UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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
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(Exact name of registrant as specified in its charter)
Delaware 04-1734655
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
549 Technology Square, Cambridge, Mass. 02139
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (617) 386-2000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, par value $1 per share New York Stock Exchange
Pacific Stock Exchange
Rights to Purchase Series A New York Stock Exchange
Participating Cumulative Preferred Stock Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates
as of March 7, 1997: $1,916,161,960
--------------
Common Stock outstanding as of March 7, 1997: 44,822,502 shares
-----------------
Documents incorporated by reference:
Polaroid Corporation Annual Report to Stockholders
for 1996 -- Parts I, II and IV
Polaroid Corporation 1997 Proxy Statement,
dated March 21, 1997 -- Part III
<PAGE>
Part I
Item 1. Business
General
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Polaroid Corporation, a Delaware corporation founded in 1937, and its
subsidiaries (the "Company") comprise a worldwide enterprise with
1996 sales of approximately $2.3 billion. The Company designs,
manufactures and markets a variety of products primarily in instant
image recording fields. The Company's products are used in amateur
and professional photography, industry, graphic arts, science,
medicine, government, and education.
Products
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The Company designs, manufactures and markets worldwide a variety of
products, including more than 50 different types of film and over 100
types of photographic equipment including cameras, camera backs, film
holders and specialized equipment designed for a broad range of
applications in photographic imaging. These include instant
photographic cameras and films, videotapes, conventional films, and
light polarizing filters and lenses. Major instant camera lines
consist of the Polaroid Spectra and OneStep cameras. Instant films
include both integral and peel-apart films.
In addition, the Company is expanding its role in the market for
digital imaging products. The Company's digital imaging products are
marketed worldwide through distributors and directly to customers
primarily for medical, graphic art and other business applications.
Digital imaging products also include products for consumer digital
imaging and desktop publishing.
Distribution
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Worldwide sales of imaging products are made by the Company to
photographic stores, retail, food, drug, discount and department
stores, wholesalers, original equipment manufacturers, independent
agents and distributors. The Company's distributors include unrelated
distributors and subsidiaries of the Company.
Competition
- -----------
The worldwide market for imaging products is highly competitive in
price, quality, service and product performance. The Company has
competitors worldwide, ranging from large corporations to smaller and
more specialized companies.
Raw Materials and Supplies
- --------------------------
Sufficient raw materials and supplies were available in 1996 to
maintain operations of all manufacturing plants.
Research, Engineering and Development
- -------------------------------------
The Company continues to place emphasis on research, engineering and
development. The amount expended for research, engineering and
development included in marketing, research, engineering and
administrative expenses was $116.3 million during 1996, compared with
$165.5 million in 1995 and $165.7 million in 1994.
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<PAGE>
Patents and Trademarks
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The Company continued to obtain patents in 1996 and initiated a
process in 1996 of focusing attention on its substantial portfolio of
more than 1,500 active U.S. patents in order to create value through
licensing income. In the judgment of the Company, its patents are
important to its business. The Company also owns a number of valuable
trademarks, including "Polaroid", which are important to its
business.
Environmental Compliance
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Approximately 7% of the Company's capital spending in 1997 will be
for environmental compliance projects.
The Company, together with other parties, is currently designated a
Potentially Responsible Party ("PRP") by the United States
Environmental Protection Agency (the "EPA") 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
those sites and various other uncertainties, the Company cannot
firmly establish its ultimate liability concerning those 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 December 31, 1996 was $4.0 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.
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<PAGE>
Employees
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The Company had 10,046 and 11,662 employees at December 31, 1996 and
1995, respectively. These figures included approximately 50 worldwide
temporary employees in 1996 and approximately 160 in 1995. In
addition, the Company had non-employee temporary workers in the U.S.
of approximately 870 and 800 at December 31, 1996 and 1995,
respectively.
Information About Foreign and Domestic Operations and Significant
Customers
- ----------------------------------------------------------------
Please see note 13, "Business", on page 47 of the Polaroid
Corporation Annual Report to Stockholders for 1996 (the "Annual
Report").
Item 2. Properties
The Company's worldwide corporate headquarters is located in
Cambridge, Massachusetts, along with administrative offices,
marketing, research and engineering functions. The Cambridge
properties consist of approximately 1,020,000 square feet of space,
which includes space owned in fee (308,000 square feet) and leased
premises (712,000 square feet), under leases expiring between 1997
and 2003.* Approximately 62% of the Company's leased premises in
Cambridge, Massachusetts is related to a lease which expires in June
1999. The Company intends to relocate administrative, marketing and
some research and engineering functions in these leased premises to
sites in Massachusetts which are currently owned or leased under long-
term agreements by the Company. This relocation is expected to
require the conversion of approximately 150,000 square feet of
manufacturing space to office space.
* All lease expiration dates are at the end of the current term
for leases not containing a renewal option and the end of the
last renewal term for leases containing renewal options.
Over 90% of the Company's other space in the United States is located
in Eastern Massachusetts (Waltham, Norwood, New Bedford, Needham,
Newton, Freetown and Bedford). These communities contain sites which
house essentially all of the Company's principal U.S. manufacturing
facilities plus additional research and engineering functions and
warehousing operations. Following is a summary description of such
facilities:
Approximate Space
Location (Square Feet)
--------- ------------------
Waltham 1,652,000
Norwood 788,000
New Bedford 739,000
Needham 548,000
Newton 165,000
Freetown 137,000
Bedford 125,000
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4,154,000
==========
Approximately 92% of these U.S. manufacturing and warehousing
facilities and the land they occupy are owned by the Company. The
Newton and Bedford facilities are 100% leased and 40,000 square feet
of the Waltham site is leased.
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<PAGE>
The Company also currently maintains a network of three marketing and
distribution centers (Chicago, Needham and Santa Ana) and seventeen
regional sales offices in other locations throughout the U.S.
Principal manufacturing facilities outside the U.S. are located in
Enschede, The Netherlands, Dumbarton, Scotland and Queretaro, Mexico.
Following is a summary description of such facilities:
Approximate Space
Location (Square Feet)
---------------- ------------------
The Netherlands 518,000
Scotland 390,000
Mexico 255,000
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1,163,000
==========
Approximately 92% of these facilities are owned by the Company. This
space also houses certain administrative and marketing activities. In
addition, the Company assembles cameras and printed circuit boards
for cameras in both China and Russia.
Marketing subsidiaries or sales offices are located in England,
France, Germany, Italy, Scotland, Spain, Russia and other European
countries. Additional marketing and distribution facilities are
established in other regions in Canada, Latin and South America
(Brazil, Mexico and Puerto Rico) and in numerous locations in the
Asia Pacific region (Japan, Australia, Hong Kong, China, Korea and
Malaysia).
During 1996, manufacturing facilities operated at reasonable levels
of production capacity, with the exception of the Company's new
coating facility which was brought on line in 1994 and is operating
at low levels of production capacity. The Company is consolidating
its coating facilities, shifting capacity from some of its oldest to
its newer, more efficient facilities. The capacity of the Company's
manufacturing facilities is sufficient to meet current demand for the
Company's products.
All the Company's premises are in good repair and its machinery and
equipment are maintained in good operating condition. The facilities
are suitable for the production of the Company's products.
The Company does not anticipate any difficulty in renewing
outstanding leases or in finding satisfactory alternative premises.
Item 3. Legal Proceedings
Please see "Environmental Compliance" under Item 1. Business, above
and note 14, "Contingencies", on page 48 of the Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders
None in the fourth quarter of 1996.
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<PAGE>
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Please see the table entitled "Quarterly Financial Data" on page 49
of the Annual Report.
Item 6. Selected Financial Data
Please see the table entitled "Ten Year Financial Summary" on pages
50 to 51, inclusive, of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Please see the section entitled "Management's Discussion and Analysis
of Operations" on pages 23 to 30, inclusive, of the Annual Report.
Item 8. Financial Statements and Supplementary Data
Please see the section entitled "Independent Auditors' Report" on
page 31, the sections entitled "Financial Statements" on pages 32 to
35, inclusive and "Notes to Consolidated Financial Statements" on
pages 36 to 48, inclusive, and the section entitled "Supplementary
Financial Information" on pages 48 to 51, inclusive, of the Annual
Report.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
a) Directors - Please see the section entitled "Election of
Directors" on pages 3 to 6, inclusive, of the Polaroid
Corporation 1997 Proxy Statement (the "Proxy Statement").
b) Executive Officers of the Registrant - Listed below are the
executive officers of the Company. Officers are elected annually
by the Board of Directors. No family relationship exists between
any of the officers.
Name Office Age
- -------------------------------------------------------------------
Gary T. DiCamillo Chairman of the Board
and Chief Executive Officer 46
Enrico I. Ancona Executive Vice President 51
William J. O'Neill, Jr. Executive Vice President
and Chief Financial Officer 54
Serafino Posa Executive Vice President 42
Carole J. Uhrich Executive Vice President 53
Robert M. Delahunt Senior Vice President 62
Thomas M. Lemberg Senior Vice President,
General Counsel and Secretary 50
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<PAGE>
Mr. DiCamillo joined the Company in October 1995 and was appointed
Chairman of the Board and Chief Executive Officer in December 1995.
Prior to joining the Company, he was employed at Black & Decker
Corporation. From 1993 to 1995, he was Group Vice President of Black
& Decker Corporation and President of its Power Tools and Accessories
business. From 1988 to 1993, he was President of the North America
Power Tools business at Black & Decker Corporation.
Mr. Ancona joined the Company in 1994 as Executive Vice President.
Prior to joining the Company, he was employed at Digital Equipment
Corporation from 1972 to 1994, the last eight years as Vice
President, Corporate Business Planning.
Mr. O'Neill joined the Company in 1969. He has served in various
capacities and was elected to his present position as Executive Vice
President and Chief Financial Officer in 1992.
Mr. Posa joined the Company in November 1996 as Executive Vice
President. Prior to joining the Company, he was employed by Kraft
Foods North America, a division of Philip Morris Companies since
1990. Prior to becoming Kraft's Senior Vice President for business
development in 1996, he was Executive Vice President and General
Manager of Kraft's All American Gourmet Co. unit from 1994 to 1996.
He was Vice President for marketing at Kraft USA's grocery division
from 1992 to 1994 and at Kraft's retail cheese division from 1990 to
1992.
Ms. Uhrich joined the Company in 1966. She has served in various
capacities and was elected to her present position as Executive Vice
President in March 1996.
Mr. Delahunt joined the Company in 1959. He has served in various
capacities and was elected to his present position as Senior Vice
President in 1992.
Mr. Lemberg joined the Company as Senior Vice President, General
Counsel and Secretary in September 1996. Prior to joining the
Company, he served as Vice President, General Counsel and Secretary
at Lotus Development Corporation from 1985 to 1996.
c) Compliance With Section 16(a) of the Securities Exchange Act of
1934 - Form 3 Reporting Obligation - Please see the section
entitled "Compliance with Section 16(a) of the Securities
Exchange Act of 1934 - Form 3 Reporting Obligation" on page 24
of the Proxy Statement.
Item 11. Executive Compensation
Please see the section entitled "Executive Compensation" on pages 18
to 25, inclusive, of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Please see the section entitled "Beneficial Ownership of Shares" on
pages 6 to 8, inclusive and the section entitled "Election of
Directors" on pages 3 to 6, inclusive, of the Proxy Statement.
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<PAGE>
Item 13. Certain Relationships and Related Transactions
Please see the section entitled "Election of Directors" on pages 3 to
6, inclusive, of the Proxy Statement.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Page No.
a) 1. Financial Statements
Independent Auditors' Report 31*
Consolidated Statement of Earnings
for the years ended
December 31, 1996, 1995 and 1994 32*
Consolidated Balance Sheet
as of December 31, 1996 and 1995 33*
Consolidated Statement of Cash Flows
for the years ended
December 31, 1996, 1995 and 1994 34*
Consolidated Statement of Changes in
Common Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994 35*
Notes to Consolidated Financial Statements 36-48*
Supplementary Financial Information (Unaudited) 48-51*
a) 2. Financial Statement Schedule
Independent Auditors' Report 15
Schedule II - Valuation and Qualifying Accounts 16
All other schedules are omitted as they are either not required or
not applicable.
* Page references are to the Annual Report, which pages are
incorporated herein by reference. Except for such pages and
other information in the Annual Report specifically
incorporated in this report by reference, the Annual Report is
not to be deemed filed as part of this report.
a) 3. Exhibits
3.1(a) Restated Certificate of Incorporation of Polaroid
Corporation as of August 20, 1973. (The Restated Certificate of
Incorporation included as Exhibit 3.2(a) to Polaroid Corporation
Form 10-K for the year ended December 31, 1988 as filed on March
31, 1989 is hereby incorporated herein by reference.)
3.1(b) Amendments to the Restated Certificate of Incorporation of
Polaroid Corporation as of May 12, 1987. (The Amendments to the
Restated Certificate of Incorporation included as Exhibit 3.1 to
Polaroid Corporation Form 10-Q for the quarter ended June 28,
1987 as filed on August 12, 1987 are hereby incorporated herein
by reference.)
3.1(c) Amendments to Polaroid Corporation Restated Certificate of
Incorporation (Certificates of Designation of Series B
Cumulative Convertible Preferred Stock and Series C Cumulative
Convertible Pay-in-Kind Preferred Stock) as of January 30, 1989.
(The Amendments to the Restated Certificate of Incorporation
included as Exhibit 3.2(c) to Polaroid Corporation Form 10-K for
the year ended December 31, 1988 as filed on March 31, 1989 are
hereby incorporated herein by reference.)
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<PAGE>
3.1(d) Amendment to Polaroid Corporation Restated Certificate of
Incorporation as of June 2, 1989. (The Amendment to the Restated
Certificate of Incorporation included as Exhibit 3.1 to Polaroid
Corporation Form 10-Q for the quarter ended July 2, 1989 as
filed on August 13, 1989 is hereby incorporated herein by
reference.)
3.1(e) Amendment to Polaroid Corporation Restated Certificate of
Incorporation (Certificate of Designation of Series D Cumulative
Convertible Preferred Stock) as of October 31, 1991. (The
Amendment to the Restated Certificate of Incorporation included
as Exhibit 3.2(e) to Polaroid Corporation Form 10-K for the year
ended December 31, 1991 as filed on March 27, 1992 is hereby
incorporated herein by reference.)
3.1(f) Amendment to Polaroid Corporation Restated Certificate of
Incorporation (Certificates of Elimination of Series B
Cumulative Convertible Preferred Stock and Series C Cumulative
Convertible Pay-In-Kind Preferred Stock) as of October 31, 1991.
(The Amendment to the Restated Certificate of Incorporation
included as Exhibit 3.2(f) to Polaroid Corporation Form 10-K for
the year ended December 31, 1991 as filed on March 27, 1992 is
hereby incorporated herein by reference.)
3.2 By-Laws of Polaroid Corporation amended and restated as of
February 1, 1994. (The By-Laws amended and restated included as
Exhibit 3.1 to Polaroid Corporation Form 10-K for the year ended
December 31, 1993 as filed on March 30, 1994 are hereby
incorporated herein by reference.)
4.1 Rights Agreement dated as of September 9, 1986 between
Polaroid Corporation and Morgan Shareholder Services Trust
Company, as Rights Agent. (The Rights Agreement included as
Exhibit 1 to Polaroid Corporation Form 8-A as filed on September
15, 1986 is hereby incorporated herein by reference.)
4.2 First Amendment dated as of August 16, 1988 to Rights
Agreement dated as of September 9, 1986 between Polaroid
Corporation and Morgan Shareholder Services Trust Company, as
Rights Agent. (The First Amendment included as Exhibit 4 to
Polaroid Corporation Form 8 (Amendment No. 1 to Form 8-A filed
on September 15, 1986) as filed on August 18, 1988 is hereby
incorporated herein by reference.)
4.3 Second Amendment dated as of September 14, 1988 to Rights
Agreement dated as of September 9, 1986 between Polaroid
Corporation and Morgan Shareholder Services Trust Company, as
Rights Agent. (The Second Amendment included as Exhibit 5 to
Polaroid Corporation Form 8 (Amendment No. 2 to the Form 8-A
filed on September 15, 1986) as filed on September 15, 1988 is
hereby incorporated herein by reference.)
4.4 Supplemental Rights Agreement and Third Amendment dated as
of January 30, 1989 to Rights Agreement dated as of September 9,
1986 between Polaroid Corporation and Morgan Shareholder
Services Trust Company, as Rights Agent. (The Supplemental
Rights Agreement and Third Amendment included as Exhibit 6 to
Polaroid Corporation Form 8 (Amendment No. 3 to the Form 8-A
filed on September 15, 1986) as filed on January 30, 1989 is
hereby incorporated herein by reference.)
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<PAGE>
4.5 Fourth Amendment dated as of February 21, 1989 to Rights
Agreement dated as of September 9, 1986 between Polaroid
Corporation and Morgan Shareholder Services Trust Company, as
Rights Agent. (The Fourth Amendment included as Exhibit 7 to
Polaroid Corporation Form 8 (Amendment No. 4 to the Form 8-A
filed on September 15, 1986) as filed on February 21, 1989 is
hereby incorporated herein by reference.)
4.6 Supplemental Rights Agreement and Fifth Amendment dated as
of October 7, 1991 to the Rights Agreement dated as of September
9, 1986 between Polaroid Corporation and First Chicago Trust
Company (as successor to Morgan Shareholder Services Trust
Company), as Rights Agent. (The Supplemental Rights Agreement
and Fifth Amendment included as Exhibit 8 to Polaroid
Corporation Form 8 (Amendment No. 5 to the Form 8-A filed on
September 15, 1986) as filed on October 21, 1991 is hereby
incorporated herein by reference.)
4.7 Sixth Amendment (previously designated as the Fifth
Amendment) dated as of March 23, 1993 to the Rights Agreement
dated as of September 9, 1986 between Polaroid Corporation and
First Chicago Trust Company, as Rights Agent. (The Sixth
Amendment (previously designated as the Fifth Amendment)
included as Exhibit 9 (previously designated as Exhibit 8) to
Polaroid Corporation's Form 8 (Amendment No. 6 (previously
designated as Amendment No. 5) to the Form 8-A filed on
September 15, 1986) as filed on July 2, 1993 is hereby
incorporated herein by reference.)
4.8 Amendment dated as of June 30, 1993 to the Fifth Amendment
dated as of March 23, 1993 to the Rights Agreement dated as of
September 9, 1986 between Polaroid Corporation and First Chicago
Trust Company, as Rights Agent. (The Amendment to the Sixth
Amendment included as Exhibit 10 to Polaroid Corporation's Form
8 (Supplement to Amendment No. 5 and redesignation thereof as
Amendment No. 6 to the Form 8-A filed on September 15, 1986) as
filed on July 2, 1993 is hereby incorporated herein by
reference.)
4.9 Indenture dated as of December 15, 1991 between Polaroid
Corporation and The First National Bank of Boston, as Trustee,
including form of Note. (The Indenture included as Exhibit 4.8
to Polaroid Corporation Form 10-K for the year ended December
31, 1991 as filed on March 27, 1992 is hereby incorporated
herein by reference.)
10.1 Stock Purchase Agreement dated July 12, 1988 between
Polaroid Corporation and Boston Safe Deposit and Trust Company,
as Trustee under the Polaroid Stock Equity Plan. (The Stock
Purchase Agreement included as Exhibit 10(c) to Polaroid
Corporation Form 8-K as filed on July 22, 1988 is hereby
incorporated herein by reference.)
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<PAGE>
10.2 Credit Agreement (Working Capital) dated as of August 24,
1994 among Polaroid Corporation, Morgan Guaranty Trust Company
of New York, as Agent, and Banks listed therein. (The Agreement
included as Exhibit 10.2 to Polaroid Corporation Form 10-K for
the year ended December 31, 1994 as filed on March 30, 1995 is
hereby incorporated herein by reference.)
10.3 Credit Agreement (ESOP Loan) as of June 30, 1992 among
Polaroid Corporation, Morgan Guaranty Trust Company of New York,
as Agent, and the Co-Agent and Banks named therein. (The
Agreement included as Exhibit 10.3 to Polaroid Corporation Form
10-K for the year ended December 31, 1992 as filed on March 23,
1993 is hereby incorporated by reference.)
10.4 Amendment No. 1 dated as of December 18, 1992 to the Credit
Agreement (ESOP Loan) dated as of June 30, 1992. (The Amendment
included as Exhibit 10.4 to Polaroid Corporation Form 10-K for
the year ended December 31, 1992 as filed on March 23, 1993 is
hereby incorporated by reference.)
10.5 Amended and Restated Credit Agreement (ESOP Loan) dated as
of November 29, 1994 among Polaroid Corporation, Morgan Guaranty
Trust Company of New York, as Agent, ABN AMRO Bank N.V. as Co-
Agent and Banks listed therein. (The Agreement included as
Exhibit 10.5 to Polaroid Corporation Form 10-K for the year
ended December 31, 1994 as filed on March 30, 1995 is hereby
incorporated herein by reference.)
10.6 Amendment and Waiver dated as of December 31, 1995 with respect
to $150,000,000 Credit Agreement, dated as of August 24, 1994.
(The Amendment included as Exhibit 10.6 to Polaroid Corporation
Form 10-K for the year ended December 31, 1995 as filed on March
21, 1996 is hereby incorporated by reference.)
10.7 Amendment and Waiver dated as of December 31, 1995 with respect
to $130,022,336 Amended and Restated Credit Agreement, dated as
of November 29, 1994. (The Amendment included as Exhibit 10.7 to
Polaroid Corporation Form 10-K for the year ended December 31,
1995 as filed on March 21, 1996 is hereby incorporated by
reference.)
10.8* Polaroid Incentive Plan For Executives, dated December 20,
1996, effective January 1, 1996.
10.9 Polaroid Executive Equalization Retirement Plan, effective
January 1, 1984, as amended December 21, 1994. (The Plan
included as Exhibit 10.8 to Polaroid Corporation Form 10-K for
the year ended December 31, 1994 as filed on March 30, 1995 is
hereby incorporated herein by reference.)
10.10 Polaroid Officer's Compensation Exchange Plan, effective
January 1, 1994, as amended December 21, 1994. (The Plan
included as Exhibit 10.9 to Polaroid Corporation Form 10-K for
the year ended December 31, 1994 as filed on March 30, 1995 is
hereby incorporated herein by reference.)
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<PAGE>
10.11 Polaroid Stock Incentive Plan, effective January 1, 1992,
as amended October 19, 1992. (The Plan included as Exhibit 10.10
to Polaroid Corporation Form 10-K for the year ended December
31, 1992 as filed on March 23, 1993 is hereby incorporated by
reference.)
10.12 The 1993 Polaroid Stock Incentive Plan, effective May 11,
1993, as amended June 1, 1993. (The Plan included as Exhibit
10.10 to Polaroid Corporation Form 10-K for the year ended
December 31, 1993 as filed on March 30, 1994 is hereby
incorporated herein by reference.)
10.13 Polaroid Board of Directors Stock Option Plan, as amended
December 18, 1995. (The Plan included as Exhibit 10.13 to
Polaroid Corporation Form 10-K for the year ended December 31,
1995 as filed on March 21, 1996 is hereby incorporated by
reference.)
10.14 Polaroid Board of Directors Retirement Plan, effective
January 1, 1991 as amended June 13, 1991. (The Plan included as
Exhibit 10.11 to Polaroid Corporation Form 10-K for the year
ended December 31, 1991 as filed on March 27, 1992 is hereby
incorporated herein by reference.)
10.15 Deferred Compensation Plan Trust Agreement dated May 17,
1995 between Polaroid Corporation and NationsBank. (The
Agreement included as Exhibit 10.15 to Polaroid Corporation Form
10-K for the year ended December 31, 1995 as filed on March 21,
1996 is hereby incorporated by reference.)
10.16 Employment Agreement dated May 6, 1994 with Enrico I.
Ancona. (The Agreement included as Exhibit 10.16 to Polaroid
Corporation Form 10-K for the year ended December 31, 1994 as
filed on March 30, 1995 is hereby incorporated herein by
reference.)
10.17 Employment Agreement dated October 20, 1995 between Gary T.
DiCamillo and Polaroid Corporation. (The Agreement included as
Exhibit 10.1 to Polaroid Corporation Form 8-K as filed on
January 16, 1996 is hereby incorporated herein by reference.)
10.18 Amendment of Employment Agreement dated as of December 21,
1995 between Gary T. DiCamillo and Polaroid Corporation. (The
Amendment included as Exhibit 10.2 to Polaroid Corporation Form
8-K as filed on January 16, 1996 is hereby incorporated herein
by reference.)
10.19 Severance and retirement agreement dated November 10, 1995
between I. M. Booth and the Company. (The Agreement included as
Exhibit 10.3 to Polaroid Corporation Form 8-K as filed on
January 16, 1996 is hereby incorporated herein by reference.)
10.20 Severance and retirement agreement dated January 25, 1996
between Joseph R. Oldfield and the Company. (The Agreement
included as Exhibit 10.22 to Polaroid Corporation Form 10-K for
the year ended December 31, 1995 as filed on March 21, 1996 is
hereby incorporated by reference.)
11* Computation of earnings per share.
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<PAGE>
13* Annual Report to Stockholders for 1996. (The Annual Report
to Stockholders for 1996, except for the portions thereof which
are specifically incorporated by reference in this report on
Form 10-K, is furnished for the information of the Securities
and Exchange Commission and is not to be deemed "filed" as part
of this report on Form 10-K.)
21* Subsidiaries.
23* Consent of KPMG Peat Marwick LLP.
27* Financial Data Schedule.
____________________________
* Filed herewith.
Exhibits are not included in copies of this Form 10-K except those
copies filed with the Securities and Exchange Commission. A copy of
these exhibits will be furnished to stockholders upon written
request.
b) Reports on Form 8-K
During the fourth quarter of 1996, the Company filed a Current
Report on Form 8-K, dated December 11, 1996.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By /s/Gary T. DiCamillo
---------------------
Gary T. DiCamillo
Chairman of the Board and
Chief Executive Officer
March 20, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/s/ GARY T. DICAMILLO Chairman of the Board March 20, 1997
- ---------------------- and Chief Executive Officer;
GARY T. DICAMILLO Director
/s/ WILLIAM J. O'NEILL, JR. Executive Vice President March 20, 1997
- ---------------------- and Chief Financial
WILLIAM J. O'NEILL, JR. Officer
/s/ CARL L. LUEDERS Vice President March 20, 1997
- ---------------------- and Controller
CARL L. LUEDERS
/s/ RALPH E. GOMORY Director March 20, 1997
- ---------------------------
RALPH E. GOMORY
/s/ FRANK S. JONES Director March 20, 1997
- ---------------------------
FRANK S. JONES
/s/ JOHN W. LOOSE Director March 20, 1997
- ---------------------------
JOHN W. LOOSE
/s/ ALBIN F. MOSCHNER Director March 20, 1997
- ---------------------------
ALBIN F. MOSCHNER
/s/ HENRY NECARSULMER Director March 20, 1997
- ---------------------------
HENRY NECARSULMER
/s/ KENNETH H. OLSEN Director March 20, 1997
- ---------------------------
KENNETH H. OLSEN
/s/ RONALD F. OLSEN Director March 20, 1997
- ---------------------------
RONALD F. OLSEN
/s/ LESTER POLLACK Director March 20, 1997
- ---------------------------
LESTER POLLACK
/s/ CHARLES P. SLICHTER Director March 20, 1997
- ---------------------------
CHARLES P. SLICHTER
/s/ RALPH Z. SORENSON Director March 20, 1997
- ---------------------------
RALPH Z. SORENSON
/s/ DELBERT C. STALEY Director March 20, 1997
- ---------------------------
DELBERT C. STALEY
/s/ BERNEE D.L. STROM Director March 20, 1997
- ---------------------------
BERNEE D.L. STROM
/s/ ALFRED M. ZEIEN Director March 20, 1997
- ---------------------------
ALFRED M. ZEIEN
-14-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
POLAROID CORPORATION:
Under the date of January 28, 1997, we reported on the consolidated
balance sheet of Polaroid Corporation and subsidiary companies as of
December 31, 1996 and 1995, and the related consolidated statements
of earnings, cash flows, and changes in common stockholders' equity
for each of the years in the three-year period ended December 31,
1996, as contained in the 1996 annual report to stockholders. These
consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the
year 1996. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related
financial statement schedule as listed in Item 14(a)2 of this Report.
This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
/s/ KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 28, 1997
-15-
<PAGE>
Polaroid Corporation and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
(In millions)
Additions
-----------------
Description Balance Charged Charged Deductions Balance
at to to Charged End of
Beginning Costs Other to Period
of and Accounts Reserves
Period Expenses
- --------------------------------------------------------------------
1996
Doubtful accounts $20.2 $3.9 $ -- $ (8.8) $15.3
Cash discounts 7.8 -- 31.9 (30.9) 8.8
====================================================================
1995
Doubtful accounts $16.8 $11.0 $ -- $ (7.6) $20.2
Cash discounts 7.7 -- 28.0 (27.9) 7.8
====================================================================
1994
Doubtful accounts $15.7 $ 8.6 $ -- $ (7.5) $16.8
Cash discounts 7.6 -- 30.0 (29.9) 7.7
====================================================================
-16-
Exhibit 10.8
POLAROID INCENTIVE PLAN FOR EXECUTIVES
--------------------------------------
POLAROID CORPORATION
Cambridge, Massachusetts
Effective January 1, 1996
<PAGE>
POLAROID INCENTIVE PLAN FOR EXECUTIVES
---------------------------------------
PURPOSE
- -------
The Polaroid Incentive Plan for Executives is established by
Polaroid Corporation to motivate present executives and other key
employees whose judgment, initiative, leadership and continued effort
contribute to the success of the Company and its Subsidiaries and to
attract highly competent individuals.
This Plan provides an incentive for officers, executives and other
key employees of the Company and its Subsidiaries to maximize the
Company's operational performance.
ARTICLE I
DEFINITIONS
------------
1.01 Award. Award shall have the meaning as provided in
Section 3.02 hereof.
1.02 Board of Directors. Board of Directors shall mean the
Board of Directors of the Company.
1.03 Code. Code shall mean the Internal Revenue Code of 1986
("Code"), as amended, and its implementing regulations, unless
otherwise specifically provided herein.
1.04 Committee. Committee shall mean the group of individuals
designated to administer this Plan pursuant to Article VI
hereof.
1.05 Company. Company shall mean Polaroid Corporation, a
Delaware corporation.
1.06 Company Contributions. Company Contributions shall mean
the aggregate amount subject to distribution under the Award
formula for all Participants.
1.07 Compensation. Compensation includes and is limited to:
(a) Primary salary or wages;
(b) Amounts elected as or deemed to be cash,
property or other taxable benefits under any plan
established by the Company under Code Section 125 as now
or hereafter in effect;
-1-
<PAGE>
(c) Amounts elected as non-taxable benefits under
any plan established by the Company under Code Section 125
as now or hereafter in effect;
(d) Amounts, other than the Company's matched
deferral contributions, elected as or deemed to be
payments to the Participant directly in cash under any
cash or deferral arrangement established by the Company
and qualified under Code Section 401(k) as now or
hereafter in effect;
(e) Amounts, other than the Company's matched
deferral contribution, elected as or deemed to be payments
as contributions to a trust under a profit sharing or
stock bonus plan under any cash or deferral arrangement
established by the Company and qualified under Code
Section 401(k) as now or hereafter in effect; and,
(f) Payments made directly or indirectly under the
Company's short-term disability program, as it shall exist
from time to time, including payments made thereunder in
lieu of payments by the Company regardless of their source
(provided, however, that the total of all such payments to
a disabled Employee shall not be in excess of the basic
salary or wages that would have been payable to him had he
not been disabled), earned by and paid to a Participant by
the Company in a Plan Year during which he was a
Participant.
All compensation or allocations, other than those
described in (a) through (f) above, are excluded from
Compensation, such as but not limited to, overtime pay, shift
premiums, schedule change premiums, special day premiums,
tuition refunds, relocation payments, suggestion or special
awards, commissions, fixed and other bonuses, payments pursuant
to any incentive compensation or profit sharing plan
contributions (including the Company's matched deferral
contributions), allocations or benefits pursuant to any
retirement, pension, survivor's benefit, death benefit, long-
term disability, insurance or other plan, severance pay and
premiums, adjustments and allowances on account of foreign
service.
1.08 EBIT. EBIT for any Plan Year shall mean the profit from
operations as shown in the Company's financial statements
contained in the Company's annual report to stockholders and
adding back expenses for Company contributions to this Plan or
any other bonus or incentive compensation plan (excluding sales
bonus plans).
-2-
<PAGE>
Notwithstanding the foregoing, any unusual and
significant expenses incurred or unusual and significant
revenues received by the Company may be excluded if approved by
the Board of Directors.
1.10 Employee. Employee shall mean any "Full-Time Permanent"
employee and any "Part-Time Permanent" employee of Polaroid, as
defined by the Company in a uniform and non-discriminatory
manner.
1.11 EVA. Economic Value Added ("EVA") for any Plan Year shall
mean the EBIT minus charge for Capital employed for the
operation of either the Corporation or the Business Unit, as
applicable. For purposes of this definition Capital is defined
as the working capital, such as inventory, receivables and
fixed assets (equipment and buildings) utilized in the
respective component.
1.12 EVA Target. EVA Target shall mean the goal for EVA which
the Company hopes to obtain in the Plan Year. This EVA Target
shall be set by the Human Resources Committee in the first
quarter of each Plan Year.
1.13 Human Resources Committee. The Human Resources Committee
shall mean the Human Resources Committee of the Board of
Directors.
1.14 Option. Option shall mean the number of shares in an
Option granted after January 1, 1994, under the 1993 Polaroid
Stock Incentive Plan.
1.15 Participant. Participant shall mean an Employee selected
to participate in the Plan in accordance with Article II
hereof.
1.16 Plan. Plan shall mean this Polaroid Executive Incentive
Compensation Plan as in effect from time to time.
1.17 Plan Year. Plan Year shall mean a calendar year.
-3-
<PAGE>
1.18 Stock. Stock shall mean common stock, par value $1 per
share, issued by the Company.
1.19 Subsidiary. Subsidiary shall mean any corporation of
which more than fifty percent (50%) of the outstanding shares
of voting stock are beneficially owned directly or indirectly
by the Company.
ARTICLE II
ELIGIBILITY
-----------
2.01 Eligibility to Participate. Officers of the Company or
any Subsidiary, whether or not directors of the Company, and
non-officer Employees or employees of any Subsidiary who are
employed in positions of administrative, technical, or
managerial responsibility shall be eligible to participate in
the Plan.
2.02 Participation. Non-officer Employees or non-officer
employees of a Subsidiary eligible to participate under Section
2.01 shall become Participants if selected by the Committee.
Officers of the Company or any Subsidiary shall become
Participants if selected by the Human Resources Committee.
2.03 Termination of Participation. Participation in the Plan shall
terminate when a Participant's employment by the Company
terminates for any reason or when his employment status with
the Company changes so that he ceases to be an Employee and has
not otherwise been designated as a Participant pursuant to
Section 2.01 hereof.
-4-
<PAGE>
ARTICLE III
ANNUAL EXECUTIVE BONUS
----------------------
3.01 Award. An Award under this Plan shall have three
components, a Personal Performance Component, a Corporate
Component and a Business Unit Component. Each Participant who
achieves their Personal Performance Component shall receive an
Award equal to the benefit derived under the Corporate
Component and the Business Unit Component. This Award shall be
determined given the Participant's:
(a) percentage of achievement of the individual's
Personal Performance Component;
(b) level or range of participation in the Plan
(expressed as a percentage of the Participant's
Compensation); and,
(c) the ratio of the Corporate Component to his
Business Unit Component as established by the Human
Resources Committee pursuant to Section 3.03 below.
Participants who are not in a unit with a Business Unit
Component shall receive an Award based on the method as
established by the Human Resources Committee pursuant to
Section 3.03 below.
3.02 Actions of the Human Resources Committee. Prior to the
end of the first quarter in a Plan Year, the Human Resources
Committee shall establish:
(a) the categories of Participants;
(b) the level or range at which each category of
Participants will participate in this Plan expressed as a
percentage of Compensation;
(c) the ratio on which each category of Participant
Awards will be based will be returns from Corporate
Component performance versus Business Unit Component
performance as described below;
(d) the method by which Participants who are not in
a unit with a Business Unit Component shall have their
Award calculated;
(e) the EVA Target level for the Corporate
Component; and,
(f) the maximum and minimum EVA Target which will
be paid under the Corporate Component.
-5-
<PAGE>
3.03 Personal Performance Component. The Personal Performance
Component are performance goals set for the Participant for the
Plan Year.
3.04 Corporate Component. The Corporate Component is expressed as
the Corporate EVA Target. There will be no distribution under
the Corporate Component unless the minimum threshold for the
EVA Target is reached.
3.05 Business Unit Component. Each Business Unit Component is
expressed as the EVA Target for the particular unit. Prior to
the end of the first quarter in a Plan Year, the Committee
shall establish the EVA Target level for each Business Unit,
and the maximum and minimum percentages of such EVA Target for
each major business unit. There will be no distribution under a
Business Unit Component unless the minimum threshold for each
business unit's EVA Target for the specific unit is reached.
3.06 Extraordinary Distributions. If the minimum percentage for the
EVA Target is not achieved in a Plan Year in either the
Corporate Component or the Participant's Business Unit
Component for a classification(s) of Participants:
(a) (1) The Human Resources Committee, in its sole
discretion, may grant extraordinary distributions to
any officer for his significant individual
contribution; and
(2) The Committee, in its sole discretion, may grant
extraordinary distributions to any non-officer for
his significant individual contribution.
(b) The aggregate amount of funds available for all such
extraordinary distributions in a Plan Year shall be
determined by the Human Resources Committee. In no event,
shall such aggregate amount exceed 20% of what the Company
Contributions would have been had the actual EVA Target
been reached in the Corporate Component.
-6-
<PAGE>
3.07 Participant Payment. Each Participant who is employed
by the Company on the last day of a Plan Year shall be
entitled to an incentive payment under this Plan if the
minimum EVA Target in either the Corporate Component
or the Participant's Business Unit Component for the
Plan Year is met. Participants who transfer between
Business Units during the Plan Year will have their
incentive payment pro-rated for the time spent in each
Business Unit. This pro-ration will be calculated by
rounding to the nearest quarter the time the
Participant spends in each Business Unit during the
Plan Year .
3.08 Terminated Participant's Payments. A Participant who has
terminated during a Plan Year by:
(a) Death;
(b) Retirement;
(c) Layoff;
(d) Long-Term Disability;
(e) Leave of absence (including military leave);
(f) Transfer to a Subsidiary; or,
(g) Any other reason that the Committee, in its sole
discretion determines to be exceptional cause,
shall be entitled to a proportionate incentive payment
based upon the Compensation paid him or her during the Plan
Year up to the date of cessation of participation. A
Participant who terminates during any given Plan Year for any
other reason shall not be entitled to an incentive payment
under this Plan.
3.09 Form of Payment. Each Participant shall be paid in a lump
sum cash payment.
3.10 Payments to Beneficiaries. If a Participant dies prior to
his receipt of payments under this Plan, the payment shall be
made:
(a) To the deceased Participant's spouse;
(b) If there is no living spouse, to the
Participant's children, divided equally; or,
(c) If there are no children, to the deceased
Participant's estate.
-7-
<PAGE>
3.11 Administration and Procedures. The Committee shall, in its
sole discretion, have the exclusive authority to adopt any such
administrative procedures as may be necessary to ensure ease in
administration of the Plan.
ARTICLE IV
DIVIDEND EQUIVALENT AWARD
-------------------------
4.01 Dividend Equivalent Award Participation. Only Employees
and former Employees who satisfy Section 2.01 or have satisfied
Section 2.01 prior to termination or retirement and who hold
Options granted under the 1993 Polaroid Stock Incentive Plan
are eligible to participate in this Section.
4.02 Dividend Equivalent Award. A Dividend Equivalent Award
shall equal the number of shares on which each Participant has
an Option granted subsequent to January 1, 1994 but before June
1, 1996 multiplied by $0.15. Notwithstanding the foregoing,
this Award will not be paid on Stock which is part of an Option
that has been exercised, terminated or lapsed. A Dividend
Equivalent Award shall not be paid under this Plan on any
option issued after June 1, 1996.
4.03 Timing of Distributions. The Dividend Equivalent Awards
shall be payable at such time as the dividends are issued to
the Company's shareholders of common stock. Notwithstanding
the foregoing, a Dividend Equivalent Award shall be paid only
for the portion of the Option held on the record date for the
issuance of dividends to the Company's shareholders of common
stock. An Award will not be paid on any portion of the Option
which has been exercised, terminated or lapsed.
4.04 Exclusions From Distributions. Notwithstanding anything
in this section to the contrary, dividend equivalents granted
under this Article IV may be suspended on grants previously
granted, and an Option Agreement issued pursuant to an
employment, or severance agreement may not include dividend
equivalents pursuant to the terms of the severance or
employment..
-8-
<PAGE>
ARTICLE V
FINANCING
---------
5.01 Financing. The benefits under this Plan shall be paid out
of the general assets of the Company.
5.02 Unsecured Interest. No Participant shall have any
interest whatsoever in any specific asset of the Company. To
the extent that any person acquires a right to receive payments
under this Plan, such right shall be no greater than the right
of any unsecured general creditor of the Company.
ARTICLE VI
ADMINISTRATION
---------------
6.01 Administrator. The Plan shall be administered by the
Committee designated by the Chief Executive Officer of the
Company and shall consist of not less than three officers of
the Company. Members of the Committee shall not be entitled to
any compensation for services performed in conjunction with the
operation of this Plan.
6.02 Duties of Administrator. The Committee shall:
(a) administer the Plan in accordance with its
terms;
(b) have the exclusive discretionary authority to
interpret the Plan for any questions which may arise,
including without limitation, questions relating to
eligibility for or the amount of benefits;
(c) make final judgment on appeals by Employees;
(d) maintain records of its actions; and
(e) engage and consult with counsel, accountants,
specialists and other persons as the Committee deems
necessary and desirable.
6.03 Decisions of the Committee
Committee decisions must be approved by a majority of the
members and may be made by either a vote at a meeting, or in
writing (without a meeting). Any member of the Committee who
is a Participant under the Plan shall not vote on any question
relating exclusively to himself. The Compensation Committee
shall approve any award, decision, rule, or interpretation
which relates exclusively to any Participant who is a member of
the Committee. Any determination by the Committee or Human
Resources Committee shall be conclusive and binding except as
otherwise provided in this Plan or prohibited by law.
-9-
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
------------------------
7.01 Applicable Law. This instrument shall be construed in
accordance with and governed by the laws of the Commonwealth of
Massachusetts to the extent not superseded by the laws of the
United States.
7.02 Expenses. The cost of benefit payments from this Plan and
the expenses of administering the Plan shall be borne by the
Company.
7.03 Gender and Number. Unless the context clearly requires
otherwise, the masculine pronoun whenever used shall include
the feminine and neuter pronoun, the singular shall include the
plural, and vice versa.
7.04 Illegality of a Particular Provision. The illegality of
any particular provision of this document shall not affect the
other provisions, and the document shall be construed in all
respects as if such invalid provision were omitted.
7.05 Indemnification. No member of the Board of Directors or
the Committee shall be liable for any action or determination
taken or made in good faith with respect to this Plan, any
Awards granted or any award distributions under this Plan.
Each member of the Board of Directors and the Committee shall
be indemnified by the Company against any losses incurred in
such administration of the Plan, unless his action constitutes
serious and willful misconduct.
-10-
<PAGE>
7.06 Limitation of Rights. Neither the adoption and
maintenance of the Plan nor anything contained herein shall
with respect to any present or former Participant, or other
officer or employee of the Company or any Subsidiary be deemed
to:
(a) limit the right of the Company or any Subsidiary
to discharge or discipline any such person, or otherwise
terminate or modify the terms of his employment, or
(b) create any contract or other right or interest
under the Plan or in any funds from this Plan other than
as specifically provided herein.
7.07 Non-Assignability. A Participant's interest under this
Plan shall not be subject at any time or in any manner to
alienation, sale, transfer, assignment, pledge, attachment,
garnishment or encumbrance of any kind and any attempt to
deliver, sell, transfer, assign, pledge, attach, garnish or
otherwise encumber such interest shall be void and any interest
so encumbered will terminate
7.08 Nontransferability. In no event shall the Company make
any payment under this Plan to any assignee or creditor of a
Participant or of a Beneficiary, except as otherwise required
by law. Prior to the time of a payment under this Plan, a
Participant or a Beneficiary shall have no rights by way of
anticipation or otherwise to assign or otherwise dispose of any
interest under this Plan, nor shall rights be assigned or
transferred by operation of law.
7.09 Taxes. The Company shall have the right to deduct from
the award distributions any federal, state or local taxes
required by law to be withheld with respect to such
distribution.
-11-
<PAGE>
ARTICLE VIII
EFFECTIVE DATE AND RIGHT TO
AMEND, MODIFY OR TERMINATE
-----------------------------
8.01 Effective Date. This Plan, originally adopted by the
Board of Directors on February 18, 1986, effective as of
January 1, 1986, is hereby amended effective January 1, 1996.
8.02 Right to Amend, Modify or Terminate. The Company reserves
the right to amend, modify or terminate the Plan or payments
thereunder at any time by action of the Board of Directors and
does not intend to submit any amendments or modifications to
the Plan to stockholders of the Company for their approval.
However, without the consent of any Participant or his
Beneficiary, if applicable, no such amendment or termination
shall reduce or diminish such person's right to receive any
benefit accrued under this Plan prior to the date of such
amendment or termination. Notwithstanding the foregoing, the
Chief Executive Officer of the Company may adopt any amendments
to the Plan that do not materially and adversely affect the
benefits to a Participant accrued under the Plan and may adopt
any amendments to the Plan that do not materially affect the
cost to the Company (excluding any amendment that relates
exclusively to himself).
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed this 20th day of December, 1996, effective January 1, 1996.
Attest POLAROID CORPORATION
By: By: /s/Joseph G. Parham, Jr.
------------------------ --------------------------
Secretary Vice President
Human Resources
-12-
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
-----------------------------------------------
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
FOURTH QUARTER, 1996
PRIMARY COMPUTATION
- -------------------
Earnings before extraordinary item per statement of earnings $ 13.0
Extraordinary item (1.6)
------
Net earnings $ 11.4
======
Weighted average number of common
shares outstanding 45.2
Weighted average number of common
stock equivalents .4
------
Weighted average number of common
shares, as adjusted 45.6
======
Primary earnings per common share:
Earnings before extraordinary item $ .28
Extraordinary item (.03)
------
Net earnings $ .25
======
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
FOURTH QUARTER, 1996
FULLY DILUTED COMPUTATION
- -------------------------
Earnings before extraordinary item per statement of earnings $ 13.0
Add: effect of elimination of after-tax interest expense
on $139.5 million 8% convertible debentures 1.7
-------
Earnings before extraordinary item, as adjusted 14.7
Extraordinary item (1.6)
-------
Net earnings, as adjusted $ 13.1
=======
Weighted average number of common
shares outstanding used for primary computation 45.2
Weighted average number of common
stock equivalents .5
Add: effect of converting $139.5 million
8% convertible debentures into common stock 4.3 (A)
-------
Weighted average number of common shares
outstanding, as adjusted 50.0
=======
Fully diluted earnings/(loss) per common share:
Earnings before extraordinary item $ .29
Extraordinary item (.03)
-------
Net earnings $ .26 (B)
=======
(A)Assumes conversion of $139.5 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-K 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.
-2-
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1996
PRIMARY COMPUTATION
- -------------------
Earnings before extraordinary item per statement of earnings $ 15.0
Extraordinary item (56.1)
-------
Net loss $(41.1)
=======
Weighted average number of common
shares outstanding 45.4
Weighted average number of common
stock equivalents .6
------
Weighted average number of common
shares, as adjusted 46.0
======
Primary earnings/(loss) per common share:
Earnings before extraordinary item $ .32
Extraordinary item (1.21)
-------
Net loss $ (.89)
=======
-3-
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1996
FULLY DILUTED COMPUTATION
- -------------------------
Earnings before extraordinary item per statement of earnings $ 15.0
Add: effect of elimination of after-tax interest expense
on $139.5 million 8% convertible debentures 6.8
-------
Earnings before extraordinary item, as adjusted 21.8
Extraordinary item (56.1)
-------
Net loss, as adjusted $ (34.3)
=======
Weighted average number of common
shares outstanding used for primary computation 45.4
Weighted average number of common
stock equivalents .6
Add: effect of converting $139.5 million
8% convertible debentures into common stock 4.3 (A)
-------
Weighted average number of common shares
outstanding, as adjusted 50.3
=======
Fully diluted earnings/(loss) per common share:
Earnings before extraordinary item $ .43
Extraordinary item (1.11)
-------
Net loss $ (.68) (B)
=======
(A)Assumes conversion of $139.5 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-K 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.
-4-
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
FOURTH QUARTER, 1995
PRIMARY COMPUTATION
- -------------------
Net loss per statement of earnings $(111.0)
========
Weighted average number of common
shares outstanding 45.5
Weighted average number of common
stock equivalents --
--------
Weighted average number of common
shares, as adjusted 45.5
========
Primary loss per common share $ (2.44)
========
-5-
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
FOURTH QUARTER, 1995
FULLY DILUTED COMPUTATION
- -------------------------
Net loss per statement of earnings $(111.0)
Add: effect of elimination of after-tax interest expense
on $140.0 million 8% convertible debentures 1.7
--------
Net loss, as adjusted $(109.3)
========
Weighted average number of common
shares outstanding used for primary computation 45.5
Weighted average number of common
stock equivalents 1.2
Add: effect of converting $140.0 million
8% debentures into common stock 4.3 (A)
--------
Weighted average number of common
shares, as adjusted 51.0
========
Fully diluted loss per common share $ (2.14) (B)
========
(A)Assumes conversion of $140.0 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-K 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.
-6-
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1995
PRIMARY COMPUTATION
- -------------------
Net loss per statement of earnings $(140.2)
========
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 $ (3.09)
========
-7-
<PAGE>
POLAROID CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (Continued)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1995
FULLY DILUTED COMPUTATION
- -------------------------
Net loss per statement of earnings $(140.2)
Add: effect of elimination of after-tax interest expense
on $140.0 million 8% convertible debentures 6.8
--------
Net loss, as adjusted $(133.4)
========
Weighted average number of common
shares outstanding used for primary computation 45.4
Weighted average number of common
stock equivalents 1.4
Add: effect of converting $140.0 million
8% debentures into common stock 4.3 (A)
--------
Weighted average number of common
shares, as adjusted 51.1
========
Fully diluted loss per common share $ (2.61) (B)
========
(A)Assumes conversion of $140.0 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-K 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.
-8-
<PAGE>
Financial Review
Polaroid Corporation and Subsidiary Companies
23 Management's Discussion and Analysis of Operations
31 Independent Auditors' Report
31 Management's Report
Financial Statements:
32 Consolidated Statement of Earnings
33 Consolidated Balance Sheet
34 Consolidated Statement of Cash Flows
35 Consolidated Statement of Changes in
Common Stockholders' Equity
Notes to Consolidated Financial Statements:
36 1. Summary of Significant Accounting Policies
37 2. Supplemental Information
38 3. Financial Instruments
39 4. Income Taxes
41 5. Inventories
41 6. Short-term Debt
41 7. Payables and Accruals
42 8. Long-term Debt
42 9. Common Stockholders' Equity
43 10. Incentive Compensation and Stock Incentive Plans
45 11. Benefit Plans
46 12. Rental Expense and Lease Commitments
47 13. Business
48 14. Contingencies
48 15. Subsequent Events
48 16. Supplementary Financial Information
Supplementary Financial Information:
49 Quarterly Financial Data
50 Ten-Year Financial Summary
22 FOUNDATIONS FOR GROWTH
<PAGE>
Management's Discussion and Analysis of Operations
The following table summarizes the relation to net sales of income and expense
items included in the Consolidated Statement of Earnings for 1996, 1995 and 1994
and the changes in those items from the respective prior years.
<TABLE>
<CAPTION>
Income and Expense Items
as a Percent of Net Sales Percent Increase/(Decrease)
- ------------------------- ---------------------------
1995 1994 1993
to to to
1996 1995 1994 Income and Expense Items 1996 1995 1994
- ------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
Net Sales:
47% 46% 50% United States 4% (12)% (2)%
53 54 50 International - 6 8
- ------------------------------------------------------------------------------------
100 100 100 Total net sales 2 (3) 3
56 58 57 Cost of goods sold (1) (2) 2
Marketing, research, engineering,
35 38 34 and administrative expenses (6) 8 3
5 11 - Restructuring and other expenses (55) 100 (100)
2 - - Special charges 100 - -
- ------------------------------------------------------------------------------------
2 (7) 9 Profit/(loss) from operations NM NM 42
- ------------------------------------------------------------------------------------
1 - - Other income 215 21 (15)
2 2 2 Interest expense (9) 12 (3)
- ------------------------------------------------------------------------------------
Earnings/(loss) before income tax
1 (9) 7 expense/(benefit) NM NM 58
Federal, state and foreign income
- (3) 2 tax expense/(benefit) NM NM 29
- ------------------------------------------------------------------------------------
Earnings/(loss) before
1 (6) 5 extraordinary item NM NM 73
(3) - - Extraordinary item (100) - -
- ------------------------------------------------------------------------------------
(2)% (6)% 5% Net earnings/(loss) 71% NM 73%
- ------------------------------------------------------------------------------------
</TABLE>
NM - not meaningful because of a fluctuation from a positive amount to a
negative amount or from a negative amount to a positive amount.
Percent of Worldwide Sales
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE] [GRAPHIC APPEARS HERE]
1996 1995
47% U.S. 46% U.S.
29% Europe 33% Europe
24% Asia Pacific, Canada, Latin 21% Asia Pacific, Canada, Latin
and South America and South America
Profit from Operations
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
1992 - $214 million
1993* - $185 million
1994 - $200 million
1995** - $ 89 million
1996*** - $202 million
* Excludes impact of $44 million of charges related to restructuring and other
expenses.
** Excludes impact of $247 million of charges related to restructuring and
other expenses.
*** Excludes impact of $110 million of charges related to restructuring and
other expenses and $40 million of one-time costs.
FOUNDATIONS FOR GROWTH 23
<PAGE>
The Company often uses the following qualitative descriptors to explain its
results of operations: "flat" indicates fluctuations of zero-to-one percent;
"slight" is in the two-to-three percent range; "moderate" means four-to-ten
percent; "significant" is in the eleven-to-twenty percent range; and
"substantial" represents fluctuations greater than twenty percent.
1996 Worldwide Results Compared with 1995
Worldwide sales of Polaroid Corporation and its subsidiaries increased 2% to
$2.28 billion in 1996 compared with $2.24 billion in 1995. Worldwide shipments
of instant film in 1996 increased slightly compared to 1995. Excluding instant
film shipments in Russia, 1996 shipments increased in the mid-single digits
compared to 1995 shipments. In 1996, the Company sold 5.1 million cameras
compared with 5.4 million cameras in 1995. Excluding camera shipments in Russia,
1996 camera shipments increased moderately compared to 1995. Conventional film
shipments increased significantly and videotape shipments increased slightly in
1996 compared to 1995.
In 1996, sales in the United States were $1.06 billion, an increase of 4%
compared to $1.02 billion in 1995. In 1996, U.S. shipments of instant cameras
decreased moderately and shipments of instant film increased slightly compared
to 1995. Sales in the U.S. in 1996 also included approximately $10 million to
$20 million of licensing income on patents.
International sales in 1996 of $1.21 billion were comparable to international
sales of $1.22 billion in 1995, despite the decline in sales in Russia and the
negative impact of foreign currency translation. Sales in 1996 in the European
region, excluding Russia, increased compared to 1995. Including Russia, sales in
the European region decreased 10% to $664 million in 1996 compared with $739
million in 1995. The Company's sales in Russia in 1996 decreased over 40%
compared to a year ago. In 1996, sales in the Asia Pacific, Canada, Latin and
South America regions increased 15% to $551 million compared to $479 million in
1995 despite the negative impact of foreign currency translation, in particular,
the yen.
Gross margins as a percent of sales increased to 44% for 1996 from 42% for 1995.
The increase in gross margin in 1996 reflects the impact of savings from
restructuring, favorable pricing on instant film, licensing income on patents
and more cost-effective promotions. In 1996, the gross margin was also
negatively affected by foreign currency translation.
Marketing, research, engineering and administrative expenses decreased to $797
million (35% of sales) in 1996 from $849 million in 1995 (38% of sales),
primarily as a result of lower spending in research and engineering expenses.
Research and engineering expenses were $116 million in 1996 compared to $166
million in 1995, a 30% decrease.
One-time costs relate to special charges in 1996 and charges for restructuring
and other in 1996 and 1995. In 1996, one-time costs totaled $150 million pre-tax
of which $110 million was recorded in the first quarter of 1996 and $40 million
was recorded in the fourth quarter of 1996. In 1995, one-time costs totaled $247
million.
The $110 million restructuring and other expenses represents the balance of
severance and pension enhancement costs and inventory write-downs related to the
December 1995 program (as more fully described in the section "1995 Worldwide
Results Compared with 1994".) The $110 million charge includes approximately $55
million pre-tax costs related to the severance program. Additionally,
approximately $45 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 in the
Company's consolidated statement of cash flows.
The 1996 fourth quarter $40 million pre-tax cost includes $25 million related to
the previously announced costs associated with the sale of the Company's Helios
medical diagnostic imaging equipment line and $15 million to write down parts
and capital equipment under development for a printer project and other costs.
Inventory write-offs of $7 million related to these matters were recorded in
cost of sales, in accordance with new accounting guidelines and $33 million was
reported as special charges. The $33 million special charge reflects the write-
offs of fixed assets, severance and other costs.
Excluding one-time costs, operating profit for 1996 was $202 million compared to
$89 million in 1995. The increase in operating profit primarily reflects the
impact of savings from restructuring and lower losses in the Company's digital
imaging businesses. Including one-time costs, operating profit was $52 million
in 1996 compared to a loss from operations of $158 million in 1995.
Total losses in the Company's digital imaging businesses in 1996 declined
approximately $60 million compared to total losses of approximately $190 million
in 1995. Reduction of these losses was achieved through restructuring and the
growth of new product revenue, particularly in digital products which included
LCD panels and projectors, the Company's PDC-2000 digital camera and color film
recorders.
24 FOUNDATIONS FOR GROWTH
<PAGE>
Other income was $27 million in 1996 compared with $9 million in 1995. This
increase primarily reflects a $23 million gain on the sale of real estate
partially offset by lower interest income. Included in other income was a
foreign currency loss of $2 million from balance sheet translation in 1996
compared to a foreign currency loss of $3 million a year ago. Interest expense
decreased to $47 million in 1996 from $52 million in 1995 primarily as a result
of lower average borrowings and lower average interest rates.
For the full year 1996, the effective tax rate was 52%, compared with 30% for
1995. The increase in the effective tax rate was primarily a result of the
adverse effect of the strengthening U.S. dollar on the international tax rate.
For purposes of determining the after-tax one-time costs, the Company assumed a
tax rate of 40% in 1996 and 35% in 1995 to calculate the tax benefit. The net
after-tax foreign currency exchange loss from balance sheet translation for the
full year 1996 amounted to $.11 per common share, compared with a $.03 loss for
1995.
In 1996, the Company recorded an extraordinary loss of $56.1 million (net of the
tax benefit of $1.5 million) related to two transactions associated with the
Company's $140.0 million 8% Subordinated Convertible Debentures (the
"Debentures".) In June 1996, the Company purchased the conversion rights for
$53.8 million and redeemed $.5 million of principal of the Debentures. This
transaction has been determined to be a substantive modification of the terms of
the Debentures and has been accounted for as an extinguishment of debt and the
issuance of new debt. The cost of the conversion rights and the amount of the
fair value of the new debt over the carrying value of the extinguished debt was
recorded as an extraordinary loss of $54.5 million (net of the tax benefit of
$.4 million) in the second quarter of 1996. As the holder of the conversion
rights, the Company could have redeemed the Debentures at any time on or before
September 30, 1998. If the Debentures had not been redeemed by the Company by
September 30, 1998, the conversion rights would have reverted to the holders of
the Debentures. In December 1996, the Company gave irrevocable notice that it
was repurchasing the remaining $139.5 million of principal of the Debentures.
The repurchase cost over the carrying value of the Debentures was recorded as an
extraordinary loss of $1.6 million (net of the tax benefit of $1.1 million) in
the fourth quarter of 1996. This transaction closed on January 22, 1997.
Excluding one-time costs and the related tax effect in both 1996 and 1995,
earnings before extraordinary items in 1996 were $105 million, or $2.27 primary
earnings per common share, compared with $20 million, or $.45 primary earnings
per common share for 1995. In 1996, the extraordinary loss was $56 million or
$1.21 per common share. Including one-time costs and the extraordinary loss, the
net loss in 1996 was $41 million, or $.89 primary loss per common share,
compared with a loss of $140 million, or $3.09 primary loss per common share in
1995. Fully diluted earnings per common share were not reported in 1996 and 1995
because they were greater than primary earnings per common share.
1996 FOURTH QUARTER RESULTS
Worldwide sales for the fourth quarter of 1996 were $663 million, a 2% decrease
compared with sales of $675 million in the fourth quarter of 1995. This decrease
is attributable to substantially lower sales in Russia than in the same period
in 1995. Excluding the decline in Russia, worldwide sales increased moderately.
U.S. sales increased 2% in the fourth quarter of 1996 to $335 million compared
with $329 million in the same period last year. Excluding income from the
Company's discontinued businesses and licensing income on patents, U.S. sales
were up about 1%.
Retail sales of instant integral film declined moderately, resulting primarily
from the Company's decision to use more cost-effective promotions in the fourth
quarter of 1996 than the very aggressive programs used in the same period in
1995. Retail sales of instant cameras in the United States increased
approximately 9% in the fourth quarter of 1996, compared with 1995's fourth
quarter.
International sales were $329 million in the fourth quarter of 1996, compared
with $346 million in the fourth quarter of 1995. International sales, excluding
Russia which was down over 40 percent, increased including the negative impact
of foreign currency translation. Excluding Russia, instant camera shipments
increased significantly and film shipments were up moderately. Positive retail
indicators continue in developed markets such as the U.K., Germany and Japan,
and in developing markets such as Brazil and Mexico. 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.
FOUNDATIONS FOR GROWTH 25
<PAGE>
Gross margins, excluding one-time costs (as described above in "1996 Worldwide
Results Compared with 1995") as a percent of sales were 43% in the fourth
quarter of 1996 compared to 41% in the fourth quarter of 1995. Operating
expenses as a percent of sales were 31% in the fourth quarter of 1996 versus 36%
in 1995. Gross margins and operating expenses as a percent of sales continue to
reflect the improvements achieved from restructuring and lower losses in the
Company's digital imaging businesses. The increase in gross margin in the fourth
quarter of 1996 also reflects the impact of favorable pricing on instant film,
licensing income on patents and more cost-effective promotions. The gross margin
in the fourth quarter of 1996 was also negatively affected by foreign currency
translation.
Excluding one-time costs, operating profit was $76 million for the fourth
quarter of 1996, more than double the $29 million in the same period of 1995.
Including one-time costs, operating profit was $36 million in the fourth quarter
of 1996 compared to a loss from operations of $141 million in 1995.
The 1996 fourth quarter included other income of $.4 million compared to other
expense of $1 million in the 1995 fourth quarter. Included in other income was a
foreign currency loss of $.4 million and $2 million in the fourth quarter of
1996 and 1995, respectively, resulting from balance sheet translations. Interest
expense was $12 million in the fourth quarter of 1996 compared to $13 million in
the same period of 1995.
The worldwide effective tax rate for the fourth quarter was 47% in 1996 and 28%
in 1995. The increase in the effective tax rate was primarily a result of the
adverse effect of the strengthening U.S. dollar on the international tax rate.
For purposes of determining the after-tax one-time costs, the Company assumed a
tax rate of 40% and 35% in the fourth quarter of 1996 and 1995, respectively, to
calculate the tax benefit. The net after-tax foreign currency exchange loss from
balance sheet translation for the 1996 fourth quarter amounted to $.05 per
common share, compared with a $.04 loss for the same period last year.
Excluding one-time costs and the related tax effect, earnings before
extraordinary items in the fourth quarter of 1996 were $37 million, or $.81
primary earnings per common share, compared with a loss before extraordinary
items of $.5 million, or $.01 primary loss per common share for the fourth
quarter of 1995. As discussed above, the Company recorded an extraordinary loss
of $1.6 million (net of the tax benefit of $1.1 million) or $.03 loss per common
share due to the early extinguishment of the Debentures. Including one-time
costs, net earnings in the fourth quarter of 1996 were $11 million, or $.25
primary earnings per common share, compared with a loss of $111 million, or
$2.44 primary loss per common share in the fourth quarter of 1995. Fully diluted
earnings per common share were not reported in the fourth quarter of 1996 and
1995 because they were greater than primary earnings per common share.
1995 WORLDWIDE RESULTS COMPARED WITH 1994
Worldwide sales of Polaroid Corporation and its subsidiaries decreased 3% to
$2.24 billion in 1995 compared with $2.31 billion in 1994. In 1995, the Company
sold 5.4 million cameras compared with 6.4 million cameras in 1994, a decline of
16%, in part due to lower sales of Captiva. In 1995, the Company decided to
limit its production of Captiva cameras to the completion of work-in-progress.
The Company will continue to market Captiva cameras and film for the foreseeable
future, as well as provide service. Instant film shipments decreased slightly
for the full year 1995 compared to 1994. Over the past few years, growth in
instant camera and film shipments has shifted from mature markets in the United
States, Western Europe and Japan to new markets such as China and Russia.
Sales in the United States were $1.02 billion in 1995, a decrease of 12%
compared with $1.16 billion in 1994. In 1995, U.S. shipments of instant cameras
and film decreased significantly compared to 1994, primarily reflecting the
impact of the dealer inventory adjustment program. In addition, instant cameras
and film were transshipped by U.S. dealers to Russia in 1994. U.S. sales in 1995
were also impacted by consumer promotional pricing on instant film and lower
sales of videotapes and conventional film.
International sales increased 6% from $1.15 billion in 1994 to $1.22 billion
in 1995. In 1995, as a result of increased sales in Russia, sales in the
European region increased 5% to $739 million compared with $705 million in
1994. The Company's sales in Russia were $196 million in 1995, a 27% increase
compared with $154 million in 1994. Sales in 1995 in Western Europe were flat
compared to 1994, in part reflecting the dealer inventory adjustment program. In
1995, sales in the Asia Pacific, Canada, Latin and South America regions
increased 7% to $479 million compared with $448 million in 1994. The increase
is primarily a result of higher sales in China and other developing markets.
While the Company believes that developing markets present particularly
attractive opportunities, such markets tend to be considerably 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 were 42% for 1995 and 43% for 1994. The
decline in gross margin in 1995 is primarily attributable to lower instant film
sales, more instant film price promotions for consumers and unfavorable
production costs associated with lower production levels.
26 FOUNDATIONS FOR GROWTH
<PAGE>
Marketing, research, engineering and administrative expenses in 1995 were $849
million compared with $788 million in 1994. Included in these expenses were
research and engineering expenses of $166 million in both 1995 and 1994. The 8%
increase in marketing, research, engineering and administrative expenses in 1995
reflects an increase in international marketing expenses for developing markets,
an increase in worldwide consumer promotional expenses and infrastructure costs
associated with the Company's switch in 1995 from third-party distribution to
direct distribution to dealers in Japan. In 1995, pre-tax charges for
restructuring and other expenses totaled $247 million of which $77 million was
recorded in the first quarter and $170 million was recorded in the fourth
quarter, as more fully described below.
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
(approximately 560 from manufacturing and 370 from marketing, research,
engineering and administrative functions) terminated their employment in 1995.
The pre-tax costs related to the voluntary severance program were $56 million,
of which $47 million of cash severance payments were made in 1995. The remaining
cash severance payments of approximately $9 million were paid in the first
quarter of 1996. Additionally, $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 remainder of the charge consisted
of a pre-tax charge of approximately $3 million for exit costs related to the
shutdown of certain facilities.
In December 1995, the Company announced a plan to make fundamental changes in
its operating structure. The restructuring 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 charge for this program was $280 million. Of that amount,
$170 million was recorded in the fourth quarter of 1995 and $110 million was
recorded in the first quarter of 1996.
The 1995 fourth quarter pre-tax charge of $170 million included $85 million to
write off certain assembly equipment and fixed assets and $30 million to write-
off inventory and accrue other costs, all of which were primarily related to the
Captiva product line. The remaining $55 million of the charge was related to the
estimated cost of involuntary severance benefits for the Company's domestic
employees who were expected to terminate in 1996. This amount does not include
any incremental voluntary severance benefits and pension enhancement benefits.
The cost of these benefits, along with severance costs for the Company's
international employees ($100 million) was recognized in the first quarter of
1996. No cash severance payments were made in 1995 under this program. In the
first quarter of 1996, the Company also recorded a $10 million charge to write
off additional inventory.
The loss from operations for the full year 1995 was $158 million, compared to an
operating profit of $200 million in 1994. Excluding the charge for restructuring
and other expenses of $247 million, operating profit for 1995 would have been
$89 million, a reduction of $111 million compared to 1994. This reduction is
attributable to a combination of factors, primarily to a decline in domestic
instant film sales, an increase in worldwide promotional expenses, an increase
in international marketing expenses for developing markets and higher losses for
the Company's digital imaging businesses.
The Company's new digital imaging businesses which are in the early stages of
revenue generation incurred total losses of approximately $190 million in 1995
compared to approximately $180 million in 1994. The 1995 losses were principally
attributable to medical imaging and to graphics imaging with a lesser proportion
attributable to electronic imaging. The 1994 losses were principally
attributable to medical imaging with a smaller proportion attributable to each
of graphics imaging and electronic imaging. Included in the losses attributable
to medical imaging and graphics imaging in both 1995 and 1994, are significant
costs associated with the Company's new coating facility which was brought on
line in 1994 and is operating at low levels of production capacity. Shipments of
the new graphics imaging product, Dry Tech Imagesetting Film, began in October
1995. Shipments of Helios medical imaging systems doubled in 1995 compared to
the low base amount in 1994.
Other income was $9 million in 1995 compared with $7 million in 1994. Included
in other income were foreign currency losses resulting from balance sheet
translation amounting to $3 million in 1995 and $8 million in 1994. Interest
expense increased to $52 million in 1995 from $47 million in 1994 primarily as a
result of lower amounts of interest capitalized on qualifying assets and
increased short-term borrowings.
FOUNDATIONS FOR GROWTH 27
<PAGE>
For the full year 1995, the effective tax rate was 30%, compared with 27% for
1994. For purposes of determining the after-tax charges, the Company assumed a
statutory tax rate of 35% to calculate the tax benefit. The net after-tax
foreign currency exchange loss from balance sheet translation for the full year
1995 amounted to $.03 per common share, compared with a $.02 loss for 1994.
The net loss for the full year 1995 was $140 million, or $3.09 primary loss per
common share, compared with earnings of $117 million for the full year 1994, or
$2.49 primary earnings per common share. The full year 1995 results include pre-
tax charges totaling $247 million for the two early retirement and severance
programs and other expenses. Excluding the pre-tax charges and the related tax
effect, the full year 1995 primary earnings per common share would have been
approximately $.45 per share.
Financial Liquidity and Capital Resources
At December 31, 1996, the Company's cash and cash equivalents and short-term
investments amounted to $78 million, compared to $83 million at December 31,
1995. Working capital decreased to $623 million at December 31, 1996 from $730
million at December 31, 1995. The primary source for cash in 1996 was net
operating activities which more than offset cash used by investing activities
and financing activities. The primary source for cash in 1995 was a decrease in
short-term investments, net cash provided by operating activities and an
increase in short-term debt.
Capital spending during 1996 was $122 million and depreciation expense was
$118 million. Capital spending during 1995 was $168 million and depreciation
expense was $133 million. Capital expenditures in both 1996 and 1995 were
primarily related to ongoing capital programs. In 1996, capital expenditures
were also incurred in connection with the consolidation of the Company's
coating facilities. In 1995, capital expenditures were also incurred on the
Company's new coating facility, environmental improvements and to increase the
capacity for manufacturing batteries for instant films. Capital expenditures in
1997 are expected to be approximately $120 million.
During 1996, the Company expended cash to make severance payments of $9.0
million under the 1995 first quarter severance program and $67 million under the
December 1995 severance program, to purchase the conversion rights of the
Debentures for $54 million, to reduce borrowings, to purchase $44 million of
the Company's common stock, and to pay $27 million of dividends to common
stockholders. In 1996, the Company also expended $28 million to purchase
equity investments as part of the Helios transaction. Total cash severance
payments related to the December 1995 program are expected to be approximately
$110 million of which approximately $13 million and $14 million is expected to
be paid in the first and second quarter of 1997, respectively. The remaining
balance of cash severance payments of $16 million is expected to be paid in the
second half of 1997. During 1995, the Company expended cash to reduce
borrowings, to make cash payments of $47 million under the 1995 first quarter
severance program, to purchase $40 million of the Company's common stock, and to
pay $27 million of dividends to common stockholders.
The Company maintains a five year $150 million committed line of credit for
general corporate purposes which expires in 1999. As of December 31, 1996 and
1995, there were no borrowings under this facility. The Company also has a long-
term loan related to the Polaroid Stock Equity Plan (the ESOP loan). The
outstanding balance of the ESOP loan at December 31, 1996 was $38 million. As of
December 31, 1996, gross borrowings from the Company's international uncommitted
lines of credit were $125 million. There were no borrowings from the Company's
U.S. uncommitted lines of credit as of December 31, 1996. Additional available,
uncommitted lines of credit for U.S. and international operations were $120
million and $140 million, respectively, at December 31, 1996. As of December 31,
1995, gross borrowings from international uncommitted lines of credit were $160
million. There were no borrowings from the Company's U.S. uncommitted lines of
credit as of December 31, 1995. Additional available, uncommitted lines of
credit for U.S. and international operations were $160 million and $135 million,
respectively, at December 31, 1995.
In December 1996, the Company entered into additional credit agreements under
which it may borrow up to $150 million. These credit agreements expire on March
15, 1997 and there were no borrowings under these agreements as of December 31,
1996.
In November 1996, the Company filed a shelf registration with the Securities and
Exchange Commission to sell up to $400 million in debt securities. When combined
with an earlier filing, this filing provides the Company with a total of $500
million of debt securities eligible to be sold. In January 1997, the Company
issued $300 million of debt securities consisting of $150 million 7 1/4% Notes
due January 15, 2007 and $150 million 63 1/4% Notes due January 15, 2002. The
net proceeds from the sale of the Notes were used primarily for the payment of
$150 million principal amount of 7 1/4% Notes due January 15, 1997 and to
exercise its right to repurchase the remaining principal amount of $139.5
million Debentures. The Company's available borrowing capacity is limited by
certain debt covenants.
28 FOUNDATIONS FOR GROWTH
<PAGE>
During 1996, the Company repurchased 1.1 million shares of its common stock
for $44 million. In 1995, 1.2 million shares were repurchased for $40 million.
As of December 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 $42 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, fund planned capital expenditures, pursue future growth
opportunities, and 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
December 31, 1996 and 1995, the amount of the Company's outstanding short-term
foreign currency-denominated borrowings were $123 million and $140 million,
respectively.
From time to time, the Company may use over-the-counter foreign exchange swaps
to reduce the interest expense incurred on its overseas borrowings. When a
foreign exchange swap is used, the currency received by the Company in the spot
market component of the foreign exchange swap is used to close out borrowings in
a similar currency and, simultaneously, the original borrowing position 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
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
December 31, 1996. The aggregate notional value of the Company's short-term
foreign exchange swap contracts was $16 million at December 31, 1995.
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 December 31,
1996 and 1995.
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.
FOUNDATIONS FOR GROWTH 29
<PAGE>
Factors That May Affect Future Results
From time to time, information and statements provided by the Company may
contain "forward-looking statements" as defined by the Private Securities
Litigation Reform Act of 1995 (the "Act"). The Company desires to take advantage
of the "safe harbor" provisions of the Act. The Company therefore cautions
shareholders and investors that actual results may differ materially from those
projected or suggested in any forward-looking statement as the result of a wide
variety of factors, which include but are not limited to the factors and
conditions set forth below. Many of the important factors below have been
discussed in prior Securities and Exchange Commission filings by the Company.
The Company sells and markets its products worldwide. A major risk associated
with such worldwide operations is the fluctuation of foreign exchange rates,
particularly the Japanese yen and German mark. The worldwide market for imaging
products, particularly products in electronic and medical imaging, is highly
competitive in price, quality, service and product performance. The Company has
competitors worldwide, ranging from large corporations to smaller and more
specialized companies. The most significant competitors, Eastman Kodak Company
and Fuji Photo Film Co., Ltd., are considerably larger than the Company and thus
have more resources. The impact of these factors can cause varied results.
The Company is affected by retail demand for its products, particularly in the
United States and Europe. Additional factors including economic conditions,
political activity, changes in laws and regulations, particularly in the
environmental arena, could affect the Company's results from operations. The
Company believes that developing markets, such as Russia and China, in total
present particularly attractive opportunities. However, such markets tend to be
considerably less stable than more established markets and there can be no
assurance that developing markets will produce favorable results for the
Company. Sales in Russia in 1996 compared to 1995 have declined over 40% and
cannot be predicted with any certainty.
The Company anticipates that price competition from conventional film and other
imaging technologies will place continued pressure on instant products.
Furthermore, the profit of the Company's instant photography business has been
generally derived from the sale of instant film, not from the sale of instant
cameras.
The Company is continuing to develop digital imaging products for medical,
graphic arts and other applications. The profit of the Company's basic instant
photography business has been higher than the Company's total profit from
operations due to the operating losses of these digital imaging businesses.
Markets for digital imaging products are increasing rapidly and over time may
erode either the growth or the absolute size of the Company's instant
photography business. The markets for digital imaging products are highly
competitive and there is no assurance that the Company will attain the level of
success in these markets that it has achieved with respect to instant
photography. Included in the digital imaging losses are costs associated with
the Company's new coating facility which was brought on-line in 1994 and is
operating at low levels of production capacity. The Company is consolidating its
coating facilities, shifting capacity from some of its oldest to its newer, more
efficient facilities. The timing and impact of this consolidation are uncertain.
The future prospects of the Company's digital imaging businesses are uncertain
and they are likely to continue to affect the Company's financial results
adversely for the next few years. The Company's ability to reduce its digital
imaging losses is also dependent on its ability to develop new products in a
timely manner and to market them effectively. The Company continues to study the
different areas of its businesses, including their cost structures, and is
exploring prospects for aligning itself in various business relationships to
improve financial results.
Other Matters
The Company, together with other parties, is currently designated a Potentially
Responsible Party by the United States Environmental Protection Agency and
certain state agencies with respect to the costs of investigation and
remediation of pollution at several 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. 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 was $4 million and $5 million
as of December 31, 1996 and 1995, respectively. The Company currently estimates
that the majority of the $4 million amount reserved for environmental
liabilities at December 31, 1996 will be payable over the next two to three
years.
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.
30 FOUNDATION FOR GROWTH
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Polaroid Corporation:
We have audited the accompanying consolidated balance sheet of Polaroid
Corporation and subsidiary companies as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, cash flows and changes in common
stockholders' equity for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Polaroid Corporation
and subsidiary companies at December 31, 1996 and 1995, and the results of their
operations and cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
January 28, 1997
Management's Report
Financial Reporting and Controls
The financial statements presented in this report were prepared in accordance
with generally accepted accounting principles. The Company maintains a number of
measures to assure the accuracy of its financial information. To that end, a
system of internal accounting controls and procedures has been developed to
provide reasonable assurance that assets are safeguarded and that transactions
are recorded and reported properly. The Company also maintains financial
policies and procedures, and a program of internal audits, management reviews
and careful selection and training of qualified personnel.
The Audit Committee is composed entirely of outside directors. As such, it is in
a position to provide additional, independent reviews of the adequacy of
internal controls and the quality of financial reporting.
/s/ Gary T. DiCamillo
Gary T. DiCamillo
Chairman and
Chief Executive Officer
/s/ William J. O'Neill, Jr.
William J. O'Neill, Jr.
Executive Vice President and
Chief Financial Officer
FOUNDATIONS FOR GROWTH 31
<PAGE>
Financial Statements
Consolidated Statement of Earnings
Polaroid Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
Years ended December 31,
(In millions, except per share data) 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
United States $ 1,060.3 $ 1,019.0 $ 1,160.3
International 1,214.9 1,217.9 1,152.2
--------- --------- ----------
Total net sales 2,275.2 2,236.9 2,312.5
--------- --------- ----------
Cost of goods sold 1,283.8 1,298.6 1,324.2
Marketing, research,
engineering and
administrative expenses (Note 2) 796.6 849.1 788.0
Restructuring and other (Note 2) 110.0 247.0 --
Special charges (Note 2) 33.0 -- --
--------- --------- ----------
Total costs 2,223.4 2,394.7 2,112.2
--------- --------- ----------
Profit/(loss) from operations 51.8 (157.8) 200.3
--------- --------- ----------
Other income/(expense):
Interest income 5.1 8.7 9.7
Other 21.7 (.2) (2.7)
--------- --------- ----------
Total other income 26.8 8.5 7.0
Interest expense 47.4 52.1 46.6
--------- --------- ----------
Earnings/(loss) before income
tax expense/(benefit) 31.2 (201.4) 160.7
Federal, state and foreign income
tax expense/(benefit) (Note 4) 16.2 (61.2) 43.5
--------- --------- ----------
Earnings/(loss) before extraordinary item 15.0 (140.2) 117.2
Extraordinary item (Note 8) (56.1) -- --
--------- --------- ----------
Net earnings/(loss) $ (41.1) $ (140.2) $ 117.2
========= ========= ==========
Primary earnings/(loss) per common share:
(Note 1)
Earnings/(loss) before
extraordinary item $ .32 $ (3.09) $ 2.49
Extraordinary item (1.21) -- --
--------- --------- ----------
Net earnings/(loss) $ (.89) $ (3.09) $ 2.49
Fully diluted earnings per common
share (Note 1) $ -- $ -- $ 2.42
Cash dividends per common share $ .60 $ .60 $ .60
</TABLE>
See accompanying notes to consolidated financial statements.
32 FOUNDATIONS FOR GROWTH
<PAGE>
Consolidated Balance Sheet
Polaroid Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
December 31,
(In millions) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 72.8 $ 73.3
Short-term investments 5.5 9.8
Receivables, less allowances
of $24.1 in 1996 and $28.0
in 1995 535.2 550.4
Inventories (Note 5) 548.8 615.5
Prepaid expenses and other
assets (Note 4) 224.1 200.3
------------ -----------
Total current assets 1,386.4 1,449.3
------------ -----------
Property, plant and equipment
Land 35.0 35.9
Buildings 352.3 355.1
Machinery and equipment 1,663.5 1,649.3
Construction in process 112.8 124.1
------------ -----------
Total property, plant and
equipment 2,163.6 2,164.4
Less accumulated depreciation 1,497.4 1,473.4
------------ -----------
Net property, plant and
equipment 666.2 691.0
Prepaid taxes -- non-current (Note 4) 98.8 113.3
Other assets 50.2 8.2
------------ -----------
Total assets $ 2,201.6 $ 2,261.8
============ ===========
- -------------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities
Short-term debt (Note 6) $ 124.9 $ 160.4
Current portion of long-term
debt (Note 8) 37.7 39.7
Payables and accruals (Note 7) 310.5 274.9
Compensation and benefits
(Notes 10 and 11) 238.4 197.4
Federal, state and foreign
income taxes (Note 4) 51.6 46.6
------------ -----------
Total current liabilities 763.1 719.0
------------ -----------
Long-term debt (Note 8) 489.9 526.7
Accrued postretirement benefits
(Note 11) 248.5 257.2
Accrued postemployment benefits 41.9 41.2
------------ -----------
Total liabilities 1,543.4 1,544.1
------------ -----------
Preferred stock, Series A and
Series D, $1 par value, authorized
20,000,000 shares; all shares
unissued -- --
------------ -----------
Common stockholders' equity (Note 9)
Common stock, $1 par value,
authorized 150,000,000
shares 75.4 75.4
Additional paid -- in capital 409.4 401.9
Retained earnings 1,457.8 1,525.8
Less: Treasury stock, at cost 1,244.8 1,205.4
Deferred compensation 39.6 80.0
------------ -----------
Total common stockholders'
equity 658.2 717.7
------------ -----------
Total liabilities and stockholders'
equity $ 2,201.6 $ 2,261.8
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
FOUNDATIONS FOR GROWTH 33
<PAGE>
FOUNDATIONS FOR GROWTH
Consolidated Statement of Cash Flows
Polaroid Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
Years ended December 31,
(In millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating
activities
Net earnings/(loss) $ (41.1) $ (140.2) $ 117.2
Extraordinary item 56.1 - -
Depreciation of pro-
perty, plant and
equipment 118.3 132.7 118.2
(Increase)/decrease in
receivables 4.1 (.1) 30.5
(Increase)/decrease in
inventories 82.2 (68.1) .8
Increase in prepaids and
other assets (26.7) (66.6) (1.7)
Increase/(decrease) in
payables and accruals 42.1 (6.3) 22.4
Increase/(decrease) in
compensation and
benefits (25.4) 44.2 (8.2)
Increase/(decrease) in
federal, state and
foreign income taxes
payable 7.9 (1.6) (28.2)
Gain on sale of real
estate (23.2) - -
Other non-cash items 118.1 168.8 71.4
--------- ---------- ---------
Net cash provided by
operating activities 312.4 62.8 322.4
--------- ---------- ---------
Cash flows from investing activities
(Increase)/decrease in
short-term investments 4.3 75.7 (60.5)
(Increase)/decrease in other
assets (42.0) (1.1) .2
Additions to property, plant
and equipment (121.8) (167.9) (146.7)
Proceeds from sale of
fixed assets 35.4 4.8 .2
--------- ---------- ---------
Net cash used by investing
activities (124.1) (88.5) (206.8)
--------- ---------- ---------
Cash flows from financing activities
Net increase/(decrease)
in short-term debt
(maturities 90 days or
less) (28.5) 42.5 1.4
Short-term debt (maturities
over 90 days):
Proceeds - - 8.9
Payments - - (8.9)
Repayments of long-term debt (39.5) (34.3) (31.2)
Cash dividends paid (27.3) (27.3) (27.9)
Purchases of treasury stock (43.6) (40.2) (30.6)
Extinguishment of debt (56.1) - -
Proceeds from issuance of
shares in connection with
stock incentive plan 9.6 19.5 3.2
--------- ---------- ---------
Net cash used by financing
activities (185.4) (39.8) (85.1)
--------- ---------- ---------
Effect of exchange rate changes on
cash (3.4) (4.5) (1.6)
--------- ---------- ---------
Net increase/(decrease) in cash and
cash equivalents (.5) (70.0) 28.9
Cash and cash equivalents at
beginning of year 73.3 143.3 114.4
--------- ---------- ---------
Cash and cash equivalents at end
of year $ 72.8 $ 73.3 $ 143.3
========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
34 FOUNDATIONS FOR GROWTH
<PAGE>
Consolidated Statement of Changes in Common Stockholders' Equity
Polaroid Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
Years ended December 31,
(In millions, except number of shares) 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock
Balance at January 1
(75,427,550 shares in 1996,
1995 and 1994) $ 75.4 $ 75.4 $ 75.4
------------ ------------ ------------
Balance at December 31 75.4 75.4 75.4
------------ ------------ ------------
Additional paid-in capital
Balance at January 1 401.9 387.2 385.6
Issuance of shares in
connection with stock
incentive plan
(Note 10) 6.1 11.3 1.6
Stock options exercised
- tax benefit 1.4 3.4 --
------------ ------------ ------------
Balance at December 31 409.4 401.9 387.2
------------ ------------ ------------
Retained earnings
Balance at January 1 1,525.8 1,692.1 1,602.0
Net earnings/(loss) (41.1) (140.2) 117.2
Dividends declared -
common stock (27.3) (27.3) (27.9)
ESOP dividend tax
benefit received on
unallocated shares .4 1.2 .8
------------ ------------ ------------
Balance at December 31 1,457.8 1,525.8 1,692.1
------------ ------------ ------------
Less:
Treasury stock
Balance at January 1 (29,894,724
shares in 1996, 29,429,928
shares in 1995, and 28,621,405
shares in 1994) 1,205.4 1,174.5 1,145.5
Repurchase of shares
(1,057,565 shares in
1996, 1,217,561 shares
in 1995, and 941,300
in 1994) 43.6 40.2 30.6
Issuance of shares in
connection with stock
incentive plan (344,129
shares in 1996, 752,765
shares in 1995, and
132,777 shares in 1994) (4.2) (9.3) (1.6)
------------ ------------ ------------
Balance at December 31 (30,608,160
shares in 1996, 29,894,724 shares
in 1995, and 29,429,928 shares
in 1994) 1,244.8 1,205.4 1,174.5
Deferred compensation
Balance at January 1 80.0 115.8 150.2
Stock options - 1993
(Note 10) (1.0) (1.0) (1.0)
Loan repayments from ESOP
Trust (39.7) (35.9) (33.4)
Restricted stock .3 1.1 --
------------ ------------ ------------
Balance at December 31 39.6 80.0 115.8
------------ ------------ -------------
Total common stockholders' equity $ 658.2 $ 717.7 $ 864.4
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
FOUNDATIONS FOR GROWTH 35
<PAGE>
Notes to Consolidated Financial Statements
Polaroid Corporation and Subsidiary Companies
1. Summary of Significant Accounting Policies
Principles of Consolidation:
The 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.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents:
The Company considers all highly liquid debt instruments with maturities of
three months or less when purchased to be cash equivalents.
Short-term Investments:
The Company classifies its securities as held-to-maturity. Held-to-maturity
securities are those investments which the Company has the ability and intent
to hold until maturity. Held-to-maturity securities are recorded at amortized
cost, adjusted for the amortization of premiums and discounts which
approximates market value.
Derivatives:
Gains on the Company's purchase of call options, if any, related to qualifying
hedges of anticipated transactions are deferred and are recognized in income
when the hedged transaction occurs.
Inventories:
Inventories are valued on a first-in, first-out basis at the lower of cost or
market value. Market value is determined by replacement cost or net realizable
value.
Income Taxes:
Amounts in the financial statements related to income taxes are calculated
using the principles of Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes" (FAS 109). Under FAS 109, prepaid and deferred
taxes reflect the impact of temporary differences between the amounts of assets
and liabilities recognized for financial reporting purposes and the amounts
recognized for tax purposes as well as tax credit carryforwards and loss
carryforwards. These deferred taxes are measured by applying currently enacted
tax rates. A valuation allowance reduces deferred tax assets when it is "more
likely than not" that some portion or all of the deferred tax assets will not be
recognized.
Provision for U.S. income taxes on the undistributed earnings of foreign
subsidiaries is made only on those amounts in excess of the funds considered to
be permanently reinvested.
Property, Plant and Equipment:
The cost of buildings, machinery and equipment is depreciated, primarily by
accelerated depreciation methods, over the estimated useful lives of such assets
as follows: buildings, 20-40 years; machinery and equipment, 3-15 years.
Foreign Currency Translation:
The Company's foreign operations are measured by reflecting financial results
of these operations as if they had taken place within a U.S. dollar based
economic environment. Inventory, property, plant and equipment, cost of goods
sold and depreciation are remeasured from foreign currencies to U.S. dollars at
historical exchange rates. All other accounts are translated at current
exchange rates. Gains and losses resulting from remeasurement are included in
income.
Patents and Trademarks:
Patents and trademarks are valued at $1.
Product Warranty:
Estimated product warranty costs are accrued at the time the products are
sold.
Advertising Costs:
The Company expenses the cost of advertising as incurred or the first time
the advertising takes place.
Earnings Per Common Share:
Primary earnings/(loss) per common share are computed by dividing net
earnings/(loss) available to common stockholders by the weighted average number
of common shares and, as appropriate, dilutive common stock equivalents
outstanding for the period. All shares held in the Polaroid Stock Equity Plan
(ESOP) Trust (see Note 9) are considered outstanding for both primary and fully
diluted earnings/(loss) per share calculations. Stock options are considered to
be common stock equivalents. The number of shares used to compute primary
earnings/(loss) per common share were (in thousands) 45,989 in 1996, 45,404 in
1995, and 46,992 in 1994.
Fully diluted earnings per common share reflect the maximum dilution that would
have resulted from the exercise of stock options and the convertible debentures
(see Note 8). Fully diluted earnings per common share are computed by dividing
net earnings after adding back the after-tax interest on the convertible
debentures, by the weighted average number of common shares and all dilutive
securities. The number of shares used to compute fully diluted earnings per
common share were (in thousands) 51,299 in 1994. Fully diluted earnings per
common share were not reported in 1996 and 1995 because they were greater than
primary earnings per common share.
36 FOUNDATIONS FOR GROWTH
<PAGE>
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 in 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 Principle Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations. Accordingly, the Company has provided pro-forma disclosures of
net earnings and earnings per share assuming FAS 123 had been adopted. (See Note
10 for the additional disclosures required by FAS 123.)
2. Supplemental Information
(In millions) 1996 1995 1994
- ------------------------------------------------------
Research, engineering
and development $116.3 $165.5 $165.7
Manufacturing Development Costs:
In addition to the research, engineering and development costs included in
marketing, research, engineering and administrative expenses, there were
planned manufacturing development costs for major new products included in
costs of sales of approximately $10 million in 1996, $35 million in 1995 and
$30 million in 1994.
Advertising Costs:
Effective for fiscal 1995, the Company became subject to Statement of Position
93-7, "Reporting on Advertising Costs" (SOP 93-7) issued by the American
Institute of Certified Public Accountants. SOP 93-7 had no impact on how the
Company accounts for advertising costs. Prior to 1995, certain costs were
considered to be promotional expenses and were included in marketing overhead.
Under the provisions of SOP 93-7, these promotional expenses are considered to
be advertising costs and accordingly, amounts for 1994 have been restated to
conform with current year presentation. Advertising costs were:
(In millions) 1996 1995 1994
- ------------------------------------------------------
Advertising costs $134.6 $124.1 $121.2
At December 31, 1996, $5.4 million of advertising costs were reported as prepaid
expenses on the consolidated balance sheet. There were no advertising costs
reported as assets as of December 31, 1995 and 1994.
Interest Capitalization:
The Company has capitalized interest costs relating to certain qualifying
assets. In 1996, 1995 and 1994, the amounts of interest costs capitalized were
$5.1 million, $4.8 million and $9.7 million, respectively.
Cash Flow Information:
Cash payments for interest and income taxes were:
(In millions) 1996 1995 1994
- ------------------------------------------------------
Interest $52.0 $55.6 $53.9
Income taxes 7.3 29.0 78.0
Other non-cash items include $44.6 million for 1996 and $18.0 million for
1995 related to enhanced pension benefits provided under the Company's early
retirement programs, offered in the fourth quarter of 1995 and the first quarter
of 1995, respectively, that will be funded from the Company's pension plans. In
1996, the Company also recorded as other non-cash items $25.8 million for fixed
asset and inventory write-offs associated with the sale of the Company's Helios
diagnostic equipment line and the cancellation of a printer project. In 1995,
the Company also recorded as other non-cash items $85.0 million for certain
assembly equipment and fixed asset write-offs and $30.0 million for inventory
write-offs and other costs, all of which were related to the Company's plan to
make fundamental changes in its operating structure announced in December 1995.
As part of the December 1995 plan, the Company also recorded as other non-cash
items $10.0 million for additional inventory write-offs in the first quarter of
1996.
Restructuring Charges and Other:
In the first quarter of 1995, the Company implemented a restructuring plan which
resulted in a pre-tax charge of $77.0 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
(approximately 560 from manufacturing and 370 from marketing, research,
engineering, and administrative functions) terminated their employment in 1995.
The pre-tax costs related to the voluntary severance program were $56.0 million,
of which $47.0 million of cash severance payments were made in 1995. The
remaining cash severance payments of approximately $9.0 million were paid in the
first quarter of 1996. Additionally, $18.0 million represents enhanced
retirement benefits provided under the early retirement program that will be
funded from the Company's pension plans. The remainder of the charge was
approximately $3.0 million for exit costs related to the shutdown of certain
facilities.
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 pre-tax charge for restructuring and other expenses 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
FOUNDATIONS FOR GROWTH 37
<PAGE>
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
1,570 positions worldwide (approximately 810 from manufacturing and 760 from
marketing, research, engineering and administrative functions).
The 1995 fourth quarter pre-tax charge of $170.0 million included $85.0
million to write-off certain assembly equipment and fixed assets and $30.0
million to write-off inventory and accrue other costs, all of which were
primarily related to the Captiva product line. The remaining $55.0 million of
the charge was related to the estimated cost of involuntary severance benefits
for the Company's domestic employees who were expected to terminate in 1996.
This amount does not include severance costs for international employees, and
incremental voluntary severance benefits and pension enhancement benefits.
The 1996 first quarter pre-tax charge of $110.0 million represents the balance
of severance and pension enhancement costs and inventory write downs related to
the December 1995 program. 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.
Total cash severance payments related to the December 1995 program will be
approximately $110.4 million. As of December 31, 1996, 1,247 of these
terminations and $67.4 million of related cash severance payments were made.
Approximately $13.0 million and $14.0 million of related severance payments are
expected to be paid in the first and second quarter of 1997, respectively. The
remaining balance of cash severance payments of $16.0 million is expected to be
paid in the second half of 1997.
Special Charges:
In 1996, the Company recorded a $40.0 million pre-tax cost which includes
$25.0 million related to the previously announced costs associated with the
sale of the Company's Helios medical diagnostic imaging equipment line and
$15.0 million to write down parts and capital equipment under development for a
printer project and other costs. Inventory write-offs of $7.0 million related to
these matters were recorded in cost of sales, in accordance with new accounting
guidelines and $33.0 million was reported as special charges. The $33.0 million
special charge reflects the write-offs of fixed assets, severance and other
costs. In connection with the Helios sale, the Company is also acquiring a
minority interest in the buyer and its parent company.
Reclassification:
Certain prior year information has been reclassified to conform with current
year presentation of data.
3. Financial Instruments
Foreign Exchange Risk Management:
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 (see Note 6). 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
December 31, 1996 and 1995, the amount of the Company's outstanding short-term
foreign currency-denominated borrowings were $122.9 million and $140.4 million,
respectively.
From time to time, the Company may use over-the-counter foreign exchange
swaps to reduce the interest expense incurred on its overseas borrowings. When
a foreign exchange swap is used, the currency received by the Company in the
spot market component of the foreign exchange swap is used to close out
borrowings in a similar currency and, simultaneously, the original borrowing
position 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 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 December 31, 1996. The aggregate notional value of the
Company's short-term foreign exchange swap contracts was $16.2 million at
December 31, 1995.
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
38 FOUNDATIONS FOR GROWTH
<PAGE>
exercise date. No option contracts were outstanding at December 31, 1996 and
1995.
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.
Interest Rate Risk:
The Company is exposed to interest rate risk. To minimize the risks and
costs associated with the refinancing of the 7 1/4% Notes due January 15, 1997,
the Company purchased interest rate agreements with a notional value of $125.0
million from two financial institutions. The agreements protected the Company
from interest rates above the contracted rate. If interest rates fell below
this rate, the Company would have had to pay the financial institutions the
differential interest. In early January 1997, the Company settled these
interest rate contracts and received net proceeds of $.8 million from
the financial institutions.
Fair Value:
The carrying amounts of cash, cash equivalents, short-term investments,
trade receivables, short-term debt and trade payables approximate fair value
because of the short maturity of these financial instruments. Other assets
include investments in nonmarketable private companies which are carried at the
lower of cost or net realizable value. The estimated aggregate fair value of
these investments approximated the carrying amount as of December 31, 1996. As
of December 31, 1996, the carrying amount and fair value of the Company's
long-term debt was $527.6 million and $537.0 million, respectively. As of
December 31, 1995, the carrying amount and fair value of the Company's
long-term debt was $566.4 million and $647.0 million, respectively.
The estimated fair value of the Company's call options and foreign exchange
swaps, if any, generally reflects the estimated amounts the Company would
receive or pay to terminate the contracts at the reporting dates, thereby
taking into account the current unrealized gains or losses on open contracts.
There were no foreign exchange swap contracts outstanding at December 31, 1996
and there were no option contracts outstanding at December 31, 1996 and 1995.
The aggregate notional value of the Company's short-term foreign exchange swap
contracts was $16.2 milion at December 31, 1995. These contracts did not have a
net carrying amount nor a fair value at December 31, 1995.
Dealer quotes are available for the Company's call options and foreign
exchange swaps. The fair value of the Company's long-term debt is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect estimates.
Concentration of Credit Risk:
The Company places its temporary cash investments in highly rated financial
instruments and financial institutions and by policy, limits the amount of
credit exposure to any one financial institution. The Company's investment
policy limits its exposure to concentrations of credit risk.
The Company would be exposed to credit risk if a counterparty to a call option
contract or the forward component of a foreign exchange swap contract were to
fail to meet its contractual obligation, in which situation the Company would be
required to replace the contract at market rate. The Company believes that the
risk of financial loss due to the inability of counterparties to meet their
obligation is remote and that any such loss would not be material to the results
of operations of the Company. The Company minimizes its risk exposure from
foreign exchange swaps and purchased call options by limiting counterparties to
carefully selected major financial institutions.
The Company markets a substantial portion of its products to customers in the
retail industry, a market in which a number of companies are highly leveraged.
The Company continually evaluates the credit risk of these customers and
believes that its allowances for doubtful accounts relative to its customer
receivables are adequate.
4. Income Taxes
An analysis of income tax expense/(benefit) follows:
(In millions)
1996 Current Deferred Total
- ------------------------------------------------
Federal $ 2.8 $ (19.2) $ (16.4)
State .4 .8 1.2
Foreign 25.7 5.7 31.4
------- -------- -------
Total $ 28.9 $ (12.7) $ 16.2
======= ======== =======
1995
- ------------------------------------------------
Federal $ .9 $ (68.4) $ (67.5)
State .3 (7.5) (7.2)
Foreign 17.7 (4.2) 13.5
------- -------- -------
Total $ 18.9 $ (80.1) $ (61.2)
======= ======== =======
1994
- ------------------------------------------------
Federal $ 3.3 $ 2.6 $ 5.9
State 1.7 .5 2.2
Foreign 35.6 (.2) 35.4
------- -------- -------
Total $ 40.6 $ 2.9 $ 43.5
======= ======== =======
FOUNDATIONS FOR GROWTH 39
<PAGE>
Prepaid income taxes and deferred income taxes result from future tax
benefits and expenses related to the difference between the tax basis of assets
and liabilities and the amounts reported in the financial statements. These
differences predominately relate to U.S. operations. Carryforwards, tax
overpayments and refunds due are also included in prepaid income taxes. The net
of deferred income tax assets and deferred income tax liabilities reflected on
the consolidated balance sheet was a net asset of $243.7 million and $249.2
million as of December 31, 1996 and 1995, respectively. Significant components
of those amounts shown on the balance sheet as of December 31 were as follows:
(In millions) 1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets:
Property, plant and equipment
and trademarks $ (22.0) $ (11.3)
Inventory 43.0 53.1
Compensation and benefits 59.4 52.7
Postretirement and
postemployment benefits 124.8 125.4
Loss and credit carryforwards 54.1 40.1
All other 17.6 21.5
--------- ----------
Subtotal 276.9 281.5
Valuation allowance (21.5) (23.2)
--------- ----------
Total deferred tax assets $ 255.4 $ 258.3
========= ==========
Deferred tax liabilities:
Property, plant and equipment
and trademarks $ 4.4 $ 3.4
Inventory 3.1 2.2
Compensation and benefits 3.9 4.7
All other .3 (1.2)
--------- ----------
Total deferred tax liability 11.7 9.1
--------- ----------
Net deferred tax asset $ 243.7 $ 249.2
========= ==========
Valuation allowances of $21.5 million and $23.2 million as of December 31,
1996 and 1995, respectively, were established for the prepaid taxes related to
foreign tax credits and to capital losses. Foreign tax credits may be used to
offset the U.S. income taxes due on income earned from foreign sources.
However, the credit is limited by the total income included on the U.S. income
tax return as well as the ratio of foreign source income to total income.
Excess foreign tax credits may be carried back two years and forward five years.
As of December 31, 1996, the Company did not believe it was more likely than
not that it would generate sufficient U.S. sourced income within the appropriate
period to utilize all the foreign tax credits.
Capital losses may be used only to offset capital gains. Capital losses may
be carried back three years and forward five years. As of December 31, 1995, the
Company had a capital loss carryforward. However during 1996, the Company
realized sufficient capital gains from the sale of real estate to utilize fully
the capital loss carryforward. In addition, those temporary differences which
most likely will produce capital losses upon reversal have been treated as
capital losses. Historically, the Company has generated limited capital gains.
Therefore, as of December 31, 1996, Company did not believe it was more likely
than not that it would generate sufficient capital gains within the appropriate
time period to offset those future capital losses.
Management believes the Company will obtain the full benefit of other
deferred tax assets on the basis of its evaluation of the Company's anticipated
profitability over the period of years that the temporary differences are
expected to become tax deductions. It believes that sufficient book and taxable
income will be generated to realize the benefit of these tax assets. This
assessment of profitability takes into account the Company's present and
anticipated split of domestic and international earnings and the fact that the
temporary differences related to postretirement and other postemployment
benefits are deductible over a period of 30 to 40 years.
Management also considered that as of December 31, 1996, the Company elected
to carryforward the current net operating loss of $46.7 million in the U.S.
which expires in 2011. The Company has an additional net operating loss
carryforward of $37.8 million which expires in 2010. The Company also has a
foreign tax credit carryforward of $20.1 million (against which, there is a full
valuation allowance) and an alternative minimum tax credit carryforward of $2.8
million as of December 31, 1996. $16.3 million of the foreign tax credit expires
in 2000 and $3.8 million expires in 2001. The alternative minimum tax credit
does not expire. Finally, management considered that historically the Company
has not had net operating losses in the U.S. Of course, there can be no
assurance that the Company will generate any specific level of continuing
earnings or where earnings will be generated.
For alternative minimum tax purposes, the Company had a foreign tax credit
carryforward at the end of 1996 of $56.4 million; $6.6 million expires in 1997,
$21.5 million expires in 1998, $6.1 million expires in 1999, $18.4 million
expires in 2000, and $3.8 million expires in 2001.
An analysis of earnings/(loss) before income tax expense/(benefit) and
extraordinary loss follows:
(In millions) 1996 1995 1994
- --------------------------------------------------------
Domestic $(3.7) $(236.8) $ 44.6
Foreign 34.9 35.4 116.1
----- ------- ------
Total $31.2 $(201.4) $160.7
===== ======= ======
40 FOUNDATIONS FOR GROWTH
<PAGE>
A reconciliation of differences between the statutory
U.S. federal income tax rate and the Company's effective
tax rate follows:
1996 1995 1994
- ----------------------------------------------------------
U.S. statutory rate 35.0% 35.0% 35.0%
State taxes 3.3 2.3 .4
Benefit plan deductions (3.3) -- --
Loss carryforwards (2.9) -- --
Nondeductible expenses 2.7 -- --
Valuation allowance change (5.5) (7.8) (.5)
Tax effect resulting from
foreign activities 21.9 .5 (4.8)
Other .8 .4 (3.0)
---- ---- ----
Effective tax rate 52.0% 30.4% 27.1%
==== ==== ====
The tax effect resulting from foreign activities includes the effect of
remeasuring foreign currency. The impact on the tax rate for 1996 was an
increase of 28.7 percentage points, an increase of 2.1 percentage points for
1995, and a decrease of 5.2 percentage points for 1994.
Undistributed earnings of foreign subsidiaries held for reinvestment in overseas
operations amounted to $442.3 million at December 31, 1996. Additional U.S.
income taxes may be due upon remittance of those earnings (net of foreign tax
reductions because of the distribution), but it is impractical to determine the
amount of any such additional taxes. If all those earnings were distributed as
dividends, foreign withholding taxes of approximately $23.7 million would be
payable.
Federal income tax returns of the Company for all years through 1988 have
been closed and all matters have been resolved. The Federal income tax returns
for 1989 through 1993 have been audited. Certain proposed adjustments for the
1989-1991 tax returns have been appealed by the Company. Regardless of the
outcome of the appeal, it will not have a material adverse impact upon the
financial statements of the Company.
5. Inventories
The classification of inventories at December 31 follows:
(In millions) 1996 1995
- ----------------------------------------------------------
Raw materials $104.7 $137.2
Work-in-process 225.3 233.7
Finished goods 218.8 244.6
------ ------
Total $548.8 $615.5
====== ======
6. Short-term Debt
The Company maintains a five-year $150.0 million committed line of credit for
general corporate purposes which expires in 1999. As of December 31, 1996 and
1995, there were no borrowings under this facility.
As of December 31, 1996, gross borrowings from the Company's international
uncommitted lines of credit were $124.9 million. There were no borrowings from
the Company's U.S. uncommitted lines of credit as of December 31, 1996.
Additional available, uncommitted lines of credit for U.S. and international
operations were $120.0 million and $140.3 million, respectively, at December 31,
1996. As of December 31, 1995, gross borrowings from international uncommitted
lines of credit were $160.4 million. There were no borrowings from the Company's
U.S. uncommitted lines of credit as of December 31, 1995. Additional available,
uncommitted lines of credit for U.S. and international operations were $160.0
million and $135.0 million, respectively at December 31, 1995. Borrowings from
international uncommitted lines of credit were incurred by the Company's foreign
subsidiaries primarily to manage its foreign currency balance sheet exposure
(see Note 3). The weighted average interest rate on international short-term
debt outstanding as of December 31, 1996 and 1995 was 4.7% and 5.5%,
respectively. The Company's total borrowing capacity is limited by certain debt
covenants.
In December 1996, the Company entered into additional credit agreements under
which it may borrow up to $150 million. These credit agreements expire on March
15, 1997 and there were no borrowings under these agreements as of December 31,
1996.
Interest expense on international short-term borrowings was $7.5 million in
1996, $10.9 million in 1995 and $8.5 million in 1994. The average interest rates
ranged from 3.2% to 5.3% in 1996, 4.0% to 7.1% in 1995, and 5.0% to 6.6% in
1994. Interest expense on U.S. short-term borrowings was $.6 million in both
1996 and 1995, at average interest rates of 5.6% and 6.1%, respectively.
7. Payables and Accruals
The following items are included in payables and accruals at December 31:
(In millions) 1996 1995
- ---------------------------------------------------------
Trade accounts payable $165.0 $150.4
Reserve for marketing programs 42.1 43.7
Other accrued expenses and
current liabilities 103.4 80.8
------ ------
Total $310.5 $274.9
====== ======
FOUNDATIONS FOR GROWTH 41
<PAGE>
8. Long-term Debt
Principal amounts of long-term debt outstanding as of December 31 are as
follows:
(In millions)
1996 Long-term Current Total
- --------------------------------------------------------
ESOP loan $ -- $ 37.7 $ 37.7
7 1/4% Notes 150.0 -- 150.0
8% Notes 199.4 -- 199.4
8% Subordinated
Convertible
Debentures 140.4 -- 140.4
Other .1 -- .1
------- ------- -------
Total $ 489.9 $ 37.7 $ 527.6
======= ======= =======
1995 Long-term Current Total
- --------------------------------------------------------
ESOP loan $ 37.7 $ 39.7 $ 77.4
7 1/4% Notes 149.8 -- 149.8
8% Notes 199.1 -- 199.1
8% Subordinated
Convertible
Debentures 140.0 -- 140.0
Other .1 -- .1
------- ------- -------
Total $ 526.7 $ 39.7 $ 566.4
======= ======= =======
At December 31, 1996 and 1995, the Company had a committed line of credit (see
Note 6), and a long-term ESOP loan. Borrowing costs under the related credit
agreements are tied to the Company's long-term public debt ratings. The interest
rates on the loans are based on various alternative interest indices at the
Company's option and will fluctuate over time. The agreements contain various
restrictions, including the ability of the Company to incur or guarantee debt.
The Company is required to maintain a certain net worth and to meet certain
leverage and interest coverage ratios.
Under the ESOP loan, which was used to finance the leveraged Polaroid ESOP
(see Notes 9 and 11), the final scheduled principal payment of $37.7 million
will be made on June 30, 1997. Interest expense on the ESOP loan was $3.2
million in 1996, $5.4 million in 1995 and $6.0 million in 1994. The weighted
average interest rate on the loan was 4.8%, 5.2% and 4.4% during 1996, 1995 and
1994, respectively.
In 1991, the Company issued $140.0 million of 8% Subordinated Convertible
Debentures due 2001 (the Debentures) as partial consideration for the
repurchase of its convertible preferred stock and warrants originally issued
in 1989. The Debentures carried an annual interest rate of 8% and were
convertible to common stock at approximately $32.50 per share. The Debentures
were also subordinated in right of payment to all existing debt of the Company.
Subsequently, the holders of the Debentures created a trust under which they
retained conversion rights to convert the Debentures into approximately 4.3
million shares of common stock of the Company, but sold to institutional
investors the right to principal and interest payments on the Debentures. In
June 1996, the Company purchased the conversion rights for $53.8 million and
redeemed $.5 million of principal of the $140 million Debentures. As the holder
of the conversion rights, the Company could have retired the Debentures at any
time on or before September 30, 1998. If the Debentures had not been redeemed by
the Company by September 30, 1998, the conversion rights would have reverted to
the holders of the Debentures. The purchase of the conversion rights was
determined to be a substantive modification of the terms of the Debentures and
was accounted for as an extinguishment of debt and the issuance of new debt. The
cost of the conversion rights and the amount of the fair value of the new debt
over the carrying value of the extinguished debt was recorded as an
extraordinary loss of $54.5 million (net of the tax benefit of $.4 million).
In December 1996, the Company gave irrevocable notice that it was repurchasing
the remaining $139.5 million of principal of the Debentures. The closing date of
this transaction was January 22, 1997. As a result of issuing the irrevocable
notice, the Company recorded an extraordinary loss of $1.6 million (net of the
tax benefit of $1.1 million) in the fourth quarter of 1996 due to the early
extinguishment of debt.
The $150 million 7 1/4% Notes (the 7 1/4% Notes) due January 15, 1997 were
issued with a discount, at a price of 99.30% of par with a yield of 7.42%, and
may not be redeemed prior to maturity. The $200 million 8% Notes (the 8% Notes)
due March 15, 1999 were issued with a discount, at a price of 99.054% of par
with a yield of 8.18%, and may not be redeemed prior to maturity.
On January 14, 1997, the Company issued long-term debt securities (see Note 15)
to refinance the 7 1/4% Notes and the Debentures and accordingly, these
borrowings have been classified as long-term debt as of December 31, 1996.
The aggregate repayment schedule of the Company's long-term debt after giving
effect to the above mentioned refinancing is as follows:
- ----------------------------------------
1997 $ 37.7 million
1998 $ 0
1999 $ 200.0 million
2000 $ 0
2001 and thereafter $ 300.0 million
9. Common Stockholders' Equity
During 1996, the Company repurchased 1.1 million shares of common stock for
$43.6 million, during 1995, 1.2 million shares were repurchased for $40.2
million and during 1994, .9 million shares were repurchased for $30.6 million.
As of December 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 $41.6 million. The Company may repurchase its common stock on
the open market, in privately negotiated transactions or otherwise (which may
include transactions
42 FOUNDATIONS FOR GROWTH
<PAGE>
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.
Deferred Compensation was $39.6 million and $80.0 million at December 31, 1996
and 1995, respectively. Deferred compensation included $37.7 million at December
31, 1996 and $77.4 million in 1995 for the ESOP (see Notes 8 and 11) covering
substantially all domestic employees. These amounts, which were recorded as
deductions from common stockholders' equity, represent amounts receivable in the
future from the ESOP Trust. Shares held by the Company's ESOP Trust at December
31 were as follows:
(In thousands) 1996 1995
- ------------------------------------------------
Allocated 6,542 6,792
Suspense (unallocated) 949 1,993
----- -----
Total 7,491 8,785
===== =====
Dividends paid on unallocated ESOP shares of $1.0 million in 1996, $1.6 million
in 1995 and $2.3 million in 1994 were used to repay the ESOP loan. The remaining
dividends for allocated shares held by the Trust were paid to ESOP participants.
Deferred compensation also included $1.9 million and $2.6 million at December
31, 1996 and 1995, respectively, related to the 1993 Polaroid Stock Incentive
Plan (See Note 10).
10. Incentive Compensation and Stock Incentive Plans
The Company maintains annual cash incentive plans covering substantially all
domestic employees (Employee Incentive Compensation Plan), employees of
manufacturing subsidiaries in the United Kingdom and the Netherlands
(International Manufacturing Plans) and substantially all executives (Executive
Incentive Compensation Plan).
Amounts charged to operations for incentive compensation plans were as
follows:
(In millions) 1996 1995 1994
- -----------------------------------------------------------------
Employee Incentive Compensation Plan $14.9 $2.1 $6.9
International Manufacturing Plans 2.1 1.2 1.1
Executive Incentive Compensation Plan 8.8 1.5 .5
As of December 31, 1996, the Company had fixed stock-based compensation plans as
described below. Effective January 1, 1996 the Company adopted FAS 123. 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 APB 25 and related interpretations. Accordingly, no compensation
expense has been recognized.
In 1990, the Company adopted the Polaroid Stock Incentive Plan (the 1990 Plan)
under which officers and other key employees may be granted stock options, stock
appreciation rights and restricted stock as incentives to increase revenues and
profits. Stock options granted may be either non-qualified or incentive stock
options. Up to 3,000,000 shares of the Company's common stock have been
authorized for use under the 1990 Plan.
In May 1993, the Company adopted the 1993 Polaroid Stock Incentive Plan (the
1993 Plan) under which officers and other key employees may be granted awards in
the form of stock options, stock appreciation rights, restricted stock, and any
other form determined by the Board of Directors to be consistent with the 1993
Plan, as incentives to increase revenues and profits. Stock options granted may
be either non-qualified or incentive stock options. A maximum of 4,000,000
shares of the Company's common stock have been authorized for use under the 1993
Plan, plus the unissued shares from the 1990 Plan. The number of common shares
reserved for granting of future options under the 1990 and 1993 Plans was
1,522,966, 2,152,591 and 3,138,074 at December 31, 1996, 1995 and 1994,
respectively.
The Company normally issues stock options at the fair market value of the
Company's common stock on the grant date, however, on June 15, 1993, the
non-employee members of the Board approved the issuance of 848,122 options at
an option price of $32.25 per share. This reflected the fair market value of the
Company's common stock on April 26, 1993 which was the fifth business day after
the first quarter earnings release. That date corresponds to the date on which
options have been granted historically. Since the fair market value on June 15,
1993 was $37.00 per share, $4.1 million was recorded as deferred compensation
and is being amortized to compensation expense over the options' four year
vesting period. During 1996, 1995 and 1994, compensation expense related to this
stock option grant was $1.0 million per year.
The options awarded under the 1990 Plan and the 1993 Plan vest ratably each
year over approximately a four year period and are exercisable for
approximately a ten year period from the date of grant, if the holder remains
in the employ of the Company. If the option holder's employment terminates for
reasons other than change of control or retirement, no further vesting can
occur. When an option holder's employment terminates for any reason other than
retirement, death or disability, all vested options must be exercised within
three months from the termination date or approximately ten years from the date
of the grant, whichever is earlier.
In 1990, the Company adopted the Polaroid Board of Directors' Stock Option
Plan (the Directors' Plan), which granted each non-employee director an option
to purchase 3,000 shares of the Company's common stock. For a new non-employee
director, the date of the grant is the date the director joins the Board. In
1996, the shareholders approved
FOUNDATIONS FOR GROWTH 43
<PAGE>
an amendment to the Directors' Plan to award each non-employee director as of
July 25, 1995 a one-time grant of an option to purchase 2,000 shares of the
Company's common stock at $42.63 per share. Vesting of this option grant will
conform with the terms outlined in the Directors' Plan.
Under the Directors' Plan, options vest ratably each year over a four year
period from the date the director joins the Board and are exercisable for a ten
year period from the date of grant. Vesting ceases when an individual
terminates as a director, and a former director must exercise his or her vested
options within three years from the date of termination or ten years from the
date of grant, whichever is earlier. Up to 100,000 shares of the Company's
authorized common stock may be issued under the Directors' Plan. As of December
31, 1996, a cumulative total of 75,000 options have been granted at prices
ranging from $33.13 to $45.38 under the Directors' Plan.
A committee of non-employee members of the Board of Directors is the
administrator for the 1990 Plan and the 1993 Plan and, as such, can at the time
of the grant determine the vesting period, the period the option shall remain
exercisable (or a stock shall remain restricted), and may designate if a
dividend equivalent payment (or a dividend for restricted stock) will be paid
on the grant equal to the dividend payment made on a share of the Company's
common stock. The administrator for the 1990 Plan and the 1993 Plan may waive
or amend conditions of the option grant, such as accelerating vesting terms
during an early retirement and severance program.
A summary of the Company's fixed stock option plans as of December 31, 1996,
1995, and 1994 and changes during the years ending on those dates is presented
below:
Number of Options Weighted-average
Fixed Options (in thousands) Exercise Price
- -------------------------------------------------------------
Outstanding at
December 31, 1993 2,984 $30.14
1994 Activity:
Granted 787 $31.27
Exercised (132) $24.88
Forfeited (48) $32.96
-----
Outstanding at
December 31, 1994 3,591 $30.56
1995 Activity:
Granted 1,029 $36.58
Exercised (728) $26.74
Forfeited (29) $34.95
-----
Outstanding at
December 31, 1995 3,863 $32.85
1996 Activity:
Granted 642 $44.57
Exercised (329) $29.34
Forfeited (51) $41.14
-----
Outstanding at
December 31, 1996 4,125 $34.85
=====
Options exercisable at December 31:
- -------------------------------------------------------------
Number of Options Weighted-average
(in thousands) Exercise Price
- -------------------------------------------------------------
1996 2,524 $32.46
1995 1,813 $32.10
1994 1,695 $31.57
Weighted-average fair value of options
granted during the year:
- -------------------------------------------------------------
1996 $16.06
1995 $13.26
Options Outstanding at December 31, 1996
- ----------------------------------------------------------------------
Weighted-average
Number of Remaining Weighted-average
Range of Options Contractual Life Exercise
Exercise Prices (in thousands) (years) Price
- ----------------------------------------------------------------------
$24 to $27 794 3.9 $24.91
$31 to $34 1,935 6.0 $32.49
$37 to $47 1,396 7.0 $43.76
-----
$24 to $47 4,125 5.9 $34.85
=====
Options Exercisable at December 31, 1996
- ---------------------------------------------------
Number of Weighted-average
Range of Options Exercise
Exercise Prices (in thousands) Price
- ---------------------------------------------------
$24 to $27 794 $24.91
$31 to $34 1,169 $32.32
$37 to $47 561 $43.44
-----
$24 to $47 2,524 $32.46
=====
If compensation cost for the Company's fixed stock option plans had been
determined based on fair value at grant date for awards under the plans
consistent with FAS 123, the Company's net earnings and earnings per share
would have been reduced to the pro-forma amounts as follows:
(In millions, except per share data) 1996 1995
- ---------------------------------------------------------------
Net loss
As reported $(41.1) $(140.2)
Pro forma (46.3) (142.4)
Primary loss per share
As reported (.89) (3.09)
Pro forma (1.01) (3.14)
Fully diluted earnings per share are not stated because they are greater
than primary earnings per share.
The effect of applying FAS 123 as shown in the above pro-forma disclosures is
not representative of the pro-forma effect on net earnings in future years
because it does not take into consideration pro-forma compensation expense
related to grants made prior to 1995.
44 FOUNDATIONS FOR GROWTH
<PAGE>
The fair value of each option grant was estimated on the grant date using the
Black-Scholes Option-Pricing Model with the following weighted average
assumptions:
1996 1995
- ---------------------------------------------------------
Dividend yield 1.4% 1.7%
Expected volatility 21.0% 22.2%
Risk free interest rate 6.3% 6.5%
Expected option life 5.5 years 5.4 years
Dividend equivalent payments on outstanding stock options of $2.1 million,
$2.1 million and $1.9 million were made in 1996, 1995 and 1994, respectively.
Approximately 81% and 76% of the options granted in 1996 and 1995,
respectively, were issued with dividend equivalents.
Under the 1993 Plan, the Company awarded 15,000 shares of restricted stock
at $45.88 per share in 1996 and 25,000 shares of restricted stock at $46.50 per
share in 1995. The 1996 restricted shares vest at the end of a five-year period
if the Company achieves certain financial objectives. The 1995 restricted shares
vest ratably each year over a five year period. The value of the restricted
stock issued was recorded as deferred compensation and is being amortized to
compensation expense ratably over a five year period from the award date.
11. Benefit Plans
The Company maintains a qualified noncontributory trusteed pension plan
covering substantially all domestic employees. The benefits are based on years
of service and final average compensation at retirement. The Company's general
policy is to fund the domestic pension trust to the extent such contributions
would be deductible under the funding standards established under the Internal
Revenue Code. Plan assets consist primarily of high quality corporate and U.S.
government bonds, asset-backed securities and common stocks.
Employees of Polaroid's manufacturing subsidiaries in the United Kingdom and
the Netherlands are covered by trusteed, contributory pension plans. Amounts are
funded in accordance with local laws and economic conditions. Employees of most
other foreign subsidiaries are covered by insured plans. Related expenses,
obligations and assets of these other plans are not material and therefore are
not included in the information below.
Components of the Company's net periodic pension cost/(credit) are as
follows:
(In millions) 1996 1995 1994
- ---------------------------------------------------------
Service cost $25.7 $ 26.5 $29.2
Interest cost 74.1 65.9 62.5
Actual return on assets (152.4) (191.3) (5.8)
Net amortization and deferral 51.9 99.2 (84.6)
------ ------ -----
Net periodic pension
cost/(credit) $ (.7) $ .3 $ 1.3
====== ====== =====
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheet at December 31:
(In millions) 1996 1995
- ----------------------------------------------------------
Actuarial present value
of benefit obligations:
Vested benefit obligation $ 948.6 $ 851.1
Nonvested benefit obligation 45.6 51.6
-------- --------
Accumulated benefit obligation 994.2 902.7
Effect of projected pay increases 91.4 125.6
-------- --------
Projected benefit obligation 1,085.6 1,028.3
Plan assets at fair market value 1,160.5 1,066.2
-------- --------
Plan assets in excess of
projected obligations 74.9 37.9
Unrecognized prior service cost 18.3 21.0
Unrecognized net gain (98.1) (7.6)
Unrecognized net assets at transition,
net of amortization (60.7) (72.0)
-------- --------
Net pension liability $(65.6) $(20.7)
======== ========
The assumptions used by the Company which have a significant effect on the
amounts reported for pension accounting as of December 31 were as follows:
1996 1995 1994
- -------------------------------------------------------------
Weighted average discount rate 7.5% 7.1% 8.4%
Weighted average rate of increase
in compensation levels 5.0% 5.0% 5.4%
Expected long-term rate of
return on assets 8.9% 8.8% 9.3%
In 1988, the Company's Board of Directors approved the Polaroid ESOP
primarily for the benefit of its domestic employees (see Notes 8 and 9). The
number of shares available for allocation to individual accounts in any period
is based on principal and interest payments made on the ESOP loan. Amounts
charged to expense represent the amount of principal repayment on the ESOP loan
less dividends paid on unallocated shares. Amounts charged to expense for this
plan were $38.7 million, $34.3 million and $31.2 million in 1996, 1995, and
1994, respectively.
The Company currently provides certain health and life insurance benefits to
eligible retired employees. Substantially all domestic employees who retire from
the Company, and meet the minimum age and service requirements of 55 and 10
years, respectively, become eligible for these benefits. The plans are currently
unfunded and may be modified in accordance with the terms of the plan documents.
The Company funds these benefits on a pay-as-you-go basis. Eligible retirees
under age 65 are required to contribute to the cost of their health care
benefits. Upon reaching age 65, eligible retirees' health care benefit coverage
is coordinated with Medicare. In 1995, the Company established an amount it
would contribute toward the cost of the retirees' selected
FOUNDATIONS FOR GROWTH 45
<PAGE>
medical plan coverage. The Company intends to annually review the amount it
contributes toward this coverage and will, at its option, make adjustments to
this amount based on several considerations including financial factors,
inflation of medical costs and other relevant factors. Eligible retirees are not
required to contribute to the cost of their life insurance benefits. Employees
of most of the Company's subsidiaries outside of the United States are covered
by government programs.
Components of the Company's net periodic postretirement benefit cost are as
follows:
(In millions) 1996 1995 1994
- --------------------------------------------------
Service cost $ 6.4 $ 8.7 $ 13.1
Interest cost 14.8 17.6 18.3
Amortization (11.0) (6.1) (.6)
------ ------ ------
Net periodic postretirement
benefit cost $ 10.2 $ 20.2 $ 30.8
====== ====== ======
The following table sets forth the status of the plan and amounts recognized
in the Company's consolidated balance sheet at December 31:
(In millions) 1996 1995
- ------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $140.8 $90.4
Fully eligible active plan participants 32.8 68.9
Other active plan participants 36.5 47.0
------- -------
Total accumulated postretirement
benefit obligation 210.1 206.3
Plan assets at fair market value -- --
------- -------
Accumulated obligation in excess
of plan assets (210.1) (206.3)
Unrecognized net gain (16.4) (11.6)
Unrecognized prior service cost (39.8) (50.8)
------- -------
Net postretirement benefit liability $(266.3) $(268.7)
======= =======
The Accumulated Postretirement Benefit Obligation (APBO) at December 31, 1996
and 1995 was determined using a discount rate of 7.5% and 7.0%, respectively.
The assumed health care cost trend rate used in measuring the APBO
at December 31, 1996 and 1995 was 10% and 11%, respectively, declining
gradually to an ultimate rate of 6% in 2003. These trend rates reflect the
Company's current experience and expectation that future rates will decline.
The assumptions used above have a significant effect on the amounts reported.
If the health care cost trend rate assumptions were increased by 1% each year,
the APBO as of December 31, 1996 and 1995 would increase by approximately $6.7
million and $4.1 million, respectively. The effect of a 1% increase on the
aggregate of service and interest cost for 1996 and 1995 would have been an
increase of approximately $.8 million and $4.5 million, respectively.
The Company maintains the Polaroid Board of Directors' Retirement Plan (the
Directors' Retirement Plan) which is a non-qualified deferred compensation plan
under which fully vested (at least five complete years of service on the Board)
non-employee members of the Board who retire receive annual lump sum payments
equal to the retainer amount they were paid in the last full year prior to
retirement. A participant or surviving spouse may receive payments under the
Directors' Retirement Plan for the lesser of twenty-five years or the number of
years that the person served as a non-employee member of the Board prior to his
or her seventy-third birthday.
The estimated present value of future benefits under the Directors' Retirement
Plan is accrued annually based on credited service up to the participants'
actual retirement dates and is charged to expense. For the years 1996, 1995 and
1994, $.3 million, $.2 million and $.3 million, respectively, was charged to
expense for current years' service.
12. Rental Expense and Lease Commitments
Minimum annual rental commitments at December 31, 1996, under noncancelable
leases, principally for real estate, are payable as follows:
(In millions)
- ----------------------------------------
1997 $16.3
1998 13.6
1999 9.2
2000 4.4
2001 3.2
2002 and thereafter 4.6
-----
Total minimum lease payments $51.3
=====
Minimum payments have not been reduced by minimum sublease rentals of $2.1
million due in the future under noncancelable subleases.
Many of the leases contain renewal options and some contain escalation clauses
which require payments of additional rent to the extent of increases in the
related operating costs.
Rental and lease expenses consisted of the following:
(In millions) 1996 1995 1994
- ----------------------------------------------
Minimum rentals $25.8 $26.4 $25.6
Contingent rentals 2.0 8.8 5.3
----- ----- -----
Total $27.8 $35.2 $30.9
===== ===== =====
Sublease income amounted to $1.1 million in 1996, $1.4 million in 1995 and
$1.8 million in 1994.
46 FOUNDATIONS FOR GROWTH
<PAGE>
13. Business
Nature of Operations
The Company is engaged primarily in one line of business, the design,
manufacture and sale of instant photographic imaging products worldwide.
Photographic products, which represent over 90 percent of the Company's total
revenues, are marketed worldwide through distributors and dealers
for amateur and professional photography, business, industry, science, medicine,
government and education. In addition, the Company is expanding its role in the
market for digital imaging products. The Company's digital imaging products are
marketed worldwide through distributors and directly to customers primarily for
medical, graphic art and other business applications. Digital imaging products
also include products for consumer digital imaging and desktop publishing.
Segments of Business
During 1996, 1995 and 1994 sales to one customer, Wal-Mart Stores, Inc.,
amounted to 11.9%, 10.9%, and 13.7%, respectively, of the Company's total sales.
Intercompany sales between geographic areas are accounted for at prices
representative of unaffiliated party transactions.
The following table shows certain financial information relating to the
Company's operations in various geographic areas:
Geographic Areas
Years ended December 31,
(In millions) 1996 1995 1994
- ------------------------------------------------------------------
Sales
United States
Customers $1,060.3 $1,019.0 $1,160.3
Intercompany 445.7 479.4 496.3
-------- -------- --------
1,506.0 1,498.4 1,656.6
-------- -------- --------
Europe
Customers 663.6 738.8 704.6
Intercompany 397.1 368.1 347.1
-------- -------- --------
1,060.7 1,106.9 1,051.7
-------- -------- --------
Asia Pacific, Canada, Latin
and South America
Customers 551.3 479.1 447.6
Intercompany 113.5 123.3 83.5
-------- -------- --------
664.8 602.4 531.1
-------- -------- --------
Eliminations (956.3) (970.8) (926.9)
-------- -------- --------
Net sales $2,275.2 $2,236.9 $2,312.5
======== ======== ========
Profits
United States $ 13.8 $ (179.4) $ 100.8
Europe 19.0 20.6 81.8
Asia Pacific, Canada,
Latin and South America 25.0 24.4 45.2
General corporate expense (13.3) (19.4) (13.0)
Eliminations 7.3 (4.0) (14.5)
-------- -------- --------
Profit/(loss) from operations 51.8 (157.8) 200.3
Other income/(expense) (20.6) (43.6) (39.6)
-------- -------- --------
Earnings/(loss) before income
tax expense/(benefit) $ 31.2 $ (201.4) $ 160.7
======== ======== ========
Assets
United States $1,490.0 $1,526.1 $1,480.5
Europe 659.8 669.9 613.8
Asia Pacific, Canada,
Latin and South America 279.9 258.4 248.1
Corporate assets (cash, cash
equivalents and short-term
investments) 78.3 83.1 228.9
Eliminations (306.4) (275.7) (254.6)
-------- -------- --------
Total assets $2,201.6 $2,261.8 $2,316.7
======== ======== ========
FOUNDATIONS FOR GROWTH 47
<PAGE>
14. Contingencies
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 December 31, 1996 and 1995 was $4.0 million and $5.2 million, respectively.
The Company currently estimates that the majority of the $4.0 million amount
reserved for environmental liabilities on December 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.
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.
15. Subsequent Events
On January 14, 1997, the Company issued $300.0 million debt securities
consisting of $150.0 million 7 1/4% Notes due January 15, 2007 (the 2007 Notes)
and $150.0 million 6 3/4% Notes due January 15, 2002 (the 2002 Notes) to
refinance existing debt. The 2007 Notes were placed with a discount, at a price
of 99.43% of par with a yield of 7.33%. The 2002 Notes were placed with a
discount, at a price of 99.53% of par with a yield of 6.86%. The net proceeds
from the sale of the Notes were used primarily for the payment of $150.0 million
principal amount of the Company's 7 1/4% Notes due January 15, 1997 and to
exercise its right to the repurchase of the remaining principal amount of the
$139.5 million 8% Subordinated Convertible Debentures due 2001. The balance of
the net proceeds will be used for general corporate purposes.
16. Supplementary Financial Information
The section on pages 49-51 entitled Supplementary Financial Information has
not been audited by the Company's independent auditors. Those auditors have,
however, made a limited review of the 1996 and 1995 quarterly data on page 49
in accordance with standards established by the American Institute of Certified
Public Accountants and that information is incorporated herein by reference.
Since the Company's independent auditors did not audit the Company's quarterly
data for either year, they express no opinion on such data.
48 FOUNDATIONS FOR GROWTH
<PAGE>
Quarterly Financial Data (Unaudited)
Polaroid Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
(In millions, except per share and stock price data)
1996 First Second Third Fourth Year
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 461.1 $ 581.6 $ 569.1 $ 663.4 $ 2,275.2
Restructuring and other 110.0 -- -- -- 110.0
Special charges -- -- -- 33.0 33.0
Profit/(loss) from operations (105.5) 56.1 65.3 35.9 51.8
Earnings/(loss) before extraordinary item (60.7) 28.5 34.2 13.0 15.0
Extraordinary item -- (54.5) -- (1.6) (56.1)
Net earnings/(loss) (60.7) (26.0) 34.2 11.4 (41.1)
Primary earnings/(loss) per common share
Earnings/(loss) before extraordinary item (1.33) .63 .74 .28 .32
Extraordinary item -- (1.20) -- (.03) (1.21)
------- ------- ------- ------- ---------
Net earnings/(loss) (1.33) (.57) .74 .25 (.89)
Fully diluted earnings per common share * * .71 * *
Cash dividends per common share .15 .15 .15 .15 .60
Stock prices**
High 48.13 47.13 45.88 45.00 48.13
Low 41.13 43.00 42.00 39.38 39.38
<CAPTION>
1995 First Second Third Fourth Year
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 409.6 $ 572.5 $ 580.0 $ 674.8 $ 2,236.9
Restructuring and other 77.0 -- -- 170.0 247.0
Profit/(loss) from operations (108.6) 41.1 50.3 (140.6) (157.8)
Net earnings/(loss) (75.8) 22.9 23.7 (111.0) (140.2)
Primary earnings/(loss) per common share (1.66) .50 .51 (2.44) (3.09)
Fully diluted earnings per common share * .49 .50 * *
Cash dividends per common share .15 .15 .15 .15 .60
Stock prices**
High 35.25 43.88 44.88 49.25 49.25
Low 29.00 33.00 38.88 38.75 29.00
</TABLE>
Stockholders of record as of January 31, 1997.......10,742
* Fully diluted earnings per common share are not disclosed because they are
greater than primary earnings per common share.
** Recorded on the New York Stock Exchange Composite.
FOUNDATIONS FOR GROWTH 49
<PAGE>
Ten Year Financial Summary (Unaudited)
Polaroid Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
Years ended December 31
(Dollars amounts in millions,
except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated Statement of Earnings
Net sales
United States $1,060.3 $1,019.0 $1,160.3
International 1,214.9 1,217.9 1,152.2
-------- -------- --------
Total net sales 2,275.2 2,236.9 2,312.5
-------- -------- --------
Cost of goods sold 1,283.8 1,298.6 1,324.2
Marketing, research,
engineering and
administrative
expenses 796.6 849.1 788.0
Restructuring and other 110.0 247.0 --
Special Charges 33.0 -- --
-------- -------- --------
Total costs 2,223.4 2,394.7 2,112.2
-------- -------- --------
Profit/(loss) from operations 51.8 (157.8) 200.3
-------- -------- --------
Litigation settlement,
net of employee
incentives -- -- --
Other income 26.8 8.5 7.0
Interest expense 47.4 52.1 46.6
-------- -------- --------
Earnings/(loss) before income
tax expense/(benefit) 31.2 (201.4) 160.7
Federal, state and
foreign income tax
expense/(benefit) 16.2 (61.2) 43.5
-------- -------- --------
Earnings/(loss) before
extraordinary item and
cumulative effect of changes
in accounting principle $ 15.0 $ (140.2) $ 117.2
======== ======== ========
Net earnings/(loss) $ (41.1) $ (140.2) $ 117.2
======== ======== ========
Primary earning/(loss)
per common share
before extraordinary
item and cumulative
effect of changes in
accounting principles $ .32 $ (3.09) $ 2.49
Primary earnings/(loss)
per common share $ (.89) $ (3.09) $ 2.49
Fully diluted earnings
per common share** $ -- $ -- $ 2.42
Cash dividends per
common share $ .60 $ .60 $ .60
Common shares
outstanding at end
of year (in
thousands) 44,819 45,533 45,998
Selected Balance Sheet
Information
Working capital $ 623.3 $ 730.3 $ 879.7
Net property, plant
and equipment 666.2 691.0 747.3
Total assets 2,201.6 2,261.8 2,316.7
Long-term debt 489.9 526.7 566.0
Redeemable preferred
stock equity -- -- --
Common stockholders'
equity 658.2 717.7 864.4
Other Statistical Data
Additions to property,
plant and equipment $ 121.8 $ 167.9 $ 146.7
Depreciation $ 118.3 $ 132.7 $ 118.2
Payroll and benefits $ 641.2 $ 709.3 $ 720.6
Number of employees, end
of year 10,046 11,662 12,104
Return on average common
stockholders' equity*** (6.2)% (17.8)% 14.7%
</TABLE>
* Restated for FAS 96.
** Fully diluted earnings per common share are not disclosed for 1996, 1995,
1993 and years prior to 1991 because they are either greater than primary
earnings per common share or they do not include dilutive securities.
*** 1993 is shown prior to the cumulative effects of FAS 106, 109 and 112.
50 FOUNDATIONS FOR GROWTH
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987*
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,178.8 $ 1,145.7 $ 1,113.6 $ 1,058.3 $ 1,091.8 $ 1,048.3 $ 1,009.3
1,066.1 1,006.6 957.0 913.4 812.9 814.6 754.6
- --------- -------- --------- --------- --------- --------- ---------
2,244.9 2,152.3 2,070.6 1,971.7 1,904.7 1,862.9 1,763.9
- --------- -------- --------- --------- --------- --------- ---------
1,296.5 1,178.0 1,082.5 1,011.8 966.0 1,003.1 956.2
763.0 760.5 741.5 675.6 634.5 686.0 653.9
44.0 -- -- -- 40.5 151.9 --
-- -- -- -- -- -- --
- --------- -------- --------- --------- --------- --------- ---------
2,103.5 1,938.5 1,824.0 1,687.4 1,641.0 1,841.0 1,610.1
- --------- -------- --------- --------- --------- --------- ---------
141.4 213.8 246.6 284.3 263.7 21.9 153.8
- --------- -------- --------- --------- --------- --------- ---------
-- -- 871.6 -- -- -- --
8.2 7.8 23.4 15.0 35.1 28.0 16.7
47.9 58.5 58.4 81.3 86.2 29.0 15.0
- --------- -------- --------- --------- --------- --------- ---------
101.7 163.1 1,083.2 218.0 212.6 20.9 155.5
33.8 64.1 399.5 67.0 67.6 43.5 30.3
- --------- -------- --------- --------- --------- --------- ---------
$ 67.9 $ 99.0 $ 683.7 $ 151.0 $ 145.0 $ (22.6) $ 125.2
========= ======== ========= ========= ========= ========= =========
$ (51.3) $ 99.0 $ 683.7 $ 151.0 $ 145.0 $ (22.6) $ 125.2
========= ======== ========= ========= ========= ========= =========
$ 1.45 $ 2.06 $ 12.54 $ 2.20 $ 1.96 $ (.34) $ 2.02
$ (1.10) $ 2.06 $ 12.54 $ 2.20 $ 1.96 $ (.34) $ 2.02
$ -- $ 2.02 $ 10.88 -- -- -- --
$ .60 $ .60 $ .60 $ .60 $ .60 $ .60 $ .60
46,806 46,668 48,919 50,070 52,110 71,635 61,918
$ 826.7 $ 778.5 $ 684.7 $ 600.7 $ 635.2 $ 946.4 $ 623.4
718.2 657.3 549.4 461.0 430.9 433.8 395.6
2,212.3 2,008.1 1,889.3 1,701.3 1,776.7 1,957.2 1,599.4
602.3 637.4 471.8 513.8 602.2 402.3 --
-- -- -- 348.6 321.9 -- --
767.3 808.9 772.9 207.7 148.8 1,011.5 1,048.2
$ 165.6 $ 201.5 $ 175.8 $ 120.9 $ 94.5 $ 127.0 $ 116.6
$ 100.3 $ 89.1 $ 85.5 $ 87.2 $ 87.4 $ 81.9 $ 75.7
$ 699.2 $ 670.2 $ 690.6 $ 587.6 $ 546.7 $ 725.9 $ 585.0
12,048 12,359 12,003 11,768 11,441 11,613 13,662
9.3% 12.7% 148.6% 63.3% 33.5% (2.2)% 12.5%
</TABLE>
FOUNDATIONS FOR GROWTH 51
<PAGE>
Directors
Gary T. DiCamillo/1/
Chairman and
Chief Executive Officer
Ralph E. Gomory/1,2,5/
President,
Alfred P. Sloan Foundation
Frank S. Jones/2,3,5/
Distinguished Leadership Professor,
Morehouse College
John W. Loose/3,5/
President,
Corning Communication, Corning Inc.
Albin F. Moschner/2,5/
Vice Chairman,
DIBA Inc.
Henry Necarsulmer/1,2,5,6/
Consultant, Lehman
Brothers Inc.
Kenneth H. Olsen/1,4,5/
Chairman,
Advanced Modular
Solutions, Inc.
Ronald F. Olsen
Technical Specialist,
Polaroid Corporation
Lester Pollack/3,4,5,6/
Senior Managing Director,
Corporate Advisors, L.P.
Managing Director,
Centre Partners
Management L.L.C.
Charles P. Slichter/1,4,5,6/
Center for Advanced Study
Professor of Physics
and Chemistry,
University of Illinois
Ralph Z. Sorenson/2,3,5/
Professor Emeritus,
University of Colorado
Delbert C. Staley/2,3,5/
Retired Chairman and
Chief Executive Officer,
Nynex Corporation
Bernee D.L. Strom/3,5/
President and Chief
Executive Officer,
USA Digital Radio
Partners, LP
Alfred M. Zeien/3,4,5/
Chairman and Chief
Executive Officer,
The Gillette Company
/1/ Member, Executive Committee (Gary T. DiCamillo, Chairman)
/2/ Member, Audit Committee (Henry Necarsulmer, Chairman)
/3/ Member, Human Resources Committee (Delbert C. Staley, Chairman)
/4/ Member, Committee on Directors (Alfred M. Zeien, Chairman)
/5/ Member, Committee of Outside Directors
/6/ Will not be standing for re-election to the Board of Directors at the
company's 1997 annual meeting
Officers
Gary T. DiCamillo
Chairman and
Chief Executive Officer
Henry Ancona
Executive Vice President
William J. O'Neill, Jr.
Executive Vice President and Chief Financial Officer
Serafino Posa
Executive Vice President
Carole J. Uhrich
Executive Vice President
Robert M. Delahunt
Senior Vice President
Thomas M. Lemberg
Senior Vice President,
General Counsel and Secretary
Satish C. Agrawal
Group Vice President
James R. Barron
Vice President
F. Richard Cottrell
Vice President and
Senior Engineering and
Research Fellow
Chris A. De Bleser
Vice President
Fawwaz N. Habbal
Vice President and
Senior Engineering and
Research Fellow
John R. Jenkins
Vice President
Paul E. Lambert
Vice President and
Program Fellow
Michael J. LeBlanc
Vice President
Samuel H. Liggero
Vice President and
Program Fellow
Carl L. Lueders
Vice President and Controller
Tadaaki Masuda
Vice President
Robert S. Murray
Vice President
Jeremiah J. Noonan
Vice President
Ralph M. Norwood
Vice President and Treasurer
Joseph G. Parham, Jr.
Vice President
Norman H. Perrault
Vice President
Leonard Polizzotto
Vice President
Brian D. Poggi
Vice President
J. Samuel Ridley
Vice President
Marian J. Stanley
Vice President
52 FOUNDATIONS FOR GROWTH
<PAGE>
Stockholder Information
Annual Meeting
The Annual Meeting of Polaroid Corporation
stockholders will be held on Tuesday, May 6, 1997
at 4 p.m. at the Museum of Science, Cahners Theater,
Boston, Massachusetts 02114-1099.
Executive Office
549 Technology Square
Cambridge, Massachusetts 02139
(617) 386-2000
Investor Relations
575 Technology Square
Cambridge, Massachusetts 02139
(617) 386-6589
Independent Auditors
KPMG Peat Marwick LLP
99 High Street
Boston, Massachusetts 02110
Transfer Agent and Registrar for Common Stock
The First National Bank of Boston
c/o Boston EquiServe L.P.
Shareholder Services
Post Office Box 8040
Boston, MA 02266-8040
(617) 575-3170 or 1-800-730-4001
Stock Exchange Listings for Common Stock
New York Stock Exchange
Pacific Stock Exchange
Annual Report on Form 10-K
A copy of Polaroid's Annual Report on Form 10-K to the Securities and Exchange
Commission may be obtained without charge by contacting Polaroid's Transfer
Agent as listed above.
Dividend Reinvestment Plan
A Dividend Reinvestment Plan is available to stockholders of Polaroid
Corporation. Additional information and an authorization card may be obtained by
contacting Polaroid's Transfer Agent as listed above.
Internet Address
http://www.polaroid.com
CP-80, CP-90, DryJet, Dry Tech, Imagix, Inkognito, Live for the Moment, OneStep,
Palette, PDC, Polacolor, Polaroid, Polaroid Macro, Polaroid Make-A-Memory,
Polaroid Make-A-Print, Polaroid PhotoPad, Polaview, See What Develops,
SprintScan, Studio Express, Studio Polaroid, The Dry Prepress by Polaroid and
XOOR are trademarks of Polaroid Corporation.
EVA is a trademark of Stern, Stewart and Company.
All other product names may be the property of their respective owners.
The text pages of this Annual Report are printed on paper made from 50 percent
recovered materials, minimum 20 percent post-consumer waste content. Recycling
efforts of Polaroid Corporation employees produced a portion of the post-
consumer material. The cover was printed on recycled paper containing 10 percent
post-consumer waste.
Exhibit 21
Subsidiaries
Polaroid Corporation
Year ended December 31, 1996
Place of
Name of Subsidiary or Entity Incorporation or
Establishment
- ---------------------------------------------------------------------
Polaroid A.G. Switzerland
Polaroid A/S Denmark
Polaroid Asia Pacific International Inc. Delaware
Polaroid Asia Pacific Limited Delaware
Polaroid Industry China Limited China
Polaroid of Shanghai Limited China
Polaroid Aktiebolag Sweden
Polaroid Australia Pty. Limited Australia
Polaroid do Brasil Ltda. Brazil
Polaroid Canada Inc. Canada
Polaroid Caribbean Corporation Delaware
Reifschneider Peru S.A. Peru
Polaroid Contracting CV Netherland
Polaroid Espana, S.A. Spain
Polaroid Europe Limited United Kingdom
Polaroid Far East Limited Hong Kong
Polaroid Foreign Sales B.V. Netherlands
Polaroid Foundation Delaware
Polaroid Gesellschaft mit beschrankter Haftung Germany
Polaroid Gesellschaft m.b.H. Austria
Polaroid India, Inc. Delaware
Polaroid India Private Limited India
Polaroid International B.V. Netherlands
Polaroid (Belgium) N.V. Belgium
Polaroid (Europa) B.V. Netherlands
Polaroid (France) S.A. France
Polaroid Graphics Imaging B.V. Netherlands
Polaroid (Italia) S.p.A. Italy
Polaroid Nederland B.V. Netherlands
Polaroid Trading B.V. Netherlands
Photographic Supplies Sp. Poland
Photographic Supplies S.R.C. Czech Republic
Photographic Supplies Kereskedelmi Kft. Hungary
Svetozor Russia
Nippon Polaroid Kabushiki Kaisha Japan
Polaroid Malaysia Limited Delaware
Polaroid de Mexico S.A. de C.V. Mexico
Polaroid (Norge) A/S Norway
Polaroid Oy Finland
Polaroid Singapore Private Limited Singapore
Polaroid (U.K.) Limited United Kingdom
Inner City, Inc. Delaware
PMC, Inc. Massachusetts
Polint, Inc. Delaware
PRD Capital Inc. Delaware
PRD Investment Inc. Delaware
PRD Management Limited Bermuda
PRD Overseas Limited Bermuda
Sub Debt Partners Corp. Delaware
Troon, Inc. Delaware
Subsidiaries of subsidiary companies are indented and listed below the
respective companies through which they are controlled.
Exhibit 23
Independent Auditors' Consent
-----------------------------
The Board of Directors
Polaroid Corporation:
We consent to incorporation by reference in the registration
statements No. 33-36384 on Form S-8, No. 33-44661 on Form S-3,
No.33-51173 on Form S-8, and No. 333-0791 on Form S-3 of Polaroid
Corporation of our reports dated January 28, 1997, relating to
the consolidated balance sheet of Polaroid Corporation and
subsidiary companies as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, cash flows, and
changes in common stockholders' equity, and the related financial
statement schedule for each of the years in the three-year period
ended December 31, 1996, which reports appear in the December 31,
1996, annual report on Form 10-K of Polaroid Corporation.
KPMG PEAT MARWICK LLP
Boston Massachusetts
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
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This schedule contains summary financial information extracted from
Securities and Exchange Commission Form 10-K for the year ended
December 31, 1996 and is qualified in its entirety by reference
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<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
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