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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 1-4085
POLAROID CORPORATION
--------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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: (781) 386-2000
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------------------------ ------------------------
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
</TABLE>
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. [ ]
<TABLE>
<S> <C>
Aggregate market value of voting stock held by non-affiliates as of March 9, 1998: $2.00 billion
Common Stock outstanding as of March 9, 1998: 44,430,639 shares
Documents incorporated by reference:
Polaroid Corporation Annual Report to Stockholders for 1997 -- Parts I, II and IV
Polaroid Corporation 1998 Proxy Statement, dated March 30, 1998 -- Part III
</TABLE>
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<PAGE>
Part I
Item 1. Business
General
Polaroid Corporation, a Delaware corporation founded in 1937, and its
subsidiaries (the "Company") generated worldwide sales in 1997 of approximately
$2.1 billion. The Company manufactures and markets a variety of products,
primarily in the imaging fields. The Company's products are used in consumer
and commercial markets around the world including professional photography,
graphic arts, scientific, medical, governmental, educational, insurance, real
estate and other business applications.
Products
The Company designs, develops, manufactures and markets worldwide a variety of
products in the imaging field and related industries. The Company manufactures
and sells over 50 film types and over 100 cameras and hardware accessories in
the instant film business. The Company also sells conventional film,
videotapes, digital solutions, sunglasses and polarized sheet products. Many of
these non-instant products are either designed, developed or manufactured by
others, but they are typically sold to third parties under the Polaroid brand
name.
Distribution
The Company sells its instant imaging products worldwide directly to
photographic, food, drug, discount and department stores. In addition, the
Company sells to wholesalers, original equipment manufacturers, independent
agents and distributors throughout the world. In the U.S., the Company's sales
force generates most sales. Outside the U.S., wholly owned sales subsidiaries
selling products to customers in their respective countries generate the bulk
of the Company's international revenues.
The Company sells other products, including digital imaging hardware and
accessories, frequently to wholesalers, distributors and agents who market
products within a specific industry sector.
During 1997, 1996 and 1995, sales to one customer, Wal-Mart Stores, Inc.,
amounted to 12.5%, 11.9% and 10.9%, respectively, of the Company's consolidated
net sales.
Competition
The Company competes in the worldwide imaging market with both instant and
non-instant products. This market is highly competitive in design, product
performance, quality, service and price. Both conventional silver halide and
digital imaging products from other manufacturers compete directly with the
Company in meeting customers' imaging needs.
The Company is the acknowledged world leader in instant photography and has a
widely recognized brand name and a global distribution network. As a key
element in the Company's strategy, it seeks to leverage its name, network and
technology - where possible - often by selling imaging and related products
through existing channels to current customers. In addition, as the broad field
of imaging evolves and grows the Company sees new opportunities with instant
and non-instant products. In many cases, however, these opportunities involve
selling to new customers through new channels and competing with larger
companies than the Company typically has in the past. While offering growth
opportunities, these situations also present additional risks. It is the
Company's strategy to utilize its strengths in technology and brand name,
distribution and industry knowledge where appropriate, and to share its risk
with other third party partners. This risk sharing often takes the form of
joint development, outsourcing manufacturing or sharing marketing costs.
Raw Materials and Supplies
Sufficient raw materials and supplies were available in 1997 to maintain
operations of all manufacturing plants. Although the Company utilizes silver in
its products, the usual variability in silver prices has not caused significant
earnings variability in recent years.
Research, Engineering and Development
The amount expended for research, engineering and development included in
marketing, research, engineering and administrative expenses in the Company's
consolidated statement of earnings (See the Polaroid Corporation Annual Report
to Stockholders for 1997 (the "Annual Report") was $122.8 million during 1997,
compared with $116.3 million and $165.5 million in 1996 and 1995, respectively.
Over the past two years, the Company has made considerable effort to train and
equip its technical organizations to develop and commercialize 20-40 new
products each year, emphasizing
2
<PAGE>
the application of existing technology possessed by the Company. In addition,
the Company is actively seeking to exploit its intellectual property by
licensing its patents and pursuing joint development efforts with partners that
represent opportunities in new markets.
Patents and Trademarks
In the judgment of the Company, its patents are important to its business. In
1997, the Company continued to obtain patents and pursue efforts to license a
portion of its portfolio of over 1,500 active U.S. patents. In addition, the
Company also owns a number of valuable trademarks, including "Polaroid", which
are important to its business.
Environmental Compliance
Approximately 5% (approximately $8 million) of the Company's expected capital
spending in 1998 is planned 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 at least the
minimum amount of the range. The Company's aggregate reserve for these
liabilities as of December 31, 1997 was $2.0 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.
Federal law provides that PRPs may be held jointly and severally liable for
response costs. Based on current estimates of those costs and after
consideration of the potential estimated liabilities of other PRPs with respect
to those sites and their respective estimated levels of financial
responsibility, the Company does not believe its potential liability will be
materially enlarged by the fact that liability is joint and several.
The Company 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.
Employees
The Company had 10,011 and 10,046 employees at December 31, 1997 and 1996,
respectively. These figures include approximately 80 worldwide temporary
employees in 1997 and approximately 50 in 1996. In addition, the Company had
non-employee temporary workers in the U.S. of approximately 550 and 870 at
December 31, 1997 and 1996, respectively.
Information About Foreign and Domestic Operations and Significant Customers
See note 13, "Business", on page 47 of 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
908,000 square feet of space, which includes space owned in fee (196,000 square
feet) and leased premises (712,000 square feet), under leases expiring between
1999 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.
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*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.
Also, during 1997, the Company transferred title to 112,000 square feet of
office and research and development space on six acres in Cambridge, Mass., to
a joint venture with Spaulding and Slye Development Co., which is developing
45,000 square feet for the Company's use as its worldwide corporate
headquarters. The joint venture intends to develop an additional 240,000 square
feet of office, research and development space with associated parking on the
site.
Over 90% of the Company's other space in the United States is located in
Eastern Massachusetts (Waltham, Norwood, New Bedford, Needham, Newton 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:
<TABLE>
<CAPTION>
Approximate Space
Location (Square Feet)
- ----------------- ------------------
<S> <C>
Waltham 1,652,000
Norwood 788,000
New Bedford 739,000
Needham 467,000
Newton 165,000
Bedford 125,000
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3,936,000
=========
</TABLE>
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
by the Company.
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:
<TABLE>
<CAPTION>
Approximate Space
Location (Square Feet)
- --------------------- ------------------
<S> <C>
The Netherlands 518,000
Scotland 390,000
Mexico 255,000
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1,163,000
=========
</TABLE>
Over 90% 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 China.
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 1997, manufacturing facilities operated at reasonable levels of
production capacity, with the exception of the Company's New Bedford coating
facility which was brought on line in 1994 and is operating at low levels of
production capacity. During 1997, this facility was written down to an
independently determined fair value of approximately $18 million. The Company
is considering several strategic options for future use of this facility,
including an outright sale.
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.
In February 1998, the Company sold its underutilized chemical manufacturing
facility in Freetown, Mass., which consisted of approximately 137,000 square
feet, to International Specialties Products., Inc. (ISP). Under the terms of
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the agreement, the Company entered into a long-term supply agreement with ISP
to purchase certain specialty chemicals used to manufacture the Company's
instant film.
In January 1998, the Company sold an underutilized facility in Needham, Mass.,
which consisted of approximately 81,000 square feet.
Item 3. Legal Proceedings
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 1997.
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
See the table entitled "Quarterly Financial Data" on page 49 of the Annual
Report.
Item 6. Selected Financial Data
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
See the section entitled "Management's Discussion and Analysis of Operations"
on pages 21 to 28, inclusive, of the Annual Report.
Item 7A. Quantitative and Qualitative Disclosure
Not applicable.
Item 8. Financial Statements and Supplementary Data
See the section entitled "Independent Auditors' Report" on page 29, the
sections entitled "Financial Statements" on pages 30 to 33, inclusive and
"Notes to Consolidated Financial Statements" on pages 34 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 - See the section entitled "Election of Directors" on pages 3 to
6, inclusive, of the Polaroid Corporation 1998 Proxy Statement (the "Proxy
Statement").
b) Executive Officers of the Registrant - Listed below are the executive
officers of the Company as of January 31, 1998. Officers are elected
annually by the Board of Directors. No family relationship exists between
any of the officers.
<TABLE>
<CAPTION>
Name Office Age
- ------------------------- ------------------------------------------------------ ----
<S> <C> <C>
Gary T. DiCamillo Chairman of the Board and Chief Executive Officer 47
William J. O'Neill, Jr. Executive Vice President and Chief Financial Officer 55
Serafino Posa Executive Vice President 43
Carole J. Uhrich Executive Vice President 54
Robert M. Delahunt Senior Vice President 63
Thomas M. Lemberg Senior Vice President, General Counsel and Secretary 51
Joseph G. Parham Senior Vice President of Human Resources 48
</TABLE>
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.
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Mr. O'Neill joined the Company in 1969. He has served in various capacities. In
August 1997, Mr. O'Neill was named Executive Vice President and President of
Corporate Business Development, however, Mr. O'Neill will remain as Chief
Financial Officer until a successor is named.
Mr. Posa joined the Company in November 1996 as Executive Vice President. Prior
to joining the Company, from 1990 to 1996, he was employed by Kraft Foods North
America, a division of Philip Morris Companies. 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.
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.
Mr. Parham joined the Company in 1973. He has served in various capacities and
was elected to his present position as Senior Vice President in January 1998.
c) Compliance With Section 16(a) of the Securities Exchange Act of 1934 - Form
3 and 4 Reporting Obligation - See the section entitled "Compliance with
Section 16(a) of the Securities Exchange Act of 1934 - Form 3 and 4
Reporting Obligation" on page 16 of the Proxy Statement.
Item 11. Executive Compensation
See the section entitled "Executive Compensation" on pages 9 to 17, inclusive,
of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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.
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
a) 1. Financial Statements
Page No.
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Independent Auditors' Report 29*
Consolidated Statement of Earnings
for the years ended December 31, 1997, 1996 and 1995 30*
Consolidated Balance Sheet as of December 31, 1997 and 1996 31*
Consolidated Statement of Cash Flows
for the years ended December 31, 1997, 1996 and 1995 32*
Consolidated Statement of Changes in Common Stockholders'
Equity for the years ended December 31, 1997, 1996 and 1995 33*
Notes to Consolidated Financial Statements 34-48*
Supplementary Financial Information (Unaudited) 48-51*
a) 2. Financial Statement Schedule
Independent Auditors' Report 12
Schedule II - Valuation and Qualifying Accounts 13
All other schedules are omitted as they are either not required or not
applicable.
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*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) 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(d) 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.)
3.2 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.)
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
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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.)
4.10 Indenture dated as of January 9, 1997 between Polaroid Corporation
and State Street Bank and Trust Company, as Trustee, including form
of Note. (The Indenture included as Exhibit 4 to Polaroid
Corporation form 10-Q for the quarter ended March 30, 1997 as filed
on May 13, 1997 is hereby incorporated herein by reference.)
10.1 Credit Agreement (Working Capital) dated as of March 19, 1997 among
Polaroid Corporation, Morgan Guaranty Trust Company of New York, as
Agent, and Banks listed therein. (The Agreement included as Exhibit
10.1 to Polaroid Corporation Form 10-Q for the quarter ended March
30, 1997 as filed on May 13, 1997 is hereby incorporated herein by
reference.)
10.2 Amendment No. 1 dated as of May 30, 1997 to the $350,000,000 Credit
Agreement, dated as of March 19, 1997 among Polaroid Corporation,
Morgan Guaranty Trust Company of New York, as Agent, and Banks
listed therein. (The Amendment included as Exhibit 10 to Polaroid
Corporation Form 10-Q for the quarter ended June 29, 1997 as filed
on August 13, 1997 is hereby incorporated herein by reference.)
10.3(*) Amendment No. 2 and Waiver dated as of January 15, 1998 with
respect to $350,000,000 Credit Agreement, dated as of March 19,
1997.
10.4(**) Polaroid Incentive Plan For Executives, dated December 20, 1996,
effective January 1, 1996. (The Plan included as Exhibit 10.8 to
Polaroid Corporation form 10-K for the year ended December 31, 1996
as filed on March 31, 1997 is hereby incorporated herein by
reference.)
10.5(**) 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.)
10.6(**) 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.)
10.7(**) 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.)
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<PAGE>
10.8(**) The 1993 Polaroid Stock Incentive Plan, effective March 19, 1997,
as amended March 27, 1997. (The amendment included as Exhibit 10.4
to Polaroid Corporation Form 10-Q for the quarter ended March 30,
1997 as filed on May 13, 1997 is hereby incorporated herein by
reference.)
10.9(**) Polaroid Board of Directors Stock Plan, effective January 1, 1997.
(The Plan included as Exhibit 10.2 to Polaroid Corporation Form
10-Q for the quarter ended March 30, 1997 as filed on May 13, 1997
is hereby incorporated herein by reference.)
10.10(**) Polaroid Board of Directors Retirement Plan, effective January 1,
1997 as restated and amended May 12, 1997. (The amendment included
as Exhibit 10.3 to Polaroid Corporation Form 10-Q for the quarter
ended March 30, 1997 as filed on March 13, 1997 is hereby
incorporated herein by reference.)
10.11(**) Polaroid Non-Qualified Deferred Compensation Trust dated as of
March 31, 1997 between Polaroid Corporation and State Street Bank
and Trust Company (The Trust included as Exhibit 10.6 to Polaroid
Corporation Form 10-Q for the quarter ended March 30, 1997 as filed
on May 13, 1997 is hereby incorporated herein by reference.)
10.12(**) Executive Deferred Compensation Plan, dated May 12, 1997, effective
January 1, 1997. (The Plan included as Exhibit 10.5 to Polaroid
Form 10-Q for the quarter ended March 30, 1997 as filed on May 13,
1997 is hereby incorporated herein by reference.)
10.13(**) 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.)
10.14(**) 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.)
10.15(**) Employment Agreement amended and restated as of May 12, 1997
between Polaroid Corporation and Gary T. DiCamillo. (The amendment
included as Exhibit 10.9 to Polaroid Corporation Form 10-Q for the
quarter ended March 30, 1997 as filed on May 13, 1997 is hereby
incorporated herein by reference.)
10.16(**) Employment Agreement dated as of April 29, 1997 between Polaroid
Corporation and Serafino Posa. (The Agreement included as Exhibit
10.7 to Polaroid Corporation Form 10-Q for the quarter ended March
30, 1997 as filed on May 13, 1997 is hereby incorporated herein by
reference.)
10.17(**) Employment Agreement dated as of May 12, 1997 between Polaroid
Corporation and Thomas M. Lemberg. (The Agreement included as
Exhibit 10.8 to Polaroid Corporation Form 10-Q for the quarter
ended March 30, 1997 as filed on May 13, 1997 is hereby
incorporated herein by reference.)
10.18(**) Change in Control Severance Agreement dated as of April 25, 1997
between Polaroid Corporation and William J. O'Neill, Jr. (The
Agreement included as Exhibit 10.10 to Polaroid Corporation Form
10-Q for the quarter ended March 30, 1997 as filed on May 13, 1997
is hereby incorporated herein by reference.)
10.19(**) Change in Control Severance Agreement dated as of April 25, 1997
between Polaroid Corporation and Carole J. Uhrich. (The Agreement
included as Exhibit 10.11 to Polaroid Corporation Form 10-Q for the
quarter ended March 30, 1997 as filed on May 13, 1997 is hereby
incorporated herein by reference.)
10.20(**) Change in Control Severance Agreement dated as of April 25, 1997
between Polaroid Corporation and Robert M. Delahunt (The Agreement
included as Exhibit 10.12 to Polaroid Corporation Form 10-Q for the
quarter ended March 30, 1997 as filed on May 13, 1997 is hereby
incorporated herein by reference.)
10.21(*)(**) Change in Control Severance Agreement dated as of April 25, 1997
between Polaroid Corporation and Joseph G. Parham, Jr.
11 Please see the section entitled "Earnings Per Common Share" in note
1 on page 35, inclusive, of the Annual Report.
12(*) Ratio of Earnings to Fixed Charges
9
<PAGE>
13(*) Annual Report to Stockholders for 1997. (The Annual Report to
Stockholders for 1997, 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.)
18(*) Letter re change in accounting principles.
21(*) Subsidiaries.
23(*) Consent of KPMG Peat Marwick LLP.
27(*) Financial Data Schedule.
27.1(*) Restated Financial Data Schedule.
27.2(*) Restated Financial Data Schedule.
- ---------
(*) Filed herewith.
(**) Management contract or compensatory plan or arrangement required to be
filed as an exhibit to Form 10-K pursuant to Item 14(c).
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 1997, the Company filed a Current Report on
Form 8-K, dated December 17, 1997.
10
<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 GARY T. DICAMILLO
---------------------------------------
GARY T. DICAMILLO, Chairman of the
Board and Chief Executive Officer
March 23, 1998
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.
<TABLE>
<S> <C> <C>
GARY T. DICAMILLO Chairman of the Board and March 23, 1998
- ------------------------------- Chief Executive Officer; Director
GARY T. DICAMILLO
WILLIAM J. O'NEILL, JR. Executive Vice President March 23, 1998
- ------------------------------- and Chief Financial Officer
WILLIAM J. O'NEILL, JR.
CARL L. LUEDERS Vice President and Controller March 23, 1998
- -------------------------------
CARL L. LUEDERS
RALPH E. GOMORY Director March 23, 1998
- -------------------------------
RALPH E. GOMORY
FRANK S. JONES Director March 23, 1998
- -------------------------------
FRANK S. JONES
STEPHEN P. KAUFMAN Director March 23, 1998
- -------------------------------
STEPHEN P. KAUFMAN
JOHN W. LOOSE Director March 23, 1998
- -------------------------------
JOHN W. LOOSE
ALBIN F. MOSCHNER Director March 23, 1998
- -------------------------------
ALBIN F. MOSCHNER
KENNETH H. OLSEN Director March 23, 1998
- -------------------------------
KENNETH H. OLSEN
RONALD F. OLSEN Director March 23, 1998
- -------------------------------
RONALD F. OLSEN
RALPH Z. SORENSON Director March 23, 1998
- -------------------------------
RALPH Z. SORENSON
DELBERT C. STALEY Director March 23, 1998
- -------------------------------
DELBERT C. STALEY
BERNEE D.L. STROM Director March 23, 1998
- -------------------------------
BERNEE D.L. STROM
ALFRED M. ZEIEN Director March 23, 1998
- -------------------------------
ALFRED M. ZEIEN
</TABLE>
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
POLAROID CORPORATION:
Under the date of January 27, 1998, we reported on the consolidated balance
sheet of Polaroid Corporation and subsidiary companies as of December 31, 1997
and 1996, 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, 1997, as contained in the 1997 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
1997. 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.
As discussed in Note 1 to the consolidated financial statements, in 1997, the
Company changed its method of accounting for depreciation.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 27, 1998
12
<PAGE>
Polaroid Corporation and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
(In millions)
<TABLE>
<CAPTION>
Additions
---------------------------
Balance at Charged to Charged to Deductions Balance at
Beginning Costs and Other Charged to End of
Description of Period Expenses Accounts Reserves Period
- ------------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
1997
Doubtful accounts $ 15.3 $ 6.2 $ -- $ (4.4) $ 17.1
Cash discounts 8.8 -- 28.3 (28.6) 8.5
=================== ======= ====== ======= ======= =======
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
=================== ======= ====== ======= ======= =======
</TABLE>
13
Exhibit 10.3
AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT dated as of January 15, 1998 to the $350,000,000 Credit
Agreement dated as of March 19, 1997 as heretofore amended (the "Credit
Agreement") among POLAROID CORPORATION (the "Company"), the BANKS party thereto
(the "Banks"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent")
and BANKBOSTON, N.A. F/K/A THE FIRST NATIONAL BANK OF BOSTON, as Co-Agent.
WHEREAS, the Company is taking a restructuring charge and related
special charges in the fourth Fiscal Quarter of 1997 in connection with the sale
of chemical manufacturing operations in Freetown, Mass., write-downs of plant
and equipment and the elimination of over 1,500 positions worldwide; and
WHEREAS, the Company wishes to (i) amend the definition of
"Consolidated Adjusted Net Worth" to add back the non-cash portion of such
charges (calculated on an after-tax basis) up to $135,000,000, (ii) amend the
definition of "Consolidated EBIT" to add back the total amount of such charges
for any period that includes the fourth Fiscal Quarter of 1997; and (iii) amend
the minimum net worth covenant to reflect the effect of such charges (net of the
foregoing add-back) on its net worth;
NOW, THEREFORE, the undersigned parties agree as follows:
SECTION 1. Defined Terms, References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
has the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof," "hereunder," "herein," and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall, after this Amendment becomes effective,
refer to the Credit Agreement as amended hereby.
SECTION 2. Definitions. The definitions of "Consolidated Adjusted Net
Worth" and "Consolidated EBIT" in Section 1.01 of the Credit Agreement are
amended to read as follows:
"Consolidated Adjusted Net Worth" means, at any date, the sum of (i)
Consolidated Stockholders' Equity as of such date, minus (ii) all
write-ups after December 31, 1997 in the book value of any asset owned by
the Company or a Consolidated Subsidiary, minus (iii) the carrying value
of all Investments in
<PAGE>
Unconsolidated Joint Ventures carried as assets on the Company's
consolidated balance sheet as of such date, to the extent that the
carrying value of such Investments as of such date exceeds $25,000,000,
plus (iv) without duplication, the cumulative foreign currency translation
adjustment at such date if it reduced Consolidated Stockholders' Equity
(or minus the cumulative foreign currency translation adjustment at such
date if it increased Consolidated Stockholders' Equity), but only to the
extent that such cumulative adjustment (whether positive or negative) does
not exceed $85,000,000, plus (v) the non-cash portion of the after-tax
restructuring charge and related special charges taken by the Company in
the fourth Fiscal Quarter of 1997, provided that the amount added pursuant
to this clause (v) shall not exceed $135,000,000. The non-cash portion of
the foregoing after-tax charges shall include the after-tax effect of:
asset write-downs and write-offs, the accounting loss on the sale of
operations in Freetown, Mass., and any other restructuring charges taken
at December 31, 1997 which are generally considered non-cash in nature.
"Consolidated EBIT" means, for any period, the sum of (i)
Consolidated Net Income for such period (excluding any extraordinary item
of gain or loss), plus (ii) to the extent deducted in determining
Consolidated Net Income for such period, interest expense and federal,
state and foreign income taxes, plus (iii) if such period includes the
fourth Fiscal Quarter of 1997, the total amount of restructuring and
related special charges taken by the Company in said fourth Fiscal
Quarter.
SECTION 3. Minimum Net Worth Covenant. Section 5.09 of the Credit
Agreement is amended to read in full as follows:
SECTION 5.09. Minimum Consolidated Adjusted Net Worth. (a) At no
time will Consolidated Adjusted Net Worth be less than Minimum
Consolidated Adjusted Net Worth. "Minimum Consolidated Adjusted Net Worth"
means an amount equal to the sum of (i) 70% of Consolidated Stockholders'
Equity at December 31, 1997 plus (ii) the amount added to Consolidated
Adjusted Net Worth pursuant to clause (v) of the definition thereof, as
such total amount is adjusted from time to time pursuant to subsection (b)
of this Section.
(b) Minimum Consolidated Adjusted Net Worth shall be adjusted from
time to time after December 31, 1997 as follows:
(i) at the end of each Fiscal Quarter ending after December
31, 1997, permanently increased (but not decreased) by the amount (if
any) necessary so that cumulative increases pursuant to this clause
(i) equal 50% of Consolidated Net Income for the period beginning on
January 1, 1998 and ending at the end of such Fiscal Quarter; and
2
<PAGE>
(ii) permanently increased, on the date of any issuance or
sale of Additional Equity after December 31, 1997, by an amount equal
to 50% of any increase in Consolidated Adjusted Net Worth
attributable to such issuance or sale of Additional Equity.
SECTION 4. Waiver. The undersigned Lenders waive any Default that may
have existed under Sections 5.01(e), 5.08 and 5.09 of the Credit Agreement prior
to the effectiveness of this Amendment, to the extent that such Default would
not have existed if this Amendment had become effective on December 1, 1997.
SECTION 5. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 6. Counterparts; Effectiveness. This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective when the Agent shall have received from
each of the Company and the Required Banks either a counterpart hereof signed by
such party or facsimile or other written confirmation that such party has signed
a counterpart hereof.
IN WITNESS WHEREOF, the undersigned parties have caused this Amendment
to be duly executed by their respective authorized officers as of the day and
year first above written.
POLAROID CORPORATION
By: /s/ Ralph M. Norwood
---------------------------------
Title: Vice President & Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ James E. Condon
---------------------------------
Title: Vice President
3
<PAGE>
ABN AMRO BANK N.V., BOSTON BRANCH
By: /s/ James E. Davis
---------------------------------
Title: Group Vice President
By: /s/ James S. Adelsheim
---------------------------------
Title: Vice President
BANKBOSTON, N.A. F/K/A
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Grace A. Barnettt
---------------------------------
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By: _________________________________
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Vladimir Labun
---------------------------------
Title: First Vice President - Manager
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By: /s/ Stephan A. Wiedemann
---------------------------------
Title: Director
By: /s/ Hans-Josef Thiele
---------------------------------
Title: Director
4
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Robert McMillan
---------------------------------
Title: Corporate Banking Officer
ROYAL BANK OF CANADA
By: /s/ Sheryl L. Greenberg
---------------------------------
Title: Senior Manager
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH
By: /s/ Leo Pagarigan
---------------------------------
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.
By: /s/ John Rafferty
---------------------------------
Title: Vice President
FLEET NATIONAL BANK
By: _________________________________
Title:
MELLON BANK, N.A.
By: /s/ Robert Summersgill
---------------------------------
Title: First Vice President
5
<PAGE>
NATIONSBANK, N.A.
By: _________________________________
Title:
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Donald V. Davis
---------------------------------
Title: Vice President
6
Exhibit 10.21
CHANGE IN CONTROL SEVERANCE AGREEMENT
AGREEMENT made as of April 25, 1997 between Polaroid
Corporation ("Polaroid" or "Company") and Joseph G. Parham, Jr. (the
"Executive").
Executive is a skilled and dedicated employee who has
important management responsibilities and talents which benefit Polaroid.
Polaroid believes that its best interests will be served if Executive is
encouraged to remain with Polaroid. Polaroid has determined that Executive's
ability to perform Executive's responsibilities and utilize Executive's talents
for the benefit of Polaroid, and Polaroid's ability to retain Executive as an
employee, will be significantly enhanced if Executive is provided with fair and
reasonable protection from the risks of a change in ownership or control of
Polaroid. Accordingly, Polaroid and Executive agree as follows:
1. Defined Terms.
(a) "Annual Bonus" shall mean the Executive's annual bonus paid pursuant
to the Company's annual bonus plan in effect at the time (currently the
Polaroid Incentive Plan for Executives). Unless otherwise specifically
provided, the Annual Bonus shall be calculated assuming the Corporate
target is reached and no additional factors are considered to decrease
the Executive's award under the Plan.
(b) "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, is the Beneficial Owner
of 20% or more of the Stock then outstanding, but does not include any
Subsidiary of the Company, any employee benefit plan of the Company or
of any of its Subsidiaries or any Person holding Stock for or pursuant
to the terms of any such employee benefit plan.
(c) "Affiliate" and "Associate" when used with reference to any Person,
shall have the meaning given to such terms in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act.
(d) "Base Salary" shall mean the annual rate of base salary (disregarding
any reduction in such rate that constitutes Constructive Termination)
as increased by the Board from time to time.
(e) "Beneficial Owner" shall be a Person deemed to "beneficially own," any
securities:
<PAGE>
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly; or
(ii) which such Person or any of such Person's Affiliates or Associates
has:
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (written or oral), or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of
such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange thereunder;
or
(B) the right to vote pursuant to any agreement, arrangement or
understanding (written or oral); provided however, that a
Person shall not be deemed the Beneficial Owner of, or to
beneficially own, any security if the agreement, arrangement
or understanding (written or oral) to vote such security (1)
arises solely from a revocable proxy given to such Person in
response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations under the Exchange Act, and (2) is not also then
reportable on Schedule 13D (or any comparable or successor
report) under the Exchange Act; or,
(C) which are beneficially owned, directly or indirectly, by any
Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (written or oral), for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as
described above) or disposing of any securities of the
Company.
-2-
<PAGE>
(f) "Board" shall mean the Board of Directors of the Company.
(g) "Bonus" means the amount payable to the Executive under any plan, or
agreement offered by Polaroid.
(h) "Cause" means either of the following:
(i) Executive's willful malfeasance having a material adverse effect
on Polaroid; or
(ii) Executive's conviction of a felony;
provided, that any action or refusal by Executive shall not constitute
Cause if, in good faith, Executive believed such action or refusal to
be in, or not opposed to, the best interests of Polaroid, or if
Executive shall be entitled, under applicable law or under an
applicable Polaroid Certificate of Incorporation or the Polaroid
By-Laws, as they may be amended or restated from time to time, to be
indemnified with respect to such action or refusal.
(i) "Change in Control" shall mean:
(i) the date on which a change in control of the Company occurs of a
nature that would be required to be reported (assuming that the
Company's Stock was registered under the Exchange Act) in
response to an item (currently item 6(e)) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act or an item
(currently Item l(a)) of Form 8-K under the Exchange Act;
(ii) the date on which there is an Acquiring Person and a change in
the composition of the Board of the Company within two years
after the Share Acquisition Date such that the individuals who
constitute the Board prior to the Share Acquisition Date shall
cease for any reason to constitute at least a majority of the
Board;
(iii) any day on or after the Share Acquisition Date when directly or
indirectly, any of the transactions specified in the following
clauses occurs:
(A) the Company shall consolidate with, or merge with and into,
any other Person;
(B) any Person shall merge with and into the Company; or
-3-
<PAGE>
(C) the Company shall sell, lease, exchange or otherwise transfer
or dispose of (or one or more of its Subsidiaries shall sell,
lease, exchange or otherwise transfer or dispose of), in one
or more transactions, the major part of the assets of the
Company and its Subsidiaries (taken as a whole) to any other
Person or Persons;
(iv) the date when a Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any of
its Subsidiaries or any Person holding Stock for or pursuant to
the terms of any such employee benefit plan) alone or together
with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 30% or more of the Stock then outstanding;
(v) the date on which the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation
other than:
(A) a merger or consolidation which would result in voting
securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving or parent entity) 50% or more of the combined
voting power of the voting securities of the Company or such
surviving or parent entity outstanding immediately after such
merger or consolidation, or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person acquires 50% or more of the combined voting
power of the Company's then outstanding securities; or
(vi) the date stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect).
(j) "Code" means the Internal Revenue Code of 1986, as amended.
-4-
<PAGE>
(k) "Confidential Information" means non-public information relating to the
business plans, marketing plans, customers or employees of Polaroid
other than information the disclosure of which cannot reasonably be
expected to adversely affect the business of Polaroid.
(l) "Constructive Termination" shall occur when the Executive voluntarily
terminates his employment with the Company or retires after the
occurrence of one or more of the following events on or after the
Change in Control:
(i) a reduction in Base Salary from the amount of Base Salary on the
day immediately preceding the Change in Control;
(ii) the elimination of or reduction of any benefit under any bonus,
incentive or other employee benefit plan in effect on the day
immediately preceding the Change in Control, without an
economically equivalent replacement, if Executive was a
participant or member of such plan on the day immediately
preceding the Change in Control;
(iii) the discontinuation of or any reduction in Executive's
participation or membership in any bonus, incentive or other
benefit plan in which Executive was a participant or member on
the day immediately preceding the Change in Control, without an
economically equivalent replacement;
(iv) the reassignment of Executive without Executive's consent from
Executive's regular shift or regular duties as they existed on
the day immediately preceding the Change in Control;
(v) the reassignment of Executive without Executive's consent to a
location more than thirty (30) miles from Executive's regular
workplace on the day immediately preceding the Change in Control;
(vi) the reduction in Executive's job title or level in effect on the
day immediately preceding the Change in Control;
(vii) the provision of significantly less favorable working conditions
than those provided on the day immediately preceding the Change
in Control; or
-5-
<PAGE>
(viii) a significant diminution in duties or responsibilities or the
reassignment of Executive to duties which represent a position
of lesser responsibility than Executive's duties as they existed
on the day immediately preceding the Change in Control.
(m) "Disability" shall mean the Executive's disability within the meaning
of the Polaroid Long Term Disability Plan.
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as in
effect on the date in question.
(o) "Person" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other
entity.
(p) "Share Acquisition Date" shall mean the first date any Person shall
become an Acquiring Person.
(q) "Stock" shall mean the outstanding shares of Common Stock of the
Company and, for purposes of the Change in Control provision, any other
shares of capital stock of the Company into which the Common Stock
shall be reclassified or changed.
(r) "Subsidiary" of the Company shall mean any corporation of which the
Company owns, directly or indirectly, more than 50% of the Voting
Stock.
(s) "Terminated" shall mean:
(i) termination by Polaroid without Cause at any time within the two
(2) years following a Change in Control;
(ii) Executive's termination due to a Constructive Termination at any
time within the two (2) years following a Change in Control; or
(iii) termination within three (3) months prior to a Change of Control
at the request of any individual or entity acquiring ownership
and control of Polaroid. If Executive's employment with Polaroid
is terminated prior to a Change in Control at the request of
Acquiring Person, this Agreement shall become effective upon the
subsequent occurrence of a Change in Control involving such
Acquiring Person. In such situation the Executive's Termination
Date shall be deemed to have occurred immediately following the
Change in Control, and therefore
-6-
<PAGE>
Executive shall be entitled to the benefits provided in this
Agreement.
(t) "Termination Date" shall mean the date on which Executive is
terminated.
(u) "Voting Stock" shall mean capital stock of any class or classes having
general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. Effective Date; Term. This Agreement shall be effective immediately
prior to a Change in Control (the "Effective Date") and shall remain in
effect for two (2) years following such Change in Control, and such
additional time as may be necessary to give effect to the terms of the
Agreement.
3. Change in Control Benefits. If Executive's employment with Polaroid is
Terminated, Executive shall be entitled to the following benefits:
(a) Severance Benefits. Within ten (10) business days after the
Termination Date, Polaroid shall pay Executive a lump sum amount, in
cash, equal to the greater of the severance benefit Executive would
otherwise be entitled to receive under the Extended Severance Plan or:
(i) two (2) times the sum of:
(A) Executive's Base Salary; and
(B) Executive's Annual Bonus; and
(ii) Executive's Annual Bonus multiplied by a fraction, the numerator
of which shall equal the number of days Executive was employed by
Polaroid in the calendar year in which the Termination Date
occurs and the denominator of which shall equal 365.
(b) Continued Welfare Benefits. Until the second anniversary of the
Termination Date, Executive shall be entitled to participate in the
Company's medical, dental, and life insurance plans, at the highest
level provided to Executive during the period beginning immediately
prior to the Change in Control and ending on the Termination Date and
at no greater cost than the cost Executive was paying immediately prior
to Change in Control; provided, however, that if Executive becomes
employed by a new employer, Executive's coverage under the applicable
Polaroid plans shall continue, but Executive's coverage thereunder
shall be
-7-
<PAGE>
secondary to (i.e., reduced by) any benefits provided under like plans
of such new employer.
(c) Payment of Accrued But Unpaid Amounts. Within ten (10) business days
after the Termination Date, Polaroid shall pay Executive:
(i) earned but unpaid compensation, including, without limitation,
any unpaid portion of Executive's Bonus accrued with respect to
the full calendar year ended prior to the Termination Date; and
(ii) all compensation previously deferred by Executive on a
non-qualified basis but not yet paid.
(d) Retiree-Medical Benefits. If Executive is or would become fifty-five
(55) or older and Executive's age and service equal sixty-five (65) and
Executive has at least five (5) years of service with the Company
within two (2) years of Change in Control, Executive is eligible for
retiree medical benefits (as such are determined immediately prior to
Change in Control). Executive is eligible to commence receiving such
retiree medical benefits based on the terms and conditions of the
applicable plans in effect immediately prior to the Change in Control.
(e) Supplemental Retirement and Profit Sharing Benefits.
(i) On the Termination Date, Executive shall become vested in the
benefits provided under Polaroid's non-qualified defined benefit
pension plans or any successor plans (the "Supplemental Plans").
(ii) Within ten (10) business days after the Termination Date,
Polaroid shall pay Executive a lump sum cash amount equal to the
present value of Executive's accrued benefit under the
Supplemental Plans. For purposes of computing the lump sum
present value of Executive's accrued benefit under the
Supplemental Plans,
(A) Polaroid shall credit Executive with two (2) years of plan
participation and service and two (2) years of age for all
purposes (including additional accruals and eligibility for
early retirement) over Executive's actual years and
fractional years of plan participation and service and age
credited to Executive on the Termination Date; and
-8-
<PAGE>
(B) Polaroid shall apply the present value (and any other
actuarial adjustments required by this Agreement) using the
applicable actuarial assumptions set forth in the Pension
Plan. In determining Executive's benefits under this
paragraph (e)(B), the terms of the Supplemental Plans as in
effect immediately prior to the Change in Control, except as
expressly modified in this paragraph (e), shall govern.
(f) Effect on Existing Plans. All Change in Control provisions applicable
to Executive and contained in any plan, program, agreement or
arrangement maintained as of the date this Agreement is signed
(including, but not limited to, any stock option, restricted stock or
pension plan) shall remain in effect through the date of a Change in
Control, and for such period thereafter as is necessary to carry out
such provisions and provide the benefits payable thereunder, and may
not be altered in a manner which adversely affects Executive without
Executive's prior written approval. This means that all awards of
options, performance shares or such other awards as may be granted
shall upon Change in Control be fully vested consistent with the terms
of these Agreements. Notwithstanding the foregoing, no benefits shall
be paid to Executive, however, under the Polaroid Extended Severance
Plan or any other severance plan maintained generally for the employees
of Polaroid if Executive is eligible to receive severance benefits
under this Agreement.
(g) Outplacement Counseling. Outplacement services will be provided
consistent with Polaroid's outplacement practices in effect prior to
the Change in Control.
4. Mitigation. Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking
other employment or otherwise, and compensation earned from such
employment or otherwise shall not reduce the amounts otherwise payable
under this Agreement. No amounts payable under this Agreement shall be
subject to reduction or offset in respect of any claims which Polaroid
(or any other person or entity) may have against Executive unless
specifically referenced herein.
5. Gross-up.
(a) In the event it shall be determined that any payment, benefit or
distribution (or combination thereof) by Polaroid, or one or more
trusts established by Polaroid for the benefit of its employees, to or
for the benefit of Executive (whether paid or payable or distributed or
-9-
<PAGE>
distributable pursuant to the terms of this Agreement, or otherwise) (a
"Payment") would be subject to the excise tax imposed by Section 4999
of the Code or any interest or penalties are incurred by Executive with
respect to such excise tax (such excise tax, together with any such
interest and penalties, hereinafter collectively referred to as the
"Excise Tax"), Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
Executive of all taxes (including any interest or penalties imposed
with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and
the Excise Tax imposed upon the Gross-Up Payment, Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 5(c), all determinations required
to be made under this Section 5, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be
made by a nationally recognized certified public accounting firm as may
be designated by Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to Polaroid and Executive within
fifteen (15) business days of the receipt of notice from Executive that
there has been a Payment, or such earlier time as is requested by
Polaroid. In the event that the Accounting Firm is serving as
accountant or auditor for an individual, entity or group effecting the
change in ownership or effective control (within the meaning of Section
280G of the Code), Executive shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by Polaroid. Any Gross-Up Payment, as
determined pursuant to this Section 5, shall be paid by Polaroid to
Executive within five (5) business days after the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by Executive, it shall so indicate to
Executive in writing. Any determination by the Accounting Firm shall be
binding upon Polaroid and Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by Polaroid should have
been made ("Underpayment"), consistent with the calculations required
to be made hereunder. In the
-10-
<PAGE>
event that Polaroid exhausts its remedies pursuant to Section 5(c) and
Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment shall be promptly paid by
Polaroid to or for the benefit of Executive.
(c) The Executive shall notify the Company in writing of any written claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall
be given as soon as practicable but no later than ten (10) business
days after the Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid (but the Executive's failure to
comply with this notice obligation shall not eliminate his rights under
this Section except to the extent Polaroid's defense against the
imposition of the Excise Tax is actually prejudiced by any such
failure). The Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on which he
gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If
the Company notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive
shall:
(i) give Polaroid any information reasonably requested by Polaroid
relating to such claim;
(ii) take such action in connection with contesting such claim as
Polaroid shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
Polaroid;
(iii) cooperate with Polaroid in good faith in order to effectively
contest such claim; and
(iv) permit Polaroid to participate in any proceedings relating to
such claim;
provided, however, that Polaroid shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this
-11-
<PAGE>
Section 5(c), Polaroid shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may,
at its sole option, either direct Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and
Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as Polaroid shall determine; provided,
however, that if Polaroid directs Executive to pay such claim and sue
for a refund, Polaroid shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and provided, further, that if
Executive is required to extend the statute of limitations to enable
Polaroid to contest such claim, Executive may limit this extension
solely to such contested amount. Polaroid's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced by Polaroid
pursuant to Section 5(c), Executive receives any refund with respect to
such claim, Executive shall (subject to Polaroid's complying with the
requirements of Section 5(c)) promptly pay to Polaroid the amount of
such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by Executive of an
amount advanced by Polaroid pursuant to Section 5(c), a determination
is made that Executive shall not be entitled to any refund with respect
to such claim and Polaroid does not notify Executive in writing of its
intent to contest such denial of refund prior to the expiration of
thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
6. Termination for Cause. Nothing in this Agreement shall be construed to
prevent Polaroid from terminating Executive's employment for Cause. If
Executive is terminated for Cause, Polaroid shall have no obligation to
make any payments under this Agreement, except for payments that may
otherwise be
-12-
<PAGE>
payable under then existing employee benefit plans, programs and
arrangements of Polaroid.
7. Indemnification; Director's and Officer's Liability Insurance.
Executive shall, after the Termination Date, retain all rights to
indemnification under applicable law or under Polaroid Certificate of
Incorporation or the Polaroid By-Laws, as they may be amended or
restated from time to time. In addition, Polaroid shall maintain
Director's and Officer's liability insurance on behalf of Executive at
the better of the level in effect immediately prior to the Change in
Control or the Executive's Termination Date, for the two (2) year
period following the Termination Date, and throughout the period of any
applicable statute of limitations.
8. Confidentiality. Without the prior written consent of the Company,
except to the extent required by an order of a court having competent
jurisdiction or under subpoena from an appropriate government agency,
the Executive shall comply with the Confidentiality Agreement he
executed when hired, and shall not disclose any trade secrets, customer
lists, drawings, designs, information regarding product development,
marketing plans, sales plans, manufacturing plans, management
organization information (including data and other information relating
to members of the Board and management), operating policies or manuals,
business plans, financial records or other financial, commercial,
business or technical information relating to the Company or any of its
subsidiaries or information designated as confidential or proprietary
that the Company or any of its Subsidiaries may receive belonging to
suppliers, customers or others who do business with the Company or any
of its subsidiaries (collectively, "Confidential Information") to any
third person unless such Confidential Information has been previously
disclosed to the public by the Company or is in the public domain
(other than by reason of Executive's breach of this Section 8).
9. Disputes. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts or, at the option of Executive, in the county
where Executive then resides, in accordance with the Rules of the
American Arbitration Association then in effect. Judgment may be
entered on an arbitrator's award relating to this Agreement in any
court having jurisdiction.
10. Costs of Proceedings. Polaroid shall pay all costs and expenses,
including attorneys' fees and disbursements, at least monthly, of
Executive in connection with any legal proceeding (including
arbitration), whether or not instituted by Polaroid or Executive,
relating to the interpretation or enforcement of any provision of this
-13-
<PAGE>
Agreement, except that if Executive instituted the proceeding and the
judge, arbitrator or other individual presiding over the proceeding
affirmatively finds that Executive instituted the proceeding in bad
faith, Executive shall pay all costs and expenses, including attorneys'
fees and disbursements, of Executive. Polaroid shall pay pre-judgment
interest on any money judgment obtained by Executive as a result of
such a proceeding, calculated at the prime rate of The Chase Manhattan
Bank (or its successors), as in effect from time to time, from the date
that payment should have been made to Executive under this Agreement.
11. Assignment. Except as otherwise provided herein, this Agreement shall
be binding upon, inure to the benefit of and be enforceable by Polaroid
and Executive and their respective heirs, legal representatives,
successors and assigns. If Polaroid shall be merged into or
consolidated with another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of the entity surviving
such merger or resulting from such consolidation. Polaroid will require
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business
or assets of Polaroid, by agreement in form and substance satisfactory
to Executive, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that Polaroid would be
required to perform it if no such succession had taken place. The
provisions of this Section 11 shall continue to apply to each
subsequent employer of Executive hereunder in the event of any
subsequent merger, consolidation or transfer of assets of such
subsequent employer.
12. Payments in Event of Death. Should the Executive become eligible to
receive payments and benefits under this Agreement and die prior to
receipt of all such payments and benefits, the residual payments shall
be made to the beneficiaries identified on the Executive's beneficiary
form for the Executive Deferral Compensation Plan. Any residual family
medical and dental benefits which the Executive was receiving on the
Executive's date of death shall continue to the family members the
Executive had covered in such medical and dental plans on such date.
13. Withholding. Polaroid may, to the extent required by law, withhold
applicable federal, state and local income and other taxes from any
payments due to Executive hereunder.
14. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of
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<PAGE>
Massachusetts applicable to contracts made and to be performed therein.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and, except as expressly provided herein,
supersedes all other prior agreements concerning the effect of a Change
in Control on the relationship between Polaroid and Executive. This
Agreement may be changed only by a written agreement executed by
Polaroid and Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the 25th day of April, 1997.
POLAROID CORPORATION
By /s/ Gary T. DiCamillo
------------------------
Gary T. DiCamillo
/s/ Joseph G. Parham, Jr.
- -------------------------
Joseph G. Parham, Jr.
Executive
-15-
EXHIBIT 12
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions Except Ratios)
<TABLE>
<CAPTION>
For the Twelve Months
Ended December 31
-------------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Earnings/(loss):
Earnings/(loss)before income
tax expense/benefit per
consolidated statement of earnings $101.7 $160.7 $(201.4) $ 31.2 $(191.9)
Add:
Interest expense 47.9 46.6 52.1 47.4 47.8
Portion of rent expense
representative of an interest factor 10.4 10.3 11.7 9.3 10.7
------ ------ ------- ------ -------
Adjusted earnings/(loss) before
income tax expense/benefit $160.0 $217.6 $(137.6) $ 87.9 $(133.4)
====== ====== ======= ====== =======
Fixed charges:
Interest expense $ 47.9 $ 46.6 $ 52.1 $ 47.4 $ 47.8
Portion of rent expense
representative of an interest factor 10.4 10.3 11.7 9.3 10.7
Capitalized interest 12.6 9.7 4.8 5.1 2.6
------ ------ ------- ------ -------
Total fixed charges $ 70.9 $ 66.6 $ 68.6 $ 61.8 $ 61.1
====== ====== ======= ====== =======
Ratio of earnings to fixed charges 2.3(a) 3.3 N/A(b) 1.4(c) N/A(d)
====== ====== ======= ====== =======
</TABLE>
- --------------------------
(a) In 1993, the Company recorded a pre-tax expense for restructuring and
other charges of $44.0 million. Excluding the pre-tax restructuring and
other charges, the ratio to fixed charges was 2.9.
(b) Earnings were insufficient to cover fixed charges by $206.2 million
after giving effect to the pre-tax expense for restructuring and other
charges of $247.0 million. Excluding the pre-tax restructuring and
other charges, the ratio of earnings to fixed charges was 1.6.
(c) In 1996, the Company recorded a pre-tax expense for restructuring and
other special charges of $150.0 million ($7.0 million of which was
recorded in cost of goods sold). Excluding the pre-tax restructuring
and other special charges, the ratio of earnings to fixed charges was
3.8.
(d) Earnings were insufficient to cover fixed charges by $194.5 million
after giving effect to the pre-tax expense for restructuring and other
charges of $340.0 million ($16.5 million of which was recorded in cost
of goods sold). Excluding the pre-tax restructuring and other charges,
the ratio of earnings to fixed charges was 3.4.
Exhibit 13
FINANCIAL REVIEW
Polaroid Corporation and Subsidiary Companies
21 Management's Discussion and Analysis of Operations
29 Independent Auditors' Report
29 Management's Report
FINANCIAL STATEMENTS:
30 Consolidated Statement of Earnings
31 Consolidated Balance Sheet
32 Consolidated Statement of Cash Flows
33 Consolidated Statement of Changes in
Common Stockholders' Equity
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
34 1. Summary of Significant Accounting Policies
36 2. Supplemental Information
37 3. Financial Instruments
39 4. Income Taxes
40 5. Inventories
40 6. Short-term Debt
41 7. Payables and Accruals
41 8. Long-term Debt
42 9. Common Stockholders' Equity
42 10. Incentive Compensation and Stock Incentive Plans
44 11. Benefit Plans
46 12. Rental Expense and Lease Commitments
47 13. Business
48 14. Contingencies
48 15. Supplementary Financial Information
SUPPLEMENTARY FINANCIAL INFORMATION:
49 Quarterly Financial Data
50 Ten-Year Financial Summary
Polaroid Annual Report 1997
<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 1997, 1996 and
1995.
<TABLE>
<CAPTION>
Income and Expense Items
as a Percent of Net Sales
- ----------------------------------------------------------------------------------------
Income and Expense Items 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
United States 50% 47% 46%
International 50 53 54
- ----------------------------------------------------------------------------------------
Total net sales 100 100 100
Cost of goods sold 57 56 58
Marketing, research, engineering and administrative expenses 35 35 38
Restructuring and other expenses 15 5 11
Special charges -- 2 --
- ----------------------------------------------------------------------------------------
Profit/(loss) from operations (7) 2 (7)
Other income -- 1 --
Interest expense 2 2 2
- ----------------------------------------------------------------------------------------
Earnings/(loss) before income tax expense/(benefit) (9) 1 (9)
Federal, state and foreign income tax expense/(benefit) (3) -- (3)
- ----------------------------------------------------------------------------------------
Earnings/(loss) before extraordinary item (6) 1 (6)
Extraordinary item -- (3) --
- ----------------------------------------------------------------------------------------
Net loss (6)% (2)% (6)%
- ----------------------------------------------------------------------------------------
</TABLE>
[Pie Charts - Page 21]
PERCENT OF WORLD SALES
1997 1996
U.S. 50% 47%
Europe 27% 29%
Asia Pacific, Canada,
Latin and South America 23% 24%
[Bar Chart - Page 21]
PROFIT FROM OPERATIONS
0 $50 $100 $150 $200 $250
1993* xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
1994 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
1995** xxxxxxxxxxxxxxxxxxx
1996*** xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
1997**** xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
* Excludes impact of $44 million of expenses related to restructuring and
other charges.
** Excludes impact of $247 million of expenses related to restructuring and
other charges.
*** Excludes impact of $110 million of expenses related to restructuring and
other charges and $40 million of special charges.
**** Excludes impact of $340 million of expenses related to restructuring and
other charges and $20 million of above normal inventory write-offs (which
were unrelated to restructuring).
Polaroid Annual Report 1997
<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.
1997 WORLDWIDE RESULTS COMPARED WITH 1996
Worldwide sales of Polaroid Corporation and its subsidiaries decreased 6% to
$2.15 billion in 1997 compared with $2.28 billion in 1996, primarily because of
the strengthening of the U.S. dollar and lower sales in Russia and China.
Worldwide shipments of instant film in 1997 decreased moderately compared to
1996. The Company sold 5.1 million cameras in both 1997 and 1996, but excluding
Russia, 1997 camera shipments increased moderately compared to 1996. (In
addition, worldwide shipments of conventional film in 1997 increased
significantly while videotape shipments were significantly lower in 1997 than
1996.)
Sales in the United States were $1.06 billion in both 1997 and 1996. In 1997,
U.S. shipments of instant cameras increased significantly and shipments of
instant film were flat compared to 1996. Conventional film shipments increased
substantially while shipments of videotapes decreased significantly in 1997
compared with last year. In addition, in 1997, sales reflected a reduction of
approximately $10 million in licensing income.
International sales in 1997 decreased 11% to $1.08 billion compared to $1.21
billion in 1996. The decline was primarily due to the strengthening of the U.S.
dollar and lower sales in Russia and China. International shipments of instant
cameras decreased significantly and instant film shipments decreased moderately
in 1997 compared to 1996. The decline in international shipments of instant
cameras was primarily due to declines in Russia, while the decrease in
international shipments of film was due to shortfalls in Russia and China.
Gross margin, as a percent of sales, decreased to 43% for 1997 from 44% in 1996.
Excluding inventory write-offs related to restructuring and other special
charges ($17 million in 1997 and $7 million in 1996) and the above normal
inventory write-offs recorded in the fourth quarter of 1997 of approximately $20
million (which were unrelated to restructuring), gross margin was 44% in both
1997 and 1996.
Marketing, research, engineering and administrative expenses declined to $752
million in 1997 from $797 million in 1996. This decline was primarily a result
of a reduction in digital imaging spending, a stronger U.S. dollar and lower
incentive payments offset in part by an increase in spending primarily in
marketing and research and engineering expenses. In both years, overhead as a
percent of sales totaled 35%.
In December 1997, the Company announced a broad-based program to streamline
operations and enhance earnings by consolidating and selling manufacturing
facilities and reducing its corporate overhead structure. The total pre-tax
expenses recorded in the fourth quarter of 1997 for restructuring and other
charges related to this program were $340 million. Of this amount, $17 million
represented inventory write-downs which were included in cost of goods sold.
The 1997 restructuring and other charges included approximately $150 million
related to an involuntary severance program under which approximately 1,800
employees will leave the Company (approximately 40% from manufacturing and 60%
from non-manufacturing jobs) over approximately 18 months. Most of the cash
severance payments related to this program are expected to be paid by the end of
1999. No cash payments were made under the program in 1997.
The remainder of the restructuring and other charges of $190 million primarily
relates to the write-down of assets. Approximately $106 million of this amount
was related to the write-down of the Company's underutilized New Bedford coating
facility to an independently determined fair value of approximately $18 million.
The Company is considering several strategic options for future use of this
facility, including an outright sale. In addition, approximately $22 million was
for the write-off of battery assembly equipment which is not required to support
the Company's anticipated production requirements. The restructuring and other
charges also included approximately $26 million related to the Company's
underutilized chemical manufacturing facility in Freetown, Mass., that it
intended to sell to International Specialties Products, Inc. (ISP) (and which
was actually sold in February 1998). Under the terms of the agreement to sell
this facility, the Company entered into a long-term supply agreement with ISP to
purchase certain specialty chemicals used to manufacture the Company's instant
film. The remainder of these write-downs related primarily to other assets which
are no longer required and will ultimately be disposed of and inventory
write-downs related to restructured operations.
In 1996, restructuring and other special charges 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 1997, the Company incurred an operating loss of $159 million compared with a
profit from operations of $52 million in 1996. Excluding restructuring and other
special charges and the above normal inventory write-offs (which were unrelated
to restructuring), the profit from operations would have been $201 million
versus $202 million in 1997 and 1996, respectively. Compared with last year, the
Polaroid Annual Report 1997
<PAGE>
Company was adversely affected by foreign exchange, lower volume in Russia and
China and lower licensing income. These factors were offset in part by
reductions in digital losses of approximately $42 million and savings and
efficiencies from prior period restructuring programs.
Other income was $15 million in 1997 compared to $27 million in 1996, while
interest expense increased to $48 million in 1997 compared to $47 million in
1996. In 1997, other income includes a $16 million gain primarily attributable
to the change in the Company's method of applying Financial Accounting Standards
Board Statement No. 52, "Foreign Currency Translation" (FAS 52) for translating
the financial results of most of its foreign subsidiaries from dollar functional
to local currency functional. The change was adopted because of the Company's
new operational and financial structure in Europe and the increased
globalization of the Company's manufacturing since the initial adoption of FAS
52 in 1981. In 1997, other income also includes a gain on a real estate sale of
$19 million and a donation valued at $19 million to endow charitable giving.
Other income in 1996 includes a $23 million gain on the sale of real estate.
For the full year 1997, the effective tax rate was 34%, compared with 52% for
1996. The decrease in the effective tax rate was primarily a result of the
change in the Company's method of applying FAS 52 and the change in its
operational structure. For purposes of determining the after-tax restructuring
and other special charges, the Company assumed a tax rate of 34% in 1997 and 40%
in 1996 to calculate the tax benefit.
In 1996, the Company recorded an extraordinary loss of $56.1 million (net of a
tax benefit of $1.5 million) related to two transactions associated with the
Company's $140 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 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 a 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 a tax benefit of $1.1 million) in the fourth quarter of
1996. This transaction closed in January 1997.
Including restructuring and other special charges totaling $340 million in 1997
and $150 million in 1996 and the extraordinary item, the Company recorded a net
loss of $127 million, or $2.81 basic loss per common share in 1997 compared to a
net loss of $41 million, or $.90 basic loss per common share in 1996. Diluted
loss per common share was the same as the basic loss per common share in 1997
and 1996. Excluding restructuring and other charges, the above normal inventory
write-offs (which were unrelated to restructuring), the currency translation
gain primarily attributable to the change in applying FAS 52 previously reported
in the first quarter of 1997 and the related tax effects, net earnings in 1997
were $100 million, or $2.19 diluted earnings per common share. Excluding the
extraordinary item, restructuring and other special charges, gains from real
estate sales and the related tax effects, net earnings for 1996 were $91 million
or $1.95 diluted earnings per common share.
1997 FOURTH QUARTER RESULTS
Worldwide sales for the fourth quarter of 1997 were $608 million, an 8% decrease
compared with sales of $663 million in the fourth quarter of 1996. The principal
reasons for this decrease were a stronger U.S. dollar, lower sales in China and
a decline in sales in the U.S.
U.S. sales decreased 4% in the fourth quarter of 1997 to $321 million compared
with $335 million in the same period last year. The decline was due in large
part to lower sales volume in instant film. Shipments of instant film decreased
moderately compared to 1996.
International sales decreased 13% from $329 million in the fourth quarter of
1996 to $287 million in the fourth quarter of 1997. International sales were
adversely impacted primarily by the stronger U.S. dollar and sales declines in
China. In addition, both instant camera and film shipments decreased moderately
in international markets.
Gross margin, as a percent of sales, decreased to 36% for the fourth quarter of
1997 from 42% for the fourth quarter of 1996. Excluding inventory write-offs
related to restructuring and other special charges ($17 million in 1997 and $7
million in 1996) and the above normal inventory write-offs of approximately $20
million (which were unrelated to restructuring), gross margin was 42% in the
fourth quarter of 1997 compared to 43% in the fourth quarter of 1996. The
primary reason for this decline was the stronger U.S. dollar, offset in part by
improvements in manufacturing operations.
Marketing, research, engineering and administrative expenses were reduced to
$190 million in the fourth quarter of 1997 from $208 million in the fourth
quarter of 1996. The primary reasons for this decrease were a reduction in
digital imaging spending, lower incentive payments and, to a lesser degree, the
impact of foreign currency.
Polaroid Annual Report 1997
<PAGE>
These amounts were offset in part by an increase in spending primarily in
marketing and research and engineering expenses.
The loss from operations for the fourth quarter of 1997 was $294 million
compared to an operating profit of $36 million in the fourth quarter of 1996.
Excluding restructuring and other special charges and the above normal inventory
write-offs (which were unrelated to restructuring), profit from operations was
$66 million in the fourth quarter of 1997 versus $76 million in the fourth
quarter of 1996. This decline is primarily the result of the impact of a
stronger U.S. dollar and lower sales volume in China. These factors were offset
in part by reductions in digital imaging losses.
Interest expense was $13 million in the fourth quarter of 1997 compared to $12
million in the same period of 1996.
The worldwide effective tax rate for the fourth quarter was 34% in 1997 and 47%
in 1996. The decrease in the effective tax rate was primarily a result of the
change in the Company's method of applying FAS 52 and the change in its
operational structure. For purposes of determining the after-tax restructuring
and other special charges, the Company assumed a tax rate of 34% and 40% in the
fourth quarter of 1997 and 1996, respectively, to calculate the tax benefit.
Including restructuring and other special charges and the extraordinary item,
the Company recorded a net loss of $203 million, or $4.51 basic loss per common
share for the fourth quarter of 1997, compared to net earnings of $11 million,
or $.25 basic earnings per common share in the same period of 1996. Diluted
earnings or loss per common share was the same as the basic earnings or loss per
common share in the fourth quarter of 1997 and 1996. Excluding the extraordinary
item, restructuring and other special charges, the above normal inventory
write-offs (which were unrelated to restructuring) and the related tax effects,
net earnings in the fourth quarter of 1997 were $35 million, or $.76 diluted
earnings per common share, compared with net earnings of $37 million, or a $.78
diluted earnings per common share in 1996.
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. 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. 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. 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 includes $10 million to $20 million
generated from 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. In 1996, sales in the European
region decreased 10% to $664 million compared with $739 million in 1995,
reflecting the substantial decrease in sales in Russia which more than offset
increases in the rest of Europe. The Company's sales in Russia in 1996 decreased
over 40% compared to 1995. 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 margin, 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.
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.
In 1996, pre-tax costs for restructuring and other special charges totaled $150
million 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, pre-tax charges for
restructuring and other expenses totaled $247 million.
The $110 million restructuring and other expenses in 1996 represented the
balance of severance and pension enhancement costs and inventory write-downs
related to the December 1995 restructuring program. The $110 million charge
included approximately $55 million pre-tax costs related to the severance
program. Additionally, approximately $45 million represented 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 consolidated statement of cash flows.
The 1996 fourth quarter $40 million pre-tax cost included $25 million related to
costs associated with the sale of the Company's Helios medical diagnostic
imaging equipment
Polaroid Annual Report 1997
<PAGE>
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 goods sold, and $33 million
was reported as special charges. The $33 million special charge reflects
write-offs of fixed assets, severance and other costs.
Excluding restructuring and other special charges, 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 restructuring and other
special charges, 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 the digital products arena with
sales of LCD panels and projectors, the Company's PDC-2000 digital camera and
color film recorders.
Other income was $27 million in 1996 compared with $9 million in 1995. This
increase primarily reflected 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 cost of restructuring and other
special charges, 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 basic
earnings per common share, compared with a $.03 basic loss per common share for
1995.
In 1996, the Company recorded an extraordinary loss of $56.1 million (net of a
tax benefit of $1.5 million) related to the two transactions associated with the
Debentures (as discussed under "1997 Worldwide Results Compared with 1996").
In 1996, the extraordinary item was a loss of $56 million or $1.23 basic loss
per common share. Including restructuring and other special charges, gains from
real estate sales, and the extraordinary item, the net loss in 1996 was $41
million, or $.90 basic loss per common share, compared with a net loss of $140
million, or $3.09 basic loss per common share in 1995. Diluted loss per common
share was the same as basic loss per common share in 1996 and 1995. Excluding
the extraordinary item and restructuring and other special charges, gains from
real estate sales and the related tax effects, net earnings in 1996 were $91
million, or $1.95 diluted earnings per common share, compared with $20 million,
or $.44 diluted earnings per common share for 1995.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's cash and cash equivalents and short-term
investments amounted to $79 million compared to $78 million at December 31,
1996. Working capital decreased to $557 million at December 31, 1997 from $623
million at December 31, 1996. This decrease of $66 million was primarily a
result of an increase in compensation and benefits liabilities associated with
the 1997 involuntary severance program and short-term borrowings as well as a
decline in inventories, largely due to write-offs. These decreases in working
capital were offset by increases in prepaid taxes and reductions in payables and
the current tax liability.
The primary sources for cash in 1997 were cash flows from operating activities
and financing activities. This was offset by cash used for investing activities.
The primary source for cash in 1996 was cash flows from operating activities
which more than offset cash used in investing activities and financing
activities.
In 1997, capital spending was $134 million and depreciation expense was $112
million. This compares with capital expenditures of $122 million and
depreciation expense of $118 million in 1996. Capital expenditures in both 1997
and 1996 were primarily related to ongoing capital programs. In addition, in
1997 capital expenditures included increased spending for new products while
1996 included expenditures for the consolidation of the Company's coating
facilities. Capital expenditures in 1998 are expected to be approximately $165
million.
In 1997, the Company made cash payments of $42 million under the December 1995
severance program which was substantially completed in 1997. Also in 1997, the
Company expended approximately $30 million to purchase additional equity
investments as part of the Helios transaction and to purchase foreign
distributors, $57 million to repurchase the Company's common stock and paid $27
million in dividends to common stockholders.
In 1996, the Company made cash payments of $76 million under the December 1995
severance programs, purchased the conversion rights of the Debentures for $54
million, repurchased $44 million of the Company's common stock,
Polaroid Annual Report 1997
<PAGE>
paid $27 million of dividends to common stockholders and reduced borrowings. In
1996, the Company also expended $28 million to purchase equity investments as
part of the Helios transaction.
In March of 1997, the Company executed a $350 million credit agreement which
provides committed funds for general corporate purposes. This agreement expires
at the end of 2001. As of December 31, 1997, there were no borrowings under this
facility. As of December 31, 1997, gross borrowings from the Company's
international uncommitted lines of credit were $151 million while gross
borrowings from the Company's U.S. uncommitted lines of credit were $91 million.
Additional available, uncommitted lines of credit for U.S. and international
operations were $99 million and $104 million, respectively, at December 31,
1997. As of December 31, 1996, gross borrowings from international uncommitted
lines of credit were $125 million while there were no borrowings from the
Company's U.S. uncommitted lines at that time. Additional available, uncommitted
lines of credit for U.S. and international operations were $120 and $140
million, respectively, at 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 provided 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 7.25% Notes
due January 15, 2007 and $150 million 6.75% Notes due January 15, 2002 leaving a
balance on the shelf of $200 million. The net proceeds from the sale of the
notes were used primarily for the payment of $150 million principal amount of
7.25% Notes due January 15, 1997 and to repurchase the remaining principal
amount of $139.5 million Debentures. The Company's available borrowing capacity
is limited by certain debt covenants in the $350 million committed facility.
During 1997, the Company repurchased 1.3 million shares of its common stock for
$57 million. In 1996, 1.1 million shares were repurchased for $44 million. On
October 21, 1997, the Company's Board of Directors authorized a repurchase
program for as many as 5 million shares, or 11% of outstanding shares over the
next three years. This program includes approximately $30 million remaining from
the $100 million common stock repurchase program approved by the Board of
Directors in January 1995. As of December 31, 1997, up to approximately 4.0
million shares remain to be purchased under the current stock repurchase
program. The Company may repurchase its common stock on the open market, in
privately negotiated transactions or otherwise (which may include transactions
with Polaroid stock option holders and with Polaroid retirement plans, including
the employee stock ownership plan). The timing and amounts of any future
purchases under this program depend upon many factors, including market
conditions as well as the Company's business and financial condition.
The Company believes that its borrowing capacity and other existing corporate
resources are adequate for at least the next twelve months to meet working
capital needs, to fund planned capital expenditures, to pursue future growth
opportunities and to fund other corporate requirements, including cash severance
payments for the December 1997 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 currency exchange
fluctuations. The impact of currency fluctuations can be positive or negative in
any given period. The Company's ability to counteract currency exchange movement
is primarily dependent on pricing.
Effective January 1, 1997, the Company has determined that the local currency is
the functional currency for most of its subsidiaries outside of the U.S. The
U.S. dollar will continue to be the functional currency for subsidiaries in
highly inflationary economies.
To minimize the adverse impact of currency fluctuations on net assets
denominated in currencies other than the relevant functional currency
(nonfunctional currencies), the Company may engage in nonfunctional currency-
denominated borrowings. The Company determines the aggregate amount of such
borrowings based on forecasts of each entity's nonfunctional net asset position
and the relative strength of the functional currencies compared to the
nonfunctional currencies. These borrowings create nonfunctional
currency-denominated liabilities that hedge the Company's nonfunctional
currency-denominated net assets. Upon receipt of the borrowed nonfunctional
currency-denominated funds, the Company converts those funds to the functional
currency at the spot exchange rate. Exchange gains and losses on the
nonfunctional currency-denominated borrowings are recognized in earnings as
incurred. At December 31, 1997 and 1996, the amounts of the Company's
outstanding short-term debt incurred for hedging purposes were $150 million and
$123 million, respectively.
From time to time, the Company may use over-the-counter currency exchange swaps
to reduce the interest expense incurred through the borrowings described above
and to replace the hedge created by those borrowings. When a currency exchange
swap is used to replace a hedge, the currency received by the Company in the
spot market component of the currency exchange swap is used to close out the
borrowings and, simultaneously, the hedge is reinstituted through a forward
contract (not exceeding six months). The net interest value of the currency
exchange swap contract is amortized to earnings over the life of the contract.
Exchange gains or losses on the foreign currency
Polaroid Annual Report 1997
<PAGE>
obligation component of the forward contract are recognized in earnings as
incurred in each accounting period. The Company does not enter into currency
exchange swaps for trading purposes. The aggregate notional value of the
Company's short-term foreign exchange swap contracts was $21 million at December
31, 1997. There were no foreign exchange swap contracts outstanding at December
31, 1996.
Since the Company has limited flexibility to increase prices in local
currency to offset the adverse impact of foreign exchange, the Company may also
purchase foreign currency call options. The term of these call options typically
does not exceed 18 months. 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 typically does not buy
call options which can be exercised prior to the expiration date, nor does it
typically write options or purchase call options for trading purposes. The
Company amortizes premiums over the term of the option and defers any gains for
its call options activity until the option exercise date. At December 31, 1997,
option contracts with a notional value of $268 million were outstanding. No
option contracts were outstanding at December 31, 1996.
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 regular
reports to the Company's management detailing the foreign currency activities.
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.
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 Company's future operating results may be negatively affected if the Company
is unable to promptly design, develop, manufacture and market innovative imaging
products that meet customer demands. Since some of the Company's new products
will replace or compete with its existing products, the Company's operating
results could be adversely affected even if it is successful in developing and
introducing new products.
In addition, the timing and introduction of competitors' new products could have
a negative impact upon the Company's introduction of new or enhanced products.
The Company has competitors worldwide, ranging from large corporations to
smaller and more specialized companies. Its most significant traditional
competitors, Eastman Kodak Company and Fuji Photo Film Co., Ltd., are
considerably larger than the Company and have more resources. The Company
anticipates that price competition from conventional film and other imaging
technologies will place continued pressure on instant products. The impact of
these factors can cause results that are both adverse and varied.
The Company is committed to reducing its cycle time in bringing new products to
market. There is no guarantee that the Company will succeed in this endeavor.
Shorter cycle times present a challenge for the effective management of the
transition from existing products to new products and could negatively impact
the Company's future operating results.
The Company is affected by retail demand for its products, particularly in the
United States, Europe and Japan, and by factors extraneous to the Company's
performance such as economic conditions. Moreover, changes in laws and
regulations, particularly in the environmental arena, could adversely affect the
Company's results from operations.
While the Company believes that developing markets continue to present
attractive opportunities, 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. For example, sales in both
Russia and China declined substantially in 1997 compared to 1996.
The Company is continuing to develop digital imaging products. The operating
losses of the Company's digital imaging business have reduced the profits of the
Company. 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.
Polaroid Annual Report 1997
<PAGE>
Worldwide marketing of digital imaging products is highly competitive in price,
quality and product performance 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. The Company's ability to compete effectively in digital
imaging markets is also dependent on its ability to develop new products in a
timely manner and to market them effectively.
The future prospects of the Company's digital imaging business are uncertain.
These markets require a speed of execution that is greater than that of the
Company's traditional business; and competition in these new markets includes
companies some of which have greater resources and have more experience serving
the demands of these markets. Moreover, the Company's ability to succeed in
these new markets will be enhanced if it is able to develop meaningful strategic
business relationships with other companies; there can be no assurance that it
will achieve these objectives. The Company's ability to achieve anticipated
savings in overhead and other costs from its restructuring programs is also
important to its ability to compete effectively in digital markets but there can
be no assurance that it will achieve these objectives.
The Company aggressively endeavors to protect its investment in research and
development by obtaining patents where feasible. The ownership of these patents
contributes to the Company's ability to use its inventions and at the same time
may provide significant patent license revenue. While in the aggregate, the
Company's patents are considered to be of material importance in the operation
of its business, the patents relating to any single product or process may not
necessarily be of material significance when judged from the standpoint of the
Company's total business.
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 at least the minimum amount of the range.
The Company's aggregate reserve for these liabilities was $2 million and $4
million as of December 31, 1997 and 1996, respectively. The decrease in reserve
reflects a reassessment of the Company's liability and payments that the
Company made during 1997 to settle its exposure at two of these sites. The
Company currently estimates that the majority of the $2 million reserved for
environmental liabilities at December 31, 1997 will be payable over the next two
to three years.
NEW ACCOUNTING STANDARDS
In June 1997, The Financial Accounting Standards Board (FASB) issued Financial
Accounting Standard No. 130, "Reporting Comprehensive Income" (FAS 130) that
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The Company
will adopt FAS 130 for 1998 and will reclassify financial statement information
for earlier periods that are provided for comparative purposes.
Also in June of 1997, the FASB issued Financial Accounting Standard No. 131,
"Disclosure about Segments of an Enterprise and Related Information" (FAS 131)
that requires companies to determine reportable segments based on how management
makes decisions about allocating resources to the segments and measures their
performance. Disclosures for segments are similar to those required under
current standards. However, certain new information and quarterly disclosures
will be required. In addition, new entity wide disclosures will be required
about products and services and the countries in which material assets are
located and that report material revenues. Prior period information disclosed
will be restated to comply with FAS 131. The Company will adopt FAS 131 in 1998.
The Company is still evaluating the effect of this statement on its reported
segment information.
YEAR 2000 DATE CONVERSION
The Year 2000 problem is the result of computer programs being written with two
digits instead of four digits to define the applicable year. The Company's
management has initiated a company-wide program to prepare the Company's
computer systems for the Year 2000. A comprehensive review of the Company's
computer systems and software has been conducted to identify the systems and
software that could be affected by this issue. A plan to resolve this issue is
currently being developed and implemented. The Company presently believes that
with modifications to existing systems and software and converting to new
software, the Year 2000 problem will not pose a significant operational problem
to the Company. The Company is also reviewing the possible impact of the Year
2000 problem on its customers and suppliers. However, without the modifications
and conversions, the Year 2000 problem could have a material impact on the
operations of the Company. The Company expects the Year 2000 related
modifications and conversions to be substantially completed by the middle of
1999. The cost to modify existing software is expected to cost approximately $10
to $15 million, based on available information, of which approximately $1
million had been expended through December 31, 1997.
Polaroid Annual Report 1997
<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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their
operations and cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1997 the
Company changed its method of accounting for depreciation.
/S/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
January 27, 1998
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 majority of the Audit Committee is composed 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
Polaroid Annual Report 1997
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF EARNINGS
Polaroid Corporation and Subsidiary Companies
Years ended December 31,
(In millions, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
United States $ 1,063.0 $ 1,060.3 $ 1,019.0
International 1,083.4 1,214.9 1,217.9
----------- ----------- -----------
TOTAL NET SALES 2,146.4 2,275.2 2,236.9
----------- ----------- -----------
Cost of goods sold 1,229.8 1,283.8 1,298.6
Marketing, research, engineering and administrative expenses (Note 2) 752.2 796.6 849.1
Restructuring and other (Note 2) 323.5 110.0 247.0
Special charges (Note 2) -- 33.0 --
----------- ----------- -----------
TOTAL COSTS 2,305.5 2,223.4 2,394.7
----------- ----------- -----------
PROFIT/(LOSS) FROM OPERATIONS (159.1) 51.8 (157.8)
----------- ----------- -----------
Other income/(expense):
Interest income 3.7 5.1 8.7
Other 11.3 21.7 (.2)
----------- ----------- -----------
Total other income 15.0 26.8 8.5
Interest expense 47.8 47.4 52.1
----------- ----------- -----------
EARNINGS/(LOSS) BEFORE INCOME TAX EXPENSE/(BENEFIT) (191.9) 31.2 (201.4)
Federal, state and foreign income tax expense/(benefit) (Note 4) (65.2) 16.2 (61.2)
----------- ----------- -----------
EARNINGS/(LOSS) BEFORE EXTRAORDINARY ITEM (126.7) 15.0 (140.2)
Extraordinary item (Note 8) -- (56.1) --
----------- ----------- -----------
NET LOSS $ (126.7) $ (41.1) $ (140.2)
=========== =========== ============
BASIC EARNINGS/(LOSS) PER COMMON SHARE: (NOTE 1)
Earnings/(loss) before extraordinary item $ (2.81) $ .33 $ (3.09)
Extraordinary item -- (1.23) --
----------- ----------- -----------
Net loss $ (2.81) $ (.90) $ (3.09)
DILUTED EARNINGS/(LOSS) PER COMMON SHARE: (NOTE 1)
Earnings/(loss) before extraordinary item $ (2.81) $ .33 $ (3.09)
Extraordinary item -- (1.23) --
----------- ----------- -----------
Net loss $ (2.81) $ (.90) $ (3.09)
CASH DIVIDENDS PER COMMON SHARE $ .60 $ .60 $ .60
</TABLE>
See accompanying notes to consolidated financial statements.
Polaroid Annual Report 1997
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
Polaroid Corporation and Subsidiary Companies
December 31,
(In millions) 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 68.0 $ 72.8
Short-term investments 11.0 5.5
Receivables, less allowances of $25.6 in 1997 and $24.1 in 1996 545.1 535.2
Inventories (Note 5) 506.1 548.8
Prepaid expenses and other assets (Note 4) 289.1 224.1
---------- ----------
TOTAL CURRENT ASSETS 1,419.3 1,386.4
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land 25.0 35.0
Buildings 344.5 352.3
Machinery and equipment 1,460.0 1,663.5
Construction in process 106.8 112.8
---------- ----------
Total property, plant and equipment 1,936.3 2,163.6
Less accumulated depreciation 1,423.8 1,497.4
---------- ----------
Net property, plant and equipment 512.5 666.2
PREPAID TAXES - NON-CURRENT (NOTE 4) 124.7 98.8
OTHER ASSETS 76.2 50.2
---------- ----------
TOTAL ASSETS $ 2,132.7 $ 2,201.6
========== ==========
- ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt (Note 6) $ 241.6 $ 124.9
Current portion of long-term debt (Note 8) -- 37.7
Payables and accruals (Note 7) 277.3 310.5
Compensation and benefits (Notes 10 and 11) 310.9 238.4
Federal, state and foreign income taxes (Note 4) 32.9 51.6
---------- ----------
TOTAL CURRENT LIABILITIES 862.7 763.1
---------- ----------
LONG-TERM DEBT (NOTE 8) 496.6 489.9
ACCRUED POSTRETIREMENT BENEFITS (NOTE 11) 246.5 248.5
ACCRUED POSTEMPLOYMENT BENEFITS (NOTE 11) 42.5 41.9
---------- ----------
TOTAL LIABILITIES 1,648.3 1,543.4
---------- ----------
Preferred stock, Series A and Series D, $1 par value,
authorized 20,000,000 shares; all shares unissued -- --
---------- ----------
COMMON STOCKHOLDERS' EQUITY (NOTES 1 AND 9)
Common stock, $1 par value, authorized 150,000,000 shares 75.4 75.4
Additional paid-in capital 425.2 409.4
Retained earnings 1,304.1 1,457.8
Cumulative translation adjustments (39.8) --
Less: Treasury stock, at cost 1,279.4 1,244.8
Deferred compensation 1.1 39.6
---------- ----------
Total common stockholders' equity 484.4 658.2
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,132.7 $ 2,201.6
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Polaroid Annual Report 1997
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Polaroid Corporation and Subsidiary Companies
Years ended December 31,
(In millions) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (126.7) $ (41.1) $ (140.2)
Extraordinary item -- 56.1 --
Depreciation of property, plant and equipment 111.5 118.3 132.7
(Increase)/decrease in receivables (36.2) 4.1 (.1)
(Increase)/decrease in inventories 9.8 82.2 (68.1)
Increase in prepaids and other assets (75.6) (26.7) (66.6)
Increase/(decrease) in payables and accruals (23.8) 42.1 (6.3)
Increase/(decrease) in compensation and benefits 64.1 (25.4) 44.2
Increase/(decrease) in federal, state and foreign income taxes payable (4.3) 7.9 (1.6)
Gain on sale of real estate (19.5) (23.2) --
Contribution of real estate 19.1 -- --
Other non-cash items 203.7 118.1 168.8
-------- -------- --------
Net cash provided by operating activities 122.1 312.4 62.8
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase)/decrease in short-term investments (5.5) 4.3 75.7
Increase in other assets (26.0) (42.0) (1.1)
Additions to property, plant and equipment (134.3) (121.8) (167.9)
Proceeds from sale of fixed assets 7.7 35.4 4.8
-------- -------- --------
Net cash used by investing activities (158.1) (124.1) (88.5)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in short-term debt (maturities 90 days or less) 138.4 (31.0) 49.3
Short-term debt (maturities over 90 days):
Proceeds 44.8 64.5 52.6
Payments (63.7) (62.0) (59.4)
Proceeds from issuance of long-term debt 296.6 -- --
Repayments of long-term debt (327.8) (39.5) (34.3)
Cash dividends paid (27.1) (27.3) (27.3)
Purchases of treasury stock (57.4) (43.6) (40.2)
Extinguishment of debt -- (56.1) --
Proceeds from issuance of shares in connection with stock incentive plan 31.7 9.6 19.5
-------- -------- --------
Net cash provided/(used) by financing activities 35.5 (185.4) (39.8)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (4.3) (3.4) (4.5)
-------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4.8) (.5) (70.0)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 72.8 73.3 143.3
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 68.0 $ 72.8 $ 73.3
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Polaroid Annual Report 1997
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
Polaroid Corporation and Subsidiary Companies
Years ended December 31,
(In millions, except number of shares) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance at January 1 (75,427,550 shares in 1997, 1996 and 1995) $ 75.4 $ 75.4 $ 75.4
--------- ---------- ----------
Balance at December 31 75.4 75.4 75.4
--------- ---------- ----------
ADDITIONAL PAID-IN CAPITAL
Balance at January 1 409.4 401.9 387.2
Issuance of shares in connection with stock incentive plan (Note 10) 9.2 6.1 11.3
Stock options exercised - tax benefit 6.6 1.4 3.4
--------- ---------- ----------
Balance at December 31 425.2 409.4 401.9
--------- ---------- ----------
RETAINED EARNINGS
Balance at January 1 1,457.8 1,525.8 1,692.1
Net loss (126.7) (41.1) (140.2)
Dividends declared - common stock (27.1) (27.3) (27.3)
ESOP dividend tax benefit received on unallocated shares .1 .4 1.2
--------- ---------- ----------
Balance at December 31 1,304.1 1,457.8 1,525.8
--------- ---------- ----------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance at the beginning of the period -- -- --
Currency translation adjustment (Note 1) (39.8) -- --
--------- ---------- ----------
Balance at the end of the period (39.8) -- --
--------- ---------- ----------
LESS:
TREASURY STOCK
Balance at January 1 (30,608,160 shares in 1997,
29,894,724 shares in 1996, and 29,429,928 shares in 1995) 1,244.8 1,205.4 1,174.5
Repurchase of shares (1,266,600 shares in 1997,
1,057,565 shares in 1996, and 1,217,561 in 1995) 57.4 43.6 40.2
Issuance of shares in connection with compensation and
stock incentive plans (983,510 shares in 1997,
344,129 shares in 1996, and 752,765 shares in 1995) (22.8) (4.2) (9.3)
--------- ---------- ----------
Balance at December 31 (30,891,250 shares in 1997,
30,608,160 shares in 1996, and 29,894,724 shares in 1995) 1,279.4 1,244.8 1,205.4
--------- ---------- ----------
DEFERRED COMPENSATION
Balance at January 1 39.6 80.0 115.8
Stock options - 1993 (Note 10) (.5) (1.0) (1.0)
Loan repayments from ESOP Trust (37.7) (39.7) (35.9)
Restricted stock (.3) .3 1.1
--------- ---------- ----------
Balance at December 31 1.1 39.6 80.0
--------- ---------- ----------
TOTAL COMMON STOCKHOLDERS' EQUITY $ 484.4 $ 658.2 $ 717.7
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Polaroid Annual Report 1997
<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. Premiums related to the purchase of call
options are amortized to expense over the period of the related contracts.
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:
In the fourth quarter of 1997 retroactive to January 1, 1997, the Company
changed its method of depreciation for financial reporting for the cost of
buildings, machinery and equipment acquired on or after January 1, 1997 from
primarily an accelerated method to the straight-line method. Prior to 1997, the
cost of buildings, machinery and equipment was depreciated, primarily by
accelerated depreciation methods over the estimated useful lives of those assets
for both financial reporting and income tax purposes. The Company continues to
use primarily accelerated depreciation methods for income tax purposes. The
Company believes that the straight-line method more appropriately measures the
economic benefits received from these assets and since the straight-line method
is the predominant method used in the industry in which it operates, this change
increases the comparability of the Company's results with those of its
competitors. The impact of this change was not material to either the Company's
consolidated statement of earnings or balance sheet for 1997. Since this change
was not material, the Company's previously reported financial results for
interim quarters for 1997 have not been restated. For financial reporting, the
estimated useful lives of these assets were as follows: buildings, 20-40 years;
machinery and equipment, 3-15 years.
Foreign Currency Translation:
Effective January 1, 1997, the Company has determined that the local currency is
the functional currency for most of its subsidiaries outside the U.S. under
Financial Accounting Standards Board Statement No. 52, "Foreign Currency
Translation" (FAS 52). This change was adopted because of the Company's new
operational and financial structure in Europe and the increased globalization of
the Company's manufacturing since the initial adoption of FAS 52 in 1981. Assets
and liabilities denominated in foreign functional currencies are translated at
the exchange rate as of the balance sheet date. Translation adjustments are
recorded as a separate component of shareholders' equity. Revenues, costs and
expenses denominated in foreign functional currencies are translated at the
weighted average exchange rate for the period. The U.S. dollar will continue to
be the functional currency for subsidiaries in highly inflationary economies.
This change did not have a material impact on the Company's consolidated balance
sheet as of January 1, 1997.
Prior to 1997, the Company's foreign operations were measured by reflecting
financial results of those operations as if they had taken place within a U.S.
dollar-based economic environment. For those years, inventory, property, plant
and equipment, cost of goods sold and depreciation
Polaroid Annual Report 1997
<PAGE>
were remeasured from foreign currencies to U.S. dollars at historical exchange
rates. All other accounts were translated at current exchange rates. Gains and
losses resulting from those remeasurements were 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:
In December 1997, the Company adopted Financial Accounting Standards Board
Statement No. 128, "Earnings Per Share" (FAS 128). All previously reported
earnings per share information presented has been restated to reflect the impact
of adopting FAS 128.
Under FAS 128, basic earnings per common share are computed by dividing net
earnings available to common stockholders by the weighted average number of
common shares outstanding for the period. 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). Diluted earnings per common
share are computed by dividing net income, after adding back the after-tax
interest on the convertible debentures, by the weighted average number of common
shares and all dilutive securities.
EPS Reconciliation:
The reconciliation of the numerators and denominators of the basic and diluted
earnings/(loss) per common share computations for the Company's reported
earnings/(loss) is as follows: (in millions except per share amounts)
EARNINGS/ PER SHARE
1997 (LOSS) SHARES AMOUNT
- --------------------------------------------------------------------------------
BASIC LOSS PER SHARE $ (126.7) 45.1 $ (2.81)
========== =========
DILUTED LOSS PER SHARE $ (126.7) 45.1* $ (2.81)
========== ====== =========
1996
- --------------------------------------------------------------------------------
Basic earnings/(loss)per share:
Earnings before
extraordinary item $ 15.0 45.4 $ .33
Extraordinary item $ (56.1) 45.4 $ (1.23)
---------- ---------
Net loss $ (41.1) 45.4 $ (.90)
========== ====== =========
Diluted earnings/(loss) per share:
Earnings before
extraordinary item $ 15.0 45.4* $ .33
Extraordinary item $ (56.1) 45.4* $ (1.23)
---------- ---------
Net loss $ (41.1) 45.4* $ (.90)
========== ====== =========
Earnings/ Per Share
1995 (Loss) Shares Amount
- --------------------------------------------------------------------------------
Basic loss per share $ (140.2) 45.4 $ (3.09)
========== ====== =========
Diluted loss per share $ (140.2) 45.4* $ (3.09)
========== ====== =========
*For 1997, 1996 and 1995, stock options for shares of common stock totaling 3.9
million, 4.1 million and 3.9 million, respectively, were outstanding but were
not included in the calculations of diluted earnings per share because the
effect was anti-dilutive. In addition, the effect of .1 million outstanding
performance shares for 1997 and the effect of the outstanding 8% Convertible
Debentures of 4.3 million shares for 1996 and 1995 were not included since the
effects were antidilutive.
New Accounting Standards:
In the fourth quarter of 1997, the Company adopted Financial Accounting
Standards Board Statement No. 129, "Disclosure of Information about Capital
Structure" (FAS 129). The Company was previously subject to the disclosure
requirements in FAS 129. Therefore, the adoption of FAS 129 had no impact
on the Company's disclosures.
In June 1997, The Financial Accounting Standards Board (FASB) issued Financial
Accounting Standard No. 130, "Reporting Comprehensive Income" (FAS 130) that
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The Company
will adopt FAS 130 for 1998 and will reclassify financial statement information
for earlier periods that are provided for comparative purposes.
Also in June of 1997, the FASB issued Financial Accounting Standard No. 131,
"Disclosure about Segments of an Enterprise and Related Information" (FAS 131)
that requires companies to determine reportable segments based on how management
makes decisions about allocating resources to the segments and measures their
performance. Disclosures for segments are similar to those required under
current standards. However, certain new information and quarterly disclosures
will be required. In addition, new entity wide disclosures will be required
about products and services and the countries in which material assets are
located and that report material revenues. Prior period information disclosed
will be restated to comply with FAS 131. The Company will adopt FAS 131 in 1998.
The Company is still evaluating the effect of this statement on its reported
segment information.
Polaroid Annual Report 1997
<PAGE>
2. SUPPLEMENTAL INFORMATION
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Research, engineering
and development $122.8 $116.3 $165.5
Advertising Costs:
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Advertising costs $127.9 $134.6 $124.1
At December 31, 1997 and 1996, the amounts of advertising costs reported as
prepaid expenses on the consolidated balance sheet were $4.8 and $5.4 million,
respectively.
Interest Capitalization:
The Company has capitalized interest costs relating to certain qualifying
assets. In 1997, 1996 and 1995, the amounts of interest costs capitalized were
$2.6 million, $5.1 million and $4.8 million, respectively.
Cash Flow Information:
Cash payments for interest and income taxes were:
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Interest $46.7 $52.0 $55.6
Income taxes 22.2 7.3 29.0
In 1997, other non-cash items included $177.8 million of fixed asset and
inventory write-downs and $7.5 million of pension curtailment costs all of which
is related to the Company's plan to streamline global operations announced in
December 1997. Also in 1997, the Company recorded a non-cash item of $19.7
million primarily for inventory write-offs for products not included in
restructuring.
Other non-cash items included $44.6 million for 1996 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 1996, 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. As a result of these programs, approximately 930
employees (approximately 560 from manufacturing and 370 from non-manufacturing
jobs) 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 represented enhanced retirement benefits provided under the early
retirement program that will be funded from the Company's pension plans. The
remainder of the charge consisted of a pre-tax charge of 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 featured 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, $170.0 million was recorded in
the fourth quarter of 1995 and $110.0 million was recorded in the first quarter
of 1996. The December 1995 early retirement and severance programs resulted in
the elimination of a total of approximately 1,570 positions worldwide
(approximately 810 from manufacturing and 760 from non-manufacturing jobs).
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 terminated in 1996. This amount did 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 represented 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 represented enhanced retirement benefits provided
under the early retirement program that will be funded from the Company's
pension plans.
Polaroid Annual Report 1997
<PAGE>
Total cash severance payments related to the December 1995 program were
approximately $110.4 million. As of December 31, 1997, these cash severance
payments were substantially completed.
In December 1997, the Company announced a broad-based program to streamline
operations and enhance earnings by consolidating and selling manufacturing
facilities and reducing corporate overhead structure. The total pre-tax expenses
recorded in the fourth quarter of 1997 for restructuring and other charges
related to this program were $340.0 million. Of this amount, approximately $16.5
million represented inventory write-downs which were included in cost of goods
sold.
The 1997 restructuring and other charges included approximately $150.0 million
related to an involuntary severance program under which approximately 1,800
employees will leave the Company (approximately 40% from manufacturing and 60%
from non-manufacturing jobs) over approximately 18 months. Most of the cash
severance payments related to this program are expected to be paid by the end of
1999. No cash payments were made under the program in 1997. Also included in the
cost of the involuntary severance program were approximately $7.5 million for
non-cash curtailment costs related to the Company's pension plans that were
based on the number of employees expected to terminate under this program.
The remainder of the restructuring and other charges of $190.0 million primarily
related to the write-down of assets. Approximately $106.0 million of this amount
was related to the write-down of the Company's underutilized New Bedford coating
facility to an independently determined fair value of approximately $18.0
million. The Company is considering several strategic options for future use of
this facility, including an outright sale. In addition, approximately $22.0
million was for the write-off of battery assembly equipment which is not
required to support the Company's anticipated production requirements. The
restructuring and other charges also included approximately $26.0 million
related to the Company's underutilized chemical manufacturing facility in
Freetown, Mass., that it intended to sell to International Specialties Products,
Inc. (ISP) (and which was actually sold in February 1998). Under the terms of
the agreement to sell this facility, the Company entered into a long-term supply
agreement with ISP to purchase certain specialty chemicals used to manufacture
the Company's instant film. The remainder of these write-downs related primarily
to other assets which are no longer required and will ultimately be disposed of
and inventory write-downs related to restructured operations.
Special Charges:
In 1996, the Company recorded a $40.0 million pre-tax cost which included $25.0
million related to costs associated with the sale of the Company's Helios
medical diagnostic imaging equipment line and $15.0 million for the write-down
of 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 goods sold and $33.0 million was reported as special
charges. The $33.0 million of special charges reflects write-offs of fixed
assets, severance and other costs. In connection with the Helios sale, the
Company acquired 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 currency
exchange movement is primarily dependent on pricing.
To minimize the adverse impact of currency fluctuations on net assets
denominated in currencies other than the relevant functional currency
(nonfunctional currencies), the Company may engage in nonfunctional
currency-denominated borrowings (see Note 6). The Company determines the
aggregate amount of such borrowings based on forecasts of each entity's
nonfunctional net asset position and the relative strength of the functional
currencies compared to the nonfunctional currencies. These borrowings create
nonfunctional currency-denominated liabilities that hedge the Company's
nonfunctional currency-denominated net assets. Upon receipt of the borrowed
nonfunctional currency-denominated funds, the Company converts those funds to
the functional currency at the spot exchange rate. Exchange gains and losses on
the nonfunctional currency-denominated borrowings are recognized in earnings as
incurred. At December 31, 1997 and 1996, the amount of the Company's outstanding
short-term debt incurred for hedging purposes was $149.9 million and $122.9
million, respectively.
Polaroid Annual Report 1997
<PAGE>
From time to time, the Company may use over-the-counter currency exchange swaps
to reduce the interest expense incurred through the borrowings described above
and to replace the hedge created by those borrowings. When a currency exchange
swap is used to replace a hedge, the currency received by the Company in the
spot market component of the currency exchange swap is used to close out the
borrowings, and, simultaneously, the hedge is reinstituted through a forward
contract (not exceeding six months). The net interest value of the currency
exchange swap contract is amortized to earnings over the life of the contract.
Exchange gains or losses on the foreign currency obligation component of the
forward contract are recognized in earnings as incurred in each accounting
period. The Company does not enter into currency exchange swaps for trading
purposes. The aggregate notional value of the Company's short-term foreign
exchange swap contracts was $20.8 million at December 31, 1997. These contracts
did not have a net carrying amount nor a fair value at December 31, 1997. There
were no foreign exchange swap contracts outstanding at December 31, 1996.
Since the Company has limited flexibility to increase prices in local
currency to offset the adverse impact of foreign exchange, the Company may also
purchase foreign currency call options. The term of these call options typically
does not exceed 18 months. 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 typically does not buy
call options which can be exercised prior to the expiration date, nor does it
typically write options or purchase call options for trading purposes. The
Company amortizes premiums over the term of the option and defers any gains for
its call options activity until the option exercise date. At December 31, 1997,
option contracts with a notional value of $268.2 million were outstanding. No
option contracts were outstanding at December 31, 1996.
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 market value of these
investments approximated the carrying amount as of December 31, 1997 and 1996.
As of December 31, 1997, the carrying amount and fair value of the Company's
long-term debt was $496.6 million and $499.9 million, respectively. 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.
The estimated fair value of the Company's call options and foreign exchange
swaps 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. The aggregate
notional value of the Company's short-term foreign exchange swap contracts was
$20.8 million at December 31, 1997. These contracts did not have a net carrying
amount nor a fair value at December 31, 1997. There were no foreign exchange
swap contracts outstanding at December 31, 1996. At December 31, 1997, option
contracts with a notional value of $268.2 million were outstanding. The
estimated fair value of these call options was $7.3 million. No option contracts
were outstanding at December 31, 1996.
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.
Polaroid Annual Report 1997
<PAGE>
4. INCOME TAXES
An analysis of income tax expense/(benefit) follows:
(In millions)
1997 CURRENT DEFERRED TOTAL
- --------------------------------------------------------------------------------
FEDERAL $ 6.8 $(72.0) $ (65.2)
STATE .3 (3.2) (2.9)
FOREIGN -- 2.9 2.9
------ -------- ---------
TOTAL $ 7.1 $(72.3) $ (65.2)
====== ======== ========
1996
- --------------------------------------------------------------------------------
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)
====== ======== ========
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 and tax
overpayments 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 $325.6 million and $243.7 million
as of December 31, 1997 and 1996, respectively. Significant components of those
amounts shown on the balance sheet as of December 31 were as follows:
(In millions) 1997 1996
- --------------------------------------------------------------------------------
Deferred tax assets:
Property, plant and equipment
and trademarks $ 16.5 $ (22.0)
Inventory 43.4 43.0
Compensation and benefits 96.4 59.4
Postretirement and
postemployment benefits 114.7 124.8
Loss and credit carryforwards 79.8 54.1
All other 14.7 17.6
--------- ---------
Subtotal 365.5 276.9
Valuation allowance (27.4) (21.5)
--------- ---------
Total deferred tax assets $ 338.1 $ 255.4
--------- ---------
Deferred tax liabilities:
Property, plant and equipment
and trademarks $ 5.7 $ 4.4
Inventory 3.3 3.1
Compensation and benefits 2.9 3.9
All other .6 .3
--------- ---------
Total deferred tax liability 12.5 11.7
--------- ---------
Net deferred tax asset $ 325.6 $ 243.7
======== =========
Valuation allowances of $27.4 million and $21.5 million
as of December 31, 1997 and 1996, 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, 1997, 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, 1997, the
Company had a capital loss carryforward of $4.3 million. 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 net capital gains. Therefore, as of December 31, 1997, the
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
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 considered that as of December 31, 1997, the Company has a net
operating loss carryforward of $125.2 million. $37.8 million of the net
operating loss in the U.S. expires in 2010. $45.5 million expires in 2011 and
$41.9 million expires in 2012. The Company also has a foreign tax credit
carryforward of $24.4 million (against which there is a full valuation
allowance) and an alternative minimum tax credit carryforward of $2.8 million as
of December 31, 1997. $16.2 million of the foreign tax credit expires in 2000,
$3.9 million expires in 2001 and $4.4 million expires in 2002. The alternative
minimum tax credit does not expire. Management does believe it will earn
sufficient U.S. income to utilize the net operating losses within the
carryforward period. Regardless of management's expectations, there can be no
assurance that the Company will generate any specific level of continuing
earnings or where these earnings will be generated.
Polaroid Annual Report 1997
<PAGE>
For alternative minimum tax purposes, the Company had an alternative minimum tax
net operating loss of $37.8 million at the end of 1997. $19.7 million will
expire in 2011, $18.1 million will expire in 2012. In addition, the Company had
an alternative minimum tax foreign tax credit carryforward at the end of 1997 of
$54.1 million: $22.0 million expires in 1998, $6.5 million expires in 1999,
$18.1 million expires in 2000, $3.1 million expires in 2001, and $4.4 million
expires in 2002.
An analysis of earnings/(loss) before income tax expense/(benefit) and
extraordinary loss follows:
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Domestic $ (189.9) $ (3.7) $ (236.8)
Foreign (2.0) 34.9 35.4
--------- -------- ---------
Total $ (191.9) $ 31.2 $ (201.4)
========= ======== =========
A reconciliation of differences between the statutory U.S. federal income tax
rate and the Company's effective tax rate follows:
1997 1996 1995
- --------------------------------------------------------------------------------
U.S. statutory rate 35.0% 35.0% 35.0%
State taxes 1.7 3.3 2.3
Benefit plan deductions .5 (3.3) --
Loss carryforwards .8 (2.9) --
Nondeductible expenses/
Nontaxable Income 2.0 2.7 --
Valuation allowance change (3.1) (5.5) (7.8)
Tax effect resulting from
foreign activities (1.4) 21.9 .5
Other (1.5) .8 .4
-------- ------- -------
Effective tax rate 34.0% 52.0% 30.4%
======== ======= =======
In 1996 and 1995, 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 and an increase of 2.1 percentage points
for 1995. In 1997, the Company changed its method of applying Financial
Accounting Standards Board Statement No. 52, "Foreign Currency Translation" (FAS
52) and adopted the local currency as its functional currency for most of its
subsidiaries outside the U.S. Therefore, there is no impact from remeasuring
foreign currency in the tax effect resulting from foreign activities for 1997
for those subsidiaries which are local currency functional.
Undistributed earnings of foreign subsidiaries held for reinvestment in overseas
operations amounted to $417.9 million at December 31, 1997. 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 $20.4 million would be
payable.
5. INVENTORIES
The classification of inventories at December 31 follows:
(In millions) 1997 1996
- --------------------------------------------------------------------------------
Raw materials $ 91.0 $104.7
Work-in-process 192.4 225.3
Finished goods 222.7 218.8
-------- --------
Total $506.1 $548.8
======== ========
6. SHORT-TERM DEBT
In the first quarter of 1997, the Company replaced its $150.0 million committed
line of credit with a $350.0 million committed line of credit. The line of
credit is available for general corporate purposes and expires at the end of
2001. As of December 31, 1997 and 1996, there were no borrowings under the
$350.0 million and $150.0 lines of credit, respectively.
As of December 31, 1997, gross borrowings from the Company's international
uncommitted lines of credit were $150.5 million. Gross borrowings from the
Company's U.S. uncommitted lines of credit were $91.1 million as of December 31,
1997. Additional available, uncommitted lines of credit for U.S. and
international operations were $98.9 million and $103.9 million, respectively, at
December 31, 1997. As of December 31, 1996, gross borrowings from 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 and $140.3 million, respectively at December 31, 1996.
Borrowings from international uncommitted lines of credit were incurred by the
Company 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, 1997 and 1996 was 5.2% and 4.7%, respectively.
The Company's total borrowing capacity is limited by certain debt covenants.
Interest expense on international short-term borrowings was $8.4 million in
1997, $7.5 million in 1996 and $10.9 million in 1995. The average interest rates
on those borrowings ranged from 4.7% to 5.5% in 1997, 3.2% to 5.3% in 1996, and
4.0% to 7.1% in 1995. Interest expense on U.S. short-term borrowings was $1.5
million in 1997 and $.6 million in both 1996 and 1995. The average interest
rates on these borrowings were 5.8% in 1997, 5.6% in 1996 and 6.1% in 1995.
Polaroid Annual Report 1997
<PAGE>
7. PAYABLES AND ACCRUALS
The following items are included in payables and accruals at December 31:
(In millions) 1997 1996
- --------------------------------------------------------------------------------
Trade accounts payable $138.1 $165.0
Reserve for marketing programs 44.8 42.1
Other accrued expenses and
current liabilities 94.4 103.4
-------- --------
Total $277.3 $310.5
======== ========
8. LONG-TERM DEBT
Principal amounts of long-term debt outstanding as of December 31 are as
follows:
(In millions)
1997 LONG-TERM CURRENT TOTAL
- --------------------------------------------------------------------------------
6 3/4% NOTES $ 148.7 $ -- $ 148.7
7 1/4% NOTES 148.2 -- 148.2
8% NOTES 199.7 -- 199.7
-------- ------- --------
TOTAL $ 496.6 $ -- $ 496.6
======== ======= ========
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
======== ======= ========
At December 31, 1997 and 1996, the Company had a working capital line of credit
(see Note 6), and at December 31, 1996, 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 was made
on June 30, 1997. Interest expense on the ESOP loan was $.9 million in 1997,
$3.2 million in 1996, and $5.4 million in 1995. The weighted average interest
rate on the loan was 4.9%, 4.8% and 5.2% during 1997, 1996 and 1995,
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 a 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 a tax
benefit of $1.1 million) in the fourth quarter of 1996 due to the early
extinguishment of debt.
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 $300.0 million in debt securities
consisting of $150 million 7-1/4% Notes due January 15, 2007 (the 2007 Notes)
and $150 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 million principal amount
of the Company's 7-1/4% Notes due January 15, 1997 and to exercise the
Polaroid Annual Report 1997
<PAGE>
Company's right to the repurchase of the remaining principal amount of its
$139.5 million 8% Subordinated Convertible Debentures due 2001. The balance of
the net proceeds were used for general corporate purposes.
The aggregate scheduled repayments on the Company's long-term debt are as
follows:
(In millions)
- --------------------------------------------------------------------------------
1998 $ 0
1999 $200.0
2000 $ 0
2001 $ 0
2002 $150.0
2003 and thereafter $150.0
9. COMMON STOCKHOLDERS' EQUITY
During 1997 the Company repurchased 1.3 million shares of common stock for $57.4
million. During 1996, 1.1 million shares were repurchased for $43.6 million and
during 1995, 1.2 million shares were repurchased for $40.2 million. On October
21, 1997, the Company's Board of Directors authorized a repurchase program for
as many as 5 million shares, or 11% of outstanding shares over the next three
years. This program includes approximately $30 million remaining from the $100
million common stock repurchase program approved by the Board of Directors in
January 1995. As of December 31, 1997, up to approximately 4.0 million shares
remain to be purchased under the current stock repurchase program. 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.
Deferred Compensation, which was recorded as a deduction from Common
Stockholders' Equity, was $1.1 million and $39.6 million at December 31, 1997
and 1996, respectively. Deferred compensation included $37.7 million at December
31, 1996 for the ESOP (see Notes 8 and 11) covering substantially all domestic
employees. Shares held by the Company's ESOP Trust on December 31, 1996 and by
the Company's Retirement Savings Plan in the ESOP Fund on December 31, 1997 were
as follows:
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
Allocated 7,491 6,542
Suspense (unallocated) -- 949
------- -------
Total 7,491 7,491
======= =======
Dividends paid on unallocated ESOP shares of $.1 million in 1997, $1.0 million
in 1996 and $1.6 million in 1995 were used to repay the ESOP loan. The remaining
dividends for allocated shares held by the ESOP Trust were paid to ESOP
participants. Deferred compensation also included $1.1 million and $1.9 million
at December 31, 1997 and 1996, respectively, related to the 1993 Polaroid Stock
Incentive Plan (See Note 10).
10. INCENTIVE COMPENSATION AND STOCK INCENTIVE PLANS
The Company maintains annual incentive plans covering substantially all domestic
employees and employees of manufacturing subsidiaries in the United Kingdom and
the Netherlands. Amounts charged to operations for these annual cash incentive
plans were $2.2 million in 1997, $25.8 million in 1996 and $4.8 million in 1995.
As of December 31, 1997, the Company had stock incentive plans which provided
fixed stock-based compensation awards as described below. Effective January 1,
1996, the Company adopted FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (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 Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, no compensation expense has been recognized.
In 1990, the Company adopted its original Polaroid Stock Incentive Plan (the
1990 Plan) under which officers and other key employees could be granted stock
options (either non-qualified or incentive), stock appreciation rights and
restricted stock as incentives to increase revenues and profits. Up to 3,000,000
shares of the Company's common stock have been authorized for use under the 1990
Plan. Only stock option awards were made 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 (either non-qualified or incentive), 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. A total of 3,000,000 shares of the Company's
common stock were authorized for use under the 1993 Plan plus any unused shares
from the 1990 Plan. In March 1997, the Company amended the 1993 Plan and
authorized an additional 3,500,000 shares to be used under the plan. A maximum
of 6,500,000 shares of the Company's common stock have been authorized for use
under the 1993 Plan, plus any shares that become available under the 1990 Plan.
The number of common shares reserved for granting of future awards was
3,224,105, 482,966 and 1,127,591 at December 31, 1997, 1996 and 1995,
respectively.
Polaroid Annual Report 1997
<PAGE>
The options which have been awarded under the 1990 Plan and the 1993 Plan
typically vest proportionately 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. Normally, if the option holder's
employment terminates for reasons other than change of control, death 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.
The Human Resource Committee of the Company's Board of Directors (a Committee of
non-employee members of the Board) administers the 1990 Plan and the 1993 Plan
and, as such, can determine the vesting period, performance factors or other
restrictions for an award. The Committee may waive or amend conditions of the
option grant, such as accelerating vesting terms during an early retirement or
severance program.
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 an amendment to the Directors' Plan to award
each non-employee director as of July 15, 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 these option grants will conform with the terms outlined in the Directors'
Plan.
In May 1997, the Company, with shareholder approval, adopted the Board of
Directors' Stock Plan under which non-employee directors may be awarded stock
options, stock appreciation rights, restricted stock and any other form of
award. Under this plan, the number of shares that may be awarded may not exceed
300,000 plus the number of shares available for grant remaining from the
Directors' Plan. Under the Board of Directors' Stock Plan, directors who were
under 68 years of age on December 31, 1996 will be granted 1,500 stock options
annually (See Note 11). In addition, the authorized shares under the Board of
Directors' Stock Plan are being used to provide a portion of the non-employee
directors' annual retainer fee in the Company's common stock.
Under the Directors' Plan and the Directors' Stock Plan, option awards are
exercisable for a ten year period from the date of grant if the director remains
on the Board. Any 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 400,000 shares of the Company's authorized common stock may be
issued under the Directors' Plan and the Directors' Stock Plan. As of December
31, 1997, a cumulative total of 87,000 options have been granted at prices
ranging from $33.13 to $52.00 under the Directors' Plan and the Directors' Stock
Plan.
A summary of the Company's fixed stock option awards as of December 31, 1997,
1996, and 1995 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, 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
1997 ACTIVITY:
GRANTED 812 $ 43.17
EXERCISED (981) $ 32.33
FORFEITED (44) $ 39.01
-------
OUTSTANDING AT
DECEMBER 31, 1997 3,912 $ 37.16
=======
Options exercisable at December 31:
- --------------------------------------------------------------------------------
Number of Options Weighted-average
(in thousands) Exercise Price
- --------------------------------------------------------------------------------
1997 2,247 $ 33.96
1996 2,524 $ 32.46
1995 1,813 $ 32.10
Weighted-average fair value of options granted during the year:
- --------------------------------------------------------------------------------
1997 $13.19
1996 $16.06
1995 $13.26
Polaroid Annual Report 1997
<PAGE>
Options Outstanding at December 31, 1997
- --------------------------------------------------------------------------------
Weighted-average
Range of Number of Remaining Weighted-average
Exercise Options Contractual Life Exercise
Prices (in thousands) (years) Price
- --------------------------------------------------------------------------------
$24 to $27 510 3.1 $24.90
$31 to $34 1,405 5.2 $32.54
$37 to $42 981 8.7 $41.78
$43 to $60 1,016 6.4 $45.21
-------
$24 to $60 3,912 6.1 $37.16
=======
Options Exercisable at December 31, 1997
- --------------------------------------------------------------------------------
Range of Number of
Exercise Options Weighted-average
Prices (in thousands) Exercise Price
- --------------------------------------------------------------------------------
$24 to $27 510 $24.90
$31 to $34 1,074 $32.40
$37 to $42 197 $41.92
$43 to $60 466 $44.09
-------
$24 to $60 2,247 $33.96
=======
If compensation cost for the Company's fixed stock option awards had been
determined based on fair value at grant date for awards under the plans
consistent with FAS 123, the Company's net loss and loss per common share would
have been increased to the pro forma amounts as follows:
(In millions, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------
Net loss:
As reported $(126.7) $(41.1) $(140.2)
Pro forma (133.2) (46.3) (142.4)
Basic loss per common share:
As reported (2.81) (.90) (3.09)
Pro forma (2.95) (1.02) (3.14)
Diluted loss per common share for 1997, 1996 and 1995 was the same as basic loss
per common 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.
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:
1997 1996 1995
- --------------------------------------------------------------------------------
Dividend yield 1.4% 1.4% 1.7%
Expected volatility 22.4% 21.0% 22.2%
Risk free interest rate 6.6% 6.3% 6.5%
Expected option life 5.5 years 5.5 years 5.4 years
Dividend equivalent payments on outstanding stock options of $1.6 million, $2.1
million and $2.1 million were made in 1997, 1996 and 1995, respectively.
Approximately 80% of the options granted in 1996 were issued with dividend
equivalents. No options were granted in 1997 with dividend equivalents.
Under the 1993 Plan, the Company awarded 15,000 shares of restricted stock at
$45.88 in 1996 and 25,000 shares of restricted stock at $46.50 per share in
1995. The 1996 restricted shares vest if the Company achieves certain financial
objectives within a five-year period. The 1995 restricted shares vest
proportionately 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 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. Through 1997, 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
and investments in real estate.
Employees of the Company'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) 1997 1996 1995
- --------------------------------------------------------------------------------
Service cost $23.8 $25.7 $26.5
Interest cost 78.5 74.1 65.9
Actual return on assets (266.4) (152.4) (191.3)
Net amortization and deferral 160.9 51.9 99.2
------- ------- -------
Net periodic pension
cost/(credit) $(3.2) $(.7) $ .3
======= ======= =======
Effective January 1, 1998, the Company adopted a pension plan change for most of
its domestic employees. The revised plan bases retirement benefits on an account
balance that accumulates over the employee's working career. For certain
employees, a ten year transition period from the previous pension formula to the
new formula will apply. This plan change necessitated certain changes in plan
assumptions including the rate of changes in salary increases. The effect of
this plan change has been reflected in the funded status of the Company's plans
as of December 31, 1997.
Polaroid Annual Report 1997
<PAGE>
The following table sets forth the plans' funded status and amounts recognized
in the Company's consolidated balance sheet at December 31:
(In millions) 1997 1996
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,139.7 $ 948.6
Nonvested benefit obligation 53.3 45.6
----------- -----------
Accumulated benefit obligation 1,193.0 994.2
Effect of projected pay increases 40.5 91.4
----------- -----------
Projected benefit obligation 1,233.5 1,085.6
Plan assets at fair market value 1,350.5 1,160.5
----------- -----------
Plan assets in excess of
projected obligations 117.0 74.9
Unrecognized prior service cost 35.8 18.3
Unrecognized net gain (177.5) (98.1)
Unrecognized net assets at transition,
net of amortization (48.5) (60.7)
----------- -----------
Net pension liability $ (73.2) $ (65.6)
=========== ===========
Included in the net pension liability as of December 31, 1997, is the
curtailment cost of $7.5 million recorded in the fourth quarter of 1997 which is
included as part of the Company's restructuring and other charges (see Note 2).
This cost resulted from the number of employees expected to terminate under the
involuntary severance program.
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:
1997 1996 1995
- --------------------------------------------------------------------------------
Weighted average discount rate 7.1% 7.5% 7.1%
Weighted average rate of increase
in compensation levels 3.9% 5.0% 5.0%
Expected long-term rate of
return on assets 9.3% 8.9% 8.8%
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 was 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 $37.6 million, $38.7 million and $34.3 million in 1997, 1996, and 1995,
respectively. In 1997, the ESOP was merged into the Company's Retirement Savings
Plan.
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 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) 1997 1996 1995
- --------------------------------------------------------------------------------
Service cost $ 6.3 $ 6.4 $ 8.7
Interest cost 15.7 14.8 17.6
Amortization (10.7) (11.0) (6.1)
-------- -------- --------
Net periodic postretirement
benefit cost $ 11.3 $ 10.2 $ 20.2
======== ======== ========
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) 1997 1996
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 169.8 $ 140.8
Fully eligible active plan
participants 47.4 32.8
Other active plan participants 46.9 36.5
--------- ---------
Total accumulated postretirement
benefit obligation 264.1 210.1
Plan assets at fair market value -- --
--------- ---------
Accumulated obligation in excess
of plan assets (264.1) (210.1)
Unrecognized net gain 29.0 (16.4)
Unrecognized prior service cost (28.8) (39.8)
--------- ---------
Net postretirement benefit liability $ (263.9) $ (266.3)
========= =========
The Accumulated Postretirement Benefit Obligation (APBO) at December 31, 1997
and 1996 was determined using a discount rate of 7.0% and 7.5%, respectively.
The assumed health care cost trend rate used in measuring the APBO at December
31, 1997 and 1996 was 9% and 10%,
Polaroid Annual Report 1997
<PAGE>
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 an 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, 1997 and 1996 would increase by
approximately $4.5 million and $6.7 million, respectively. The effect of a 1%
increase on the aggregate of service and interest cost for 1997, 1996 and 1995
would have been an increase of approximately $.4 million, $.8 million and $4.5
million, respectively.
The Company has had a 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. This plan is available to retired directors and
directors who were 68 years of age as of December 31, 1996. Directors who were
not 68 years of age as of December 31, 1996 will receive no future accrual under
this plan (see Note 10).
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 1997, 1996 and
1995, $.8 million, $.3 million and $.2 million, respectively, was charged to
expense for the Directors' Retirement Plan.
12. RENTAL EXPENSE AND LEASE COMMITMENTS
Minimum annual rental commitments at December 31, 1997, under noncancelable
leases, principally for real estate, are payable as follows:
(In millions)
- --------------------------------------------------------------------------------
1998 $18.2
1999 12.9
2000 6.5
2001 5.6
2002 5.3
2003 and thereafter 17.3
-------
Total minimum lease payments $65.8
=======
Minimum payments have not been reduced by minimum sublease rentals of $2.4
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) 1997 1996 1995
- --------------------------------------------------------------------------------
Minimum rentals $27.4 $25.8 $26.4
Contingent rentals 4.6 2.0 8.8
------- ------- -------
Total $32.0 $27.8 $35.2
======= ======= =======
Sublease income amounted to $1.1 million in 1997, $1.1 million in 1996, $1.4
million in 1995.
Polaroid Annual Report 1997
<PAGE>
13. BUSINESS
Nature of Operations
Polaroid designs, develops, manufactures and markets imaging products which
serve customers in consumer and commercial markets around the world.
Photographic and other core products represent over 90 percent of the Company's
total revenues and are marketed globally through distributors and dealers for
consumer 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
consumer, medical, graphic arts and other business applications.
Segments of Business
During 1997, 1996 and 1995 sales to one customer, Wal-Mart Stores, Inc.,
amounted to 12.5%, 11.9%, and 10.9%, 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:
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS
Years ended December 31,
(In millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES
UNITED STATES
Customers $ 1,063.0 $ 1,060.3 $ 1,019.0
Intercompany 415.9 445.7 479.4
----------- ----------- -----------
1,478.9 1,506.0 1,498.4
----------- ----------- -----------
EUROPE
Customers 582.1 663.6 738.8
Intercompany 416.1 397.1 368.1
----------- ----------- -----------
998.2 1,060.7 1,106.9
----------- ----------- -----------
ASIA/PACIFIC, CANADA, LATIN AND SOUTH AMERICA
Customers 501.3 551.3 479.1
Intercompany 97.0 113.5 123.3
----------- ----------- -----------
598.3 664.8 602.4
----------- ----------- -----------
Eliminations (929.0) (956.3) (970.8)
----------- ----------- -----------
NET SALES $ 2,146.4 $ 2,275.2 $ 2,236.9
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------
PROFITS
United States $ (119.2) $ 13.8 $ (179.4)
Europe 9.2 19.0 20.6
Asia/Pacific, Canada, Latin and South America (6.6) 25.0 24.4
General corporate expense (49.2) (13.3) (19.4)
Eliminations 6.7 7.3 (4.0)
----------- ----------- -----------
PROFIT/(LOSS) FROM OPERATIONS (159.1) 51.8 (157.8)
Other income/(expense) (32.8) (20.6) (43.6)
----------- ----------- -----------
EARNINGS/(LOSS) BEFORE INCOME TAX EXPENSE/(BENEFIT) $ (191.9) $ 31.2 $ (201.4)
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
United States $ 1,442.0 $ 1,490.0 $ 1,526.1
Europe 636.4 659.8 669.9
Asia/Pacific, Canada, Latin and South America 297.6 279.9 258.4
Corporate assets (cash, cash equivalents and short-term investments) 79.0 78.3 83.1
Eliminations (322.3) (306.4) (275.7)
----------- ----------- -----------
TOTAL ASSETS $ 2,132.7 $ 2,201.6 $ 2,261.8
=========== =========== ===========
</TABLE>
Polaroid Annual Report 1997
<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, 1997 and 1996 was $2.0 million and $4.0 million, respectively. The
decrease in reserve reflects a reassessment of the Company's liability and
payments that the Company made during 1997 to settle its exposure at two of
these sites. The Company currently estimates that the majority of the $2.0
million amount reserved for environmental liabilities on December 31, 1997 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. 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 1997 and 1996 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.
Polaroid Annual Report 1997
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (Unaudited)
Polaroid Corporation and Subsidiary Companies
(In millions, except per share and stock price data)
1997 FIRST SECOND THIRD FOURTH YEAR
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 457.5 $ 564.9 $ 516.4 $ 607.6 $ 2,146.4
Restructuring and other -- -- -- 323.5 323.5
Profit/(loss) from operations 19.2 64.2 51.0 (293.5) (159.1)
Net earnings/(loss) 15.8 34.6 25.7 (202.8) (126.7)
Basic earnings/(loss) per common share .35 .77 .57 (4.51) (2.81)
Diluted earnings/(loss) per common share .35 .76 .55 (4.51) (2.81)
Cash dividends per common share .15 .15 .15 .15 .60
Stock prices*
High 46.38 53.38 60.25 52.50 60.25
Low 39.75 37.25 49.81 41.94 37.25
</TABLE>
<TABLE>
<CAPTION>
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)
Basic earnings/(loss) per common share:
Earnings/(loss) before extraordinary item (1.33) .63 .75 .29 .33
Extraordinary item -- (1.20) -- (.04) (1.23)
---------- ---------- ---------- ---------- ------------
Net earnings/(loss) (1.33) (.57) .75 .25 (.90)
Diluted earnings/(loss) per common share:
Earnings/(loss) before extraordinary item (1.33) .60 .71 .29 .33
Extraordinary item -- (1.08) -- (.04) (1.23)
---------- ---------- ---------- ---------- ------------
Net earnings/(loss) (1.33) (.48) .71 .25 (.90)
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
Stockholders of record as of January 30, 1998.......9,882
<FN>
* Recorded on the New York Stock Exchange Composite.
</FN>
</TABLE>
Polaroid Annual Report 1997
<PAGE>
<TABLE>
<CAPTION>
TEN YEAR FINANCIAL SUMMARY (Unaudited)
Polaroid Corporation and Subsidiary Companies
Years ended December 31
(Dollars amounts in millions, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
United States $ 1,063.0 $ 1,060.3 $ 1,019.0
International 1,083.4 1,214.9 1,217.9
------------- ------------- -------------
TOTAL NET SALES 2,146.4 2,275.2 2,236.9
------------- ------------- -------------
Cost of goods sold 1,229.8 1,283.8 1,298.6
Marketing, research, engineering and administrative expenses 752.2 796.6 849.1
Restructuring and other 323.5 110.0 247.0
Special Charges -- 33.0 --
------------- ------------- -------------
TOTAL COSTS 2,305.5 2,223.4 2,394.7
------------- ------------- -------------
PROFIT/(LOSS) FROM OPERATIONS (159.1) 51.8 (157.8)
------------- ------------- -------------
Litigation settlement, net of employee incentives -- -- --
Other income 15.0 26.8 8.5
Interest expense 47.8 47.4 52.1
------------- ------------- -------------
EARNINGS/(LOSS) BEFORE INCOME TAX EXPENSE/(BENEFIT) (191.9) 31.2 (201.4)
Federal, state and foreign income tax expense/(benefit) (65.2) 16.2 (61.2)
------------- ------------- -------------
EARNINGS/(LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLE $ (126.7) $ 15.0 $ (140.2)
============= ============= =============
NET EARNINGS/(LOSS) $ (126.7) $ (41.1) $ (140.2)
============= ============= =============
Basic earnings/(loss) per common share before extraordinary item
and cumulative effect of changes in accounting principles $ (2.81) $ .33 $ (3.09)
Basic earnings/(loss) per common share $ (2.81) $ (.90) $ (3.09)
Diluted earnings/(loss) per common share before extraordinary item
and cumulative effect of changes in accounting principles $ (2.81) $ .33 $ (3.09)
Diluted earnings/(loss) per common share $ (2.81) $ (.90) $ (3.09)
Cash dividends per common share $ .60 $ .60 $ .60
Common shares outstanding at end of year (in thousands) 44,536 44,819 45,533
SELECTED BALANCE SHEET INFORMATION
Working capital $ 556.6 $ 623.3 $ 730.3
Net property, plant and equipment 512.5 666.2 691.0
Total assets 2,132.7 2,201.6 2,261.8
Long-term debt 496.6 489.9 526.7
Redeemable preferred stock equity -- -- --
Common stockholders' equity 484.4 658.2 717.7
OTHER STATISTICAL DATA
Additions to property, plant and equipment $ 134.3 $ 121.8 $ 167.9
Depreciation $ 111.5 $ 118.3 $ 132.7
Payroll and benefits $ 606.0 $ 641.2 $ 709.3
Number of employees, end of year 10,011 10,046 11,662
Return on average common stockholders' equity* (19.7)% (6.2)% (17.8)%
<FN>
* 1993 is shown prior to the cumulative effects of FAS 106, 109 and 112
</FN>
</TABLE>
Polaroid Annual Report 1997
<PAGE>
<TABLE>
<CAPTION>
TEN YEAR FINANCIAL SUMMARY (Unaudited) (Continued)
Polaroid Corporation and Subsidiary Companies
Years ended December 31
1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,160.3 $ 1,178.8 $ 1,145.7 $ 1,113.6 $ 1,058.3 $ 1,091.8 $ 1,048.3
1,152.2 1,066.1 1,006.6 957.0 913.4 812.9 814.6
------------- ------------- ------------- ------------- ------------- ------------- -------------
2,312.5 2,244.9 2,152.3 2,070.6 1,971.7 1,904.7 1,862.9
------------- ------------- ------------- ------------- ------------- ------------- -------------
1,324.2 1,296.5 1,178.0 1,082.5 1,011.8 966.0 1,003.1
788.0 763.0 760.5 741.5 675.6 634.5 686.0
-- 44.0 -- -- -- 40.5 151.9
-- -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- ------------- -------------
2,112.2 2,103.5 1,938.5 1,824.0 1,687.4 1,641.0 1,841.0
------------- ------------- ------------- ------------- ------------- ------------- -------------
200.3 141.4 213.8 246.6 284.3 263.7 21.9
------------- ------------- ------------- ------------- ------------- ------------- -------------
-- -- -- 871.6 -- -- --
7.0 8.2 7.8 23.4 15.0 35.1 28.0
46.6 47.9 58.5 58.4 81.3 86.2 29.0
------------- ------------- ------------- ------------- ------------- ------------- -------------
160.7 101.7 163.1 1,083.2 218.0 212.6 20.9
43.5 33.8 64.1 399.5 67.0 67.6 43.5
------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 117.2 $ 67.9 $ 99.0 $ 683.7 $ 151.0 $ 145.0 $ (22.6)
============= ============= ============= ============= ============= ============= =============
$ 117.2 $ (51.3) $ 99.0 $ 683.7 $ 151.0 $ 145.0 $ (22.6)
============= ============= ============= ============= ============= ============= =============
$ 2.52 $ 1.45 $ 2.08 $ 13.07 $ 2.20 $ 1.96 $ (.34)
$ 2.52 $ (1.10) $ 2.08 $ 13.07 $ 2.20 $ 1.96 $ (.34)
$ 2.43 $ 1.45 $ 2.03 $ 10.88 $ 2.20 $ 1.96 $ (.34)
$ 2.43 $ (1.10) $ 2.03 $ 10.88 $ 2.20 $ 1.96 $ (.34)
$ .60 $ .60 $ .60 $ .60 $ .60 $ .60 $ .60
45,998 46,806 46,668 48,919 50,070 52,110 71,635
$ 879.7 $ 826.7 $ 778.5 $ 684.7 $ 600.7 $ 635.2 $ 946.4
747.3 718.2 657.3 549.4 461.0 430.9 433.8
2,316.7 2,212.3 2,008.1 1,889.3 1,701.3 1,776.7 1,957.2
566.0 602.3 637.4 471.8 513.8 602.2 402.3
-- -- -- -- 348.6 321.9 --
864.4 767.3 808.9 772.9 207.7 148.8 1,011.5
$ 146.7 $ 165.6 $ 201.5 $ 175.8 $ 120.9 $ 94.5 $ 127.0
$ 118.2 $ 100.3 $ 89.1 $ 85.5 $ 87.2 $ 87.4 $ 81.9
$ 720.6 $ 699.2 $ 670.2 $ 690.6 $ 587.6 $ 546.7 $ 725.9
12,104 12,048 12,359 12,003 11,768 11,441 11,613
14.7% 9.3% 12.7% 148.6% 63.3% 33.5% (2.2)%
</TABLE>
Polaroid Annual Report 1997
<PAGE>
DIRECTORS
Gary T. DiCamillo 1
Chairman and Chief Executive Officer
Ralph E. Gomory 1,2,3,6
President,
Alfred P. Sloan Foundation
Frank S. Jones 2,4,6
Ford Professor of
Urban Affairs Emeritus,
Massachusetts Institute of Technology
Stephen P. Kaufman 3,6
Chairman, President and
Chief Executive Officer,
Arrow Electronics
John W. Loose 3,4,6
President,
Corning Communications, Corning Inc.
Albin F. Moschner 1,3,4,6
President and Chief Executive Officer,
MilleCom Corporation
Kenneth H. Olsen 5,6,7
Chairman,
Advanced Modular Solutions
Ronald F. Olsen 2
Mechanical Specialist,
Polaroid Corporation
Ralph Z. Sorenson 4,5,6
Professor Emeritus,
University of Colorado
Delbert C. Staley 1,2,4,6
Retired Chairman and
Chief Executive Officer,
Nynex Corporation
Bernee D.L. Strom 3,4,6
President and Chief Executive Officer,
The Strom Group
Alfred M. Zeien 1,4,5,6
Chairman and Chief Executive Officer,
The Gillette Company
1 Member, Executive Committee
(Gary T. DiCamillo, Chairman)
2 Member, Audit Committee
(Ralph E. Gomory, Chairman)
3 Member, Finance Committee
(Albin F. Moschner, Chairman)
4 Member, Human Resources Committee
(Delbert C. Staley, Chairman)
5 Member, Committee on Directors
(Alfred M. Zeien, Chairman)
6 Member, Committee of Outside Directors
7 Will not be standing for re-election to
the Board of Directors at the company's
1998 annual meeting
Polaroid Annual Report 1997
<PAGE>
OFFICERS
[28 Photographs - Page 53]
Gary T. DiCamillo
Chairman and
Chief Executive Officer
William J. O'Neill, Jr.
Executive Vice President
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
Joseph G. Parham, Jr.
Senior Vice President
Satish C. Agrawal
Group Vice President
James R. Barron
Vice President
F. Richard Cottrell
Vice President and Senior
Engineering and Research Fellow
Hemang Dave
Vice President
Chris A. De Bleser
Vice President
Fawwaz N. Habbal
Vice President and Senior
Engineering and Research Fellow
John Jenkins
Vice President
Paul E. Lambert
Vice President
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
Norman Perrault
Vice President
Brian Poggi
Vice President
Leonard Polizzotto
Vice President
J. Samuel Ridley
Vice President
Ian Shiers
Vice President
Marian J. Stanley
Vice President
All the photographs of corporate officers on this page were made with Polaroid's
new black and white 600 film.
Polaroid Annual Report 1997
<PAGE>
STOCKHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Polaroid Corporation stockholders will be held on Tuesday,
May 5, 1998 at 3:00 p.m. at the American Academy of Arts and Sciences, entrance
at 200 Beacon Street, Somerville, Massachusetts
Executive Office
549 Technology Square
Cambridge, Massachusetts 02139
(781) 386-2000
Investor Relations
575 Technology Square
Cambridge, Massachusetts 02139
(781) 386-6589
Independent Auditors
KPMG Peat Marwick LLP
99 High Street
Boston, Massachusetts 02110
Transfer Agent and Registrar for Common Stock
First National Bank of Boston
C/O Boston EquiServe
Shareholder Services
Mail Stop: 45-02-64
P.O. Box 644
Boston, MA 02102-0644
(781) 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 calling the Investor Relations
Department of Boston EquiServe, at (781) 575-3170 or 1-800-730-4001.
Dividend Reinvestment Plan
A Dividend Reinvestment Plan is available to stockholders of Polaroid
Corporation. For information or an authorization card write to: Boston
EquiServe, Polaroid Dividend Reinvestment Plan, Mail Stop: 45-02-09, P.O. Box
644, Boston, MA 02102-0644. All correspondence should refer to Polaroid
Corporation.
Internet Address
http://www.polaroid.com
Before & After, CP-90, DryJet, Dry Tech, Extreme, Furore, HighDefinition, IQA,
KidCare, LIFT, Live for the Moment, OneStep, PDC, Polacolor, PolaPrime,
Polaproof, PolaPulse, Polaroid, Polaroid Make A Copy, Polaroid Make A Memory,
Polaroid Make A Print, Polaroid PhotoMAX, Polaroid QuickBadge, Polaview, Pop
Shots, ProPalette, See What Develops, SpiceCam, Studio Express, Studio Polaroid,
XOOR and design are trademarks of Polaroid Corporation.
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 not less
than 50-percent recovered materials, minimum 20-percent post-consumer waste
content. Recycling efforts of Polaroid employees in Waltham and Cambridge,
Massachusetts produced a portion of the post-consumer material. The cover was
printed on recycled paper containing 10-percent post-consumer waste.
Polaroid Corporation
Technology Square
Cambridge, Massachusetts
02139
POLAROID
<PAGE>
APPENDIX TO FORM 10-K FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The registered mark symbol has been replaced by (R).
(6) The trade mark symbol has been replaced by (TM).
Exhibit 18
Polaroid Corporation
Cambridge, Massachusetts
March 17, 1998
Ladies and Gentlemen:
We have audited the consolidated balance sheets of Polaroid Corporation and
subsidiary companies as of December 31, 1997 and 1996, 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, 1997, and have reported thereon under date of January 27, 1998. The
aforementioned consolidated financial statements and our audit report thereon
are incorporated by reference in the Company's annual report on Form 10-K for
the year ended December 31, 1997. As stated in Note 1 to those financial
statements, the Company changed its method of accounting for depreciation and
states that the newly adopted accounting principle is preferable in the
circumstances because the Company believes that the straight-line method more
appropriately measures the timing of the economic benefits to be received from
these assets. Also, since the straight-line method is the predominant method
used in the industry in which the Company operates, the adoption increases the
comparability of the Company's results with those of its competitors. In
accordance with your request, we have reviewed and discussed with Company
officials the circumstances and business judgment and planning upon which the
decision to make this change in the method of accounting was based.
With regard to the aforementioned accounting change, authoritative criteria have
not been established for evaluating the preferability of one acceptable method
of accounting over another acceptable method. However, for purposes of Polaroid
Corporation's compliance with the requirements of the Securities and Exchange
Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting is
preferable in the Company's circumstances.
Very truly yours,
KPMG PEAT MARWICK LLP
Exhibit 21
Subsidiaries
Polaroid Corporation
Year ended December 31, 1997
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 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
Polaroid Memorial Drive LLC Massachusetts
Polaroid Partners, Inc. Delaware
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 27,
1998, relating to the consolidated balance sheet of Polaroid Corporation and
subsidiary companies as of December 31, 1997 and 1996, 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, 1997, which reports appear
in the December 31, 1997, annual report on Form 10-K of Polaroid Corporation.
Our reports refer to a change in the method of accounting for depreciation.
KPMG PEAT MARWICK LLP
Boston Massachusetts
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Securities
and Exchange Commission Form 10-K for the year ended December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 68,000
<SECURITIES> 11,000
<RECEIVABLES> 570,700
<ALLOWANCES> (25,600)
<INVENTORY> 506,100
<CURRENT-ASSETS> 1,419,300
<PP&E> 1,936,300
<DEPRECIATION> (1,423,800)
<TOTAL-ASSETS> 2,132,700
<CURRENT-LIABILITIES> 862,700
<BONDS> 496,600
0
0
<COMMON> 75,400
<OTHER-SE> 409,000
<TOTAL-LIABILITY-AND-EQUITY> 2,132,700
<SALES> 2,146,400
<TOTAL-REVENUES> 2,146,400
<CGS> 1,229,800
<TOTAL-COSTS> 2,305,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,200
<INTEREST-EXPENSE> 47,800
<INCOME-PRETAX> (191,900)
<INCOME-TAX> (65,200)
<INCOME-CONTINUING> (126,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (126,700)
<EPS-PRIMARY> (2.81)
<EPS-DILUTED> (2.81)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Securities
and Exchange Commission Form 10-K for the year ended Decmeber 31, 1996 and is
qualified in its entirety by reference to such financial statements.
This schedule has been updated to reflect the adoption of Financial Accounting
Standards Board Statement No. 128, "Earnigns Per Share".
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 72,800
<SECURITIES> 5,500
<RECEIVABLES> 559,300
<ALLOWANCES> (24,100)
<INVENTORY> 548,800
<CURRENT-ASSETS> 1,386,400
<PP&E> 2,163,600
<DEPRECIATION> (1,497,400)
<TOTAL-ASSETS> 2,201,600
<CURRENT-LIABILITIES> 763,100
<BONDS> 489,900
0
0
<COMMON> 75,400
<OTHER-SE> 582,800
<TOTAL-LIABILITY-AND-EQUITY> 2,201,600
<SALES> 2,275,200
<TOTAL-REVENUES> 2,275,200
<CGS> 1,283,800
<TOTAL-COSTS> 2,223,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,900
<INTEREST-EXPENSE> 47,400
<INCOME-PRETAX> 31,200
<INCOME-TAX> 16,200
<INCOME-CONTINUING> 15,000
<DISCONTINUED> 0
<EXTRAORDINARY> (56,100)
<CHANGES> 0
<NET-INCOME> (41,100)
<EPS-PRIMARY> (.90)
<EPS-DILUTED> (.90)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Securities
and Exchange Commission Form 10-K for the year ended December 31, 1995 and is
qualified in its entirety by reference to such financial statements.
This schedule has been updated to reflect the adoption of Financial Accounting
Standards Board Statement No. 128, "Earnigns Per Share."
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 73,300
<SECURITIES> 9,800
<RECEIVABLES> 578,400
<ALLOWANCES> (28,000)
<INVENTORY> 615,500
<CURRENT-ASSETS> 1,457,500
<PP&E> 2,164,400
<DEPRECIATION> (1,473,400)
<TOTAL-ASSETS> 2,261,800
<CURRENT-LIABILITIES> 719,000
<BONDS> 526,700
0
0
<COMMON> 75,400
<OTHER-SE> 642,300
<TOTAL-LIABILITY-AND-EQUITY> 2,261,800
<SALES> 2,236,900
<TOTAL-REVENUES> 2,236,900
<CGS> 1,298,600
<TOTAL-COSTS> 2,394,700
<OTHER-EXPENSES> 200
<LOSS-PROVISION> 11,000
<INTEREST-EXPENSE> 52,100
<INCOME-PRETAX> (201,400)
<INCOME-TAX> (61,200)
<INCOME-CONTINUING> (140,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140,200)
<EPS-PRIMARY> (3.09)
<EPS-DILUTED> (3.09)
</TABLE>
