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24
business in the first half of 2014. Imation transitioned to source our product from alternate magnetic tape suppliers
during 2014.
Storage and Security Solutions
Storage and Security Solutions revenue comprised 16.8 percent, 15.3 percent and 5.9 percent of our total
consolidated revenue in 2014, 2013 and 2012, respectively. We would expect the Storage and Security Solutions
revenue as a percent of total revenue to continue to expand and become a larger part of the total Company each
year. 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 collaboration and for 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 have added sales and engineering resources and VARs
around the world to build Nexsan’s presence in key geographies. Our targeted vertical markets include government,
healthcare, and media and entertainment.
Imation’s IronKey solutions meet the challenge of protecting today’s mobile workforce, featuring secure USB
solutions for data transport and mobile workspaces. This 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. The Imation Mobile Security family, through the IronKey product line, delivers
innovative secure data solutions for corporate employees who need to protect information on-the-go and targets
organizations that require highly secure solutions in a Bring Your Own Device (BYOD) environment.
Our flash drives are designed to meet the most stringent security standards that protect stored data and meet
the U.S. Government Federal Information Processing Standard (FIPS) validation, which includes strong encryption
protection with password and biometric authentication. Flash media products with security features provide margins
significantly higher than traditional flash media without data security. We are actively testing IronKey in many
corporate and government environments. The sales cycle is a long one, but we have the only FIPS Level 3 certified
product, offering superior security.
Executive Summary
Consolidated Results of Operations for the Twelve Months Ended December 31, 2014
• Revenue of $729.5 million in 2014 was down 15.3 percent compared with revenue of $860.8 million in 2013
driven by secular declines in our optical and tape products. Revenue for 2014 compared to 2013 was
negatively impacted by two percent due to foreign currency impacts.
• Gross margin in 2013 was 21.9 percent and benefited from a reversal of an accrual of $23.1 million for
European copyright levies as a result of favorable court rulings in Italy and France. The levy accrual
reversals had a 2.7 percent positive impact on gross margin in 2013. Gross margin in 2014 was
19.0 percent. Excluding the levy reversal, the gross margin for 2013 would have been 19.2 percent and was
essentially flat year over year.
• Selling, general and administrative expense was $174.7 million in 2014, down $6.9 million compared with
$181.6 million in 2013 due to cost reductions in legacy businesses. 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 Storage and Security
Solutions partially offset these reductions in 2014 which included hiring sales resources, introducing new
products and promoting the brand globally.
• Research and development expense was $18.8 million in 2014, up $0.4 million, compared with $18.4
million in 2013 which reflects the Company's increased investment in higher margin projects in Storage and
Security Solutions.
• Restructuring and other expense was $13.6 million in 2014 compared to $11.3 million in 2013. Other
expense in 2013 included a $10.6 million loss related to the settlement of our UK pension plan offset by a
$9.8 million gain on the sale of land at a previously closed facility.
• Operating loss from continuing operations was $104.1 million in 2014 compared to $20.1 million in 2013.
Operating loss from continuing operations in 2014 included a goodwill impairment charge of $35.4 million.
• Other expense was $5.2 million in 2014, up $2.3 million, compared with $2.9 million in 2013, primarily due
to currency impacts.