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 March 31, 1996
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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
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Shares of Common Stock, $1 par value,
outstanding as of May 3, 1996: 45,491,363 shares
________________________________________________________________________________
This document contains 22 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)
MARCH 31, 1996 and APRIL 2, 1995
(In millions, except per share data)
First Quarter
1996 1995
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Net sales:
United States $178.0 $150.2
International 283.1 259.4
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Total net sales 461.1 409.6
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Cost of sales 280.9 257.3
Marketing, research, engineering
and administrative expenses 175.7 183.9
Restructuring and other 110.0 77.0
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Total costs 566.6 518.2
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Loss from operations (105.5) (108.6)
Other income 17.6 4.6
Interest expense 11.6 12.7
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Loss before income taxes (99.5) (116.7)
Federal, state and foreign
income tax benefit (38.8) (40.9)
- ------------------------------------------------------------
Net loss ($60.7) ($75.8)
============================================================
Primary loss per common share ($1.33) ($1.66)
Fully diluted earnings
per common share * *
- ------------------------------------------------------------
Cash dividends per common share $0.15 $0.15
Weighted average common shares
used for primary loss per share
calculation (in thousands) 45,572 45,654
Common shares outstanding at
end of period (in thousands) 45,520 45,264
* Fully diluted earnings per share are not stated because
they are greater than primary loss per common share.
2
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Balance Sheet
(In millions)
(Unaudited) (Unaudited)
March 31, December 31, April 2,
Assets 1996 1995 1995
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Current assets
Cash and cash equivalents $104.6 $73.3 $145.6
Short-term investments 6.4 9.8 45.1
Receivables 437.7 550.4 415.7
Inventories:
Raw materials 129.6 137.2 126.1
Work-in-process 245.0 233.7 247.1
Finished goods 275.9 244.6 308.0
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Total inventories 650.5 615.5 681.2
Prepaid expenses and other assets 231.4 208.5 172.1
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Total current assets 1,430.6 1,457.5 1,459.7
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Property, plant and equipment
Gross property, plant and equipment 2,151.3 2,164.4 2,066.8
Less accumulated depreciation 1,478.6 1,473.4 1,323.3
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Net property, plant and equipment 672.7 691.0 743.5
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Deferred tax assets 112.5 113.3 82.8
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Total assets $2,215.8 $2,261.8 $2,286.0
==============================================================================
Liabilities and stockholders' equity
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Current liabilities
Short-term debt $158.3 $160.4 $147.1
Current portion of long-term debt 39.7 39.7 35.9
Payables and accruals 245.3 274.9 256.1
Compensation and benefits 275.9 197.4 199.9
Federal, state and foreign
income taxes 19.3 46.6 30.8
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Total current liabilities 738.5 719.0 669.8
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Long-term debt 526.8 526.7 566.0
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Accrued postretirement benefits 259.3 257.2 251.9
Accrued postemployment benefits 42.4 41.2 39.1
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Common stockholders' equity
Common stock, $1 par value 75.4 75.4 75.4
Additional paid-in capital 404.7 401.9 387.6
Retained earnings 1,458.4 1,525.8 1,609.6
Less: Treasury stock, at cost 1,209.4 1,205.4 1,197.9
Deferred compensation 80.3 80.0 115.5
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Total common stockholders' equity 648.8 717.7 759.2
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Total liabilities and
stockholders' equity $2,215.8 $2,261.8 $2,286.0
==============================================================================
3
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statement of Cash Flows (Unaudited)
Periods Ended March 31, 1996 and April 2, 1995
(In millions)
First Quarter
Cash flows from operating activities 1996 1995
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Net loss ($60.7) ($75.8)
Depreciation of property, plant and equipment 32.4 33.3
Decrease in receivables 106.5 145.0
Increase in inventories (35.0) (103.8)
Increase in prepaids and other assets (24.7) (28.0)
Decrease in payables and accruals (24.8) (35.0)
Increase in compensation and benefits 32.5 56.9
Decrease in federal, state and foreign
income taxes payable (26.5) (22.0)
Gain on sale of fixed assets (15.5) -
Other non cash items 53.3 27.1
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Net cash provided/(used) by operating activities 37.5 (2.3)
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Cash flows from investing activities
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Decrease in short-term investments 3.4 40.4
Additions to property, plant and equipment (22.3) (31.0)
Proceeds from sale of fixed assets 22.1 -
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Net cash provided by investing activities 3.2 9.4
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Cash flows from financing activities
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Net increase in short-term debt
(maturities 90 days or less) 1.4 23.6
Cash dividends paid (6.8) (6.9)
Stock options exercised 3.2 0.8
Purchase of treasury stock (5.5) (23.8)
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Net cash used by financing activities (7.7) (6.3)
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Effect of exchange rate changes on cash (1.7) 1.5
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Net increase in cash and cash equivalents 31.3 2.3
Cash and equivalents at beginning of period 73.3 143.3
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Cash and cash equivalents at end of period $104.6 $145.6
==============================================================================
4
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statement of Changes in Common Stockholders' Equity
Periods Ended March 31, 1996 and April 2, 1995 (Unaudited)
(In millions)
First Quarter
1996 1995
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Common stock
Balance at the beginning of the period $75.4 $75.4
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Balance at the end of the period 75.4 75.4
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Additional paid-in capital
Balance at the beginning of the period 401.9 387.2
Stock options exercised - tax benefit 0.5 0.0
Issuance of shares in connection
with stock incentive plan 2.3 0.4
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Balance at the end of the period 404.7 387.6
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Retained earnings
Balance at the beginning of the period 1,525.8 1,692.1
Net loss (60.7) (75.8)
Dividends declared-common stock (6.8) (6.9)
ESOP dividend tax benefit received 0.1 0.2
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Balance at the end of the period 1,458.4 1,609.6
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Less:
Treasury stock
Balance at the beginning of the period 1,205.4 1,174.5
Repurchase of common shares 5.5 23.8
Issuance of shares in connection
with stock incentive plan (1.5) (0.4)
--------- ---------
Balance at the end of the period 1,209.4 1,197.9
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Deferred compensation
Balance at the beginning of the period 80.0 115.8
Stock options - 1993 (0.3) (0.3)
Restricted stock 0.6 0.0
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Balance at the end of the period 80.3 115.5
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Total common stockholders' equity $648.8 $759.2
=============================================================================
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 Charges and Other
- -------------------------------
In December 1995, the Company announced a plan to make fundamental changes in
its operating structure. The plan features three principal components: program
reductions in certain product, research and manufacturing areas; strategic
refocusing of the Company's digital imaging businesses for the medical
diagnostic and graphic arts markets; and a reduction in corporate overhead
expenses. The total pre-tax special charge related to this plan was $280.0
million. Of that amount, $110.0 million was recorded in the first quarter of
1996 and $170.0 million was recorded in the fourth quarter of 1995. The
December 1995 early retirement and severance programs are expected to result in
the elimination of a total of approximately 1,515 positions worldwide. The
functions of the employees expected to terminate are as follows:
U.S. Non-U.S. Total
------- ------- ------
Manufacturing 615 80 695
Marketing, research, engineering
and administrative 610 210 820
----- ----- -----
Total 1,225 290 1,515
===== ===== =====
The 1996 first quarter pre-tax special charge of $110.0 million represents the
balance of severance and pension enhancement costs and inventory write downs
related to the December 1995 program. This special charge is $10.0 million
higher than previously forecasted primarily due to a higher write-off of Captiva
camera system inventory. In the first quarter of 1996, the pre-tax costs
related to the severance program were approximately $55.4 million.
Additionally, approximately $44.6 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.
Total cash severance payments related to the December 1995 program will be
approximately $110.4 million. By the end of the first quarter of 1996, 1,041 of
these terminations and $12.5 million of related cash severance payments were
completed. Approximately $59.0 million of additional cash severance payments
are expected to be paid ratably over the remaining three quarters of 1996 with
the remaining balance expected to be paid in 1997.
In the first quarter of 1995, the Company implemented a restructuring plan which
resulted in a pre-tax charge of $77.0 million. As a result of this plan,
approximately 930 employees (approximately 560 from manufacturing and 370 from
marketing, research, engineering, and administrative functions) terminated their
employment in 1995 and the total cash severance payments of $56.0 million
related to this plan were completed by the end of the first quarter of 1996.
6
<PAGE>
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 March 31, 1996 and April 2, 1995 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 8.
New Accounting Standards
- ------------------------
Effective January 1, 1996, the Company adopted Financial Accounting Standards
Board Statements No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" and No. 123, "Accounting for Stock-
Based Compensation" (FAS 123). The adoption of these standards had no impact on
the financial position or the results of operations of the Company for the
period ended March 31, 1996. Under FAS 123, the Company has elected not to
adopt the new accounting method and will continue to account for its stock-based
compensation under the existing provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, the
Company will provide pro-forma disclosures of net income and earnings per shares
for the year ended December 31, 1996, assuming FAS 123 had been adopted.
7
<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 March 31, 1996 and April 2, 1995, and the
related condensed consolidated statements of earnings, cash flows and changes in
common stockholders' equity for the three-month periods ended March 31, 1996 and
April 2, 1995. 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, 1995, 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 30, 1996, 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, 1995, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
April 16, 1996
8
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
-------------------------------------------------
First Quarter Results
- ---------------------
Worldwide sales of Polaroid Corporation and its subsidiaries increased 13% to
$461.1 million in the first quarter of 1996 compared with sales of $409.6
million in the first quarter of 1995. In the first quarter of 1996, worldwide
shipments of instant film increased significantly and worldwide shipments of
instant cameras increased moderately compared with the same period last year.
Worldwide shipments of conventional film and videotapes in the first quarter of
1996 were substantially higher than in the first quarter of 1995.
In the first quarter of 1996, sales in the United States were $178.0 million, an
increase of 19% compared with $150.2 million in the first quarter of 1995. U.S.
shipments of film, including instant and conventional, and videotapes in the
first quarter of 1996 were substantially higher than in the first quarter of
1995. U.S. sales in the first quarter of 1995 primarily reflect the impact of
the dealer inventory adjustment program, which was implemented in the first
quarter of 1995. Estimated U.S. retail sales of instant integral film rose 10%
during the first quarter of 1996 compared with the first quarter of 1995. The
increase reflects the ongoing impact of the Company's more aggressive consumer
promotional efforts initiated in the fourth quarter of 1995.
International sales increased 9% to $283.1 million in the first quarter of 1996
from $259.4 million in the same period a year ago. In the first quarter of
1996, international shipments of instant film were moderately higher and instant
cameras were significantly higher compared with the same period last year. The
increase in sales is primarily attributable to higher sales in Western Europe,
excluding Russia. In the first quarter of 1996, sales in Russia were adversely
affected by a combination of factors including transshipments into the country,
weak retail demand and the impact of a large shipment to a Russian dealer late
in 1995. This shortfall in sales Russian sales, however, was largely
offset by the increase in sales to developing markets including China and
Latin America. While the Company believes that developing markets in total
present particularly attractive opportunities, 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 margins as a percent of sales increased to 39% for the first quarter of
1996 from 37% for the first quarter of 1995. The gross margin in the first
quarter of 1995 was impacted by a significant decrease in worldwide shipments of
high margin instant film primarily due to the dealer inventory adjustment
program. Marketing, research, engineering and administrative expenses decreased
in the first quarter of 1996 to $175.7 million compared with $183.9 million in
the same period of 1995. Lower research, engineering and administrative
expenses more than offset increased marketing expenses.
In December 1995, the Company announced a plan to make fundamental changes in
its operating structure. This plan features three principal components: program
reductions in certain product, research and manufacturing areas; strategic
refocusing of the Company's digital imaging businesses for the medical
diagnostic and graphic arts markets; and a reduction in corporate overhead
expenses. The total
9
<PAGE>
First Quarter Results (continued)
- ---------------------------------
pre-tax special charge for restructuring and other expenses was $280.0 million.
Of that amount, $110.0 million was recorded in the first quarter of 1996 and
$170.0 million was recorded in the fourth quarter of 1995. The December 1995
early retirement and severance programs are expected to result in the
elimination of a total of approximately 1,515 positions worldwide. The functions
of the employees expected to terminate are as follows:
U.S. Non-U.S. Total
------- ------- ------
Manufacturing 615 80 695
Marketing, research, engineering
and administrative 610 210 820
----- ----- -----
Total 1,225 290 1,515
===== ===== =====
The 1996 first quarter pre-tax special charge of $110.0 million represents the
balance of severance and pension enhancement costs and inventory write downs
related to the December 1995 program. This special charge is $10.0 million
higher than previously forecasted primarily due to a higher write-off of Captiva
camera system inventory. In the first quarter of 1996, the pre-tax costs
related to the severance program were approximately $55.4 million.
Additionally, approximately $44.6 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.
Excluding the special charges of $110.0 million and $77.0 million in the first
quarter of 1996 and 1995, respectively, profit from operation would have been
$4.5 million in the first quarter of 1996 compared with a loss from operations
of $31.6 million in the first quarter of 1995. With the special charges, the
losses from operations were $105.5 million in the first quarter of 1996 and
$108.6 million in the first quarter of 1995.
Other income increased to $17.6 million in the first quarter of 1996 from $4.6
million in the first quarter of 1995, reflecting a $15.5 million gain on the
sale of real estate. Interest expense decreased to $11.6 million in the first
quarter of 1996 from $12.7 million in the first quarter of 1995 as a result of
lower borrowings and lower interest rates.
For the first quarter of 1996, the effective tax rate was 39%, compared with 35%
for the same period last year. The net after-tax foreign currency exchange loss
from balance sheet translation amounted to $.02 per common share in the first
quarter of 1996 compared with no impact in the first quarter of 1995.
The net loss for the first quarter of 1996 was $60.7 million, or $1.33 primary
loss per common share, compared with a net loss of $75.8 million for the first
quarter of 1995, or $1.66 primary loss per common share. Excluding the special
charges for restructuring and other expenses, the gain on the sale of real
estate and the related tax effect, the net losses would have been $3.1 million,
or $.07 per share in the first quarter of 1996 and $25.8 million or $.57 per
share, in the first quarter of 1995. For purposes of determining the after-tax
effect of the special charges and the gain on the sale of the real estate, the
Company assumed a tax rate of 35% and 10%, respectively, to calculate the tax
effect.
10
<PAGE>
Financial Liquidity and Capital Resources
- -----------------------------------------
As of March 31, 1996, the Company's cash and cash equivalents and short-term
investments amounted to $111.0 million, compared to $83.1 million at December
31, 1995. In addition, working capital decreased to $692.1 million at March 31,
1996 from $738.5 at December 31, 1995. The primary source for cash in the first
quarter of 1996 was net cash provided by operating activities and proceeds from
the sale of fixed assets. Capital spending during the first quarter of 1996 of
$22.3 million was less than depreciation expense of $32.4 million. Total
capital expenditures in 1996 are expected to be approximately $120.0 million.
During the first quarter of 1996, the Company also expended cash to make
severance payments of $9.0 million under the 1995 first quarter severance
program and $12.5 million under the December 1995 severance program, to purchase
$5.5 million of the Company's common stock and to pay $6.8 million of dividends
to common stockholders. Total cash severance payments related to the December
1995 program will be approximately $110.4 million of which approximately $59.0
million is expected to be paid ratably over the remaining three quarters of
1996. The remaining balance of cash severance payments of $38.9 million is
expected to be paid in 1997.
As of April 2, 1995, cash and cash equivalents and short-term investments were
$190.7 million and working capital was $789.9 million. During the period from
April 2, 1995 to March 31, 1996, net cash provided by operating activities was
more than offset by cash used by investing and financing activities. Capital
spending during the period from April 2, 1995 to March 31, 1996 was $159.2
million, which exceeded depreciation expense of $131.8 million. The Company
expended cash during the twelve month period from April 2, 1995 to March 31,
1996 to make cash severance payments under the 1995 first quarter and the
December 1995 severance programs, to reduce borrowings, to purchase treasury
stock, and to pay dividends to common stockholders.
The Company maintains a five year $150 million working capital line of credit
for general corporate purposes which expires in 1999. At the end of the first
quarter of 1996 and 1995, there were no borrowings under this facility. Gross
borrowings from uncommitted lines of credit for international operations were
$158.3 million and $147.1 million at the end of the first quarter of 1996 and
1995, respectively. Additional available, uncommitted lines of credit for
international operations were $128.4 million and $155.0 million at March 31,
1996 and April 2, 1995, respectively. As of March 31, 1996, additional
available, uncommitted lines of credit for U.S operations were $160.0 million
and there were no borrowings from these lines of credit. As of April 2, 1995,
there were no additional available, uncommitted lines of credit for U.S.
operations and no such borrowings. The Company is reviewing its plan for
payment of $150 million of 7-1/4% Notes due January 15, 1997, which may not be
redeemed prior to maturity. The Company's available borrowing capacity is
limited by certain debt covenants.
11
<PAGE>
Financial Liquidity and Capital Resources (continued)
- -----------------------------------------------------
During the first quarter of 1996, the Company repurchased 135,000 shares of its
common stock for $5.5 million. In the first quarter of 1995, the Company
repurchased 766,700 shares for $23.8 million. As of March 31, 1996, 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 $79.7
million. The Company may repurchase its common stock on the open market, in
privately negotiated transactions or otherwise (which may include transactions
with Polaroid stock option holders and with Polaroid retirement plans, including
the employee stock ownership plan). 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, including cash
severance payments for the December 1995 restructuring program.
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 March
31, 1996 and April 2, 1995, the amount of the Company's outstanding short-term
foreign currency-denominated borrowings were $128.2 million and $123.2 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 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. There were no foreign exchange swap contracts outstanding at March 31,
1996. The aggregate notional value of these short-term foreign exchange swap
contracts outstanding at April 2, 1995 was $17.3 million.
12
<PAGE>
Foreign Currency Exchange (continued)
- -------------------------------------
When the Company may not have sufficient flexibility to increase prices in local
currency to reflect any appreciation of the U.S. dollar, 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. No option contracts were outstanding at March 31,
1996. At April 2, 1995, option contracts with a notional value of $139.2
million were outstanding.
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.
13
<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 its 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
March 31, 1996 and April 2, 1995 was $5.2 million and $5.5 million,
respectively. The Company currently estimates that the majority of the $5.2
million amount reserved for environmental liabilities on March 31, 1996 will 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.
In early 1994, the Company received a letter from Jerome H. Lemelson alleging
that a broad range of the Company's manufacturing equipment and products
infringe a number of patents. The letter proposes that the Company enter into
licensing negotiations to pay substantial past and future royalties under those
patents. The Company has responded to the allegations.
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.
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:
During the first quarter of 1996, the Company filed a Current Report
on Form 8-K, dated January 16, 1996 and a Current Report on Form 8-K,
dated February 8, 1996.
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)
May 13, 1996 /s/ 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)
FIRST QUARTER, 1996
PRIMARY COMPUTATION
- -------------------
Net loss per statement of earnings $ (60.7)
=========
Weighted average number of common
shares outstanding 45.6
Weighted average number of common
stock equivalents --
---------
Weighted average number of common
shares, as adjusted 45.6
========
Primary loss per common share $ (1.33)
========
17
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
FIRST QUARTER, 1996
FULLY DILUTED COMPUTATION
- -------------------------
Net loss per statement of earnings $ (60.7)
Add: effect of elimination of after-tax interest expense
on $140 million 8% convertible debentures 1.7
-------
Net loss, as adjusted $ (59.0)
========
Weighted average number of common
shares outstanding used for primary computation 45.6
Weighted average number of common
stock equivalents 1.0
Add: effect of converting $140 million
8% debentures into common stock 4.3 (A)
-------
Weighted average number of common
shares, as adjusted 50.9
=======
Fully diluted loss per common share $(1.16) (B)
=======
(A) Assumes conversion of $140 million 8% convertible debentures at a price of
approximately $32.50 per common share in accordance with the term of the
convertible debentures.
(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.
18
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
FIRST QUARTER, 1995
PRIMARY COMPUTATION
- -------------------
Net loss per statement of earnings $ (75.8)
=========
Weighted average number of common
shares outstanding 45.7
Weighted average number of common
stock equivalents --
--------
Weighted average number of common
shares, as adjusted 45.7
========
Primary loss per common share $ (1.66)
========
19
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
FIRST QUARTER, 1995
FULLY DILUTED COMPUTATION
- -------------------------
Net loss per statement of earnings $ (75.8)
Add: effect of elimination of after-tax interest expense
on $140 million 8% convertible debentures 1.7
--------
Net loss, as adjusted $ (74.1)
========
Weighted average number of common
shares outstanding used for primary computation 45.7
Weighted average number of common
stock equivalents .5
Add: effect of converting $140 million
8% debentures into common stock 4.3 (A)
------
Weighted average number of common
shares, as adjusted 50.5
======
Fully diluted loss per common share $(1.47) (B)
=======
(A) Assumes conversion of $140 million 8% convertible debentures at a price of
approximately $32.50 per common share in accordance with the terms of the
convertible debentures.
(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.
20
Exhibit 15
----------
The Board of Directors
Polaroid Corporation
Ladies and Gentlemen:
Re: Registration Statements No. 33-36384, No. 33-44661, No. 33-51173 and
No. 333-0791
With respect to the subject registration statements, we
acknowledge our awareness of the use therein of our report dated
April 16, 1996, 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,
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
May 13, 1996
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Securities and Exchange Commission Form 10-Q for the quarter ended
March 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 104,600
<SECURITIES> 6,400
<RECEIVABLES> 461,700
<ALLOWANCES> (24,000)
<INVENTORY> 650,500
<CURRENT-ASSETS> 1,430,600
<PP&E> 2,151,300
<DEPRECIATION> (1,478,600)
<TOTAL-ASSETS> 2,215,800
<CURRENT-LIABILITIES> 738,500
<BONDS> 526,800
0
0
<COMMON> 75,400
<OTHER-SE> 573,400
<TOTAL-LIABILITY-AND-EQUITY> 2,215,800
<SALES> 461,100
<TOTAL-REVENUES> 461,100
<CGS> 280,900
<TOTAL-COSTS> 566,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,200)
<INTEREST-EXPENSE> 11,600
<INCOME-PRETAX> (99,500)
<INCOME-TAX> (38,800)
<INCOME-CONTINUING> (60,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (60,700)
<EPS-PRIMARY> (1.33)
<EPS-DILUTED> 0
</TABLE>
