Memorex 2009 Annual Report Download - page 3

A little more than two years ago, we began Imation’s
transformation, one that we believed would establish a stronger
foundation for long-term growth. That decision proved to be
very timely. During trying economic times, it can be tempting to
delay strategic initiatives and investments in order to focus on
concentrated, short-term challenges. We are pleased to say that
despite the difficult economic environment, we have remained
committed to our transformation.
During 2009, Imation experienced the global recession’s effects
across our entire business. On the commercial side, significant
reductions in information technology spending impacted sales
of our storage media across all product categories. Similarly,
on the consumer side, intensely cautious consumer spending,
especially in the first half of the year, impacted sales of optical
products, consumer electronics and accessories. These factors
contributed to a 17-percent decline in global revenues for
Imation during the year. We are confident, however, that several
of the initiatives undertaken early in our transformation strategy,
prior to the global recession, ultimately helped mitigate some of
the recession’s impact on Imation during 2009.
Tough times provide opportunities for already-strong companies
to further sharpen their focus and improve their discipline. This is
certainly true for Imation and, along these lines, we are pleased
to say that 2009 was a year of meaningful achievement in
many areas. As we enter 2010, we mark the halfway point of our
five-year transformation journey and take note of the numerous
achievements Imation has made to date under this plan.
During 2009, we continued our focus on cost containment and
implemented new levels of operational efficiency across the
entire enterprise. Our operational excellence program, Project
Xcell, identified key global processes and initiated efficiency
improvement programs in each of them.
One such example is our improved Product Life Cycle
Management process, which helps shorten time to market and
maximize profitability by establishing greater control over all
aspects of a product’s life cycle, from concept through end of
life. Other operational areas targeted by Project Xcell include
sourcing, demand and supply planning, order management and
finance processes. We have improved our operational efficiency
in 2009, and we intend to build on these early successes as part
of our commitment to continuous improvement.
These efforts, combined with initiatives to more closely manage
our inventory levels, drove improvement in several important
financial metrics, many of which are hallmarks of our strong
foundation:
During the second half of 2009, Imation returned to
operating profitability, excluding special charges, reflecting
the success of our cost-containment and restructuring
initiatives.
We dramatically improved our cash flow generation and
improved working capital management, ending the year with
a solid cash balance of more than $163 million.
Our balance sheet remained strong and debt free, providing
considerable financial flexibility as we move forward in a
capital market that remains highly constrained.
Transformation Progress
When we began our transformation, we established a clear
and actionable path. A first area of focus has been to optimize
our mature storage media businesses. A second has been to
grow our portfolio of brands and products. And our third focus
has been to extend our brands and product development into
new categories in accessories and consumer electronics.
Imation has made significant progress in both of our major
business areas: 1) Storage; and 2) Consumer Electronics and
Accessories.
In Storage
Our consolidation strategy in both magnetic tape and
optical storage has resulted in #1 global market share
position for Imation in both categories. In optical, we have
steadily gained share and have strong momentum with our
retail customers.
Our research, development, and engineering efforts have
kept us at the forefront of new innovation in storage. In
magnetic tape, we developed the first multi-terabyte
magnetic tape cartridge and our ongoing technical
leadership has helped us maintain strong relationships with
companies such as IBM and Sun Microsystems (now a part
of Oracle).
We have also invested in several new growth-oriented
storage products, expanding our portfolio to include Blu-
ray discs, removable and external hard disk drives, and
solid state drives. Our commitment to emerging formats,
such as RDX removable hard disk drives, where we have a
leading market position, has helped us earn key customers
such as IBM and Dell.
In Consumer Electronics and Accessories:
Imation made tremendous strides in building out our
consumer brand portfolio, with the addition of three strong
global brands: Memorex, TDK Life on Record, and XtremeMac.
We are now in the midst of relaunching these brands to
“extend” into new consumer electronics and accessories
product categories.
We have undergone considerable “re-skilling,” bringing in
new leadership expertise in global supply chain operations,
retail sales and consumer products sourcing, among other
areas. We believe these skills are critical to driving our
transformation forward.
Through solid execution, we have weathered what we expect
to be the worst of the recession and are emerging with a
strong operational and financial foundation in place.
Dear Fellow Imation Shareholder:
Letter to Shareholders
01
STRONG FOUNDATION