DISCLAIMER - While management believes that the financial goals mentioned here are appropriate for Imation, the goals are not forecasts of Imation's future financial performance and there can be no assurance as to the companyÆs ability to achieve them. Certain information contained in this report may constitute forward-looking statements and as such may involve risks and uncertainties. Important factors exist which may cause ImationÆs actual results to differ from the forward-looking statements contained in this report or in other public statements by the company, including the company's ability to meet its cost reduction, revenue growth and asset utilization targets as well as various factors set forth in the company's information statement Form 10, filed with the Securities and Exchange Commission on June 21, 1996, in the section titled, SPECIAL FACTORS, and MANAGEMENT DISCUSSION AND ANALYSIS.

Good morning and welcome. I'm pleased to be here for our first earnings report and to talk with you about Imation's financial results for Q2. Our start for our new company is on track and is positioning us for leadership in the imaging and information processing industry.

As outlined in our road show, we are concentrating on three areas of change. First, we are building a new culture focused on customers and financial results. Second, we are implementing a reduced cost structure, as demonstrated by these results. And third, we are building the foundation for future profitable growth. Our overall financial goal is to improve Imation's economic profit by $150 million between the end of 1995 and fiscal year-end 1998 and to achieve annual earnings-per-share growth in excess of 15 percent.

Let me briefly discuss the second quarter in terms of our overall goals before turning the call over to Imation's chief financial officer, Jill Burchill who will provide more specifics on our financial results.

CULTURE

First, our spin-off has gone extremely well. We met our deadline to complete the spin off by July 1st. Our customers - and I make it a point to talk with customers every week - are seeing us hit the ground running. In their day-to-day interactions they are finding the orders get taken, products get shipped, bills go out and get paid just as our customers expect. Customer response to Imation is very positive.

We have started with a strong foundation:

• Our four new product platforms are accelerating well.
• We have leading market positions in several areas where we compete such as color proofing and data storage.
• We take with us over 1,000 patent families and a strong branding position that includes the use of the 3M name for up to five years upon which we can build our identity.
• We have technical excellence and world class manufacturing capabilities.
• Our balance sheet is strong.
• We have a strong, experienced management team.

We are building a new company with a new culture focused on the customer. I can tell you that morale is high, and we have an engaged employee base that is excited about being a part of Imation. On July 1st, Imation employees around the world celebrated our birth as a new company ╨ we saw the excitement and enthusiasm of our employees and their families who are now part of Imation. We are communicating frequently with employees, to keep them engaged, to listen to their concerns, and to focus them on customers and cash - a simple message we use to emphasize our key priorities.

COSTS

In a moment Jill will detail the progress we are making on our cost goals. Let me just say that we are moving to a fundamentally lower overall cost structure as demonstrated by these results:

• We have closed or are consolidating five manufacturing sites around the world. We recently announced the sale of a facility in Sulmona, Italy, for example, consolidating operations into more efficient facilities.
• We have gone from fourteen to seven laboratories as we flatten the organization, eliminate duplication and increase focus on strategic platforms.
• We have, taken out several layers of management, speeding our time to decision and our ability to act and react to marketplace demands.
• At under 10,000 employees worldwide on July 1st, our employee headcount is down more than 20% from the end of 1995.

GROWTH

Let me now turn to our third area of change, generating profitable growth.

Long term, Imation's opportunity is based on a number of trends -- both technological and customer driven -- that are blurring the lines that once existed between the imaging and information industries. These include:

• Increased rate of data transmission;
• Need for massive data storage;
• Increasing use of color in information applications;
• Proliferation of digital formats in all applications;
• Need for solutions -- not just stand alone products -- by our customers.
• In this environment we are identifying and exploiting opportunities to apply our core competencies in imaging and information solutions across a broader spectrum of our customers' workflow environment.
• In many cases, this will mean creating, transmitting, managing, staging, storing and archiving digital content -- everything from still images to audio, video, multimedia and graphical images.

In the near term, we are confident in our plans to get back on a growth track this year based on the new product platforms we have introduced and on greater penetration of overseas markets. Though we did not report revenue growth in the quarter, we met our year-to-date revenue targets and our new platforms are meeting our forecasts.

Without the negative impact from currency, our revenue would have been up 1.6 percent in the second quarter. We currently derive 50 percent of our revenue from outside the US and look to expand that to 60% by the end of the decade. Our growth opportunity is particularly strong within emerging markets in Asia and Latin America, since we are currently under penetrated in those geographies. Now under Imation management, we can give these markets the focus and push that had, in some cases, been lacking under 3M, where they were a lower priority.

Let me share more specific details on where we stand with our new products and the business overall.

New product platform revenues accounted for 8 % of total revenues in the first six months. We expect these platforms to be in excess of 10% of our revenue for the full year 1996 in contrast to 2% of 1995 revenues.

Data storage in total accounted for approximately 40% of revenues in the first half.

Our Travan data cartridge platform is now recognized as the industry standard for desktop storage and backup. Earlier this year we introduced a 4 GB cartridge which takes Travan into the server segment of the market. We already announced that the capacity of Travan technology will reach 15 GB by 1997. The platform is backed by several of the industry leaders (Conner, Seagate, H.P. and Iomega) - with more than 1.5 million drives shipped to date. Travan today is a significant contributor to our revenues and profits.

Imation is also the world's largest manufacturer of branded 3.5-inch diskettes. Earlier this year we introduced our 120 MB diskette, the LS120, developed jointly with Compaq and MKE. The LS-120 program was launched in April and is just beginning to ramp up. We look for significant growth to come from this platform as it succeeds in becoming an industry standard for high capacity desktop storage.

In response to customer demand and in step with their goal to provide customers with the best storage solutions available, Compaq recently announced the LS 120 is currently available in 6 Compaq DeskPro models. In addition, Maxell and Mitsubishi were recently licensed as second sources for media and drives respectively. We will expand the number of OEM's who will offer the LS120 technology in their platforms. We expect announcements during the third and forth quarters.

Medical imaging and color photography accounted for approximately 30% of revenues in the first half of 1996.

Our Dryview laser imager system -- which we believe is revolutionizing the way medical imaging is performed -- is doing particularly well world wide. We already have shipped close to 1000 systems and continue to see demand for the platform gaining momentum as OEM suppliers of medical imaging modalities - X-rays, MRI's, NMR's - begin to sell the systems. We also will be announcing a desktop version in the fall. Dryview is exceeding our expectations. And we are accelerating increase in our capacity to address our higher-than-expected order rate.

Printing and publishing and other businesses accounted for the remainder of the revenue.

Our offerings here present a clear example of why I believe our plans for greater synergy between business units and growth from customer solutions are realistic. In commercial printing, where color proofing is a critical element in meeting the quality, timeliness and cost requirements for their customers, we provide solutions at several points within their workflow.

We are the industry standard in color proofing with Matchprint systems today. We are now extending that position with the very recent introduction of new Rainbow proofing products, such as remote proofing systems and color lock software, which we believe will help our printing customers meet their digital requirements. We recently completed a successful road show, taking these new products to our customers. With hardware, software, film, storage media and services we are helping them create, manipulate, transmit, and store critical elements of their workflow, increasing their efficiency.

Summary

This was the last quarter where we operated within 3M. We have met our deadline to spin off by July 1st, we avoided major disruptions around the spin and we are moving forward on our three key goals: changing the culture, reducing our costs and building a platform for future profitable growth.

Copyright 1996 Imation. All rights reserved.