(as prepared for delivery)
October 30, 1996

 
I am very pleased to be reporting our first financial results as an independent company. These results demonstrate that the actions we outlined to you earlier -- and have been working towards since late last year -- are realistic, doable and having an impact. We are implementing a lower cost structure, changing the culture and generating profitable growth. In our first quarter as a stand-alone company, we made solid progress across all three fronts, consistent with our plan. We had operating income of $24.5 million which is 4.4% to sales and delivered $.29 earnings per share. This is significantly up from our Q3 1995 loss of $.04 per share. Our operating profit in just this one quarter exceeded our profit for all of last year even excluding last year's special charges.

First let me update you on our work to generate profitable growth. We made several strategically important announcements last quarter. In our Printing and Publishing Systems businesses we announced the acquisition of Luminous Corporation -- a company strategically positioned in pre-press software work flow which leverages our total Rainbow Digital Proofing solution. This action demonstrates our commitment to achieve revenue growth through greater use of joint ventures, alliances, partnering and technology acquisition, as well as our commitment to delivering total workflow solutions to our customers. We held very successful trade shows at the Seybold conference and Graph EXPO. And we announced joint development efforts with three partners - Scitex, ECRM and Ultre Corporation - to bring dry film technology that we pioneered in medical imaging into the printing industry.

In Medical Imaging, we have more than 10,000 laser imagers, both wet and dry, installed worldwide including 1500 new DryView systems shipped and installed in the first twelve months of the program.

In our data storage business, Travan (TM) data cartridges continue to achieve broadening market acceptance and strong annual growth. We are now supplying data cartridges delivering from one to four gigabytes of storage capacity to the more than four million Travan™ drives shipped by our drive partners.

The LS-120 consortium members - Imation, Compaq Computer, MKE and OR Technologies - recognize what it takes to establish an industry standard and we believe we have the product, the partners and the technology road map to be successful. The LS-120 high capacity diskette technology continues to attract the interest of OEM partners as availability for drives comes on stream from multiple sources. The overdue volume drive shipments by MKE are starting in Q4 with Mitsubishi kicking in during Q1 1997. Also, Kaifa Technology, one of the largest computer products companies in mainland China, announced they will manufacture the slim line LS-120 drive. Interest in and appetite for the LS-120 technology continues to be strong as it is seen as the true replacement for 1.44MB diskette drives - not just for stand alone storage.

Our revenue growth of 2.4%, the first growth in at least 11 quarters for these businesses, is evidence that our customers have received Imation well, our new products are winning in the marketplace, our plans are realistic and our efforts are beginning to pay off. This growth is driven by global volume growth of 8.8%, the highest since 1993, with contributions from every region of the world. New product platforms accounted for 13% of total revenues in the quarter, primarily from Travan data cartridges and DryView laser imager, which continue to grow very well.

Our second strategic goal is to reduce cost. Our management team is aggressively driving the business model as we establish a lower overhead structure and reduce operating costs which were down 6 percent overall compared with Q3 last year, even with start up costs. These cost savings, which Jill Burchill, our chief financial officer will detail in a moment, allow us to continue to invest in the businesses to generate profitable future growth and increase shareholder value. We are refocusing our marketing and technology investments to build new customer solution platforms in all our business units, and expanding our coverage worldwide. Our patent portfolio work continues to expand; we announced the award of the first patent in the name of Imation for some of the core Travan technology.

Our third effort is directed at changing the culture to have a faster, more aggressive response to customer needs, sharper focus on profitable growth opportunities by everyone in the company, and fewer structural and bureaucratic hurdles. We are aligning the interests of all Imation employees worldwide with our shareholders as we engage employees as owners of the business. For example, last quarter we granted a total of 2.4 million options, including management stock options and options on 100 shares of Imation stock, to employees worldwide. Our trustee bought more than 2 million shares on the open market for $50 million to fund our ESOP for the 401K match, further engaging our employees as owners.

We also just spent five days with over 600 of our sales, marketing and customer service employees, providing more training on profitable growth programs and asset management. We linked our regional representatives across businesses and geographies to leverage our data storage, printing, medical imaging and service reps to maximize customer penetration of major accounts. Coming out of that meeting, I have no doubt that our focus on customers and work flow solutions is the correct focus for our markets and will be a key element of our success.

I want to note that we started the process of creating a new company last November. A year ago, we did not have a name for our new company. Now we are building the Imation image and brand awareness among all our key audiences worldwide, establishing who Imation is and what Imation stands for. We have a strong ad campaign and direct marketing appearing in over 100 publications in 21 languages to assure a fast start to building our market awareness. Now we have a strong, viable company with growing revenues, a healthy financial position and a much more competitive cost structure. We have a new organization, a solid foundation of technology and new products that are focused specifically for success in the imaging and information industry. We have an engaged and committed group of employees who are excited about being part of Imation, and are embracing the changes we are implementing. We expect to be a leader in the imaging and information industry and a successful and profitable company.

Certain portions of these comments which do not relate to historical financial information may be deemed to constitute forward looking statements that 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 or revenue growth targets, the competitive pricing environment, foreign currency fluctuations, and the market acceptance of newly introduced products as well as various factors set forth in the Companyís Information Statement included in the Form 10 Registration Statement, filed with the Securities and Exchange Commission of June 21, 1996, in the section titled 'SPECIAL FACTORS.'

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