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 July 2, 1995
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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 _________
Commission File Number 1-4085
POLAROID CORPORATION
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 04-1734655
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(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 of Common Stock, $1 par value, outstanding as of July 21, 1995:
45,188,623 shares
________________________________________________________________________________
This document contains 25 pages.
Exhibit index appears on page 14
________________________________________________________________________________
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statement of Earnings (Unaudited)
Periods ended JULY 2, 1995 and JULY 3, 1994
(In millions, except per share data)
Second Quarter Six Months
1995 1994 1995 1994
---- ---- ---- ----
Net sales:
United States $271.7 $305.8 $421.9 $517.2
International 300.8 281.5 560.2 532.7
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Total net sales 572.5 587.3 982.1 1,049.9
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Cost of sales 321.3 331.5 579.0 610.0
Marketing, research, engineering and
administrative expenses 210.1 199.0 393.6 376.2
Restructuring charge - - 77.0 -
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Total costs 531.4 530.5 1,049.6 986.2
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Profit/(loss) from operations 41.1 56.8 (67.5) 63.7
Other income 4.4 0.2 9.0 4.0
Interest expense 13.4 12.5 26.1 23.1
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Earnings/(loss) before income taxes 32.1 44.5 (84.6) 44.6
Federal, state and foreign income
tax expense/(credit) 9.2 15.3 (31.7) 14.0
--------------------------------------------------------------------------------
Net earnings/(loss) $22.9 $29.2 ($52.9) $30.6
================================================================================
Primary earnings/(loss)
per common share $0.50 $0.62 ($1.17) $0.65
Fully diluted earnings
per common share $0.49 $0.60 * *
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Cash dividends per common share $0.15 $0.15 $0.30 $0.30
Weighted average common shares used for primary
earnings per share
calculation (in thousands) 45,878 ** 47,032 ** 45,404 ** 47,152 **
Common shares outstanding at
end of period (in thousands) 45,183 46,629 45,183 46,629
================================================================================
* 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, as appropriate.
2
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Balance Sheet
(In millions)
(Unaudited) (Unaudited)
July 2, December 31, July 3,
Assets 1995 1994 1994
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Current assets
Cash and cash equivalents $45.3 $143.3 $108.4
Short-term investments 15.2 85.6 22.3
Receivables 494.1 541.0 535.3
Inventories:
Raw materials 130.3 112.4 118.4
Work-in-process 266.5 231.2 250.2
Finished goods 318.0 233.8 241.2
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Total inventories 714.8 577.4 609.8
Prepaid expenses and other assets 176.1 141.4 157.2
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Total current assets 1,445.5 1,488.7 1,433.0
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Property, plant and equipment
Gross property, plant and equipment 2,094.5 2,043.4 1,961.7
Less accumulated depreciation 1,338.7 1,296.1 1,241.6
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Net property, plant and equipment 755.8 747.3 720.1
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Deferred tax assets 82.8 80.7 80.5
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Total assets $2,284.1 $2,316.7 $2,233.6
===============================================================================
Liabilities and stockholders' equity
-------------------------------------------------------------------------------
Current liabilities
Short-term debt $190.6 $117.1 $126.0
Current portion of long-term debt 37.8 35.9 34.2
Payables and accruals 267.3 275.7 253.3
Compensation and benefits 124.6 121.4 110.8
Federal, state and foreign income taxes 30.4 51.8 52.0
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Total current liabilities 650.7 601.9 576.3
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Long-term debt 546.9 566.0 584.2
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Accrued postretirement benefits 256.6 247.2 240.7
Accrued postemployment benefits 40.9 37.2 36.9
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Common stockholders' equity
Common stock, $1 par value 75.4 75.4 75.4
Additional paid-in capital 391.8 387.2 386.2
Retained earnings 1,625.9 1,692.1 1,619.0
Less: Treasury stock, at cost 1,206.3 1,174.5 1,152.1
Deferred compensation 97.8 115.8 133.0
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Total common stockholders' equity 789.0 864.4 795.5
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Total liabilities and stockholders' equity $2,284.1 $2,316.7 $2,233.6
===============================================================================
3
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statement of Cash Flows
Six Months Ended July 2, 1995 and July 3, 1994 (Unaudited)
(In millions)
Cash flows from operating activities 1995 1994
----------------------------------------------------------------------------
Net earnings/(loss) ($52.9) $30.6
Depreciation of property, plant and equipment 67.5 60.0
Decrease in receivables 74.7 46.5
Increase in inventories (137.3) (31.5)
Increase in prepaids and other assets (31.2) (16.4)
Decrease in payables and accruals (48.1) (6.0)
Decrease in compensation and benefits (1.5) (14.3)
Decrease in federal, state and foreign
income taxes payable (21.7) (29.3)
Other non cash items 53.7 41.0
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Net cash provided/(used) by operating activities (96.8) 80.6
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Cash flows from investing activities
-----------------------------------------------------------------------------
Decrease in short-term investments 70.3 2.7
Additions to property, plant and equipment (79.0) (62.2)
Proceeds from sale of fixed assets 1.6 0.1
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Net cash used by investing activities (7.1) (59.4)
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Cash flows from financing activities
-----------------------------------------------------------------------------
Net increase in short-term debt
(maturities 90 days or less) 64.4 6.2
Short-term debt having maturities more than 90 days
Proceeds - 8.9
Payments - (6.1)
Repayments of long-term debt (17.5) (16.7)
Cash dividends paid (13.6) (14.0)
Stock options exercised 7.3 1.4
Purchase of treasury stock (35.3) (7.3)
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Net cash provided/(used) by financing activities 5.3 (27.6)
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Effect of exchange rate changes on cash 0.6 0.4
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Net decrease in cash and cash equivalents (98.0) (6.0)
Cash and equivalents at beginning of period 143.3 114.4
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Cash and cash equivalents at end of period $45.3 $108.4
=============================================================================
4
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statement of Changes in Common Stockholders' Equity
Periods Ended July 2, 1995 and July 3, 1994
(Unaudited)
(In millions)
Second Quarter Six Months
1995 1994 1995 1994
------- ------- ------ ------
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 387.6 385.8 387.2 385.6
Stock options exercised - tax benefit 1.0 (0.1) 1.0 (0.1)
Stock options exercised 3.2 0.5 3.6 0.7
------ ------- ------- ------
Balance at the end of the period 391.8 386.2 391.8 386.2
----------------- ------------------------------------------------------------
Retained earnings
Balance at the beginning
of the period 1,609.6 1,596.6 1,692.1 1,602.0
Net earnings/(loss) 22.9 29.2 (52.9) 30.6
Dividends declared-common stock (6.7) (7.0) (13.6) (14.0)
ESOP dividend tax benefit received 0.1 0.2 0.3 0.4
------- ------- ------- ------
Balance at the end of the period 1,625.9 1,619.0 1,625.9 1,619.0
-------------------------------------------------------------------------------
Less:
Treasury stock
Balance at the beginning of
the period 1,197.9 1,145.3 1,174.5 1,145.5
Repurchase of common shares 11.5 7.3 35.3 7.3
Stock options exercised (3.1) (0.5) (3.5) (0.7)
-------- ------- -------- -------
Balance at the end of the period 1,206.3 1,152.1 1,206.3 1,152.1
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Deferred compensation
Balance at the beginning of the period 115.5 150.0 115.8 150.2
Stock options - 1993 (0.2) (0.3) (0.5) (0.5)
Loan repayment from ESOP Trust (17.5) (16.7) (17.5) (16.7)
------ ------ ----- -------
Balance at the end of the period 97.8 133.0 97.8 133.0
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Total common stockholders' equity $789.0 $795.5 $789.0 $795.5
==============================================================================
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
Company's domestic and foreign subsidiaries, all of which are either wholly
owned or majority 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 presentation of the results of the interim period.
Restructuring Charge
--------------------
In the first quarter of 1995, the Company implemented a restructuring plan which
resulted in a pre-tax charge of $77 million. The Company offered an early
retirement program to certain qualified employees and a voluntary severance
program to all employees, both of which were open from February 13, 1995 to
March 31, 1995. As a result of these programs, approximately 930 employees
terminated or will terminate their employment. The pre-tax costs related to the
voluntary severance program were approximately $56 million. Additionally,
approximately $18 million represents enhanced retirement benefits provided under
the early retirement program that will be funded from the Company's pension
plans, and therefore has been reflected as a non-cash item on the Company's
statement of cash flows. The functions of the terminating employees are as
follows:
U.S. Non- Total
U.S.
--- --- ---
Manufacturing 442 118 560
Marketing, research,
engineering and administrative 323 47 370
--- --- ---
Total 765 165 930
=== === ===
By the end of the second quarter of 1995, 726 of these terminations and $35
million of related cash severance payments were completed. Approximately $6
million of additional cash severance payments are expected to be paid in each of
the third and fourth quarters of 1995 with approximately $9 million expected to
be paid in the first quarter of 1996. The remainder of the restructuring charge
consisted of a pre-tax charge of approximately $3 million for exit costs related
to the shutdown of certain facilities.
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 July 2, 1995 and July 3, 1994 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 July 2, 1995 and July 3, 1994, and the
related condensed consolidated statements of earnings, cash flows and changes in
common stockholders' equity for the three-month and six-month periods ended July
2, 1995 and July 3, 1994. 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, 1994, 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 January 31, 1995, 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, 1994, 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
July 18, 1995
7
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
-------------------------------------------------
Second Quarter Results
----------------------
Worldwide sales of Polaroid Corporation and its subsidiaries decreased 3% to
$572.5 million in the second quarter of 1995 compared to sales of $587.3 million
in the second quarter of 1994. In the second quarter of 1995, worldwide
shipments of instant cameras decreased substantially and worldwide shipments of
instant film decreased slightly compared to the same period last year. As
indicated in a June 27, 1995 letter to stockholders, the decrease in sales
mainly reflected the impact of the Company's dealer inventory adjustment
program, which began in the first quarter of 1995. The negative impact of
this program was greater than management had anticipated in both the first and
second quarters of 1995.
The focus of the dealer inventory adjustment program is to enable the Company to
exercise better control over its distribution channels, strengthen retail sales
by increasing consumer promotions, and sharply reduce the "gray market" for
Polaroid products. In connection with the dealer inventory adjustment program,
the Company, with participating dealers, is focusing its advertising and
promotions on consumers of its cameras and film. This dealer inventory
adjustment process is expected to be completed by the end of 1995
and to enhance profitability in subsequent years.
In the second quarter of 1995, sales in the United States were $271.7 million, a
decrease of 11% compared with $305.8 million in the second quarter of 1994.
U.S. shipments of instant cameras and film in the second quarter of 1995 were
significantly lower than in the second quarter of 1994. Data derived from
independent sources indicate that U.S. retail sales by businesses and consumers
of instant integral film rose slightly in the second quarter of 1995 compared to
the second quarter of 1994, while instant camera sales were down moderately.
International sales increased 7% to $300.8 million in the second quarter of 1995
from $281.5 million in the same period a year ago. In emerging markets,
especially Russia, sales of instant cameras and instant film in the second
quarter of 1995 increased substantially compared to the second quarter of 1994.
The effect of currency translation on international sales was somewhat
favorable. These increases were offset partly by decreased unit shipments of
instant cameras and instant film in Japan, where the Company has switched to
direct distribution to dealers, and in Germany, where the dealer inventory
adjustment program is having a negative impact. Sales in Russia accounted for
12% of the international sales in the second quarter of 1995 compared to 8% in
the second quarter of 1994. While the Company believes that emerging markets
present particularly attractive opportunities, such markets tend to be
considerably less stable than more established markets. There can be no
assurance that emerging markets will continue to produce favorable results.
Gross margins as a percent of sales were 44% for the second quarter of both 1995
and 1994. Marketing, research, engineering and administrative expenses for the
second quarter of 1995 were $210.1 million compared to $199.0 million in the
same period of 1994. Profit from operations for the second quarter of 1995 was
$41.1 million compared to $56.8 million in the second quarter of 1994. The 1995
second quarter profit from operations was impacted by volume-related effects of
the dealer inventory adjustment program and increased marketing expenses in
emerging markets and for the new graphic imaging business.
8
<PAGE>
Second Quarter Results (continued)
----------------------------------
Other income was $4.4 million in the second quarter of 1995 compared with $0.2
million in the second quarter of 1994. Included in other income was a foreign
currency gain of $0.3 million from balance sheet translations in the second
quarter of 1995 compared to a foreign currency loss of $1.8 million in the same
period last year. Interest expense increased to $13.4 million in the second
quarter of 1995 from $12.5 million in the second quarter of 1994 primarily as a
result of lower amounts of interest capitalized on qualifying assets.
Income tax expense was $9.2 million in the 1995 second quarter compared to $15.3
million in the 1994 second quarter. The effective tax rate for the second
quarter of 1995 was 29%, compared with 34% for the second quarter of 1994. The
net after-tax foreign currency gain from balance sheet translation amounted to
$2.0 million and $1.4 million in the second quarter of 1995 and 1994,
respectively.
Net earnings for the second quarter of 1995 were $22.9 million compared to $29.2
million in the same period of 1994. Primary earnings per common share were
$0.50 for the second quarter of 1995 compared to $0.62 in the same period a year
ago. Fully diluted earnings per common share were $0.49 and $0.60 in the second
quarter of 1995 and 1994, respectively.
Six Month Review
----------------
Worldwide sales for the first six months of 1995 decreased 6% to $982.1 million
from $1.05 billion for the first six months of 1994, primarily reflecting the
effects of the Company's dealer inventory adjustment program initiated in the
first quarter of 1995. In the first half of 1995, worldwide shipments of instant
cameras decreased substantially and worldwide shipments of instant film
decreased moderately compared to the same period last year. U.S. sales
decreased 18% during the first six months of 1995 compared to the same period in
1994. In the first half of 1995, instant camera and film shipments in the U.S.
were substantially lower than in the first half of 1994. International sales
increased 5% in the first six months of 1995, compared to the same period in
1994. Sales of instant cameras and film in Russia were 13% of international
sales for the first six months of 1995 compared to 9% in the first six months of
1994.
Gross margin as a percent of sales was 41% for the first six months of 1995 and
42% for the first six months of 1994. In the first half of 1995, the gross
margin was impacted by volume-related effects of the dealer inventory adjustment
program. The 1994 first half gross margin was affected by planned costs
associated with the start-up of the Company's major new coating facility and the
manufacturing scale-up of the Helios 810 Medical Laser Imaging System.
Marketing, research, engineering and administrative expenses for the first six
months of 1995 increased to $393.6 million compared to $376.2 million in the
first six months of 1994. This increase primarily reflects increased marketing
expenses in emerging markets and for the new graphic imaging business.
As previously reported, in the first quarter of 1995 the Company implemented a
restructuring plan which resulted in a pre-tax charge of $77 million. The
Company offered an early retirement program to certain qualified employees and a
voluntary severance program to all employees, both of which were open from
February 13, 1995 to March 31, 1995. As a result of these programs,
approximately 930 employees terminated or will terminate their employment. The
pre-tax costs related to the voluntary severance program were approximately $56
million. Additionally, approximately $18 million represents enhanced retirement
benefits provided under the early retirement program that will be funded from
the Company's pension plans, and therefore has been reflected as a non-cash item
on the Company's statement of cash flows.
9
<PAGE>
Six Month Review (continued)
----------------------------
By the end of the second quarter of 1995, 726 of these terminations and $35
million of related cash severance payments were completed. Approximately $6
million of additional cash severance payments are expected to be paid in each of
the third and fourth quarters of 1995 with approximately $9 million expected to
be paid in the first quarter of 1996. The savings from the severance and early
retirement programs are expected to be approximately $46 million on an
annualized basis,with $25 million expected to be realized in 1995. The
remainder of the restructuring charge consisted of a pre-tax charge of
approximately $3 million for exit costs related to the shutdown of certain
facilities
The loss from operations for the first half of 1995 was $67.5 million compared
to a profit from operations of $63.7 million for the first half of 1994. The
1995 first half loss from operations included a $77.0 million first quarter
restructuring charge and was also impacted by volume-related effects of the
dealer inventory adjustment program and increased marketing expenses in emerging
markets and for the new graphic imaging business.
Other income was $9.0 million for the first six months of 1995 compared to $4.0
million for the first six months of 1994. Included in other income was a
foreign currency loss of $3.4 million from balance sheet translation in the
first half of 1994. The Company did not incur any foreign currency gain/loss
from balance sheet translation in the first half of 1995. Interest expense
increased to $26.1 million in the first six months of 1995 from $23.1 million in
the same period in 1994 primarily as a result of lower amounts of interest
capitalized on qualifying assets.
The pre-tax loss of $84.6 million for the first six months of 1995 generated a
tax credit of $31.7 million. Income tax expense for the first six months of
1994 was $14.0 million, resulting in an effective tax rate of 31%. The net
after-tax foreign currency gain from balance sheet translation amounted to $2.1
million and $1.8 million in the first half of 1995 and 1994, respectively.
The net loss for the first six months of 1995 was $52.9 million or $1.17 per
common share compared with net earnings of $30.6 million or $.65 per common
share for the first half of 1994. Excluding the restructuring charge, the net
loss per common share would have been $.06 for the first half of 1995.
Financial Liquidity and Capital Resources
-----------------------------------------
At July 2, 1995, the Company's cash and cash equivalents and short-term
investments amounted to $60.5 million, compared with $228.9 million at December
31, 1994. In addition, working capital decreased to $794.8 million at July 2,
1995 from $886.8 million at December 31, 1994. Net cash used by operating
activities of $96.8 million during the first six months of 1995 was impacted by
an increase in inventories partly offset by a decrease in receivables, which
were primarily attributable to the dealer inventory adjustment program. Cash
payments of $35 million were made under the Company's 1995 severance program in
the first half of 1995. Approximately $12 million of additional cash severance
payments are expected to be paid in the second half of 1995 with approximately
$9 million expected to be paid in the first quarter of 1996. During the first
six months of 1995, capital spending was $79.0 million and depreciation expense
was $67.5 million. Total capital expenditures in 1995 are expected to be
approximately $165 million. The Company expended cash during the first six
months of 1995 to purchase $35.3 million of treasury stock and to pay dividends
to common stockholders.
10
<PAGE>
Financial Liquidity and Capital Resources (continued)
-----------------------------------------------------
At July 3, 1994, cash and cash equivalents and short-term investments were
$130.7 million and working capital was $856.7 million. During the period from
July 3, 1994 to July 2, 1995, cash used by investing and financing activities
more than offset cash provided by operating activities. Cash provided by
operating activities was affected by an increase in inventories partly offset by
a decrease in receivables, which were primarily attributable to the dealer
inventory adjustment program. Cash payments of $35 million were made under the
Company's 1995 severance program in the first half of 1995. Approximately $12
million of additional cash severance payments are expected to be paid in the
second half of 1995 with approximately $9 million expected to be paid in the
first quarter of 1996. Capital spending during the period from July 3, 1994 to
July 2, 1995 was $163.5 million, which exceeded depreciation expense of $125.7
million. The Company expended cash during the twelve month period from July 3,
1994 to July 2, 1995 to reduce borrowings, to purchase treasury stock, and to
pay dividends to common stockholders.
The Company maintains a five year $150 million domestic working capital line of
credit for general corporate purposes which expires in 1999. As of July 2,
1995, the entire $150 million of borrowing capacity under this facility remained
available to meet working capital needs. Additional unused, uncommitted lines
of credit for U.S. and international operations were $95 million and $128
million, respectively, at July 2, 1995. 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.
In the second quarter of 1995, the Company repurchased 327,304 shares for $11.5
million. As of July 2, 1995, the unexpended balance under the Company's $100
million common stock repurchase program, which was approved by the Board of
Directors in January 1995, was $90.1 million. The timing and amounts of any
future purchases under these programs 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 substantial 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 July
2, 1995 and July 3, 1994, the amount of the Company's outstanding short-term
foreign currency-denominated borrowings were $159.5 million and $118.5 million,
respectively.
11
<PAGE>
Foreign Currency Exchange (continued)
-------------------------------------
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 foreign exchange swap 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 Company does not enter into foreign
exchange swaps for trading purposes. The aggregate notional value of these
short-term foreign exchange swap contracts outstanding at July 2, 1995 and July
3, 1994 was $17.0 million and $29.0 million, respectively.
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 call options which can be exercised prior to the
expiration date, nor does it write options or purchase call options for trading
purposes. The Company defers premiums and any gains for its call options
activity until the option exercise date. At July 2, 1995, option contracts with
a notional value of $91.4 million were outstanding. No option contracts were
outstanding at July 3, 1994.
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 offset to a considerable degree
inflation and normal cost increases. 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 and
certain state agencies with respect to the response costs for environmental
remediation at several sites. 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 these sites
and various other uncertainties, the Company cannot firmly establish its
ultimate liability concerning these sites. In each case in which 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
July 2, 1995 was $5.2 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 such amounts as management believes appropriate 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 the liability is joint and several.
The Company is involved in various other legal proceedings and claims arising in
the ordinary course of business. Management believes that the disposition of
these matters will not have a materially adverse effect on the financial
condition or results of operations of the Company.
13
<PAGE>
Item 4. Submission of Matters to Vote of Security Holders
----------------------------------------------------------
On May 16, 1995 the Company held its annual meeting of stockholders. The owners
of approximately 90% of the shares of common stock outstanding were present
either in person or by proxy. The following are the voting results for the
meeting:
- the stockholders ratified the Board's appointment of KPMG Peat Marwick LLP,
Independent Public Accountants, as the Company's auditors with 39,821,621
votes in favor, 555,507 votes against, 282,484 abstentions, and no broker
nonvotes.
- the stockholder proposal to amend procedures for tabulating votes on
proposals submitted at stockholder's meetings was defeated with 28,387,815
votes against, 7,791,844 votes in favor, 1,075,998 abstentions, and
3,403,955 broker nonvotes.
- the stockholders elected the nominated slate of directors to hold office
until the next annual meeting with the following votes:
For Withheld
--------- ----------
I. MacAllister Booth 38,902,247 1,757,365
Yen-Tsai Feng 38,850,967 1,808,645
Ralph E. Gomory 39,112,167 1,547,445
Frank S. Jones 39,035,505 1,624,107
John W. Loose 39,088,456 1,571,156
James D. Mahoney 39,080,537 1,579,075
Albin F. Moschner 39,076,554 1,583,058
Henry Necarsulmer 38,923,074 1,736,538
Kenneth H. Olsen 39,003,084 1,656,528
Lester Pollack 38,240,455 2,419,157
Charles P. Slichter 38,993,442 1,666,170
Ralph Z. Sorenson 39,073,274 1,586,338
Delbert C. Staley 39,085,084 1,574,528
Alfred M. Zeien 38,292,655 2,366,957
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
July 2, 1995.
14
<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)
August 15, 1995 William J. O'Neill, Jr.
-----------------------
William J. O'Neill, Jr.
Executive Vice President and Chief Financial
Officer
15
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
-----------------------------------------------
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
SECOND QUARTER, 1995
PRIMARY COMPUTATION
-------------------
Net earnings per statement of earnings $ 22.9
========
Weighted average number of common
shares outstanding 45.2
Weighted average number of common
stock equivalents .7
--------
Weighted average number of common
shares, as adjusted 45.9
========
Primary earnings per common share $ .50
========
16
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
SECOND QUARTER, 1995
FULLY DILUTED COMPUTATION
-------------------------
Net earnings per statement of earnings $ 22.9
Add: effect of elimination of after-tax interest expense
on $140 million 8% convertible debentures 1.7
------
Net earnings, as adjusted $ 24.6
======
Weighted average number of common
shares outstanding used for primary computation 45.2
Weighted average number of common
stock equivalents .9
Add: effect of converting $140 million
8% debentures into common stock 4.3 (A)
------
Weighted average number of common
shares, as adjusted 50.4
======
Fully diluted earnings per common share $ .49
======
(A)Assumes conversion of $140 million 8% convertible debentures at a price
of $32.50 per common share in accordance with the convertible
debenture exchange agreement.
17
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED July 2, 1995
PRIMARY COMPUTATION
-------------------
Net loss per statement of earnings $ (52.9)
--------
Weighted average number of common
shares outstanding 45.4
Weighted average number of common
stock equivalents --
-------
Weighted average number of common
shares, as adjusted 45.4
=======
Primary loss per common share $ (1.17)
========
18
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED JULY 2, 1995
FULLY DILUTED COMPUTATION
-------------------------
Net loss per statement of earnings $ (52.9)
Add: effect of elimination of after-tax interest expense
on $140 million 8% convertible debentures 3.4
--------
Net earnings, as adjusted $ (49.5)
Weighted average number of common
shares outstanding used for primary computation 45.4
Weighted average number of common
stock equivalents .9
Add: effect of converting $140 million
8% debentures into common stock 4.3 (A)
------
Weighted average number of common shares
outstanding, as adjusted 50.6
======
Fully diluted loss per common share $ (.98) (B)
======
(A) Assumes conversion of $140 million 8% convertible debentures at a price of
$32.50 per common share in accordance with the convertible debenture
exchange agreement.
(B) 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.
19
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
SECOND QUARTER, 1994
PRIMARY COMPUTATION
-------------------
Net earnings per statement of earnings $ 29.2
======
Weighted average number of common
shares outstanding 46.6
Weighted average number of common
stock equivalents .4
------
Weighted average number of common
shares, as adjusted 47.0
======
Primary earnings per common share $ .62
======
20
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
SECOND QUARTER, 1994
FULLY DILUTED COMPUTATION
-------------------------
Net earnings per statement of earnings $ 29.2
Add: effect of elimination of after-tax interest expense
on $140 million 8% convertible debentures 1.7
------
Net earnings, as adjusted $ 30.9
======
Weighted average number of common
shares outstanding used for primary computation 46.6
Weighted average number of common
stock equivalents .4
Add: effect of converting $140 million
8% debentures into common stock 4.3 (A)
------
Weighted average number of common shares
outstanding, as adjusted 51.3
======
Fully diluted earnings per common share $ .60
======
(A) Assumes conversion of $140 million 8% convertible debentures at a price
of $32.50 per common share in accordance with the convertible debenture
exchange agreement.
21
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED July 3, 1994
PRIMARY COMPUTATION
-------------------
Net earnings per statement of earnings $ 30.6
------
Weighted average number of common
shares outstanding 46.8
Weighted average number of common
stock equivalents .4
------
Weighted average number of common
shares, as adjusted 47.2
------
Primary earnings per common share $ .65
======
22
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED JULY 3, 1994
FULLY DILUTED COMPUTATION
-------------------------
Net earnings per statement of earnings $ 30.6
Add: effect of elimination of after-tax interest expense
on $140 million 8% convertible debentures 3.4
------
Net earnings, as adjusted $ 34.0
======
Weighted average number of common
shares outstanding used for primary computation 46.8
Weighted average number of common
stock equivalents .4
Add: effect of converting $140 million
8% debentures into common stock 4.3 (A)
------
Weighted average number of common shares
outstanding, as adjusted 51.5
======
Fully diluted earnings per common share $ .66 (B)
======
(A)Assumes conversion of $140 million 8% convertible debentures at a price of
$32.50 per common share in accordance with the convertible debenture
exchange agreement.
(B)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.
23
Exhibit 15
----------
The Board of Directors
Polaroid Corporation
Ladies and Gentlemen:
Re: Registration Statements No. 33-36384, No. 33-44661 and No. 33-51173
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated July 18, 1995, related to
our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered 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
August 15, 1995
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from S.E.C.
Form 10-Q for the quarter ended July 2, 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUL-02-1995
<CASH> 45,300
<SECURITIES> 15,200
<RECEIVABLES> 518,600
<ALLOWANCES> (24,500)
<INVENTORY> 714,800
<CURRENT-ASSETS> 1,445,500
<PP&E> 2,094,500
<DEPRECIATION> (1,338,700)
<TOTAL-ASSETS> 2,284,100
<CURRENT-LIABILITIES> 650,700
<BONDS> 546,900
<COMMON> 75,400
0
0
<OTHER-SE> 713,600
<TOTAL-LIABILITY-AND-EQUITY> 2,284,100
<SALES> 982,100
<TOTAL-REVENUES> 982,100
<CGS> 579,000
<TOTAL-COSTS> 1,049,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,900
<INTEREST-EXPENSE> 26,100
<INCOME-PRETAX> (84,600)
<INCOME-TAX> (31,700)
<INCOME-CONTINUING> (52,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52,900)
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> 0
</TABLE>
