SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4085
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POLAROID CORPORATION
____________________________________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 04-1734655
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
549 TECHNOLOGY SQUARE, CAMBRIDGE, MASSACHUSETTS 02139
____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (6l7) 386-2000
____________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Shares Common Stock, $1 par value, outstanding as of November 4, 1994:
46,253,922 shares
____________________________________________________________________________
This document contains 26 pages.
Exhibit index appears on page 15
____________________________________________________________________________
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statement of Earnings (Unaudited)
Periods ended October 2, 1994 and October 3, 1993
(In millions, except per share data)
Third Quarter Nine Months
1994 1993*** 1994 1993***
------ ------ ------- ------
Net sales:
United States $296.2 $292.1 $813.4 $794.7
International 280.5 241.8 813.2 777.6
- -----------------------------------------------------------------------------
Total net sales 576.7 533.9 1,626.6 1,572.3
- -----------------------------------------------------------------------------
Cost of sales 326.0 302.5 936.0 906.2
Marketing, research, engineering
and administrative expenses 198.0 190.1 574.2 558.0
Early retirement and other - - - 44.0
- -----------------------------------------------------------------------------
Total costs 524.0 492.6 1,510.2 1,508.2
- -----------------------------------------------------------------------------
Profit from operations 52.7 41.3 116.4 64.1
Other income 1.0 2.2 5.0 10.3
Interest expense 10.3 11.2 33.4 36.2
- -----------------------------------------------------------------------------
Earnings before income taxes and
cumulative effect of changes in
accounting principle 43.4 32.3 88.0 38.2
Federal, state and foreign income
tax expense 14.1 7.7 28.1 9.5
- -----------------------------------------------------------------------------
Earnings before cumulative effect of
changes in accounting principle 29.3 24.6 59.9 28.7
- -----------------------------------------------------------------------------
Cumulative effect to January 1,1993
of changes in accounting principle for:
Postretirement benefits other than
pensions, net of tax of $85.0
million - - - (132.9)
Income taxes - - - 33.6
Postemployment benefits,net of tax
of $12.7 million - - - (19.9)
- -----------------------------------------------------------------------------
Net earnings/(loss) $29.3 $24.6 $59.9 ($90.5)
- -----------------------------------------------------------------------------
Primary earnings/(loss) per common share:
Earnings before cumulative effect of
changes in accounting principle $0.62 $0.52 $1.27 $0.62
Cumulative effect to January 1,1993
of changes in accounting principle for:
Postretirement benefits other
than pensions - - - (2.85)
Income taxes - - - 0.72
Postemployment benefits - - - (0.43)
- -----------------------------------------------------------------------------
Net earnings/(loss) $0.62 $0.52 $1.27 ($1.94)
Fully diluted earnings per common
share $0.60 $0.51 $1.26 *
- ------------------------------------------------------------------------------
Cash dividends per common share $0.15 $0.15 $0.45 $0.45
Weighted average common shares used
for primary earnings per share
calculation (in thousands) 47,057** 47,427** 47,124** 46,715
Common shares outstanding at end
of period (in thousands) 46,395 46,806 46,395 46,806
=============================================================================
* Fully diluted earnings per share are not stated because they are greater
than primary earnings per common share.
** The weighted average shares used to calculate primary earnings per
common share include assumed conversion of options outstanding.
*** Restated for the 1993 fourth quarter adoption of FAS 112 retroactive to
01/01/93.
2
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Balance Sheet (Unaudited)
(In millions)
October 2, December 31, October 3,
Assets 1994 1993 1993*
- -----------------------------------------------------------------------------
Current assets
Cash and cash equivalents $78.9 $114.4 $69.6
Short-term investments 50.6 24.5 35.0
Receivables 536.1 557.6 471.7
Inventories:
Raw materials 111.2 122.9 138.9
Work-in-process 251.0 252.5 271.5
Finished goods 232.3 202.8 259.3
- -----------------------------------------------------------------------------
Total inventories 594.5 578.2 669.7
Prepaid expenses and other assets 152.5 139.0 154.3
- -----------------------------------------------------------------------------
Total current assets 1,412.6 1,413.7 1,400.3
- -----------------------------------------------------------------------------
Property, plant and equipment
Gross property, plant and equipment 1,993.4 1,907.8 1,874.2
Less accumulated depreciation 1,269.1 1,189.6 1,177.2
- -----------------------------------------------------------------------------
Net property, plant and equipment 724.3 718.2 697.0
- -----------------------------------------------------------------------------
Deferred tax assets 80.5 80.4 71.8
- -----------------------------------------------------------------------------
Total assets $2,217.4 $2,212.3 $2,169.1
=============================================================================
Liabilities and stockholders' equity
- -----------------------------------------------------------------------------
Current liabilities
Short-term debt $70.6 $106.2 $135.1
Current portion of long-term debt 34.2 32.6 31.0
Payables and accruals 253.2 243.5 224.3
Compensation and benefits 132.6 118.3 133.6
Federal, state and foreign income taxes 47.6 79.5 47.8
- -----------------------------------------------------------------------------
Total current liabilities 538.2 580.1 571.8
- -----------------------------------------------------------------------------
Long-term debt 584.3 602.3 620.2
- -----------------------------------------------------------------------------
Accrued postretirement benefits 246.6 229.1 224.0
Accrued postemployment benefits 38.6 33.5 35.3
- -----------------------------------------------------------------------------
Common stockholders' equity
Common stock, $1 par value 75.4 75.4 75.4
Additional paid-in capital 387.2 385.6 385.3
Retained earnings 1,641.5 1,602.0 1,569.5
Less: Treasury stock, at cost 1,161.6 1,145.5 1,145.5
Deferred compensation 132.8 150.2 166.9
- -----------------------------------------------------------------------------
Total common stockholders' equity 809.7 767.3 717.8
- -----------------------------------------------------------------------------
Total liabilities and stockholders'
equity $2,217.4 $2,212.3 $2,169.1
=============================================================================
* Restated for the 1993 fourth quarter adoption of FAS 112 retroactive to
01/01/93.
3
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statement of Cash Flows (Unaudited)
Nine months ended October 2, 1994 and October 3, 1993
(In millions)
Net cash flows from operating activities 1994 1993 *
- -----------------------------------------------------------------------------
Net earnings/(loss) $59.9 ($90.5)
Cumulative effect of changes in accounting
principle - 119.2
Depreciation of property, plant and equipment 89.1 76.6
Decrease in receivables 51.2 19.5
Increase in inventories (16.3) (83.5)
Increase in prepaids and other assets (10.9) (15.0)
Decrease in payables and accruals (10.2) (13.9)
Increase in compensation and benefits 4.3 21.1
Decrease in federal, state and foreign income
taxes payable (33.9) (8.9)
Other non cash items 51.4 27.1
- -----------------------------------------------------------------------------
Net cash provided by operating activities 184.6 51.7
- -----------------------------------------------------------------------------
Cash flows from investing activities
- -----------------------------------------------------------------------------
Increase/(decrease) in short-term investments (25.6) 45.5
Additions to property, plant and equipment (96.6) (118.6)
Proceeds from sale of fixed assets 0.2 1.1
- -----------------------------------------------------------------------------
Net cash used by investing activities (122.0) (72.0)
- -----------------------------------------------------------------------------
Cash flows from financing activities
- -----------------------------------------------------------------------------
Net increase/(decrease) in short-term
debt (maturities 90 days or less) (48.4) 12.6
Short-term debt having maturities more than 90 days
Proceeds 8.9 -
Payments (8.9) -
Repayments of long-term debt (15.5) (13.3)
Cash dividends paid (21.0) (21.0)
Stock options exercised 3.1 3.3
Purchase of treasury stock (17.0) -
- -----------------------------------------------------------------------------
Net cash used by financing activities (98.8) (18.4)
- -----------------------------------------------------------------------------
Effect of exchange rate changes on cash 0.7 (0.8)
- -----------------------------------------------------------------------------
Net decrease in cash and cash equivalents (35.5) (39.5)
Cash and equivalents at beginning of period 114.4 109.1
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $78.9 $69.6
=============================================================================
* Restated for the 1993 fourth quarter adoption of FAS 112 retroactive to
01/01/93.
4
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statement of Changes in
Common Stockholders' Equity (Unaudited)
Periods Ended October 2, 1994 and October 3, 1993
(In millions)
Third Quarter Nine Months
1994 1993* 1994 1993*
Common stock
Balance at the beginning of the period $75.4 $75.4 $75.4 $75.4
Balance at the end of the period 75.4 75.4 75.4 75.4
- -----------------------------------------------------------------------------
Additional paid-in capital
Balance at the beginning of the period 386.2 384.5 385.6 379.5
Stock options - 1993 - (0.2) - 4.1
Stock options exercised - tax benefit 0.2 - 0.1 -
Stock options exercised 0.8 1.0 1.5 1.7
Balance at the end of the period 387.2 385.3 387.2 385.3
- -----------------------------------------------------------------------------
Retained earnings
Balance at the beginning of
the period 1,619.0 1,551.7 1,602.0 1,680.3
Net earnings/(loss) 29.3 24.6 59.9 (90.5)
Dividends declared-common stock (7.0) (7.0) (21.0) (21.0)
ESOP dividend tax benefit received 0.2 0.2 0.6 0.7
Balance at the end of the period 1,641.5 1,569.5 1,641.5 1,569.5
- -----------------------------------------------------------------------------
Less:
Treasury stock
Balance at the beginning of
the period 1,152.1 1,146.5 1,145.5 1,147.1
Repurchase of common shares 10.3 - 17.6 -
Stock options exercised (0.8) (1.0) (1.5) (1.6)
Balance at the end of the period 1,161.6 1,145.5 1,161.6 1,145.5
- -----------------------------------------------------------------------------
Deferred compensation
Balance at the beginning of
the period 133.0 167.4 150.2 179.2
Stock options - 1993 (0.2) (0.5) (0.7) 3.8
Loan repayments from ESOP Trust - - (16.7) (16.1)
Balance at the end of the period 132.8 166.9 132.8 166.9
- -----------------------------------------------------------------------------
Total common stockholders' equity $809.7 $717.8 $809.7 $717.8
=============================================================================
* Restated for the 1993 fourth quarter adoption of FAS 112 retroactive to
01/01/93.
5
<PAGE>
Polaroid Corporation and Subsidiary Companies
Notes to Condensed Consolidated Financial Statements (Unaudited)
Basis of Presentation
- ---------------------
The condensed consolidated financial statements include the accounts of the
domestic and foreign subsidiaries, all of which are wholly owned.
Intercompany accounts and transactions are eliminated. This is an interim
unaudited report, subject to year-end audit and adjustments. The
information furnished, however, reflects all adjustments (consisting of
normal recurring accruals) which, in the opinion of Management, are
necessary for a fair statement of the results of the interim period.
Legal Proceedings
- -----------------
Certain legal proceedings to which the Company is a party are discussed in
Part II, Item 1 of this filing on Form 10-Q.
Independent Auditors' Report
- ----------------------------
The October 2,1994 and October 3,1993 condensed consolidated financial
statements included in this filing on Form 10-Q have been reviewed by KPMG
Peat Marwick LLP, independent certified public accountants, in accordance
with established professional standards and procedures for such review. The
report by KPMG Peat Marwick LLP commenting upon their review of the
condensed consolidated financial statements appears on page 7.
6
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
Polaroid Corporation
We have reviewed the condensed consolidated balance sheet of Polaroid
Corporation and subsidiaries as of October 2, 1994 and October 3, 1993, and
the related condensed consolidated statements of earnings and changes in
common stockholders' equity for the three-month and nine-month periods ended
October 2, 1994 and October 3, 1993, and the related condensed consolidated
statement of cash flows for the nine-month periods ended October 2, 1994 and
October 3, 1993. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Polaroid Corporation and
subsidiaries as of December 31, 1993, and the related consolidated
statements of earnings, cash flows and changes in common stockholders'
equity for the year then ended (not presented herein); and in our report
dated February 1, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of
December 31, 1993, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
KPMG Peat Marwick LLP
Boston, Massachusetts
October 18, 1994
7
<PAGE>
Item 2. Management's Discussion and Analysis
--------------------------------------------
of Financial Condition and Results of Operations
------------------------------------------------
Third Quarter Results
- ---------------------
Worldwide sales in the third quarter of 1994 were $576.7 million, an 8%
increase over last year's third quarter sales of $533.9 million. In the
third quarter of 1994, worldwide shipments of instant cameras rose
substantially compared to the same period last year. Worldwide shipments of
instant film increased moderately in the third quarter of 1994 compared to
the third quarter of 1993.
Total U.S. sales revenue for the 1994 third quarter increased 1% compared to
1993 third quarter sales. Instant film shipments in the U.S. in the third
quarter of 1994 were down slightly compared to the same period a year ago.
U.S. camera shipments rose moderately in the third quarter of 1994 with
lower-priced cameras accounting for a greater share of shipments than in the
third quarter of 1993, when the Company was initiating distribution of the
Captiva Camera.
International sales increased 16% for the third quarter of 1994, compared
with the same period of 1993. This increase is attributable to
substantially higher sales of instant cameras and film to developing
markets, particularly in Russia, offsetting weakness in Western Europe.
Sales in Russia accounted for 18% of the international sales in the third
quarter of 1994 compared to 2% in the third quarter of 1993. While the
Company believes that developing markets present particularly attractive
opportunities, as evidenced by the remarkable growth in the market for
instant photographic products in Russia, such markets tend to be
significantly less stable than more established markets. There can be no
assurance that developing markets will continue to produce favorable
results.
Gross margin as a percent of sales was 43% for the third quarter of both
1994 and 1993. Marketing, research, engineering and administrative expenses
for the third quarter of 1994 were $198.0 million compared to $190.1 million
in the same period of 1993. Profit from operations was $52.7 million for
the third quarter of 1994 compared to $41.3 million for the third quarter of
1993, an increase of 28%. This increase was primarily the result of a
substantial increase in sales of high margin integral film in Russia, a
reduction in manufacturing costs associated with new products and a weaker
U.S. dollar, which more than offset the increased spending in High
Resolution Imaging and Electronic Imaging Systems.
Other income was $1.0 million in the third quarter of 1994 compared to $2.2
million in the third quarter of 1993. Interest expense decreased to $10.3
million in the third quarter of 1994 from $11.2 million in the third quarter
of 1993. This decrease was the result of a reduction of total borrowings as
compared to the third quarter of 1993.
Income tax expense was $14.1 million in the 1994 third quarter compared to
$7.7 million in the 1993 third quarter. The effective tax rate for the
third quarter of 1994 was 32%, compared with 24% for the third quarter of
1993 which included a $3 million revaluation of deferred tax assets as a
result of a change in the U.S. corporate tax rate. There were net after-tax
gains of $1.5 million and $2.6 million in the third quarter of 1994 and
1993, respectively, on the translation of the balance sheet from foreign
currencies to U.S. dollars.
8
<PAGE>
Third Quarter Results (continued)
- ---------------------------------
Net earnings for the 1994 third quarter were $29.3 million, or $.62 per
common share compared with $24.6 million, or $.52 per common share for the
1993 third quarter. The 1993 third quarter net earnings and per common
share amount have been restated to include the adoption of Financial
Accounting Standards Board (FASB) Statement No. 112 "Employers' Accounting
for Postemployment Benefits" in the fourth quarter of 1993, retroactive to
January 1, 1993. Fully diluted earnings per common share were $.60 and $.51
for the third quarter of 1994 and 1993, respectively.
Nine Month Review
- -----------------
Worldwide sales for the first nine months of 1994 were $1,626.6 million, an
increase of 3% from $1,572.3 million for the first nine months of 1993.
During the first nine months of 1994, the Company recorded increased
worldwide shipments across most major product lines, including instant
cameras and film and videotapes. Conventional film sales decreased for the
first nine months of 1994 as compared with the same period of 1993. U.S.
sales increased 2% during the first nine months of 1994, compared to the
same period in 1993. International sales increased 5% in the first nine
months of 1994, compared to the same period in 1993. Sales of instant
cameras and film in Russia were 12% of international sales for the first
nine months of 1994 compared to 1% in the first nine months of 1993. This
increase more than offset the effects of the completion of the Mexican voter
registration program in the first half of 1993, and a decline in sales in
Western Europe during the first nine months of 1994.
Shipments of the Helios Medical Laser Imaging System increased substantially
during the first nine months of 1994 compared to the same period a year ago.
While the Company currently does not expect to meet its goal of shipping
several hundred units this year, it does expect to be at or near that number
in terms of committed bookings. In addition, the Company's recent surveys
of customer satisfaction with the Helios System continue to be very
encouraging. The Company believes that difficult economic conditions
surrounding the U.S. healthcare market are the primary cause of delays
in the customers' decision making process for the purchase of capital
equipment. In the fourth quarter of 1994, the Company began clinical
testing of Helios in the new 14-inch-by-17-inch format, and will demonstrate
the system at the Radiological Society of North America meeting in Chicago
in December of this year. Also, during the fourth quarter, the Company
intends to conduct initial field tests of the first in a new family of
products for the graphic arts industry, which is scheduled to be
available for sale in 1995.
Gross margin as a percent of sales was 42% for the first nine months of both
1994 and 1993. Marketing, research, engineering and administrative expenses
for the first nine months of 1994 increased to $574.2 million, compared with
$558.0 million in the first nine months of 1993. Profit from operations was
$116.4 million for the first nine months of 1994 compared to $64.1 million
for the first nine months of 1993. In the first quarter of 1993, the
Company recorded charges of $40 million for an early retirement program and
$4 million for the write-down of certain non-strategic assets. Excluding
these special charges, profit from operations for the first nine months of
1993 would have been approximately $108.1 million, compared to $116.4
million for the first nine months of 1994, an increase of 8% in 1994. This
increase was primarily the result of a substantial increase in sales of high
margin integral film in Russia and a reduction in manufacturing costs
associated with new products, which more than offset the effects of the
completion of the Mexican voter registration program in the first half of
1993, and increased spending in High Resolution Imaging and Electronic
Imaging Systems.
9
<PAGE>
Nine Month Review (continued)
- -----------------------------
Other income was $5.0 million for the first nine months of 1994 compared
with $10.3 million for the first nine months of 1993, which included the
sale of an ancillary business. Also included in other income was a $3.3
million loss in the first nine months of 1994 compared to a $.7 million gain
in the first nine months of 1993 resulting from the translation of the
balance sheet from foreign currencies to U.S. dollars. Interest expense for
the first nine months of 1994 decreased to $33.4 million from $36.2 million
in the first nine months of 1993. This decrease was the result of a
reduction of total borrowings over the period.
Income tax expense was $28.1 million in the first nine months of 1994
compared with $9.5 million in the first nine months of 1993. The increase
in tax expense was due to higher income in 1994 compared to 1993 which was
depressed as a result of the early retirement charge in 1993. The effective
tax rate was 32% for the first nine months of 1994, compared to 25% for the
same period of 1993 which included a $3 million revaluation of deferred tax
assets as a result of a change in the U.S. corporate tax rate. There was a
net after-tax gain of $3.3 million for the first nine months of 1994
compared with a net after-tax gain of $2.8 million for the first nine months
of 1993 on the translation of the balance sheet from foreign currencies
to U.S. dollars.
Net earnings for the first nine months of 1994 were $59.9 million or $1.27
per common share compared with a loss of $90.5 million or $1.94 per common
share in the first nine months of 1993. Results for the first nine months
of 1993 included one-time charges associated with the adoption of FASB
Statement No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions", and FASB Statement No. 109, "Accounting for Income Taxes".
In addition, the 1993 nine month net loss and per common share amounts have
been restated to include the adoption of FASB Statement No. 112, "Employers'
Accounting for Postemployment Benefits", in the fourth quarter of 1993,
retroactive to January 1, 1993. Excluding the one-time accounting changes
and the charge for the early retirement and other expenses, the net earnings
for the first nine months of 1993 would have been approximately $54.7
million or $1.17 per share. Fully diluted earnings per common share were
$1.26 for the first nine months of 1994 and were not disclosed for the first
nine months of 1993 because they were greater than primary earnings per
common share.
Financial Liquidity and Capital Resources
- -----------------------------------------
At October 2, 1994, the Company's cash and cash equivalents and short-term
investments amounted to $129.5 million, compared to $138.9 million at
December 31, 1993. In addition, working capital increased to $874.4 million
at October 2, 1994 from $833.6 million at December 31, 1993. The primary
source of cash for the first nine months of 1994 was profitable operations,
which was more than offset by cash used in investing and financing
activities. Capital spending during the first nine months of 1994 was $96.6
million, which exceeded depreciation expense of $89.1 million. Total
capital expenditures in 1994 are expected to be approximately $155 million.
The Company expended cash during the first nine months of 1994 to reduce
total borrowings to $689.1 million at October 2, 1994 from $741.1 million at
December 31, 1993, and to purchase treasury stock.
At October 3, 1993, cash and cash equivalents and short-term investments
were $104.6 million and working capital was $828.5 million. The increase in
the Company's liquidity position from October 3, 1993 to October 2, 1994 was
primarily attributable to cash generated from profitable operations, which
more than offset cash used by investing and financing activities. Capital
spending during the period from October 3, 1993 to October 2, 1994 was
$143.6 million, which exceeded depreciation expense of $112.8 million. The
Company expended cash during the twelve month period from October 3, 1993 to
October 2, 1994 to reduce total borrowings to $689.1 million at October 2,
1994 from $786.3 million at October 3, 1993, and to purchase treasury stock.
10
<PAGE>
Financial Liquidity and Capital Resources (continued)
- -----------------------------------------------------
The Company maintains a $150 million five-year revolving credit facility for
general corporate purposes which expires in 1999. At October 2, 1994, the
entire $150 million of borrowing capacity under this facility remained
available to meet working capital needs. Additional unused, uncommitted
lines of credit for international and U.S. operations at October 2, 1994
were approximately $195 million and $100 million, respectively.
The Company also has $100 million of unsold debt securities remaining from
its existing shelf registration, filed in January 1992, available for
general corporate purposes. The Company's total borrowing capacity is
limited by certain debt covenants.
As of November 4, 1994, approximately 4.1 million shares had been
repurchased under the Company's $150 million stock repurchase program for
approximately $117 million. The timing and amounts of any future purchases
under this program depend upon many factors, including market conditions, as
well as the Company's business and financial condition.
The Company believes that its borrowing capacity and other existing
corporate resources are adequate for at least the next twelve months to meet
working capital needs, to fund planned capital expenditures, to pursue
future growth opportunities, and to fund other corporate requirements.
Foreign Currency Exchange
- -------------------------
The Company generates a significant portion of its revenues in international
markets, which subjects its operations to the exposure of foreign currency
fluctuations. The impact of currency fluctuations can be positive or
negative in any given period. The Company's ability to counteract foreign
currency exchange movement is primarily dependent on pricing.
To minimize the adverse impact of foreign currency fluctuations on its
foreign currency-denominated net assets, the Company may engage in foreign
currency-denominated borrowings. The Company determines the aggregate
amount of such borrowings based on its forecast of the Company's net asset
position and the relative strength of the U.S. dollar as compared to foreign
currencies. These borrowings create foreign currency-denominated
liabilities that hedge the Company's foreign currency-denominated net
assets. Upon receipt of the borrowed foreign currency-denominated funds,
the Company converts those funds to U.S. dollars at the spot exchange rate.
Exchange gains and losses on the foreign currency-denominated borrowings are
recognized in earnings as incurred. At October 2, 1994 and October 3, 1993,
the amount of the Company's outstanding short-term foreign currency-
denominated borrowings were $70.6 million and $112.6 million, respectively.
From time to time, the Company may use over-the-counter foreign exchange
swaps to reduce the interest expense incurred through the borrowings
described above and to replace the hedge created by those borrowings. When
a foreign exchange swap is used to replace a hedge, the currency received by
the Company in the spot market component of the foreign exchange swap is
used to close out the borrowings and simultaneously, the hedge is
reinstituted through a forward contract (not exceeding six months). The net
interest value of the forward contract is amortized to earnings over the
life of the contract. Exchange gains or losses on the foreign currency
obligation component of the forward contract are recognized in earnings as
incurred in each accounting period. The aggregate face value of these short-
term foreign exchange swap contracts outstanding at October 2, 1994 and
October 3, 1993, were $58.7 million and $39.2 million, respectively.
11
<PAGE>
Foreign Currency Exchange(continued)
- ------------------------------------
When the Company may not have sufficient flexibility to change prices, the
Company may, from time to time, also purchase U.S. dollar call options. The
term of these call options typically does not exceed one year. The
Company's purchase of call options allows it to protect a portion of its
expected foreign currency-denominated revenues from adverse foreign currency
exchange movement. The Company does not buy options which can be exercised
prior to the expiration date, nor does it write options. The Company defers
premiums and any gains for its call options activity until the option
exercise date. At October 2, 1994 and October 3, 1993, option contracts
with a face value of $27.6 million and $7.0 million were outstanding,
respectively.
The Company maintains a Monetary Control Center (the MCC), which operates
under written policies and procedures defining day-to-day operating
guidelines, including exposure limits, to contract for the foreign currency-
denominated borrowings, foreign exchange swaps and call options described
above. The MCC is subject to random independent audits and reports to a
supervisory committee comprised of members of the Company's management. The
MCC publishes monthly reports to the Company's management detailing the
foreign currency activities it has engaged in for the prior month.
Impact of Inflation
- -------------------
Inflation continues to be a factor in many countries in which the Company
does business. The Company's pricing strategy has been sufficient to offset
inflation and normal cost increases. Therefore, the overall inflationary
impact on earnings has been immaterial.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. - Legal Proceedings
- ---------------------------
The Company, together with other parties, is currently designated a
Potentially Responsible Party (PRP) by the United States Environmental
Protection Agency (EPA) and certain state agencies with respect to the
response costs for environmental remediation at several sites identified
below. The Company believes that its potential liability with respect to
any site and with respect to all sites in the aggregate will not have a
materially adverse effect on the financial condition or operating results of
the Company.
Due to a wide range of estimates with regard to response costs at those
sites and various other uncertainties, the Company cannot firmly establish
its ultimate liability concerning those sites. In each case where the
Company is able to determine the likely exposure, such amount has been
included in the Company's reserve for environmental liabilities. Where a
range of comparably likely exposures exists, the Company has included in its
reserve the minimum amount of the range. The Company's aggregate reserve
for these liabilities as of October 2, 1994 was $4.4 million, the majority
of which the Company currently expects to be payable over the next two to
three years. The Company's analysis of data which underlies its
establishment of this reserve is undertaken on a quarterly basis. The
reserve for such liability does not provide for associated litigation costs,
which, if any, are expected to be inconsequential in comparison with the
amount of the reserve. The Company will continue to accrue in its reserve
appropriate amounts from time to time as circumstances warrant. This
reserve does not take into account potential recoveries from third parties.
The Company reviews its recurring internal expenditures on environmental
matters, as well as capital expenditures related to environmental
compliance, on a monthly basis, and reviews its third-party expenditures on
environmental matters on a quarterly basis. The Company believes that these
expenditures have not had and will not have a materially adverse effect on
the financial condition or operating results of the Company.
Federal law provides that PRPs may be held jointly and severally liable for
response costs. Based on current estimates of those costs and after
consideration of the potential estimated liabilities of other PRPs with
respect to those sites and their respective estimated levels of financial
responsibility, the Company does not believe its potential liability will be
materially enlarged by the fact that liability is joint and several.
The Company has been advised of the intention of the EPA to seek recovery
under the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) from it and other PRPs of response costs related to the sites
of: Bridgeport Rental and Oil Services in Logan Township, New Jersey:
Sealand Restoration in Lisbon, New York; Solvents Recovery Service of New
England in Southington, Connecticut; Ironhorse Park in Billerica,
Massachusetts; Old Southington Landfill in Southington, Connecticut; and
Jack's Creek/Sitkin Smelting in Mifflin County, Pennsylvania; to which were
allegedly delivered hazardous substances generated or transported by or
otherwise related to the Company and those other PRPs.
In addition, the Company is involved in the following legal proceedings
relating to the designated sites:
In 1989, the United States of America and the Commonwealth of Massachusetts
commenced actions against the Company and other PRPs in the United States
District Court for Massachusetts. The plaintiffs asked for recovery under
CERCLA of response costs related to the Charles George Reclamation Trust
Landfill in Tyngsboro, Massachusetts. The Company has entered into a
consent decree to resolve the issues raised in these actions. The consent
decree was entered by the court on May 24, 1993. An appeal by non-
consenting parties was filed and the district court decision was affirmed by
the Court of Appeals for the First Circuit on September 13, 1994.
13
<PAGE>
Legal Proceedings (continued)
- -----------------
In 1990, an Administrative Order was issued by the EPA under Section 106 of
CERCLA ordering the Company and other PRPs to perform remediation activities
at the Landfill and Resource Recovery, Inc. site in North Smithfield, Rhode
Island. The Company and other PRPs are presently performing remediation
activities at the site.
Also in 1990, Transtech Industries, Inc., et al. commenced actions against
the Company and other entities in the United States District Court for New
Jersey. The plaintiffs ask for contribution toward response costs they have
paid, and will pay, for remediation activities at the Kin-Buc Landfill in
Edison, New Jersey. The Company has filed its answer to the complaint.
In 1993, the United States of America commenced an action against the
Company and other PRPs in the United States District Court for West
Virginia. The Plaintiff asks for recovery under CERCLA of response costs
related to the Artel Chemical Corporation site in Nitro, West Virginia. The
Company has filed its answer to the complaint.
Also in 1993, Duffy Brothers Construction Company, Inc., et al., commenced
an action against the Company and other entities in the United States
District Court for Massachusetts. The plaintiffs ask for contribution
toward response costs they have paid, and will pay, for remediation
activities at property owned by them and located at Waverly Oaks Park in
Waltham, Massachusetts. The Company has filed its answer to the complaint.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8 - K
- -------------------------------------------
(a) Exhibits:
(11) Computation of earnings per share.
(15) Letter from KPMG Peat Marwick LLP re unaudited interim
financial information.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K during the quarter ended
October 2, 1994.
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
POLAROID CORPORATION
-------------------------------------
(Registrant)
November 14, 1994 William J. O'Neill, Jr.
----------------- ------------------------------------
William J. O'Neill, Jr.
Executive Vice President and Chief
Financial Officer
16
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
THIRD QUARTER, 1994
PRIMARY COMPUTATION
Net earnings per statement of earnings $ 29.3
======
Weighted average number of common
stock equivalents .6
Weighted average number of common
shares outstanding 46.5
------
47.1
======
Primary earnings per common share $ .62
======
-17-
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
THIRD QUARTER, 1994
FULLY DILUTED COMPUTATION
Net earnings per statement of earnings $ 29.3
Add: effect of after-tax interest expense
on convertible debentures 1.7
------
Net earnings, as adjusted $ 31.0
======
Weighted average number of common
shares outstanding 46.5
Weighted average number of common
stock equivalents .6
Add: effect of converting 8% debentures
into common stock 4.3 (A)
------
51.4
======
Fully diluted earnings per common share $ .60
======
(A) Assumes conversion of convertible debentures at a price of $32.50 per
common share in accordance with the convertible debenture exchange agreement.
-18-
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
NINE MONTHS ENDED OCTOBER 2, 1994
PRIMARY COMPUTATION
Net earnings per statement of earnings $ 59.9
======
Weighted average number of common
stock equivalents .4
Weighted average number of common
shares outstanding 46.7
------
47.1
======
Primary earnings per common share $ 1.27
======
-19-
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
NINE MONTHS ENDED OCTOBER 2, 1994
FULLY DILUTED COMPUTATION
Net earnings per statement of earnings $ 59.9
Add: effect of after-tax interest expense
on convertible debentures 5.1
--------
Net earnings, as adjusted $ 65.0
========
Weighted average number of common
shares outstanding 46.7
Weighted average number of common
stock equivalents .6
Add: effect of converting 8% debentures
into common stock 4.3 (A)
--------
51.6
========
Fully diluted earnings per common share $ 1.26
========
(A) Assumes conversion of convertible debentures at a price of $32.50 per
common share in accordance with the convertible debenture exchange agreement.
-20-
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
THIRD QUARTER, 1993
PRIMARY COMPUTATION
Net earnings per statement of earnings $ 24.6 (A)
======
Weighted average number of common
stock equivalents .6
Weighted average number of common
shares outstanding 46.8
------
47.4
======
Primary earnings per common share $ .52 (A)
======
(A) These amounts have been restated to reflect the adoption of Financial
Accounting Standards Board Statement No. 112 "Accounting for Postemployment
Benefits" in the fourth quarter of 1993, retroactive to January 1, 1993.
-21-
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
THIRD QUARTER, 1993
FULLY DILUTED COMPUTATION
Net earnings per statement of earnings $ 24.6 (B)
Add: effect of after-tax interest expense
on convertible debentures 1.7
------
Net earnings, as adjusted $ 26.3
======
Weighted average number of common
shares outstanding used for primary computation 46.8
Weighted average number of common
stock equivalents .6
Add: effect of converting 8% debentures
into common stock 4.3 (A)
------
Weighted average number of common shares
outstanding, as adjusted 51.7
======
Fully diluted earnings per common share $ .51 (B)
======
(A) Assumes conversion of convertible debentures at a price of $32.50 per
common share in accordance with the convertible debenture exchange agreement.
(B) These amounts have been restated to reflect the adoption of Financial
Accounting Standards Board Statement No. 112 "Accounting for Postemployment
Benefits" in the fourth quarter of 1993, retroactive to January 1, 1993.
-22-
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
NINE MONTHS ENDED OCTOBER 3, 1993
PRIMARY COMPUTATION
Earnings before cumulative effect of changes in
accounting principle $ 28.7 (A)
Cumulative effect to January 1, 1993 of changes
in accounting principle for:
FAS 106 "Employers Accounting for Post-
retirement Benefits Other Than Pensions" net
of tax of $85.0 million (132.9)
FAS 109 "Accounting for Income Taxes" 33.6
FAS 112 "Employers Accounting for Postemployment
Benefits" net of tax of $12.7 million (19.9)
-------
Net loss per statement of earnings $(90.5)
=======
Weighted average number of common shares outstanding 46.7
=======
Primary loss per common share $(1.94) (A)
=======
(A) These amounts have been restated to reflect the adoption of Financial
Accounting Standards Board No. 112 "Accounting for Postemployment Benefits"
in the fourth quarter of 1993, retroactive to January 1, 1993.
-23-
<PAGE>
POLAROID CORPORATION
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
NINE MONTHS ENDED OCTOBER 3, 1993
FULLY DILUTED COMPUTATION
Earnings before cumulative effect of changes
in accounting principles $ 28.7 (B)
Cumulative effect to January 1, 1993 of changes
in accounting principle for:
FAS 106 "Employers Accounting for Post-
retirement Benefits Other Than Pensions" net
of tax of $85.0 million (132.9)
FAS 109 "Accounting for Income Taxes" 33.6
FAS 112 "Employers Accounting for Postemployment
Benefits" net of tax of $12.7 million (19.9)
-------
Net loss per statement of earnings (90.5)
Add: effect of after-tax interest expense
on convertible debentures 5.1
-------
Net loss, as adjusted $(85.4)
=======
Weighted average number of common
shares outstanding used for primary computation 46.7
Weighted average number of common
stock equivalents .5
Add: effect of converting 8% debentures
into common stock 4.3 (A)
-------
Weighted average number of common shares
outstanding, as adjusted 51.5
=======
Fully diluted loss per common share $(1.66) (B)(C)
=======
(A) Assumes conversion of convertible debentures at a price of $32.50 per
common share in accordance with the convertible debenture exchange agreement.
(B) These amounts have been restated to reflect the adoption of Financial
Accounting Standards Board No. 112 "Accounting for Postemployment Benefits"
in the fourth quarter of 1993, retroactive to January 1, 1993.
(C) This computation is submitted as an exhibit to the Company's Form 10-Q
in accordance with Regulation S-K item 601(b)(11), although presenting
the computation is not in accord with paragraph 40 of APB Opinion 15 because
the computation produces an antidilutive result.
-24-
Exhibit 15
The Board of Directors
Polaroid Corporation
Re: Registration Statements No. 33-36384, No. 33-44661 and No. 33-51173
Ladies and Gentlemen:
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated October 18, 1994,
related to our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is
not considered a part of a registration statement prepared or certified
by an accountant or a report prepared or certified by an accountant
within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
KPMG Peat Marwick LLP
Boston, Massachusetts
November 14, 1994
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
S.E.C. Form 10-Q for the quarterly period ended October 2, 1994 and
is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> OCT-02-1994
<CASH> 78,900
<SECURITIES> 50,600
<RECEIVABLES> 561,800
<ALLOWANCES> (25,700)
<INVENTORY> 594,500
<CURRENT-ASSETS> 1,412,600
<PP&E> 1,993,400
<DEPRECIATION> (1,269,100)
<TOTAL-ASSETS> 2,217,400
<CURRENT-LIABILITIES> 538,200
<BONDS> 584,300
<COMMON> 75,400
0
0
<OTHER-SE> 387,200
<TOTAL-LIABILITY-AND-EQUITY> 2,217,400
<SALES> 1,626,600
<TOTAL-REVENUES> 1,626,600
<CGS> 936,000
<TOTAL-COSTS> 1,510,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,800
<INTEREST-EXPENSE> 33,400
<INCOME-PRETAX> 88,000
<INCOME-TAX> 28,100
<INCOME-CONTINUING> 59,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,900
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.26
</TABLE>
