Jul. 23--Imation Corp., maker of digital storage products, reported a second-quarter net loss of $36.9 million Wednesday, but executives heralded a small $1.2 million operating profit, excluding special charges.

Investors greeted the news warmly, bidding Imation's stock up 11 percent to $9.02, up 90 cents at the close.

Imation's quarterly revenue fell 21.8 percent to $428 million, with the steepest decline coming in Europe, a 36.4 percent fall, where the company saw big sales drops in magnetic and optical products.

Both CEO Frank Russomanno and chief financial officer Paul Zeller told analysts in a conference call that it was critical for the company's future to settle legal disputes with Philips Electronics, U.S. Philips Corp. and North American Philips Corp.

Russomanno called the ongoing litigation "costly and distracting." Imation will pay the Philips entities $53 million over three years.

Company executives talked about transforming Imation with new products that will roll out in coming months, and Russomanno said Imation recently hired new brand and product managers from Circuit City, Best Buy and Seagate.

Imation's second-quarter net loss compared with a $7.2 million profit in the same period a year ago.

The company's operating loss was $57.6 million for the quarter, and that included a $49 million charge for the litigation settlement and a $9.8 million charge for restructuring and other items.

Zeller said the 22 percent revenue decline consisted of 7 percent lower volume sales, and that 11 percent came from price-cutting and 4 percent from unfavorable currency exchange rates.

Liz Fedor --612-673-7709

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