Imation Divests Business As Losses Keep Mounting

Imation Divests Business As Losses Keep Mounting

The 3M spin-off sold one of its businesses in an attempt to turn itself around, but its quarterly loss was worse than analysts expected.

Imation, a data storage and security company, on Wednesday announced the sale of one of its consumer electronics businesses and reported a 15 percent drop in revenue, as well as a net loss of about $35 million.
 
The struggling Oakdale-based company said it has divested its Memorex consumer electronics business, and it has signed a letter of intent to also sell its similar XtremeMac business.
 
Imation announced in February that it planned to sell those businesses as part of its turnaround strategy.
 
Imation was spun off from Maplewood-based 3M Corporation in 1996 as a data storage media company, but several years ago, it expanded into consumer electronics. Then, in January 2011, Imation announced it would shift focus back to its data storage, protection, and connectivity sector and away from consumer electronics. In addition to selling some of its businesses, Imation’s turnaround strategy also included a 20 percent reduction in its global work force.

 
Imation said Wednesday that it has a “relentless focus” on cost reductions and has continued to cut staffing levels in its legacy businesses and administrative areas.
 
The company officially sold its Memorex business on October 15 and expects to sell XtremeMac by December 31. The company aims to generate about $19 million from the two sales.
 
“We have made important progress in our strategic transformation by signing agreements to divest our lower-margin, non-core Memorex and XtremeMac consumer electronics businesses,” President and CEO Mark Lucas said in a statement. “This was a key objective for our team this year.”
 
For the quarter that ended September 30, Imation reported a net loss of $34.9 million, or $0.86 per share, compared to a net loss of $6.3 million, or $0.17 per share, during the same period in 2012.
 
Its adjusted loss per share, which excludes a $12 million charge associated with the settlement of a United Kingdom pension plan, was $0.42 per share, $0.27 worse than what analysts polled by Thomson Reuters had expected. The company said its loss from continuing operations totaled $26.2 million. 
 
Revenue, meanwhile, totaled $191.9 million, down from $227.4 million in the third quarter of 2012. Third-quarter revenue fell short of analysts’ projections of $196.6 million.
 
“Our top line revenues continue to be impacted by secular declines in optical as well as tape media where we saw decreases that were higher than we had anticipated,” Lucas said.
 
Shares of Imation’s stock were trading up about 2.9 percent at $4.62 Wednesday morning.
 
Imation backed up its pledge to focus more on data storage and security in January when it acquired Nexsan Corporation, a California-based disk-based storage systems provider, for $120 million. According to Lucas, the Nexsan acquisition boosted revenue in Imation’s mobile security sector during the third quarter, but it wasn’t enough to offset its losses in storage media.
 
In January, Twin Cities Business explored what’s behind Imation’s recent struggles, how it’s progressing with its turnaround plan, and its prospects for the future—including whether it’s time for the company to be sold, either in pieces or in its entirety. To read that story, click here.
 
Lucas took over Imation as president and CEO in May 2010. The company saw net losses for three years prior to his appointment and continued to struggle under his leadership. Imation’s stock has plummeted 57 percent since Lucas took the helm, and the company saw a 15 percent drop in total revenue from $1.3 billion in 2011 to $1.1 billion in 2012.
 
According to regulatory filings, Lucas received $2.18 million in total compensation in 2012, down from $2.94 million in 2011 and $3.14 million in 2010. Excluding stock awards and other non-salary compensation, however, Lucas' base salary has increased from about $686,000 in 2010 to $750,000 in 2012.
 
Meanwhile, Imation was sued in May for allegedly violating patent law involving Blu-Ray technology. The lawsuit, filed by a holding company, which includes Sony and Panasonic Corporation, claimed that Imation was selling packages of blank Blu-Ray discs—which was allegedly an infringement on the holding company’s combined patents on the technology.
 
Imation is among Minnesota’s 30-largest public companies based on revenue.