Thank you Bill and good morning.

1997 is the year of inventing Imation and we are taking aggressive steps to create a company that will provide value for our shareholders, customers and employees.

Imation's first quarter results reflect some key financial progress in this regard, particularly in improving the quality of our earnings. At 30 cents earnings per share this is the 3rd quarter in a row of consistent E.P.S. performance, despite a significant currency impact.

All of my comments this morning will relate to the results of the company excluding the one-time restructuring charges and special write-offs that occurred in previous periods. As a reminder, 1996 Q1 included restructuring charges of $10.4 million which, if excluded, would have equated to EPS of 29 cents. No such charges were taken in Q1 1997. I am also going to focus my remarks on the drivers impacting revenue in Q1 and on the cost and asset management performance as it relates to our three year goals.

Our first quarter operating income was $28.2 million or 5.1% to sales, our tax rate was 45 percent and earnings per share was $.30. The resulting economic profit improvement of $7.5 million for the quarter was driven by $7 million in cost reductions plus $6 million in improved asset management, both partially offset by the revenue decline.

These results were achieved despite the strong dollar which negatively impacted earnings per share by $.17 compared to Q1 1996, approximately twice the impact of previous quarters. These results reflect that Imation is continuing on track towards our three year financial improvement plan. Let me remind you that our goal is to improve economic profit by $150 million during the three year period of 1996 through 1998 from a 1995 base year. We define economic profit improvement as the change in after tax operating income minus a charge for the cost of operating capital at an 11.4 percent rate.

I would now like to review each economic profit improvement driver for the 1st quarter.

Revenue Growth

The first component of our economic profit improvement plan is revenue growth. And in this three year plan our target is to obtain modest revenue growth of 3-5%. The strong progress of the 3rd and 4th quarters of 1996 has been slowed by a stronger dollar and implementation of our portfolio management strategy.

The currency impact is strongest for us in Europe and is being felt across all businesses. With 50% of our sales outside the U.S., the current strong dollar will continue to have a negative impact in future quarters.

In addition to the currency effect, we are deliberately reducing sales in the product lines in which we are on a planned harvest strategy. We will continue to make these decisions, and they will have a short-term negative impact on sales but we believe they will have a longer-term positive impact on company focus, profitability and value creation.

In the first quarter, Imation achieved volume growth of 3.5 percent which includes the impact of the exited sales. We absorbed price erosion of 4.9 percent, in line with our plans, for a total sales decline of 1.4 percent on a local currency basis. In addition, the negative translation impact of 3.5 percent resulted in the 4.9 percent sales decline we reported.

Excluding the revenues from the exited sales, we would have seen one percent growth on a local currency basis worldwide, the fifth quarter in a row in which we would have achieved modest local currency growth. Exiting these sales is the correct decision for Imation's long-term value.

Cost Reductions

Our three year plan provides for pre-tax cost reductions of $150 million, with $70 million targeted for 1997. This plan includes the recurring start-up expenses that we had anticipated for establishing the Imation brand and activities to design more efficient business processes. For the 1st quarter, cost reductions were more than $12 million, reaching 18% of our total year goal. Our 1st quarter gross margin was 36.3%, one percentage point greater than last year and the highest since Q1 1995. We are very pleased with our gross margin performance which we achieved through exceptional unit cost reduction (especially in DryView and high-capacity tapes and diskettes), raw material pricing declines, and the exit of some unprofitable product lines.

First quarter research and development spending of $38 million reflects the efficiencies and productivity we have obtained by the consolidation of laboratories and the reduction of spending on harvest businesses, partially offset by the investment in key future technology programs. Spending on R&D for our operations should run at about $40 million per quarter for the remainder of 1997.

S,G&A costs reflect the use of 3M services for information technology and logistics along with the expenses associated with establishing independent, efficient new operations which will replace these purchased services. In the 1st quarter we spent $11.2 million on these new systems, $1.5 million was included in S,G&A expense and $9.7 million capitalized as new IT systems. Spending will continue on this project but decline by the end of the year as the majority of the implementation is completed. As a reminder, the capitalized IT will not begin to be amortized until we complete implementation of the systems scheduled for early 1998.

Our investment in establishing the Imation brand is proceeding as planned and contributed $2.5 million of S,G&A costs in the quarter. We continue to test the effectiveness of this spending as we proceed with Imation/3M dual branding in 1997 and ultimately full Imation branding by July 2001.

Headcount on a reported basis increased to 9,700, as we expand our penetration in emerging markets and establish our own IT operations. In addition, a portion of the headcount increase reflects the acquisition of Luminous Corporation, which was not reflected in the year end headcount.

We believe our goal for S,G&A of 20-22% to sales by the end of 1998 is still reasonable.

Asset Management

The third economic profit driver is improved asset management. We are making progress towards our 35% improved asset turn goal but expect the most significant improvement to come as a result of improved business processes enabled by the new IT systems. Since the end of 1995 we have made a 2 day improvement in days sales outstanding, 15% of the 13 day reduction planned for the three year period.

Months of inventory on hand are flat with 1995 and up slightly from year-end 1996. This is occurring as we begin the transition this quarter from 65 3M warehouses globally -- down to our current level of 54, towards a goal of 29; and as we consolidate the Rochester manufacturing operations and increase out- sourcing.

Prudent fixed capital management continues in 1997 with a $19 million reduction in net fixed assets for the quarter mainly due to managing spending. Our fixed asset base is now $462 million, better than our $500 million target. Additions to PP&E in the quarter was $28.0 million and depreciation was $38.1 million, both down from last year's levels. We also capitalized $9.7 million in IT spending as "Other Assets." For all of 1997, we expect to match $160 million of depreciation with PP&E additions, and we expect to increase "Other Assets" by $40 to $50 million for IT and business process investment.

The balance sheet remains strong with debt of $173 million and cash of $55 million with a debt to total capital ratio of under 16 percent. Our effective tax rate was 45% for the quarter down from the 48% average rate of the last two quarters. This lower rate is a full year projection. We have made substantial progress, ahead of our original expectations, and we will continue in the future to take advantage of the structure we have established in Imation to optimize tax effectiveness. This implementation is complex and must be staged appropriately from a legal perspective and in conjunction with planned operational improvement activities To date, we have repurchased slightly over 514,000 Imation shares under our on-going share repurchase program for a total price of $12.8 million. As was mentioned in the press release, the Imation Board of Directors recently expanded the repurchase authorization from 2 million to 6 million shares. These shares will be repurchased over time and will be used for employee programs and general corporate purposes. Average shares outstanding for the earnings per share computation was 40.7 million, similar to the number outstanding in the fourth quarter last year.

Let me summarize the key points in the quarter:

We continue to aggressively manage our businesses and expand our growth portfolio for 1997 and beyond. In conclusion, Imation is building a new company in 1997 after successfully spinning off in 1996. We believe that the three year financial goals we have outlined are achievable and continue to make progress towards those goals. While we remain focused on meeting our 1998 financial goals, we are also implementing the necessary changes to be the leader in the imaging and information industry in 1998 and beyond.

Thank you for participating in this conference call and we are now ready to take your questions.

Certain portions of these comments which do not relate to historical financial information may be deemed to constitute forward looking statements which are subject to various factors that could cause actual results in the future to differ materially from these statements. Among these factors are the Company's ability to meet its cost reduction, revenue growth and profitability targets, its ability to establish itself as an independent public company, competitive industry conditions including historical price erosion in certain product categories, foreign currency fluctuations, and the market acceptance of newly introduced products as well as various factors set forth in the Company's filings with the Securities and Exchange Commission, including its 1996 Annual Report on Form 10-K.

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