WILLIAM MONAHAN - IMATION CORPORATION (IMN)
CEO Interview - published 03/18/2002

DOCUMENT # PAE608

WILLIAM T. MONAHAN is Chairman of the Board of Directors and
Chief Executive Officer of Imation. He was named to the position
in November 1995 and since then has led the development and
creation of the company, its structure and management team. Prior
to leading the Imation team, he was Group Vice President of 3M's
Electro and Communication Systems Group in Austin, Texas. He
joined 3M in 1972 and has held numerous management positions,
including Group Vice President of Electronics, Electrical and
Telecommunications Group, Division Vice President of Data Storage
Products and Senior Managing Director of 3M Italy. He holds a BS
in Economics from St. Peter's College and an MBA from Rutgers
University.

Sector: data storage

TWST: Would you start us off with a short introduction and an
overview of Imation?

Mr. Monahan: Imation is a $1 billion company focused on the data
storage industry. That focus really began on January 2 of this
year. Originally, this company was spun off from 3M as seven very
distinct, diverse businesses. 3M spun off these businesses
because they didn't fit the 3M material science-based business
model, and all seven were, in one way or another, involved in the
move from an analog to a digital business model ' very
competitive industries and rapidly changing technologies; and,
they were all  under a lot of stress, in terms of revenue and
margins, under the 3M model. So we took the spin off in 1996 and
the first thing we had to do was to create an independent
company. We had seven separate businesses with little or no
synergy, no shared customers or products; basically no stand-
alone business system and no infrastructure separate from 3M. The
second thing we had to do was to restructure, to dramatically
change the culture of these businesses and the company as a
whole. We had to become much leaner. We had to become much faster
in terms of response to customers as well as to the developments
in the industry and the marketplace that were occuring in terms
of the digital revolution. Once we had created and restructured
the company, we initiated a strategic portfolio analysis to
determine where our largest and most exciting opportunities lay
and where we should focus our efforts to drive the success of
Imation. We utilized three principles to determine which business
or businesses we should focus on. One, we looked for businesses
in markets that were attractive and growing on a worldwide basis.
Two, we looked at where we had a very strong technology platform
and IP (intellectual property) position so that we were building
on a strong IP base and technology capability. Three, we looked
at where we had strong market coverage worldwide ' not just in
certain segments of the world. Based on those principles, we
chose to become a data storage and information management
company. Data storage is close to a billion dollar business and
we have a very strong technology base, very strong IP, some very
strong proprietary positions and worldwide coverage. Close to 50%
of our business is outside of the United States and it's a very
attractive market. The demand for storage capacity is continuing
to grow with no end in sight. We see data storage and the
management of information databases as a very hot area for many
years to come. This growth is driven by the Internet, by
recognition of the issues surrounding security, disaster recovery
because the value of any business resides in its information and
data. Bottom line, we see this as a very fruitful area for
Imation for many years to come. We have now reached the point of
focusing this company on growing the data storage information
management business and strengthening Imation's positions in all
of the various sectors of that business. Fortunately, we have a
very strong financial base to build on. In 1997, we had over $400
million in debt and $29 million in cash. We have evolved the
business model and dramatically improved our financial position
to where we have today over $390 million in cash and virtually no
debt. We're building in a market that is growing and we're
building off a very strong financial platform to create a
profitable growth company in a focused business. So, the markets
are attractive and the company is strong. The third point is that
we have a very experienced, talented team. Robert Edwards has
been our CFO through this entire transition from 1998 on and has
played a very important role. Frank Russomanno heads up the B2B
sector of the data storage business. He has a long career in the
magnetic media industry from both an entertainment standpoint and
a B2B standpoint. Steve Carter is the head of our personal
storage solutions business, which brings the data storage
products to personal users and includes the retail market. He
held marketing positions at IBM for a number of years and joined
Imation in 1998. Our manufacturing and supply chain executive is
Colleen Willhite. Colleen had a career at 3M and has been with
Imation since the spin off. She has extensive manufacturing
experience for numerous different businesses and brings a lot of
strength to our data storage business. She also has been involved
in coating manufacturing in data storage plants. There's depth of
management here, excellent legacy, and powerful expertise. We
feel very good about where we are today as we launch Imation as a
data storage-centric company. The markets offer us some real
strong opportunity and we are in a strong position ' not just
financially, but with a very experienced, very focused, very
aggressive management and employee team around the world.

TWST: What do you see as the competitive landscape and the
diffentiators for Imation over the next 24 months?

Mr. Monahan: In the competitive landscape that characterizes the
data storage industry, we are the only US headquartered company
and American-based manufacturer in the removable data storage
business. Fuji, Maxell, Sony, from Japan, and a company called
Emtec from Germany are our key competitors. In the optical arena,
the main competitor right now is Memorex with some competition
from certain Japanese companies. We've been in the removable
storage business for 50 years, and so, the focus on data storage
is very natural for us. We invented magnetic data storage for
information products and we obviously have made a lot of
proprietary advances over the course of the last 50 years. In
addition, we are the only company among our major competitors
that is focused on the data storage industry. Every other firm
has multiple businesses. We have decided to focus on one. We have
the broadest portfolio of products across the customer sectors,
from data center to desktop to personal storage; and we have the
broadest exposure in terms of global markets and global
distribution capabilities. As to our products: we manufacture
tape and tape cartridges for storage of information in the data
centers for StorageTek systems, IBM systems, Seagate and Hewlett-
Packard systems. We manufacture the tapes for storage in the mid-
range, which are for servers and network users and we are the
largest manufacturer, worldwide, of floppy discs for the personal
user.  We break our market opportunity down into three sectors:
the enterprise or glass house data center area; the Fortune 2000
organizations around the world; those who have centralized data
processing systems and the need for backup, archiving and data
security on a large scale. Here we sell 9840 and 9940 cartridges
for STK drives and 3480, 3490, 3590 and 3590E cartridges for IBM
drives. In that arena, we have in excess of 60% share of
removable storage. The mid-range or the network server area also
tends to be mainly B2B. The main products in that arena are the
tape cartridges such as DLT for the Quantum drives, SLR for
drives from a European-based company called Tandberg, and Travan
cartridges from Imation. In addition, there is an important new
format, Ultrium for an open standards-based drive developed by
IBM, Seagate and HP.  We currently have about a 10% to 12% share
of that sector, which we see as a major growth opportunity. In
October of last year, we launched our digital linear tape
cartridge compatible with DLT drives and we have Ultrium
cartridges for the open standards drives aimed directly at that
market. So we have very exciting new offerings to help us take
share in that market and look to build a strong position in that
arena.  In the personal computer segment, which includes the
desktop PC area, the low end of B2B, the home computer, the small
office area of the marketplace, and, increasingly, portable
handheld devices for entertainment, we have about an overall
figure of over 20% share with 10% share in the optical side and
in excess of about  40% share in the diskette or floppy share.
Believe it or not, the floppy disc market is still a very strong
market and a profitable business for us. We have a long history
in that business. We make good margins in that business, even
though that marketplace is declining as the technology is moving
to other formats. We still ship dramatically huge amounts -
hundreds of millions of units of floppy discs each year and we
still see floppy disc drives being shipped into the market. As a
result, we have developed a leading cost discipline in
manufacturing. That is a core at the low end and we are building
our optical business around it.

TWST: When you look at new data storage technologies and
techniques, are you really looking at the consumer market in the
desktop?

Mr. Monahan: We see diskettes as a mature product, one in more of
a harvest mode, with a transition to optical formats. But CDR,
CDRW and soon DVD are going to be long-term players on the
desktop and personal storage. We are going to be a major player
there and see that as a positive opportunity, both in terms of
sales growth and operating income. Then, there are new formats
emerging. Midyear, a new storage format is being launched in
conjunction with a company called DataPlay and several big
players in the consumer electronics and music industries.
DataPlay_ is a small quarter-sized optical disc in a cartridge
that holds 500 megabytes of storage. We see that as a potentially
revolutionary new product in terms of applications to music,
digital photography and personal storage for downloadable and
handheld device applications. When products like DataPlay come
along, the key factor for success is to establish a very strong
application position with the product in the marketplace. That's
why we are working with other players in music, photography and
consumer electronics, to establish the format. What is really
important is picking the application that fits the technology
where the technology delivers real capability to the users, where
it solves problems and meets the users' requirements. The
mobility, the size, the protection and security that DataPlay
brings fit very well with the music marketplace on a separate
application basis. On a built-in standpoint, it fits very well
with digital photography. It will be very easy for the user to
enable convenient storage of photos not only within the camera,
but storage of photos at home will be much easier for the user
than with the technologies that are out there today. There are
two ways of looking at it. One is the mainstream: CDR, CRW DVD.
The other is the special application product and we see DataPlay
starting out as that type of product.

TWST: Do those newer products mean better margins?

Mr. Monahan: Yes. We believe margins are driven in data storage
as they are in any other business. They're driven, one, by how
you are meeting end-user needs; and, two, by what kind of
proprietary or value added innovations you bring to that product
line. From an R&D and development standpoint, we believe that we
bring real differentiators to the mainstream of optical, and in
particular to DataPlay. For that reason, we see them as long-term
positive margin products. The same can be said at the data
center, where our servowriting and cartridge design and
fabrication capabilities are true differentiators and our coating
capability is very high quality and very competitive.

TWST: In dealing with the investment community, are there any
misperceptions that you encounter?

Mr. Monahan: Right now, we are not well known. We're just
launching Imation as a data storage-only company. This has been a
very confusing company to follow up to now. We started out with
seven businesses and, over the years, we've fixed businesses and
then divested businesses.  It's been very difficult for the
Street to follow this company because, for example, it was in a
medical imaging business, a color photo film business, a color
proofing and graphic arts technology business, and a data storage
business. Well, the same analysts or the same investors don't
have a unified interest in those diverse types of businesses.
They may be real strong on information technology and data
storage, but have concerns about the color piece and how that
would impact their investment. As we reintroduce Imation to the
investment community we are finding that our story is resonating
very well. People are pleased to see a clearly focused company.
They recognize the solid financial foundation that we have to
build on. That and our strategy of driving profitable growth from
our core in the growing data storage market is resonating very
well with  investors.

TWST: When you look out over the next 12 months, what will make
that timeframe a success?

Mr. Monahan: Consistent financial results. The first thing is to
deliver on our financial goals quarter after quarter, which
include five to ten percent growth in operating income in 2002
over 2001. In the data storage segment, we had a very strong
2001. We improved our operating income every quarter, quarter on
quarter and more than doubled operating income for the year on
ten percent revenue growth. We restarted growth in that business
in the second half of last year. The most important issue for
Imation is to continue to improve the business each quarter and
to continue to drive the financial results. Secondly, we have to
tell our story to the Street. It's a much clearer story and will
continue to engage the Street ' both buy side and sell side. We
haven't found a problem in terms of generating interest. The key
is to make the contact, to develop the visibility.

TWST: What are the three or four key summary points that would
convince an investor to buy in?

Mr. Monahan: First of all, the company is in a strong financial
position. Imation is generating cash and has a strong balance
sheet. We have the wherewithal to invest in growth and to invest
in future success. Then, we are in a very strong market. The data
storage market is complex and competitive, but definitely a
market with a strong future. And it's a market where Imation has
a track record of success with important customers and OEM's that
spans decades. It's an area where customers, both in the business
to business arena as well as the b to c arena, have real needs
for capability in storing and protecting information. Thirdly, we
have an outstanding team that has delivered dramatic financial
improvement over the last number of years. We're very well
positioned from a proprietary product as well as on a technology
basis to win in this industry. Then,  being U.S. based is very
important in data storage, having the only R&D facility in the
U.S. is key. We're very close to the firms that create this
industry ' the U.S. OE

Ms. The IBMs, the Storage Teks, the Hewlett Packards, the
Compaqs, the Dells, the Gateways, Seagate, these are the
organizations that are driving information storage management and
the growth of that market. We have the capability of co-
developing with those firms in a much more efficient way than
anyone else because we are an hour and half away from any of them
by plane. We've worked together in the past and we're focused
exclusively on the data storage arena. We think that is a
significant advantage.

TWST: What type of investment do you see Imation as being? Where
does it fit into an investment philosophy or a portfolio strategy
at this point?

Mr. Monahan: I think you have to look at the data storage market,
and say Imation is a value investment transitioning to growth.
There's a strong value component to Imation because of the
balance sheet and the financial turnaround and there's definitely
a growth component because of the storage industry that this
company is such a key part of.

TWST: Are there any events coming up that you'd want to
highlight?

Mr. Monahan: The key events coming up are our engagements with
the Street. We will have an analyst meeting later this year. We
will have new product launches and quarterly improvement in our
results to report. We focus on a $6.4 billion data storage
market. We have very strong industry and market positions to
build off of, a 50-year legacy in the industry, which is very
important in terms of experience and technology. And we're
emerging now, ' literally on January 2nd, we emerged as a data
storage company. December 31st, we divested our color business
and that allowed us to become a data storage company. This clear
focus and clear direction for Imation literally started on
January 2nd.

TWST: Thank you. (DWA)

WILLIAM T. MONAHAN
 Chairman & CEO
 Imation Corporation
 1 Imation Place
 Oakdale, MN 55128
 (651) 704-4000
 (651) 704-3444 - FAX
 www.imation.com

Investor Relations Contact
Bradley D. Allen
 e-mail: investorrelations@imation.com

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Copyright 2002 The Wall Street Transcript Corporation
All Rights Reserved


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