well as changing our investment philosophy associated with these businesses such that the investment in operating expenses will be significantly reduced. Because of our strategy change, smaller product portfolio and reduced future investment, we revised our forecasts, which we determined to be a triggering event requiring us to review our goodwill related to our Nexsan and IronKey reporting units for impairment.
In determining the estimated fair value of these reporting units, we used the income approach, a valuation technique under which we estimate future cash flows using the reporting unit's financial forecasts. Our expected cash flows are affected by various significant assumptions, including the discount rate, revenue, gross margin and EBITA (earnings before interest, taxes and amortization) expectations and the terminal value growth rate. Our analysis utilized discounted forecasted cash flows over a 10 year period with an estimation of residual growth rates thereafter. We use our business plans and projections as the basis for expected future cash flows. The assumptions included utilized discount rates of approximately 16.0 percent and terminal growth rates ranging from zero to 3.0 percent.
As a result of this assessment, it was determined that the carrying values of our Nexsan and IronKey reporting units exceeded their estimated fair values. Accordingly, we performed a Step 2 goodwill impairment test which compared the implied value of the goodwill associated with each of these reporting units to the carrying value of the goodwill associated with each of these reporting units. Based on this analysis, the carrying value of the goodwill associated with Nexsan exceeded its implied value by $28.1 million , the carrying value of the goodwill associated with IronKey exceeded its implied value by $8.0 million. Consequently, we recorded an impairment charge of $ 36.1 million in the Consolidated Statements of Operations for the year ended December 31, 2015.
On October 14, 2015, the Company acquired the equity of Connected Data, Inc. (“CDI”) in a cash and stock transaction valued at $6.7 million.
The CDI acquisition has been accounted for in accordance with ASC 805, using the acquisition method of accounting. The assets acquired and liabilities assumed in connection with the CDI acquisition, including identifiable intangible assets, have been measured at their fair value. The purchase price consists of approximately $3.3 million in cash and debt assumed, 1,511,151 shares of Imation common stock valued at approximately $2.6 million. In addition, up to $5.0 million in cash and shares in earn outs are possible based upon CDI’s performance through 2016 and the first half of 2017. The range of the undiscounted amounts the Company could pay under the contingent consideration agreement is between $0 and $5.0 million. The contingent consideration earn out was valued at $0.8 million.
The purchase price allocation resulted in goodwill of $3.8 million, primarily attributable to strategic synergies and workforce that did not qualify for separate recognition (i.e acquired workforce). Goodwill associated with the acquisition of CDI is included in the Nexsan reporting unit for the purposes of goodwill impairment testing.
As of December 31, 2015, we had a goodwill balance of $3.8 million.
See Note 2 - Summary of Significant Accounting Policies and Note 6 - Intangible Assets and Goodwill in our Notes to Consolidated Financial Statements for further background and information on goodwill impairments.
2014 Goodwill Analysis
During the first and then again in the third quarter of 2014, we adjusted our internal forecast for our Nexsan reporting unit due to lower than anticipated results. We considered these factors to be an event that warranted an interim test as to whether goodwill was impaired in each of these periods. The first quarter test resulted in no impairment of goodwill as the estimated fair value of the reporting unit exceeded its carrying value. In performing Step 1 of the third quarter test, it was determined that the carrying value of our Nexsan reporting unit exceeded its estimated fair value. Accordingly, we performed a Step 2 goodwill impairment test which compared the implied value of the goodwill associated with Nexsan to the carrying value of such goodwill. Based on this analysis, the carrying value of the Nexsan goodwill exceeded its implied value by $35.4 million and, consequently, we recorded an impairment charge of that amount in the Consolidated Statements of Operations.
In determining the estimated fair value of the reporting unit, we used the income approach, a valuation technique under which we estimate future cash flows using the reporting unit's financial forecasts. Our expected cash flows are affected by various significant assumptions, including the discount rate, revenue, gross margin and

28


EBITA (earnings before interest, taxes and amortization) expectations and the terminal value growth rate. Our analysis utilized discounted forecasted cash flows over a 10 year period with an estimation of residual growth rates thereafter. We use our business plans and projections as the basis for expected future cash flows. The assumptions included utilized a discount rate of 16.5 percent and a terminal growth rate of 3.0 percent . Because our Nexsan reporting unit had not been able to achieve its anticipated results, we increased our discount rate by 2.0 percent over the estimated market discount rate of 14.5 percent .
During the fourth quarter of 2014, we performed our annual impairment testing of goodwill for our Nexsan and IronKey reporting units. In performing Step 1 of these tests, we compared the estimated fair value of these reporting units to the carrying value. These impairment tests resulted in no fourth quarter impairment as the estimated fair value of each reporting unit exceeded the carrying value for the Nexsan and IronKey reporting units.
In determining the estimated fair value of the reporting units for our annual test performed in the fourth quarter of 2014, we used the income approach, a valuation technique under which we estimate future cash flows using the reporting unit's financial forecasts. Our expected cash flows are affected by various significant assumptions, including the discount rate, revenue, gross margin and EBITA (earnings before interest, taxes and amortization) expectations and the terminal value growth rate. Our analysis utilized discounted forecasted cash flows over a 10 year period with an estimation of residual growth rates thereafter. We use our business plans and projections as the basis for expected future cash flows. The assumptions included utilized a discount rate of 16.5 percent and a terminal growth rate of 3.0 percent for each reporting unit.
2013 Goodwill Analysis
During the fourth quarter of 2013, we performed our annual impairment testing of goodwill for our Nexsan and IronKey reporting units. These impairment tests resulted in no impairment of goodwill as the estimated fair value of each reporting unit exceeded the carrying value in Step 1 of the impairment tests for the Nexsan and IronKey reporting units. There were no triggering events that occurred during 2013 that warranted an interim goodwill impairment test to be performed.
For the 2013 impairment test for the IronKey reporting unit, we used forecasted cash flows over a ten year period, a terminal growth rate of 3.0 percent and a discount rate of 15.5 percent. The discount rate reflects the relative risk of achieving cash flows as well as any other specific risks or factors related to the IronKey reporting unit.
For the 2013 impairment test for the Nexsan reporting unit, we used forecasted cash flows over a ten year period, a terminal growth rate of 3.0 percent and a discount rate of 13.5 percent. The discount rate reflected the relative risk of achieving cash flows as well as any other specific risks or factors related to the Nexsan reporting unit.
See Note 2 - Summary of Significant Accounting Policies and Note 6 - Intangible Assets and Goodwill in our Notes to Consolidated Financial Statements as well as Critical Accounting Policies and Estimates for further background and information on goodwill impairments.
Intangible Impairments
2015 Intangible Asset Analysis
During the third quarter of 2015, management and the Board of Directors engaged in a detailed strategic and financial assessment of the Company. As a result of this assessment, we significantly revised our previous business strategy by adjusting our product portfolio to a smaller product offering as well as changing our investment philosophy such that the investment in operating expenses will be significantly reduced. Because of our strategy change, smaller product portfolio and reduced future investment, we revised our forecasts, which we determined to be a triggering event for impairment testing. This required the assessment of the recoverability of the long-lived assets (including definite-lived intangible assets).
We compared the carrying value of our asset groups with their estimated undiscounted future cash flows and determined that the carrying value of certain asset groups exceeded the undiscounted cash flows expected to be generated by the asset group. For those asset groups, we then compared the carrying value of the asset group to its estimated fair value to determine the amount by which our long-lived assets (primarily intangible assets) with the asset group were impaired. As a result of these analyses, we recorded an impairment charge of $37.6 million in the Consolidated Statements of Operations for the year ended December 31, 2015.
In determining the estimated fair value of the asset groups, we used the income approach, a valuation technique under which we estimate future cash flows using the asset group's financial forecasts. Our expected cash

29


flows are affected by various significant assumptions, including the discount rate, revenue, gross margin and EBITA (earnings before interest, taxes and amortization) expectations and the terminal value growth rate. Our analysis utilized discounted forecasted cash flows over a 10 year period with an estimation of residual growth rates thereafter. We use our business plans and projections as the basis for expected future cash flows. The assumptions included utilized discount rates ranging of approximately 16.0 percent and terminal growth rates ranging from zero to 3.0 percent.
On October 14, 2015, the Company acquired the equity of Connected Data, Inc. (“CDI”) in a cash and stock transaction valued at $6.7 million.
The CDI acquisition has been accounted for in accordance with ASC 805, using the acquisition method of accounting. The assets acquired and liabilities assumed in connection with the CDI acquisition, including identifiable intangible assets, have been measured at their fair value. The purchase price consists of approximately $3.3 million in cash and debt assumed, 1,511,151 shares of Imation common stock valued at approximately $2.6 million. In addition, up to $5.0 million in cash and shares in earn outs are possible based upon CDI’s performance through 2016 and the first half of 2017. The range of the undiscounted amounts the Company could pay under the contingent consideration agreement is between $0 and $5.0 million. The contingent consideration earn out was valued at $0.8 million.
The purchase price allocation resulted in intangible of $4.3 million, primarily attributable to developed technology. The intangible will be amortized over a period of 6 years.
As of December 31, 2015, we had an intangible balance of $4.2 million related to developed technology.
See Note 6 - Intangible Assets and Goodwill in our Notes to Consolidated Financial Statements for more information on intangible assets including our valuation approach and assumptions.
2014 Intangible Asset Analysis
As a part of our annual goodwill impairment test for our Nexsan and IronKey reporting units, we also tested for the impairment of long-lived assets, including intangible assets with the asset groups included in our Nexsan and IronKey reporting units. In performing these tests, we compared the carrying values of these asset groups with their estimated undiscounted future cash flows and determined that the undiscounted cash flows expected to be generated by the asset groups exceeded their carrying values resulting in no impairment. During the first and third quarters of 2014, as noted below under our 2014 goodwill analysis discussion, we performed interim goodwill impairment testing for our Nexsan reporting unit due to lower than anticipated results. We determined these factors to be an event that warranted interim tests as to whether our intangible assets associated with Nexsan were impaired. Based on our impairment analysis performed in the first and third quarters of 2014, we concluded that we did not have an impairment of our intangible assets associated with Nexsan at those times.
See Note 6 - Intangible Assets and Goodwill in our Notes to Consolidated Financial Statements for more information on intangible assets including our valuation approach and assumptions.
2013 Intangible Asset Analysis
As a part of our annual goodwill impairment test for our Nexsan and IronKey reporting units, we also tested for the impairment of long-lived assets, including intangible assets with the asset groups included in our Nexsan and IronKey reporting units. In performing these tests, we compared the carrying values of these asset groups with their estimated undiscounted future cash flows and determined that the undiscounted cash flows expected to be generated by the asset groups exceeded their carrying values resulting in no impairment. There were no interim triggering events that occurred during 2013 that warranted an impairment test to be performed on our long-lived assets (including intangible assets) other than goodwill.
See Note 6 - Intangible Assets and Goodwill in our Notes to Consolidated Financial Statements for more information on our impairment of intangible assets.
Litigation Settlement
A $2.5 million gain from a litigation settlement from a long-standing case in Brazil was recognized in 2013.
Restructuring and Other
On September 27, 2015, the Company adopted a restructuring plan pursuant to which it will terminate sales and operations of its legacy business and further reduce and rationalize its corporate overhead (the Restructuring Plan). The Company will continue its Nexsan and Connected Data, Inc. businesses.

30


The Company is entering into the Restructuring Plan as a result of continued losses due to secular declines in its legacy business and to reduce the cost structure and streamline the organization in light of these changes. The Company expects that it will incur approximately $120 million total charges for the Restructuring Plan excluding tax impact and approximately $35 million of the total charges will require cash expenditures. The Company expects that the Restructuring Plan and associated wind down of its legacy business will substantially complete the plan during the first quarter of 2016.
In October 2012, the Board of Directors approved our Global Process Improvement (GPI) Program in order to realign our business structure and significantly reduce operating expense over time. This restructuring program addressed product line rationalization and infrastructure and included a planned reduction in our global workforce. The GPI restructuring program is closed and current and future related charges will be reported as part of the Restructuring Plan discussed above.
The components of our restructuring and other expense included in our Consolidated Statements of Operations were as follows:
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In millions)
Restructuring
 
 
 
 
 
Severance and related
$
24.5

 
$
3.9

 
$
2.1

Lease termination costs
1.5

 
0.3

 
0.7

Other
2.6

 
1.2

 
2.4

Total restructuring
$
28.6

 
$
5.4

 
$
5.2

Other
 
 
 
 
 
Settlement of UK pension plan (Note 9)

 
0.5

 
10.6

Gain on sale of fixed assets held for sale

 

 
(9.8
)
Acquisition and integration related costs
0.5

 

 
2.8

Pension settlement/curtailment (Note 9)
(0.8
)
 
0.2

 
2.1

Contingent consideration fair value adjustment (Note 4)

 

 


Intangible asset abandonment (Note 6)

 

 

Asset disposals / write down
24.6

 
1.8

 

Other
(5.0
)
 
5.7

 
0.4

Total
$
47.9

 
$
13.6

 
$
11.3

Restructuring
Total restructuring charges of $28.6 million recorded for the year ended December 31, 2015 related to severance from announcement to terminate our legacy business and further reduce and rationalize our corporate overhead. Total restructuring charges of $5.4 million recorded for the year ended December 31, 2014 and $5.2 million for the year ended December 31, 2013 related to the GPI Program.
Other
Certain amounts recorded in Other are discussed elsewhere in our Notes to Consolidated Financial Statements. See note references in table above.
During the year ended December 31, 2015 we recorded $24.6 million of charges associated with asset write downs primarily related to the write down of our corporate headquarters facility. The $5.0 million of gain in other includes the gain on the termination of the TDK license, the gain on the sale of our RDX Storage product line and pension curtailments. These gains were partially offset by certain employee costs and consulting fees for external and related parties. The $0.5 million in acquisition and integration costs relate to the acquisition of Connected Data, Inc.
During the year ended December 31, 2014 we recorded $1.8 million of assets disposals and write-downs from which $1.0 million related to our Weatherford, Oklahoma facility and $0.8 million related to miscellaneous asset disposals. The $5.7 million of other expenses includes certain employee costs and consulting fees.

31


During the year ended December 31, 2013 a gain of $9.8 million related to the sale of our Camarillo, California manufacturing facility was recorded. The $1.0 million of other expenses includes certain employee costs and consulting fees.
Operating Loss From Continuing Operations
 
Years Ended December 31,
 
Percent Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(In millions)
 
 
 
 
Operating loss
$
(177.3
)
 
$
(104.1
)
 
$
(20.1
)
 
NM
 
NM
As a percent of revenue
(33.5
)%
 
(14.3
)%
 
(2.3
)%
 
 
 
 
_______________________________________
NM - Not meaningful
Operating loss from continuing operations increased in 2015 compared with 2014 primarily due to increased restructuring and other charges and goodwill and intangible asset impairments of $36.1 million and $37.6 million, respectively. Operating loss from continuing operations increased in 2014 compared with 2013 primarily due to a goodwill impairment of $35.4 million in 2014 and a reversal of an accrual of $23.1 million in 2013 for copyright levies, as a result of Italian and French court rulings in 2013. See discussion above for further information on our 2014 impairment losses. See Note 15 - Litigation, Commitments and Contingencies in our Notes to Consolidated Financial Statements for more information on the 2013 levy reversal.
Other (Income) and Expense
 
Years Ended December 31,
 
Percent Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(In millions)
 
 
 
 
Interest income
$
(0.4
)
 
$
(0.5
)
 
$
(0.2
)
 
(20.0
)%
 
150.0
%
Interest expense
3.3

 
2.6

 
2.5

 
26.9
 %
 
4.0
%
Other, net
1.3

 
3.1

 
0.6

 
(58.1
)%
 
416.7
%
Total
$
4.2

 
$
5.2

 
$
2.9

 
(19.2
)%
 
79.3
%
As a percent of revenue
0.8
%
 
0.7
%
 
0.3
%
 
 
 
 

Other expense was $4.2 million, $5.2 million and $2.9 million in 2015, 2014 and 2013, respectively. The decrease in other expense for 2015 compared with 2014 was due to currency impacts and hedging benefits in 2015. The decrease in 2015 was partially offset by increased interest expense from the write off of capitalized debt fees from the cancellation of our credit facilities and other expense from losses on trading securities and foreign currency translation losses for entities for which liquidation is substantially complete. The increase in other expense for 2014 compared with 2013 was driven by other, net expense. Other, net expense includes foreign currency (gains) losses from changes in foreign exchange rates on foreign denominated assets and liabilities. We attempt to mitigate the exposure to foreign currency volatility through our hedging program; however, our program is not designed to fully hedge our risk, and as a result, we experience some volatility in our foreign currency (gains) losses, especially in periods of significant foreign currency fluctuation. Foreign currency (gains) losses were a gain of $1.0 million in 2015, a loss of $2.2 million in 2014 and a gain of $0.5 million in 2013.
Income Tax Provision
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In millions)
Income tax provision
$
12.5

 
$
3.1

 
$
1.4

Effective tax rate
NM

 
NM

 
NM

_______________________________________
NM - Not meaningful

32


We maintain a valuation allowance related to our U.S. deferred tax assets and the majority of our foreign deferred tax assets. Because of the valuation allowances, the tax provision generally represents taxes outside of the U.S. plus discrete tax events that may occur from time to time. This also causes the effective tax rates to be not meaningful. The effective tax rates for 2015 , 2014 and 2013 are not meaningful.
In comparing our 2015 tax provision of $12.5 million to our 2014 tax provision of $3.1 million, the increase was primarily due to the recording of valuation allowances on the deferred tax assets from operations outside the United States offset by reduced income tax liability outside the United States and reduced tax liability on unremitted foreign earnings.
In comparing our 2014 tax provision of $3.1 million to our 2013 tax provision of $1.4 million, the increase was primarily due to the $1.7 million tax expense associated with the change in the permanent reinvestment assertion of unremitted foreign earnings recorded during 2014.
As of December 31, 2015 and 2014 , we had valuation allowances of $325.3 million and $262.4 million respectively, to account for deferred tax assets we have concluded are not considered to be more-likely-than-not to be realized in the future due to our cumulative losses in recent years. The deferred tax assets subject to valuation allowance include certain operating loss carryforwards, deferred tax deductions, capital loss carryforwards and tax credit carryforwards.
Loss from discontinued operations
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In millions)
Net revenue
$

 
$
0.4

 
$
40.7

 
 
 
 
 
 
(Loss) gain on sale of discontinued businesses, net of income taxes

 
(1.7
)
 
0.9

Loss from operations of discontinued businesses, before income taxes

 
(0.6
)
 
(14.2
)
Adjustment to carrying value of disposal group

 

 
(6.7
)
Income tax benefit

 

 

Loss from discontinued businesses, net of income taxes
$

 
$
(2.3
)
 
$
(20.0
)
Loss from discontinued operations represents the results of operations from our former XtremeMac and Memorex consumer electronics businesses. The 2014 loss includes a $1.2 million adjustment to expected proceeds on the sale of the XtremeMac business and a $0.5 million loss on the initial sale of the XtremeMac business, which closed on January 31, 2014. The 2013 loss represents the results of operations from our XtremeMac and Memorex consumer electronics businesses as well as a $6.7 million write-down of the carrying value of the XtremeMac disposal group to its estimated fair value. This was partially offset by a $0.9 million gain on the sale of the Memorex consumer electronics business which occurred on October 15, 2013. The increase in operating loss for 2014 compared with 2013 reflects the write-down of the carrying value discussed above, lower revenues and lower gross margins in these businesses, in addition to severance expense of $1.6 million recorded in 2014 . See Note 4 - Acquisitions and Divestitures in our Notes to Consolidated Financial Statements for more information on the divestitures of these two businesses.
Segment Results
Beginning in the fourth quarter of 2015, in conjunction with our accelerated wind-down of the Company's legacy business, the Company changed the manner in which it evaluates the operations of the Company and makes decisions around the allocation of resources. The Company operated in three reportable segments as of December 31, 2015: “Nexsan”, “IronKey” and "Storage Media and Accessories." Nexsan is expected to be our go forward business. (See Note 18 - Subsequent Events on the sale of IronKey on February 2, 2016). Storage Media and Accessories (consisting of our Commercial Storage Media, Consumer Storage Media and Audio and Accessories product categories) is collectively referred to as our "legacy business" and is in the process of being wound-down (which is expected to be completed in the first quarter of 2016). Going forward, we will focus on Nexsan business and evaluating other investment opportunities.
The segment information for prior periods have been revised to conform to the 2015 reportable segment presentation.    

33


We evaluate segment performance based on revenue and operating income (loss). The operating income (loss) reported in our segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results, they are included in reported consolidated results. Corporate and unallocated amounts include litigation settlement expense, goodwill impairment, intangible impairments, intangible asset abandonment, corporate expense, contingent consideration adjustments, inventory write-offs related to our restructuring programs and restructuring and other expenses which are not allocated to how management evaluates segment performances.
During the first quarter of 2013, we announced our plans to divest our XtremeMac and Memorex consumer electronics businesses. The operating results for these businesses are presented in our Consolidated Statements of Operations as discontinued operations and are not included in segment results for any periods presented. See Note 4 - Acquisitions and Divestitures for further information.
Information related to our segments is as follows:
Nexsan
 
Years Ended December 31,
 
Percent Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(In millions)
 
 
 
 
Net revenue
$
62.8

 
$
63.5

 
$
78.2

 
(1.1
)%
 
(18.8
)%
Operating (loss)
(25.4
)
 
(34.3
)
 
(14.8
)
 
(25.9
)%
 
131.8
 %
As a percent of revenue
(40.4
)%
 
(54.0
)%
 
(18.9
)%
 
 
 
 
The decrease in Nexsan revenue in 2015 compared with 2014 was due to rationalization of the product lines and regional footprint.
Operating loss decreased in 2015 compared with 2014 due to improved margins and lower selling, general and administrative expenses. During the third quarter of 2015, management revised our business strategy in Nexsan business such that operating expenses were significantly reduced due to the rationalizing of product lines and footprint.
Operating loss increased in 2014 compared with 2013 due to revenue declines and an increased investment in R&D and SG&A driven by hiring sales and engineering resources and value-added resellers, introducing new products and promoting the brand globally.
IronKey
 
Years Ended December 31,
 
Percent Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(In millions)
 
 
 
 
Net revenue
$
18.9

 
$
20.6

 
$
22.4

 
(8.3
)%
 
(8.0
)%
Operating (loss)
(6.9
)
 
(10.4
)
 
(12.5
)
 
(33.7
)%
 
(16.8
)%
As a percent of revenue
(36.5
)%
 
(50.5
)%
 
(55.8
)%
 
 
 
 
The decrease in revenue in 2015 compared with 2014 was due to the strategic shift associated with IronKey to focus on reducing the operating loss instead of continuing to invest for expected revenue growth. We sold the IronKey business in February, 2016. (See Note 18)
Operating loss decreased in 2015 compared with 2014 due to improved margins and lower selling, general and administrative expenses.

34


Storage Media and Accessories
 
Years Ended December 31,
 
Percent Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(In millions)
 
 
 
 
Net revenue
$
447.5

 
$
645.4

 
$
760.2

 
(30.7
)%
 
(15.1
)%
Operating income (loss)
(2.2
)
 
25.7

 
55.9

 
(108.6
)%
 
(54.0
)%
As a percent of revenue
(0.5
)%

4.0
%
 
7.4
%
 
 
 
 
The decrease in Storage Media and Accessories segment revenue in 2015 compared with 2014 was driven by declines in Commercial Storage Media, Consumer Storage Media and Audio and Accessories product lines and currency impacts. Revenue decreased during the first three quarters of the year due to the ongoing declines in magnetic tape and optical media products and decreased in the fourth quarter due to our actions to terminate our global sales and operations. The wind down of our legacy business is expected to be complete in early 2016. The Storage Media and Accessories segment was also impacted by the termination of our use of TDK licensing rights and the divestiture of the RDX product line.
Operating results decreased in 2015 compared with 2014 , due primarily to lower revenue and inventory write-offs of $9.7 million and accounts receivable write-offs of $5.2 million taken as a result of our actions to end sales and operations in our legacy businesses.
The decrease in Storage Media and Accessories segment revenue in 2014 compared with 2013 was driven by declines in the Commercial Storage Media and Consumer Storage Media product lines which was partially offset by an increase in Audio and Accessories. Commercial Storage Media products decreased $37.6 million in 2014 compared with 2013. From a product perspective, the decrease in Commercial Storage Media product revenue was primarily composed of lower revenue from magnetic tape products of $34.1 million compared with 2013. Tape media has been impacted by industry wide dynamics including competing formats, as well as continuing improvements in compression and deduplication technologies driving the secular declines in this category. Consumer Storage Media revenue decreased due to expected secular declines in optical media products of $76.3 million. Partially offsetting the decrease in revenue from Consumer Storage Media was an increase in Audio and Accessories products, as we saw revenue increase in consumer electronic accessories and TDK Life on Record consumer electronic products.
Operating income decreased in 2014 compared with 2013 due primarily to lower revenue and margins on our Commercial Storage Media business in 2014 and the reversal of $23.1 million of accruals for Italian and French copyright levies in the second and fourth quarters of 2013, respectively. This was partially offset by lower SG&A expense.
   Corporate and Unallocated
 
Years Ended December 31,
 
Percent Change
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
(In millions)
 
 
 
 
Operating loss
$
(142.8
)
 
$
(85.1
)
 
$
(48.7
)
 
67.8
%
 
74.7
%
The corporate and unallocated operating loss includes costs which are not allocated to the business segments in management’s evaluation of segment performance such as litigation settlement expense, goodwill impairment, intangible impairments, intangible asset abandonment, corporate expense, contingent consideration adjustments, and other expenses.
Corporate and unallocated amounts above include non-cash goodwill impairment charges of $36.1 million and $35.4 million for the years ended December 31, 2015 and 2014, respectively, non-cash intangible asset impairment charges of $37.6 million for the year ended December 31, 2015, restructuring and other costs of $47.9 million , $13.6 million and $11.3 million for the years ended December 31, 2015 , 2014 and 2013 , respectively, and other corporate expenses of $21.2 million and $36.1 million and $39.1 million for the years ended December 31, 2015 , 2014 , and 2013 , respectively. The 2013 operating loss also included a $10.6 million loss related to the settlement of our UK pension plan and a $9.8 million gain on the sale of land at a previously closed facility and a litigation settlement gain of $2.5 million .

35


Financial Position
Our cash and cash equivalents balance as of December 31, 2015 was $ 70.4 million , a decrease of $44.2 million from $ 114.6 million  as of December 31, 2014 . The decrease was primarily driven by the investment in Nexsan and IronKey, net debt repayments of $18.5 million, restructuring payments of $12.6 million, restricted cash of $9.9 million, capital expenditures of $3.0 million, and share repurchases of $1.7 million, offset by cash generated from legacy businesses.
Our accounts receivable balance as of December 31, 2015 was $25.4 million , a decrease of $109.0 million from $134.4 million as of December 31, 2014 as a result of lower sales during the period and write-offs taken as a result of our actions to end sales and operations of our legacy business. This resulted in a Days sales outstanding of 32 days as of December 31, 2015 , compared to 55 Days sales outstanding in December 31, 2014 . Days sales outstanding is calculated using the count-back method, which calculates the number of days of most recent revenue that is reflected in the net accounts receivable balance.
Our inventory balance as of December 31, 2015 was $10.5 million , a decrease of $47.2 million from $57.7 million as of December 31, 2014 . The decrease in inventory is due to the depletion of inventory and write-offs taken as a result of our actions to end sales and operations of our legacy business. Days of inventory supply was 132 days as of December 31, 2015 , up 88 days from December 31, 2014 . The increase reflects longer lead times for the remaining Nexsan and IronKey businesses. Days of inventory supply is calculated using the current period inventory balance divided by an estimate of the inventoriable portion of cost of goods sold expressed in days.
Our accounts payable balance as of December 31, 2015 was $44.3 million , a decrease of $51.2 million from $95.5 million as of December 31, 2014 . The decrease in accounts payable was mainly due fewer purchases and spending as a result of our actions to end sales and operations of our legacy business and further reduce and rationalize our corporate overhead.

Liquidity and Capital Resources
We have various resources available to us for purposes of managing liquidity and capital needs. Our primary sources of liquidity include our cash and cash equivalents. Our primary operating liquidity needs relate to our working capital and funding our operations.
We had $70.4 million cash on hand as of December, 2015. In Q1 2016, we generated approximately $25 million from non-core asset sales. In addition, we expect to extract $5 million to $10 million from our legacy business working capital (accounts receivables minus accounts payables). Our liquidity needs for 2016 include the following: restructuring payments of approximately $15 million to $20 million, other liabilities of approximately $5 million to $10 million, cash necessary to fund our expected operating loss of $9 million to $16 million, capital expenditures of approximately $1 million to $3 million, operating lease payments of approximately $2 million, pension funding of approximately $1 million to $2 million, any amounts associated with organic investment opportunities and any amounts associated with the repurchase of common stock under the authorization discussed above. In addition, we may need to pay up to $20 million of accounts payables currently under dispute.
We expect that our cash positions in the U.S, and outside of the U.S. will provide liquidity sufficient to meet our needs for our operations and our obligations in the countries in which we operate. We also plan to raise additional capital if necessary.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments purchased with original maturities of three months or less. Restricted cash is related to contractual obligations or restricted by management and is included in other current assets or other assets on our Consolidated Balance Sheets depending on the timing of the restrictions. The restricted cash balance in other current assets as of December 31, 2015 was $9.9 million which relates to court ordered vendor payment disputes, future employee payments and bank deposits. The restricted cash balance in other assets as of December 31, 2015 and 2014 was $1.9 million and $2.2 million, respectively, which relates to cash set aside as indemnification for certain customers.
Analysis of Cash Flows
Cash Flows Provided by (Used In) Operating Activities:

36


 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In millions)
Net loss
$
(194.0
)
 
$
(114.7
)
 
$
(44.4
)
Adjustments to reconcile net loss to net cash provided by operating activities
131.7

 
68.8

 
32.1

Changes in operating assets and liabilities
44.5

 
38.1

 
34.4

Net cash provided by (used in) operating activities
$
(17.8
)
 
$
(7.8
)
 
$
22.1

Cash flows from operating activities can fluctuate from period to period as many items can impact cash flows. Cash used in operating activities in 2015 was driven primarily by the net loss, partially offset by cash provided from working capital reductions. Operating cash outflows included restructuring payments of $12.6 million , $6.7 million and $19.4 million in 2015 , 2014 and 2013 , respectively.
During 2015 and 2014 we recorded non-cash goodwill impairment charges of $36.1 million and $35.4 million , respectively. During 2015 we recorded an intangible asset impairment charges of $37.6 million.
Cash Flows Provided by (Used in) Investing Activities:
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In millions)
Capital expenditures
$
(3.0
)
 
$
(5.6
)
 
$
(7.0
)
Proceeds from sale of assets and business
3.3

 
3.4

 
11.0

Recovery of investments

 

 
0.2

Acquisitions, net of cash acquired
(3.1
)
 

 
1.6

Purchase of tradename

 

 

Net cash provided by (used in) investing activities
$
(2.8
)
 
$
(2.2
)
 
$
5.8

In 2015 , we received $3.3 million from the sales of our Memorex consumer electronic business and Weatherford, Oklahoma property. Cash used in investing activities included $4.3 million for the acquisition of Connected Data, Inc. Cash used in investing activities also included $3.0 million of capital expenditures.
In 2014, we received $3.4 million from the sales of our XtremeMac and Memorex consumer electronic business. Cash used in investing activities also included $5.6 million of capital expenditures.
In 2013, we received $10.1 million for land classified as held for sale and $0.9 million related to the sale of our Memorex consumer electronics business. Cash provided by investing activities also included $7.0 million of capital expenditures.
See Note 4 - Acquisitions in our Notes to Consolidated Financial Statements for further information regarding our acquisitions.
Cash Flows Used in Financing Activities:
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In millions)
Purchase of treasury stock
$
(1.7
)
 
$
(2.5
)
 
$
(2.5
)
Debt issuance costs

 

 
(0.4
)
Debt borrowings
16.5

 
38.7

 
4.9

Debt repayments
(35.0
)
 
(39.2
)
 
(4.9
)
Contingent consideration payments

 

 
(0.5
)
Exercise of stock options

 
0.4

 

Net cash used in financing activities
$
(20.2
)
 
$
(2.6
)
 
$
(3.4
)

37


On May, 2, 2012, our Board of Directors authorized a share repurchase program that allowed for the repurchase of 5.0 million shares of common stock. The Company's previous authorization, which had 1.2 million shares remaining for purchase, was canceled with the new authorization. Since the inception of this authorization, we have repurchased 3.0 million shares of common stock at an average price of $3.84 per share and as of December 31, 2015 we had remaining authorization to repurchase up to 2.0 million shares. We repurchased 0.4 million, 0.8 million and 0.6 million shares in 2015 , 2014 and 2013 , respectively.
No dividends were declared or paid during 2015 , 2014 or 2013 . Any future dividends are at the discretion of and subject to the approval of our Board of Directors.
Cash used in financing activities included borrowings of $16.5 million, $38.7 million and $4.9 million and repayments of $35.0 million, $39.2 million and $4.9 million during 2015 , 2014 and 2013, respectively on our credit facilities primarily for the use in financing our working capital seasonal needs. During 2015 we did not capitalize any debt issuance costs.
Credit Facilities
As of December 31, 2015 and December 31, 2014, we had short-term borrowings of $0.2 million and $18.9 million, respectively. The decrease in outstanding debt from December 31, 2014 is due to the termination of the Company's credit agreements with various banks in the United States, Europe and Japan.
On October 30, 2015, the Company terminated its Japan Credit Agreement entered into on July 16, 2013. At the time of termination, the Company paid down its short-term borrowings of $7.6 million. Additionally, capitalized costs for the credit facility of $0.1 million were charged to interest expense. The Company incurred an early termination penalty less than $0.1 million in connection with the termination.
On November 25, 2015, the Company terminated its Amended Credit Agreement entered into on May 18, 2012. At the time of termination, the Company paid down its short-term borrowings of $10.4 million. Additionally, capitalized costs for the credit facility of $1.1 million were charged to interest expense. No early termination penalty was incurred by the Company in connection with the termination.
We had $48.2 million of cash outside the U.S. at December 31, 2015 . As of December 31, 2014, the Company had changed its position on the permanent reinvestment assertion of its unremitted foreign earnings. The deferred tax liability recorded as of December 31, 2015 for the impact of future repatriation of the unremitted foreign earnings is $9.4 million. Of this liability, $8.2 million would be fully offset by net operating losses, and the remaining $1.2 million liability is related to foreign tax withholding. We also have significant net operating loss carryforwards offset by a full valuation allowance in the U.S.
Related Party Transactions
See Note 16 - Related Party Transactions for information on related party transactions between the Company and Imation's Board of Directors and Executive Officers.
Off-Balance Sheet Arrangements
Other than the operating lease commitments discussed in Note 15 - Litigation, Commitments and Contingencies in our Notes to Consolidated Financial Statements, we are not using off-balance sheet arrangements, including special purpose entities.
Summary of Contractual Obligations

 
Payments Due by Period
 
Total
 
Less Than
1 Year
 
1-3 Years
 
3-5 Years
 
More Than
5 Years
 
(In millions)
Operating lease obligations
$
5.7

 
$
2.7

 
$
1.7

 
$
1.0

 
$
0.3

Purchase obligations (1)
4.0

 
4.0

 

 

 

Short-term debt
0.2

 
0.2

 

 

 

Other liabilities (2)
14.9

 
0.4

 
0.3

 

 
14.2

Total
$
24.8


$
7.3

 
$
2.0

 
$
1.0

 
$
14.5

_______________________________________

38


(1)
The majority of the purchase obligations consist of 90-day rolling estimates. In most cases, we provide suppliers with a three to six month rolling forecast of our demand. The forecasted amounts are generally not binding on us. However, it may take 60 to 90 days from the purchase order issuance to receipt, depending on supplier and inbound lead time.
(2)
Timing of payments for the vast majority of other liabilities cannot be reasonably determined and, as such, have been included in the “More Than 5 Years” category.
The table above does not include payments for non-contributory defined benefit pension plans. It is our general practice, at a minimum, to fund amounts sufficient to meet the requirements set forth in applicable benefits laws and local tax laws. From time to time, we contribute additional amounts, as we deem appropriate. We expect to contribute approximately $1 million to $2 million to our pension plans in 2016 and have $20.7 million recorded in other liabilities related to pension plans as of December 31, 2015 . See Note 9 - Retirement Plans in our Notes to Consolidated Financial Statements for information on our pension plans.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates to ensure they are consistent with historical experience and the various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and could materially impact our results of operations.
We believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our Consolidated Financial Statements:
Uncertain Tax Positions. Our income tax returns are subject to review by various U.S. and foreign taxing authorities. As such, we record accruals for items that we believe may be challenged by these taxing authorities. The threshold for recognizing the benefit of a tax return position in the financial statements is that the position must be more-likely-than-not to be sustained by the taxing authorities based solely on the technical merits of the position. If the recognition threshold is met, the tax benefit is measured and recognized as the largest amount of tax benefit that, in our judgment, is greater than 50 percent likely to be realized.
The total amount of unrecognized tax benefits as of December 31, 2015 was $1.7 million, excluding accrued interest and penalties described below. If the unrecognized tax benefits were recognized in our Consolidated Financial Statements, $1.5 million would affect income tax expense and our related effective tax rate.
Interest and penalties recorded for uncertain tax positions are included in our income tax provision. As of December 31, 2015 , $0.1 million of interest and penalties was accrued, excluding the tax benefit of deductible interest. The reversal of accrued interest and penalties would affect income tax expense and our related effective tax rate.
Our U.S. federal income tax returns for 2012 through 2014 are subject to examination by the Internal Revenue Service (IRS). With few exceptions, we are no longer subject to examination by foreign tax jurisdictions or state and local tax jurisdictions for years before 2009.
The ultimate outcome of tax matters may differ from our estimates and assumptions. Unfavorable settlement of any particular issue may require the use of cash and could result in increased income tax expense. Favorable resolution could result in reduced income tax expense. It is reasonably possible that our unrecognized tax benefits could increase or decrease significantly during the next twelve months due to the resolution of certain U.S. and international tax uncertainties; however it is not possible to estimate the potential change at this time.
Intangibles. We record all assets and liabilities acquired in purchase acquisitions, including intangibles, at estimated fair value. Intangible assets with a definite life are amortized based on a pattern in which the economic benefits of the assets are consumed, typically with useful lives ranging from one to 30 years. The initial recognition of intangible assets, the determination of useful lives and, if necessary, subsequent impairment analysis require management to make subjective judgments concerning estimates of how the acquired assets will perform in the future using certain valuation methods including discounted cash flow analysis. We evaluate assets on our balance sheet, including such intangible assets, whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors such as unfavorable variances from forecasted cash flows, established

39


business plans or volatility inherent to external markets and industries may indicate a possible impairment that would require an impairment test. While we believe that the current carrying value of these assets is not impaired, materially different assumptions regarding future performance of our businesses, which in many cases require subjective judgments concerning estimates, could result in significant impairment losses. The test for impairment requires a comparison of the carrying value of the asset or asset group with their estimated undiscounted future cash flows. If the carrying value of the asset or asset group is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the asset or asset group exceeds its fair value. See Note 6 - Intangible Assets and Goodwill for information on our 2015 and 2014 intangible assets.
Goodwill. We record all assets and liabilities acquired in purchase acquisitions, including goodwill, at fair value. The initial recognition of goodwill and subsequent impairment analysis require management to make subjective judgments concerning estimates of how the acquired assets will perform in the future using valuation methods including discounted cash flow analysis. Goodwill is the excess of the cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is not amortized. We test the carrying amount of a reporting unit's goodwill for impairment on an annual basis during the fourth quarter of each year (as of November 30th) or if an event occurs or circumstances change that would warrant impairment testing during an interim period.
Goodwill is considered impaired when its carrying amount exceeds its implied fair value. The first step of the impairment test involves comparing the fair value of the reporting unit to which goodwill was assigned to its carrying amount. The second step of the impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill is greater than the implied fair value of the reporting unit’s goodwill an impairment loss must be recognized for the excess. This involves measuring the fair value of the reporting unit’s assets and liabilities (both recognized and unrecognized) at the time of the impairment test. The difference between the reporting unit’s fair value and the fair values assigned to the reporting unit’s individual assets and liabilities is the implied fair value of the reporting unit’s goodwill. See Note 6 - Intangible Assets and Goodwill for information on our 2015 and 2014 goodwill.
In determining the estimated fair value of the reporting units, we used the income approach, a valuation technique under which we estimate future cash flows using the reporting unit's financial forecasts and the market approach, a valuation technique that provides an estimate of the value of the reporting unit based on a comparison to other similar businesses. Our expected cash flows are affected by various significant assumptions, including projected revenue, gross margin and expense expectations, terminal growth rate and a discount rate. Our analyses utilize discounted forecasted cash flows over a multi-year period depending on the reporting unit with an estimation of residual growth rates thereafter. We use our business plans and projections as the basis for these cash flow assumptions.
Copyright Levies. In many European Union (EU) member countries, the sale of recordable optical media is subject to a private copyright levy. The levies are intended to compensate copyright holders with "fair compensation" for the harm caused by private copies made by natural persons of protected works under the European Copyright Directive, which became effective in 2002 (Directive). Levies are generally charged directly to the importer of the product upon the sale of the products. Payers of levies remit levy payments to collecting societies which, in turn, are expected to distribute funds to copyright holders. Levy systems of EU member countries must comply with the Directive, but individual member countries are responsible for administering their own systems. Since implementation, the levy systems have been the subject of numerous litigation and law making activities. On October 21, 2010, the Court of Justice of the European Union (CJEU) ruled that fair compensation is an autonomous European law concept that was introduced by the Directive and must be uniformly applied in all EU member states. The CJEU stated that fair compensation must be calculated based on the harm caused to the authors of protected works by private copying. The CJEU ruling made clear that copyright holders are only entitled to fair compensation payments (funded by levy payments made by importers of applicable products, including the Company) when sales of optical media are made to natural persons presumed to be making private copies. Within this disclosure, we use the term "commercial channel sales" when referring to products intended for uses other than private copying and "consumer channel sales" when referring to products intended for uses including private copying.
Since the Directive was implemented in 2002, we estimate that we have paid in excess of $100 million in levies to various ongoing collecting societies related to commercial channel sales. Based on the CJEU's October 2010 ruling and subsequent litigation and law making activities, we believe that these payments were not consistent with the Directive and should not have been paid to the various collecting societies. Accordingly, subsequent to the October 21, 2010 ECJ ruling, we began withholding levy payments to the various collecting societies and, in 2011, we reversed our existing accruals for unpaid levies related to commercial channel sales. However, we continued to

40


accrue, but not pay, a liability for levies arising from consumer channel sales, in all applicable jurisdictions except France due to court rulings. See Note 15 - Commitments and Contingencies in our Notes to Consolidated Financial Statements for discussion of these court rulings. As of December 31, 2015 and 2014, we had accrued liabilities of $5.1 million and $9.3 million, respectively, associated with levies related to consumer channel sales for which we are withholding payment.
Since the October 2010 CJEU ruling, we evaluate quarterly on a country-by-country basis whether (i) levies should be accrued on current period commercial and/or consumer channel sales; and, (ii) accrued, but unpaid, copyright levies on prior period consumer channel sales should be reversed. Our evaluation is made on a jurisdiction-by-jurisdiction basis and considers ongoing and cumulative developments related to levy litigation and law making activities within each jurisdiction as well as throughout the EU. In 2015, we reversed $3.8 million of copyright levies as a reduction of cost of sales. We did not reverse any amounts into cost of goods sold for prior year obligations in 2014. In 2013, we reversed $23.1 million of copyright levies as a reduction of cost of sales. However, we continued to accrue, but not pay, a liability for levies arising from consumer channel sales, in all applicable jurisdictions except Italy and France due to court rulings. As of December 31, 2015 and 2014 , we had accrued liabilities of $5.1 million and $9.3 million , respectively, associated with levies related to consumer channel sales for which we are withholding payment. See Note 15 - Commitments and Contingencies in our Notes to Consolidated Financial Statements for discussion of reversals of copyright levies.
Litigation. We record a liability when a loss from litigation is known or considered probable and the amount can be reasonably estimated. Our current estimated range of liability related to pending litigation is based on claims for which we can estimate the amount or range of loss. Based upon information presently available, we believe that accruals for these claims are adequate. Due to uncertainties related to both the amount and range of loss on the remaining pending litigation, we are unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. While these matters could materially affect our financial condition, results of operations and cash flows in future periods depending on the final resolution, it is our opinion that after final disposition, any monetary liability to us beyond that provided in our Consolidated Balance Sheet as of December 31, 2015 , would not be material to our financial condition, results of operations and cash flows. As additional information becomes available, the potential liability related to pending litigation will be assessed and estimates will be revised as necessary.
Recently Issued Accounting Standards
See Note 2 — Summary of Significant Accounting Policies in our Notes to Consolidated Financial Statements for disclosure related to recently issued accounting standards.
Cautionary Statements Regarding Forward-Looking Statements
We may from time to time make written or oral forward-looking statements with respect to our future goals, including statements contained in this Form 10-K, in our other filings with the SEC and in our reports to shareholders.
Certain information which does not relate to historical financial information may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include information concerning strategic initiatives and potential acquisitions, the results of operations of our existing business lines and our ability to implement our restructuring plans, as well as other actions, strategies and expectations, and are identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans,” “seeks,” “estimates,” “projects,” “may,” “will,” “could,” “might,” or “continues” or similar expressions. Such statements are subject to a wide range of 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 various factors set forth from time to time in our filings with the Securities and Exchange Commission including the following: our ability to successfully implement our strategy for our existing business as well as other lines of business that we may pursue; our ability to grow our business in new products with profitable margins and the rate of revenue decline for certain existing products; our ability to meet future revenue growth, gross margin and earnings targets; our participation in any future joint investment could be adversely affected by our lack of sole decision-making authority, our reliance on a partner's financial condition and disputes between us and our partners; future acquisitions or business opportunities could involve unknown risks that could harm our business and adversely affect our financial condition; our ability to successfully identify suitable acquisition targets to implement

41


our new strategy and to compete for these opportunities with others who may have greater resources; our ability to conduct due diligence on businesses we acquire to ensure that we have identified and addressed key aspects of liability and risk; the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated; we may engage in business combinations that are dilutive to existing shareholders, result in unanticipated accounting charges or otherwise harm our result of operations, and result in difficulties in assimilating and integrating the operations, personnel, technologies, products and information systems of acquired companies or businesses; the impact of additional material charges and expenses associated with our oversight of acquired or target businesses and the integration of acquired businesses into our systems for financial reporting; previous or future acquisitions might not be successful and might adversely affect our business, operating results, or financial condition; our ability to successfully integrate current and future acquired businesses into our existing operations and achieve the expected economic benefits; our ability to effectively increase the size of our organization, if needed, and manage our growth; acquisitions may require capital infusions; the possible need to raise additional debt or equity financing for acquisitions in addition to the use of our excess cash; the ability to quickly develop, source, introduce and deliver differentiated and innovative products; our potential dependence on third parties for new product introductions or technologies in order to introduce our own new products; our ability to successfully implement restructuring plans; foreign currency fluctuations; the ready availability and price of energy and key raw materials or critical components including the effects of natural disasters and our ability to pass along raw materials price increases to our customers; potential acquisitions or investments in a foreign business or company with significant foreign operations may subject us to additional risks; continuing uncertainty in global and regional economic conditions; our ability to identify, value, integrate and realize the expected benefits from any acquisition which has occurred or may occur in connection with our strategy; the possibility that our goodwill and intangible assets or any goodwill or intangible assets that we acquire may become impaired; the ability of our security products to withstand cyber-attacks; the loss of a major customer, partner or reseller; changes in European law or practice related to the imposition or collectability of optical levies; the seasonality and volatility of the markets in which we operate; significant changes in discount rates and other assumptions used in the valuation of our pension plans; changes in tax laws, regulations and results of inspections by various tax authorities; tax consequences associated with our acquisition, holding and disposition of target companies and assets; our ability to successfully defend our intellectual property rights and the ability or willingness of our suppliers to provide adequate protection against third party intellectual property or product liability claims; the outcome of any pending or future litigation and patent disputes; our ability to access financing to achieve strategic objectives and growth due to changes in the capital and credit markets; our ability to retain and attract key employees to manage our existing businesses and the businesses we may acquire; increased compliance with changing laws and regulations potentially affecting our operating results; failure to adequately protect our information systems from cyber-attacks; the effect of the announcement of our review of strategic alternatives; the effect of the transition of our Board of Directors; the volatility of our stock price due to our results or market trends; and the ability to meet the continued listing requirements of the NYSE; loss of or inability to attract talented individuals to executive our strategic alternatives business strategy; the implementation of new systems and enhancements may be disruptive and could impact our ability to accurately report our financial results; decreasing revenues and greater losses in our Nexsan business may have a material and adverse effect on our business, results of operations and capital resources; the investment in Clinton Lighthouse Equities Strategy Fund (Offshore) Ltd. may not product positive returns and may results in losses, as well as various factors set forth from time to time in Item 1A of this Form 10-K and from time to time in our filings with the SEC.

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to various market risks including volatility in foreign currency exchange rates and credit risk. International operations, which comprised approximately 61 percent of our revenue in 2015 , may be subject to various risks that are not present in domestic operations. The additional risks include political and economic instability, terrorist activity, the possibility of expropriation, trade tariffs or embargoes, unfavorable tax laws, restrictions on royalties, dividends and currency remittances, requirements for governmental approvals for new ventures and local participation in operations such as local equity ownership and workers’ councils.
Our foreign currency hedging policy attempts to manage some of the foreign currency risks over near term periods; however, we cannot ensure that these risk management activities 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. Although we attempt to utilize hedging to manage the impact of changes in currency exchange rates, our revenue or costs are adversely impacted when the U.S. dollar sustains a strengthening position against currencies in which we sell products or a weakening exchange rate against currencies in which we incur costs.

42


In accordance with established policies and procedures, we may utilize derivative financial instruments, including forward exchange contracts, options, combination option strategies and swap agreements to manage certain of these exposures. Factors that could impact the effectiveness of our hedging include the accuracy of our forecasts, the volatility of the currency markets and the availability of hedging instruments. We do not hold or issue derivative financial instruments for trading or speculative purposes and we are not a party to leveraged derivative transactions. The utilization of derivatives and hedging activities is described more fully in Note 12 - Fair Value Measurements and Derivative Financial Instruments in our Notes to Consolidated Financial Statements.
As a result of our actions to terminate our Storage Media and Accessories businesses, the foreign exchange risk has significantly decreased from prior year. As of December 31, 2015 , we did not have any foreign currency forward or option contracts outstanding. This compares to $163.2 million notional amount of foreign currency forward and option contracts as of December 31, 2014 , of which $29.4 million hedged recorded balance sheet exposures.
We are exposed to credit risk associated with cash investments. We do not believe that our cash investments present significant credit risk because the counterparties to the instruments consist of major financial institutions.

43


Item 8.
Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Imation Corp.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statement of operations, of comprehensive loss, of shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Imation Corp. and its subsidiaries (the “Company”) at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 15, 2016

44


IMATION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In millions, except per share amounts)
Net revenue
$
529.2

 
$
729.5

 
$
860.8

Cost of goods sold
427.9

 
591.1

 
672.1

Gross profit
101.3

 
138.4

 
188.7

Operating expenses:
 
 
 
 
 
Selling, general and administrative
137.8

 
174.7

 
181.6

Research and development
19.2

 
18.8

 
18.4

Intangible impairments
37.6

 

 

Litigation settlement

 

 
(2.5
)
Goodwill impairment
36.1

 
35.4

 

Restructuring and other
47.9

 
13.6

 
11.3

Total
278.6

 
242.5

 
208.8

Operating loss
(177.3
)
 
(104.1
)
 
(20.1
)
Other (income) expense
 
 
 
 
 
Interest income
(0.4
)
 
(0.5
)
 
(0.2
)
Interest expense
3.3

 
2.6

 
2.5

Other expense, net
1.3

 
3.1

 
0.6

Total
4.2

 
5.2

 
2.9

Loss from continuing operations before income taxes
(181.5
)
 
(109.3
)
 
(23.0
)
Income tax provision
12.5

 
3.1

 
1.4

Loss from continuing operations
(194.0
)

(112.4
)
 
(24.4
)
Discontinued operations:
 
 
 
 
 
(Loss)/gain on sale of discontinued businesses, net of income taxes

 
(1.7
)
 
0.9

Loss from discontinued operations, net of income taxes

 
(0.6
)
 
(20.9
)
Loss from discontinued operations

 
(2.3
)
 
(20.0
)
Net loss
$
(194.0
)
 
$
(114.7
)
 
$
(44.4
)
Loss per common share — basic:
 
 
 
 
 
Continuing operations
$
(4.84
)
 
$
(2.74
)
 
$
(0.60
)
Discontinued operations

 
(0.06
)
 
(0.49
)
Net loss
(4.84
)
 
(2.80
)
 
(1.10
)
Loss per common share — diluted:
 
 
 
 
 
Continuing operations
$
(4.84
)
 
(2.74
)
 
$
(0.60
)
Discontinued operations

 
(0.06
)
 
(0.49
)
Net loss
(4.84
)
 
(2.80
)
 
(1.10
)
Weighted average shares outstanding:
 
 
 
 
 
Basic
40.1

 
41.0

 
40.5

Diluted
40.1

 
41.0

 
40.5

Cash dividend paid per common share
$

 
$

 
$


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

45


IMATION CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In millions)
Net loss
$
(194.0
)
 
$
(114.7
)
 
$
(44.4
)
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
Net unrealized (losses) gains on derivative financial instruments:
 
 
 
 
 
Net holding gains arising during the period
(1.4
)
 
6.1

 
7.0

Reclassification adjustment for net realized (gains) losses recorded in net loss
(3.7
)
 
(3.4
)
 
(7.3
)
Total net unrealized (losses) gains on derivative financial instruments
(5.1
)
 
2.7

 
(0.3
)
 
 
 
 
 
 
Net pension adjustments, net of tax:
 
 
 
 
 
Liability adjustments for defined benefit pension plans
(1.5
)
 
(10.4
)
 
10.7

Reclassification of adjustments for defined benefit plans recorded in net loss
2.0

 
1.4

 
5.5

Total net pension adjustments
0.5

 
(9.0
)
 
16.2

 
 
 
 
 
 
Unrealized foreign currency translation losses
(6.7
)
 
(15.7
)
 
(4.5
)
 
 
 
 
 
 
Total other comprehensive income (loss), net of tax
(11.3
)
 
(22.0
)
 
11.4

 
 
 
 
 
 
Comprehensive loss
$
(205.3
)
 
$
(136.7
)
 
$
(33.0
)

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


46


IMATION CORP.
CONSOLIDATED BALANCE SHEETS


 
As of December 31,
 
2015
 
2014
 
(In millions, except per
 
share amounts)
ASSETS
Current assets
 
 
 
Cash and cash equivalents
$
70.4

 
$
114.6

Accounts receivable, net
25.4

 
134.4

Inventories
10.5

 
57.7

Assets held for sale
20.6

 
1.2

Other current assets
24.8

 
31.5