<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
(MARK ONE)
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
</TABLE>
Commission File Number 1-4085
------------------------
POLAROID CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-1734655
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
784 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02139
(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:
Title of each class Name of each exchange on which registered
- ------------------------------------------------------------ -----------------------------------------
Common Stock, par value $1 per share New York Stock Exchange
Pacific Stock Exchange
11 1/2% Notes due 2006 New York 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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this 10-K or any amendment
to this Form 10-K. / /
Aggregate market value of voting stock held by non-affiliates as of
March 15, 2000: $1.2 billion
Common Stock outstanding as of March 15, 2000: 44,718,674 shares
Documents incorporated by reference:
Polaroid Corporation Annual Report to Stockholders for 1999--Parts I, II and
IV
Polaroid Corporation 2000 Proxy Statement, dated April 12, 2000--Part III
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL BUSINESS
Polaroid Corporation, together with its consolidated subsidiaries (the
"Company"), incorporated in 1937 as a Delaware corporation, generated worldwide
net sales of approximately $2.0 billion in 1999. The Company is the leading
instant imaging company in the world and is the only manufacturer of traditional
silver-halide, or chemical-based, instant cameras and film in the United States.
The Company's principal products are instant film, instant and digital cameras,
digital peripherals, secure identification systems, software and system
solutions. In addition, the Company designs, develops, manufactures and/or
markets hardware accessories for the instant imaging market, conventional 35mm
cameras and film and videotapes. The Company has also operated certain non-core
businesses such as graphics, which was contributed to a joint venture in 1999,
sunglasses, which was rationalized in 1999, and polarizer and holography which
have been or are in the process of being exited.
BUSINESS STRATEGY
The Company's strategy for growth is based on revitalizing its core imaging
business and linking its instant imaging expertise to digital imaging. The
Company's plan to implement its strategies includes utilizing its position as
the worldwide leader in instant imaging products, its widely recognized brand
name, its global distribution network and its technical expertise. In addition,
the Company has taken actions in recent years to fundamentally alter the way it
conducts business, including reducing the cost of developing, manufacturing and
distributing the Company's products, rationalizing manufacturing operations,
delivering new products more efficiently, improving operating efficiency by
continuing to reduce selling, general and administrative expenses, and upgrading
its centralized information systems.
THE CORE BUSINESS STRATEGY
The Company began its plan to revitalize its core imaging business in 1996
with the goal of introducing between 20 and 25 new products or product line
extensions per year in 1998 and 1999 and will continue to introduce a number of
new products each year thereafter. In addition to new products, the Company is
promoting new uses of and new markets for its products and technology and is
targeting new demographic segments, such as young adults, teens and children to
achieve wider distribution of its products. The Company has also taken actions
in recent years, including restructuring and establishing partnerships, to
modify its core imaging business model. Historically, the Company's profits were
primarily generated by sales of instant film, rather than from sales of instant
cameras. Under the modified business model, the Company is designing,
manufacturing, pricing and positioning its cameras to be more profitable.
LINKING INSTANT IMAGING TO THE DIGITAL FUTURE
The Company believes that there will be significant growth in the creation
and communication of digital images over the next several years and the Company
intends to build selectively on emerging trends in the digital imaging market.
As part of its evolving digital strategy, the Company plans to leverage its
imaging technology and instant media expertise to develop products that create,
capture, transmit and especially print digital images. The Company's traditional
silver-halide instant film is an excellent medium for digital imaging because it
can provide the user with high quality, hardcopy images anytime, anywhere. Much
of the Company's imaging knowledge base is also transferable to the digital
arena.
Digital imaging provides individuals, businesses and governments the ability
to capture images that can be manipulated, transmitted over long distances
electronically, stored as computer files and combined with text and other codes.
The Company is currently the number-one seller of digital cameras in the mass
merchandising channel and among the top digital brands in all channels based on
independent surveys by
1
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ACNielsen. However, the Company's plans are not limited to digital cameras and
related media. The Company, through the use of established partnerships, is also
considering opportunities in the handheld, mobile and wireless market along with
various Internet applications that can build from the Company's new product,
commercial and professional customer bases.
COMPETITIVE STRENGTHS
There are a number of factors that the Company believes provide it with an
advantage relative to its competitors. The Company is the worldwide leader in
the instant imaging market and the leader in the United States, Europe and
Japan, which are the Company's three major markets. The Company has established
strong brand recognition throughout the world from its position as the market
leader in instant imaging and its marketing efforts. The Company leverages its
brand recognition to support the implementation of the strategies outlined
above.
The Company has a steady source of recurring cash flow. Instant cameras and
film, including certain of the Company's new products, generate approximately
75% of the Company's net sales and a significant portion of the Company's cash
flow. Because the Company's instant cameras and other imaging devices use its
instant film, previously sold instant cameras and other imaging devices generate
recurring sales of the Company's instant film that contribute to its cash flow.
The Company has demonstrated its ability to successfully develop and market
new products. In 1999, the Company introduced more than 20 new products or
product line extensions. The Company believes that its ability to successfully
develop and market new products, combined with its ability to leverage its
technical expertise in instant imaging, commercialize its instant media
expertise and implement faster product design and manufacturing processes
provide it with a strong position relative to its competitors in the sectors of
the markets in which it chooses to compete.
The Company has reduced its costs and improved operating efficiencies
through a number of restructuring and other business strategy decisions. Since
1995, the Company has undertaken a number of restructuring programs that have
closed or consolidated facilities and reduced the size of its workforce.
Finally, the Company is led by a strong and incentivized management team
headed by Chairman and Chief Executive Officer, Gary T. DiCamillo, whose
contract was renewed by the Company's Board of Directors in January 2000 for a
period of three years.
WORLDWIDE BUSINESS OPERATIONS
The Company is managed in five primary segments: the Americas Region; the
European Region; the Asia Pacific Region; Global Operations; and Research and
Development. The Americas Region is comprised of all countries in North and
South America. The European Region includes all of the countries comprising the
European continent, the United Kingdom, Russia, the middle-eastern countries and
the African continent. The Asia Pacific Region includes Japan, China, Australia
and the Asian continent, excluding Russia. These three regions consist of sales
and marketing operations which are managed on a regional basis. Global
Operations include worldwide activities associated with manufacturing,
distribution, logistics, new product manufacturing development and inventory
management. Research and Development is comprised of corporate research and
engineering activities. The Global Operations and Research and Development
segments are managed on a centralized basis.
Additionally, the Company has one category called Corporate, which it does
not consider to be a segment. This category includes central marketing, general
and administrative functions and certain other corporate functions, including
worldwide restructuring activities.
2
<PAGE>
PRODUCTS
The Company designs, develops, manufactures and markets instant and digital
imaging and related products. The Company's products are manufactured for
worldwide consumption and are tailored, often through changing packaging and
cosmetic features, for regional customers. The Company's principal products,
which are described above, were sold in all regions and represented
approximately 85% of the Company's net sales for the year ended December 31,
1999 and instant cameras and instant film alone represented approximately 75% of
the Company's net sales for the year ended December 31, 1999.
The Company's strategy is based on the introduction of new products and
product line extensions to the market. In 1999, the Company introduced more than
20 new products or product line extensions and has unveiled its plans for
approximately 20 more new products or product line extensions to be introduced
in 2000. The following are some of the products that resulted from the Company's
strategies:
- the Polaroid I-Zone Instant Pocket Camera and Film, the world's smallest
instant camera and film, which were introduced in the United States during
the second half of 1999;
- the Polaroid JoyCam Camera, a low cost version of the Polaroid Captiva
Camera, which was introduced in the United States during the second half
of 1999;
- the Polaroid PopShots Single-Use Camera, the first single-use instant
camera, which was introduced in the United States during the first half of
1999;
- the Polaroid PDC 700 digital camera that features higher resolution and
built in memory and operates with the Polaroid PhotoMax Image Maker
software, which was introduced during 1999;
- the Polaroid SP 350, which is a self-contained digital video system
designed for making color or black and white instant photographs for
official documents, such as passports and visas, which was introduced in
1998;
- the Polaroid Smart Security Card System, that produces Polaroid electronic
ID cards that store biometric and digital signatures while personalizing
the card with surface text, photos and other variable data, which was
introduced in 1999.
COMPETITION
The Company operates in the worldwide imaging market. The sectors of the
market in which the Company operates are highly competitive in design, product
performance, quality, service and price. Both instant silver-halide and digital
imaging products from other manufacturers compete directly with the Company in
meeting customers' and users' imaging needs. The Company has competitors
worldwide, ranging from large corporations to smaller and more specialized
companies. Although there are situations where the Company faces competition
from local and regional companies, it typically competes with global
organizations in all regions. In the instant imaging market, the Company faces
competition from Fuji Photo Film Co., Ltd. ("Fuji"), which has introduced
selected new products in Japan and Europe. In the digital imaging market, the
Company faces competition from Eastman Kodak Company, Fuji, Hewlett-Packard
Company, Canon U.S.A., Inc., Sony Corporation and others. Many of the Company's
competitors are larger and have greater financial and other resources. The other
markets in which the Company operates are more fragmented and, therefore, it is
more difficult to assess the competitive risks that the Company faces. The
effects of competition can be price pressure on the Company's existing products,
substitutions of other imaging solutions and shorter product life cycles.
CUSTOMERS
The Company sells its products to a variety of customers that include mass
merchandisers, food, drug, discount and department stores; specialty photography
stores; wholesalers; original equipment manufacturers; and independent agents in
the United States. Internationally, the Company sells its products to a
3
<PAGE>
variety of customers and to unaffiliated distributors through wholly-owned
marketing subsidiaries. In 1999, the Company achieved significant growth in its
worldwide distribution by adding approximately 50,000 points of new mass market
distribution, many of which were in channels where the Company was not
previously represented.
The Company has one customer, Wal-Mart Stores, Inc., that accounted for
approximately 12.5% of its net sales in 1997, 13.0% in 1998 and 14.8% in 1999.
Most of the Company's sales to Wal-Mart Stores, Inc., related to the Americas
Region. No other customer accounted for more than 10% of the Company's total net
sales during those periods.
EMPLOYEES
The Company had approximately 10,011 employees at December 31, 1997, 9,274
at December 31, 1998 and 8,784 at December 31, 1999. In addition, the Company
had approximately 500 non-employee temporary workers at December 31, 1997, 532
at December 31, 1998 and 443 at December 31, 1999. In 1997, the Company recorded
restructuring and other charges that included a provision for approximately
1,800 employees that were expected to leave the Company under an involuntary
severance program. The severance component of the 1997 restructuring was
expanded in 1998 to include approximately 1,000 additional employees. Of the
total 2,800 employees expected to be terminated under the involuntary severance
program, approximately 13% will be from the Americas Region, 20% from the
European Region, 7% from the Asia Pacific Region, 46% from Global Operations, 7%
from Research and Development, and the remaining 7% from Corporate. At
December 31, 1999, approximately 2,580 of the expected terminations had occurred
and the Company expects the remaining terminations to occur by mid-2000. In
1999, the Company added over 1,000 direct labor employees in the Global
Operations segment to expand its manufacturing capacity in certain overseas
locations that were not included in the Company's restructuring. The additional
capacity and related employees were required to support the demand for the
Company's new products.
For information about the Company's restructuring and other charges, see
"Restructuring and Other Charges" within "Management's Discussion and Analysis
of Operations" on pages 25 to 27 of the Annual Report, which pages are
incorporated by reference.
REGIONAL SALES AND MARKETING OPERATIONS
The Company competes in selected sectors of the worldwide imaging market in
each of its geographic segments: the Americas Region; the European Region and
the Asia Pacific Region. In each region, the Company has two principal markets
for its traditional chemical-based imaging products, the market for instant
cameras and film for personal photography and the market for commercial
applications. While the products in each of the regions are similar, the mix
between personal photography and commercial applications vary by region and
between countries within a region.
In order to leverage the marketing of the Company's technologies and
products, the Company manages its sales and marketing operations on a regional
basis. This alignment affords the region the opportunity to develop advertising
and promotional programs, organize its distribution structure, target its
communications, and tailor its product portfolio to meet the needs of the
marketplace. Regional management of the sales and marketing functions enables
the Company to deliver products to its customers in a cost-effective manner and
affords the greatest chance of success.
For financial information regarding the Company's segments, see Note 13,
"Business", on pages 49 to 50 of the Company's 1999 Annual Report to
Stockholders (the "Annual Report"), which pages are incorporated by reference.
4
<PAGE>
AMERICAS REGION
CUSTOMERS
The Americas Region sells its products through mass merchandisers, food,
drug, discount and department stores; specialty photography stores; wholesalers;
original equipment manufacturers; independent agents; and distributors and
through wholly-owned subsidiaries.
EMPLOYEES
The Americas Region had approximately 1,200 employees at December 31, 1997,
1,050 at December 31, 1998 and 825 at December 31, 1999. In addition, the
Americas Region had approximately 150 non-employee temporary workers at
December 31, 1997, 110 at December 31, 1998 and 100 at December 31, 1999.
REAL ESTATE
In the Americas Region as of December 31, 1999, the Company occupied
approximately 170,000 square feet of space of which approximately 49% is owned
by the Company.
EUROPEAN REGION
CUSTOMERS
The European Region sells its products primarily through wholly-owned
marketing subsidiaries in Western Europe and unaffiliated distributors,
generally on an exclusive basis, in countries outside of Western Europe. No
customer in the European Region accounted for more than 10% of the Company's net
sales in 1997, 1998 or 1999.
EMPLOYEES
The European Region had approximately 1,000 employees at December 31, 1997,
850 at December 31, 1998 and 800 at December 31, 1999.
REAL ESTATE
In the European Region, as of December 31, 1999, the Company occupied
approximately 220,000 square feet of space of which approximately 44% is owned
by the Company.
ASIA PACIFIC REGION
CUSTOMERS
The Asia Pacific Region sells its products primarily through wholly-owned
marketing subsidiaries and unaffiliated distributors, generally on an exclusive
basis. No customer in the Asia Pacific Region accounted for more than 10% of the
Company's net sales in 1997, 1998 or 1999.
EMPLOYEES
The Asia Pacific Region had approximately 500 employees at December 31,
1997, 450 at December 31, 1998 and 350 at December 31, 1999.
REAL ESTATE
In the Asia Pacific Region, as of December 31, 1999, the Company occupied
approximately 164,000 square feet, all of which is leased by the Company.
5
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GLOBAL OPERATIONS
The Global Operations segment includes the Company's manufacturing,
distribution, logistics and inventory management functions which are managed on
a worldwide basis. It is the Company's strategy to manufacture in-house those
products which are proprietary in nature or for which the Company maintains a
core competency. Significant portions of the Company's products other than
instant film have been outsourced to third-party manufacturers. The Company's
primary distribution facilities are located in the United States and The
Netherlands. The Company makes product sourcing decisions on a worldwide basis
in an effort to optimize cost and customer service.
EMPLOYEES
The Global Operations segment had approximately 5,900 employees at
December 31, 1997, 5,600 at December 31, 1998 and 5,700 at December 31, 1999. In
addition, Global Operations had approximately 250 non-employee temporary workers
at December 31, 1997, 350 at December 31, 1998 and 300 at December 31, 1999 that
were primarily in manufacturing activities in the United States.
REAL ESTATE
In the Global Operations segment, as of December 31, 1999, the Company
occupied approximately 4.3 million square feet of space of which approximately
87% is owned by the Company.
CONTRACT MANUFACTURING, RAW MATERIALS AND SUPPLIES
The Company uses a variety of raw materials and supplies in the manufacture
of its products, including chemicals, polyester film base, specialty papers and
electronic components. The Company purchases these products except for a few raw
materials used in low volumes that it manufactures. In the past several years,
the raw material and supplies used by the Company have been available in
sufficient quantities and at satisfactory prices to meet the requirements of the
Company's manufacturing operations. The Company believes the raw materials and
supplies it uses will be available in sufficient quantities to meet the current
demand for its products. In addition, the Company utilizes third-parties for the
manufacture of certain products other than instant film and certain
sub-assemblies. The Company is dependent on certain sole source suppliers for
certain finished goods and components, some of which are critical to the
manufacture of instant film.
MANUFACTURING
The Global Operations segment includes manufacturing sites located in
Waltham, Norwood, and New Bedford, Massachusetts; Dumbarton, Scotland; Enschede,
The Netherlands; Queretaro, Mexico and Shanghai, China. Approximately 5,500
employees at December 31, 1997, 5,200 at December 31, 1998 and 5,300 employees
at December 31, 1999 were involved in manufacturing activities worldwide.
The manufacture of instant film is a vertically integrated process that has
two major steps: the production of photographic materials, principally
photographic negatives; and the assembly of film packs. The Company makes
photographic negatives by purchasing and producing custom chemicals and coating
them on the film sheets using its own proprietary technology. In addition, some
of the Company's instant integral films carry their own battery rather than
placing it in the camera. The Company conducts these processes in the United
States because the production is capital intensive, the manufacturing process
uses the Company's own proprietary technology and the process of coating film
requires clean and controlled conditions which the Company can control better
locally. The assembly of film packs, by contrast, is highly mechanized. The
Company assembles film packs in the United States, The Netherlands, Scotland and
Mexico. The Company allocates the production of film packs to each of those four
sites to reduce the time to market and the total cost depending on the intended
market.
6
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The Company manufactures cameras using a proprietary plastic lens molding
technology that optimizes product performance and controls the cost of
production. The Company either performs the final assembly of cameras at its
facilities in Scotland and China or contracts final assembly to third-parties.
The Company manufactures certain digital imaging products that use the
Company's proprietary technology at its facilities in the United States and
Scotland. The Company purchases its other digital imaging products from original
equipment and other manufacturers.
The Company believes that the capacity of the Company's manufacturing
facilities is sufficient to meet the current demand for its products. All of the
Company's premises are in good repair and its machinery and equipment are
maintained in good operating condition.
ENVIRONMENTAL COMPLIANCE
The Company's environmental compliance is primarily associated with the
Global Operations and Research and Development segments. The Company expects
approximately 3% of its projected capital spending in 2000 or, approximately
$5 million, to be related to environmental projects.
For information regarding environmental compliance see Note 14,
"Contingencies", on pages 50 to 51 of the Annual Report, which pages are
incorporated by reference.
RESEARCH AND DEVELOPMENT
The Research and Development segment is managed centrally and charged with
the mission of creating value through technology with multiple applications. It
is from this technology base that the Company develops and introduces new
products each year. Research and Development plays an important role for the
Company. Beginning in 1995, the Company shifted its focus regarding research,
engineering and development towards more selected, commercially-oriented
applications. To meet its goal of developing and introducing a number of new
products each year, the Company has trained and equipped its research,
engineering and development personnel to adapt its existing technology to new
products and applications. In addition, the Company is seeking to leverage its
intellectual property by licensing patents and by entering joint development
efforts with third parties to reduce its exposure to competitive forces and new
emerging technologies.
Research and Development segment costs were approximately $116 million in
1997, $120 million in 1998 and $86 million in 1999. In 2000, the Company expects
to spend approximately $86 million on research and engineering activities.
EMPLOYEES
The Research and Development segment had approximately 900 employees at
December 31, 1997, 660 at December 31, 1998 and 550 at December 31, 1999. In
addition, the Research and Development segment had approximately 80 non-employee
temporary workers at December 31, 1997, 20 at December 31, 1998 and 10 at
December 31, 1999.
REAL ESTATE
In the Research and Development segment, as of December 31, 1999, the
Company occupied approximately 537,000 square feet of space of which
approximately 46% is owned by the Company.
CORPORATE
The Company has one category called Corporate, which it does not consider to
be a segment. This category includes central marketing, general and
administrative functions and certain other corporate
7
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functions, including worldwide restructuring activities. Funding of working
capital and investment requirements for the segments is managed centrally by the
treasury function. See "Financial Liquidity and Capital Resources" within
"Management's Discussion and Analysis of Operations" on pages 27 to 28 of the
Annual Report, which pages are incorporated by reference, for further
information regarding funding of working capital requirements.
In 1997, the Company recorded restructuring and other charges of
$340 million which consisted of severance costs, impairment losses on certain
long-lived assets, other asset write-downs and exit costs associated with
certain businesses. In 1998, the Company recorded a $50 million restructuring
charge related to an expansion of the severance component of the 1997
restructuring program. For information about the Company's restructuring and
other charges, see "Restructuring and Other Charges" within "Management's
Discussion and Analysis of Operations" on pages 25 to 27 of the Annual Report,
which pages are incorporated by reference.
PATENTS AND TRADEMARKS
The Company believes that its patents are important to its business. In
1999, the Company continued to obtain patents and to pursue efforts to license a
portion of its portfolio of over 1,000 active U.S. patents. In addition, the
Company owns a number of valuable trademarks, including the trademark
"Polaroid", which are important to its business.
ITEM 2. PROPERTIES
The Company's worldwide headquarters are located in Cambridge,
Massachusetts. The Company has manufacturing facilities and marketing
distribution centers throughout the world. At December 31, 1999, most of the
Company's research, marketing, administration and other corporate offices were
located in Cambridge, Waltham and Wayland, Massachusetts. The Cambridge
properties have leases that expire between 2000 and 2013. In 1999, the Company
relocated many of its Cambridge-based employees to a facility in Wayland,
Massachusetts, which has been leased for a term of ten years. In addition, in
1999, the Company relocated its distribution operations from Needham,
Massachusetts to a new facility in Norton, Massachusetts which has been leased
for a period of 15 years.
Since 1997, the Company has sold 12 properties for approximately
$187 million of net cash proceeds having benefited from the high commercial real
estate prices in eastern Massachusetts. The Company has reinvested approximately
$56 million of the net cash proceeds from the sale of real estate in existing or
newly leased properties since 1997.
8
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At December 31, 1999, over 95% of the Company's property in the United
States was located in Massachusetts. These properties are summarized in the
following:
<TABLE>
<CAPTION>
MASSACHUSETTS PROPERTIES
AT DECEMBER 31, 1999
------------------------------
OWNED LEASED TOTAL
-------- -------- --------
(IN THOUSANDS OF SQUARE FEET)
<S> <C> <C> <C>
Location:
Waltham................................................... 1,551 17 1,568
New Bedford............................................... 739 -- 739
Norwood................................................... 535 -- 535
Cambridge................................................. 90 307 397
Norton.................................................... -- 330 330
Wayland................................................... -- 237 237
Bedford................................................... -- 125 125
Newton.................................................... -- 53 53
----- ----- -----
Total....................................................... 2,915 1,069 3,984
===== ===== =====
</TABLE>
In the United States, the Company currently maintains a network of three
distribution centers in Oakbrook, Illinois, Norton, Massachusetts, and Santa
Ana, California. The Company also has eight regional sales offices in other
locations throughout the United States.
The Company's main properties located outside the United States house the
manufacturing facilities and regional marketing subsidiaries and sales offices.
The principal foreign manufacturing facilities are located in Enschede, The
Netherlands, Dumbarton, Scotland, Queretaro, Mexico and Shanghai, China. These
facilities also contain some administrative and regional marketing activities.
The manufacturing properties are summarized in the following:
<TABLE>
<CAPTION>
MANUFACTURING FACILITIES
OUTSIDE OF THE
UNITED STATES AT
DECEMBER 31, 1999
------------------------------
OWNED LEASED TOTAL
-------- -------- --------
(IN THOUSANDS OF SQUARE FEET)
<S> <C> <C> <C>
Location:
The Netherlands........................................... 485 -- 485
Scotland.................................................. 374 -- 374
Mexico.................................................... 215 2 217
China..................................................... -- 115 115
----- ----- -----
Total....................................................... 1,074 117 1,191
===== ===== =====
</TABLE>
The Americas Region has marketing subsidiaries and sales offices in
Argentina, Brazil, Canada, Mexico and Puerto Rico and certain other South
American countries. The European Region marketing subsidiaries and sales offices
are located in England, France, Germany, Italy, Scotland, Spain and certain
other European countries. The Asia Pacific Region marketing subsidiaries and
sales offices are located in Australia, China, Hong Kong, Japan, Korea and
Malaysia and certain other countries in Asia.
ITEM 3. LEGAL PROCEEDINGS
For information regarding the Company's legal proceedings see Note 14,
"Contingencies", on pages 50 to 51 of the Annual Report, which pages are
incorporated by reference.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
None in the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
See the table entitled "Quarterly Financial Data" on page 51 of the Annual
Report, which page is incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
See the table entitled "Ten Year Financial Summary" on pages 52 to 53, of
the Annual Report, which pages are incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See "Management's Discussion and Analysis of Operations" on pages 19 to 32
of the Annual Report, which pages are incorporated by reference.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Some statements in this report may be forward looking in nature, or
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995 (the "Act"). These statements may be identified by the use of
forward-looking words or phrases such as "believe", "expect", "anticipate",
"should", "plan", "goal", "outlook", "target", "intend", "will", "estimate" and
"potential" among others. 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 in or
implied by any forward-looking statement as a result of a wide variety of
factors, which include, but are not limited to those set forth below. Many of
the important factors below have been discussed in prior filings by the Company
with the Securities and Exchange Commission.
ABILITY TO REVITALIZE THE CORE IMAGING BUSINESS
Revitalizing the Company's core imaging business is an important part of its
strategy. To revitalize the core imaging business, the Company's plan calls for,
among other steps, the introduction of a number of new products each year,
increased instant camera sales at profitable prices, continued penetration of
retail outlets that are frequented by teens and young adults, the continued
reduction of costs and the improvement of operating efficiencies from
restructuring. The Company's plan to increase profits relies on successful
implementation of this strategy.
As part of this strategy, the Company is promoting new uses of, and new
markets for, its products and technology and is targeting new demographic
segments, such as children, teens and young adults, through product innovations
and marketing campaigns. In addition to these marketing campaigns, it is
necessary to promptly design, develop, manufacture, market and deliver
innovative imaging products to market. There can be no assurance that the
Company will be able to effectively implement this strategy on a continuous
basis. If this strategy is not successful, the Company's business and results of
operations could be negatively impacted. Similarly, a decline in retail demand
could have a material effect on the Company's business and financial results.
DEVELOPING DIGITAL IMAGING PRODUCTS MARKET
The Company's plans to develop its digital imaging business call for, among
other things, the transfer of the Company's technology and expertise in instant
imaging to the developing market for digital imaging products, the
commercialization of products that show promise and the development, manufacture
and marketing of new digital imaging products in anticipation of changing trends
among end-users of these
10
<PAGE>
products. The Company faces several risks in implementing this strategy,
including its ability to successfully anticipate and respond to trends in the
rapidly changing digital imaging business, to develop and market new digital
imaging products in a timely and profitable manner, to develop relationships and
alliances with other companies in the field and to market digital imaging
products in a focused and effective way. The digital imaging business is highly
competitive. In addition, the digital imaging business, for many companies,
carries high research and development and other costs and is a relatively low
margin business. There can be no assurance that the Company will be able to
compete effectively or profitably in the digital imaging business on a
continuous basis. In addition, the market for digital imaging products is
evolving in rapid and, in some cases, unpredictable ways and may erode the
growth or absolute size of the Company's instant imaging business.
HIGHLY COMPETITIVE MARKETS
The timing and introduction of new products by the Company's competitors
could have a material negative impact on the Company's introduction of new or
enhanced products. The Company has competitors worldwide, ranging from large
corporations to smaller and more specialized companies. In the instant imaging
market, the Company faces competition from Fuji Photo Film Co., Ltd. ("Fuji"),
which has introduced selected new products in Japan and Europe. In the digital
imaging market, the Company faces competition from Eastman Kodak Company, Fuji,
Hewlett-Packard Company, Canon U.S.A., Inc., Sony Corporation, and others. Many
of the Company's competitors are larger and have greater financial and other
resources. There can be no assurance that the Company will be able to compete
successfully on a continuous basis and its failure to do so could have a
material adverse effect on its business and financial results.
NET LOSSES
The Company has experienced net losses in prior years. If net losses were to
recur, the Company may be required to find additional sources of funding to fund
operating deficits, implement its business strategy and meet anticipated capital
expenditures, research and development costs and financing commitments. There
can be no assurance that if the Company needs to obtain additional financing,
that it will find it on acceptable terms or that it would be permitted under the
Amended Credit Agreement, the U.K. Credit Agreement or the indenture governing
the 2006 Notes.
SUBSTANTIAL LEVEL OF DEBT
The Company has a significant amount of debt. The Company's level of debt
could have important consequences to investors or stockholders. For example, it
could: make it more difficult to satisfy its debt and other obligations;
increase the Company's vulnerability to general adverse economic and industry
conditions; limit the Company's ability to fund future working capital needs,
capital expenditures, acquisitions, research and development costs and other
general corporate requirements; require the Company to dedicate a substantial
portion of its cash flow from operations to payments on its debt, thereby
reducing the availability of the Company's cash flow to fund working capital
needs, capital expenditures, acquisitions, research and development costs and
other general corporate requirements; limit the Company's flexibility in
planning for, or reacting to, changes in its business and the industry in which
it operates; place the Company at a competitive disadvantage compared with its
competitors that are less leveraged and limit its ability to borrow additional
funds.
RESTRICTIONS IMPOSED BY THE COMPANY'S DEBT AND FINANCIAL FLEXIBILITY
The Company has financial and other restrictive covenants in the Company's
debt instruments including restrictions in the event of a change in control.
Failure to comply with these covenants could result in an event of default under
the Amended Credit Agreement, the U.K. Credit Agreement, the indenture governing
the 2006 Notes and certain of the agreements governing short-term lines of
credit. If such default is not cured or waived, it could have a material adverse
effect on the Company.
11
<PAGE>
The Company's ability to make payments on and to refinance its debt, to
execute its business strategy, to make capital expenditures and to fund research
and development costs will depend on its ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory, exchange rate fluctuation and other
factors, including retail demand and dealer inventory practices, that are beyond
the Company's control. It is also subject to the Company's success in
implementing its strategies. There can be no assurance that the Company will
generate sufficient cash flow or that future borrowings will be available to the
Company under the Amended Credit Agreement, the U.K. Credit Agreement or
short-term lines of credit in an amount sufficient to enable the Company to
repay its debt and to fund other liquidity needs.
CUSTOMER CONCENTRATION
One customer, Wal-Mart Stores, Inc., ("Wal-Mart") comprises over 10% of the
Company's net sales. Net sales to this customer as a percentage of the Company's
annual net sales totaled 12.5% in 1997, 13.0% in 1998 and 14.8% in 1999. If
Wal-Mart or several of the Company's other top customers were to stop purchasing
the Company's products or significantly change their purchasing practices, there
would be a material adverse effect on the Company's business and financial
results.
FOREIGN EXCHANGE RATE FLUCTUATIONS
The Company sells and markets its products worldwide. A major risk
associated with the Company's worldwide operations is the fluctuation of foreign
exchange rates, particularly the Japanese yen and euro. Although the Company
engages in some foreign currency hedging, fluctuations in foreign currencies
could have a material adverse effect on the business and financial results of
the Company.
FAILURE TO REDUCE CYCLE TIME
The Company has already reduced and is committed to further reduce 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.
CONTRACT MANUFACTURING, RAW MATERIALS AND SUPPLIES
The Company is dependent on certain sole source suppliers for certain
finished products and components. The Company uses vendors to supply some of the
raw materials and supplies necessary for the manufacture of its products,
including chemicals, polyester film base, specialty paper and components. The
Company is dependent on these suppliers' ability to meet its production needs at
a competitive cost and quality.
LOSS OF PATENTS AND TRADEMARKS
The Company obtains patents where feasible to protect its investment in
research and development. The ownership of patents contributes to the Company's
ability to use its inventions and at the same time may provide significant
patent license revenue. In addition, the Company owns a number of valuable
trademarks, including the trademark "Polaroid", which are important to its
business. The loss of certain significant patents or trademarks would have a
material adverse effect on the Company's business and financial results.
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES
The Company's businesses and facilities are subject to a number of federal,
state and local laws and regulations that govern, among other things, the
discharge of hazardous materials into the air and water as well as the handling,
storage and disposal of such materials. Under certain environmental laws, a
current or previous owner or operator of land may be liable for the costs of
investigation, removal or remediation
12
<PAGE>
of hazardous materials at that property. These laws typically impose a liability
whether or not the owner or operator of the land knew of, or was responsible
for, the presence of the hazardous materials or for the disposal or treatment of
hazardous materials. The owner or operator may also be liable for the costs of
investigation, removal or remediation of such substances at the disposal or
treatment site, regardless of whether the affected site is owned or operated by
that party.
Because the Company owns and operates a number of facilities and because it
arranges for the disposal of hazardous materials at many disposal sites, the
Company expects to incur costs for investigation, removal and remediation, as
well as capital costs associated with the compliance of these laws. In addition,
changes in environmental laws or unexpected investigations and clean-up costs
could have a material adverse effect on the Company's business and financial
condition.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends on the continued contribution of a number of
key senior managers and the loss of the services provided by them could have a
material adverse effect on the Company. In particular, the loss of services
provided by Gary T. DiCamillo, the Chairman and Chief Executive Officer, as well
as certain other senior managers, could have a material adverse effect on the
Company's business and development. If that were to occur, there is no assurance
that the Company would be able to locate qualified personnel or employ them on
acceptable terms or on a timely basis.
In addition, the Company's continued growth depends in part on its
continuing ability to attract and retain qualified senior managers who can
implement the Company's business strategy. There can be no assurance that the
Company will be able to attract and retain such senior managers.
IMPACT OF THE YEAR 2000 PROBLEM
The failure of the Company's material third-party customers, suppliers and
vendors to make their systems Year 2000 compliant could have a material adverse
impact on the results of operations and financial condition of the Company. The
Year 2000 problem continues to have certain inherent risks that are difficult to
measure and that could arise during 2000. There can be no assurance that the
Company or its material third party customers, suppliers and vendors will
foresee all Year 2000 problems that could yet occur during the year and be able
to correct them on a timely basis.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and
foreign currency exchange rates relative to its market risk sensitive
instruments and positions as described below. To reduce its risk and costs
associated with its non-functional currency operating activities, the Company
manages its exposures to foreign currency exchange rate changes through its
operating and financing activities. In this regard, the Company borrows
non-functional currencies and purchases forward exchange contracts to reduce the
impact of foreign exchange on its non-functional currency net asset exposures.
In addition, the Company purchases foreign currency options to protect a portion
of its expected foreign currency-denominated revenues from adverse foreign
currency exchange rate movements. The Company does not purchase financial
instruments for trading or other speculative purposes.
INTEREST RATE RISKS
The Company is exposed to interest rate risk primarily related to its
borrowing activities. The Company borrows U.S. dollars to fund its working
capital and investment requirements. The Company borrows foreign currencies
primarily to manage its non-functional currency net asset exposures as more
fully explained under "Foreign Currency Exchange" within "Management's
Discussion and Analysis of Operations" on pages 28 to 29 of the Annual Report,
which pages are incorporated by reference. The
13
<PAGE>
following table summarizes principal payments, related average interest rates by
contractual maturity date and fair value information as of December 31, 1999 for
the Company's borrowing activities:
<TABLE>
<CAPTION>
PRINCIPAL PAYMENTS AND INTEREST RATES BY MATURITY DATES
AS OF DECEMBER 31, 1999
-----------------------------------------------------------------------------------------
DUE
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
-------- -------- -------- -------- -------- ---------- -------- ----------
(IN MILLIONS, EXCEPT AVERAGE INTEREST RATE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM DEBT:
Variable rate (U.S. dollars)........ $235 -- -- -- -- -- $235 $235
Average interest rate............... 7.6% 7.6%
Variable rate (non-U.S. dollars).... $ 24 -- -- -- -- -- $ 24 $ 24
Average interest rate............... 4.7% 4.7%
LONG-TERM DEBT:
Fixed rate (U.S. dollars)........... -- -- $ 150 -- -- $ 425 $575 $533
Average interest rate............... 6.75% 10.0% 9.2%
</TABLE>
As more fully explained under "Foreign Currency Exchange" within
"Management's Discussion and Analysis of Operations" on pages 28 to 29 of the
Annual Report, which pages are incorporated by reference, the Company has used
over-the-counter currency exchange swaps to reduce interest expense incurred on
its foreign currency denominated debt. However, there were no currency exchange
swaps outstanding at December 31, 1999.
For information about the Company's short-term and long-term debt, see
Note 6, "Short-term Debt", on pages 44 to 45 of the Annual Report and Note 8,
"Long-term Debt" on page 45 of the Annual Report, which pages are incorporated
by reference.
FOREIGN CURRENCY EXCHANGE RISK
As more fully explained under "Foreign Currency Exchange" within
"Management's Discussion and Analysis of Operations" on pages 28 to 29 of the
Annual Report, which pages are incorporated by reference, the Company purchases
U.S. dollar call/foreign currency put options which allow it to protect a
portion of its expected foreign currency denominated revenues. The Company also
uses forward exchange contracts to minimize the impact of currency fluctuations
on its net monetary assets denominated in nonfunctional currencies. The
purchased currency options and forward exchange contracts outstanding at
December 31, 1999 were primarily denominated in Japanese yen and euros. Because
the impact of purchased options and forward exchange contracts were not material
to the Company's financial position at December 31, 1999 or the results of its
operations for the year then ended, the effect of an assumed 10% adverse change
in the foreign currency exchange rates on the contracts outstanding at
December 31, 1999 would not be material to the Company's financial position or
results of its operations.
The Company does not quantify foreign currency exchange rate risk associated
with its expected foreign currency denominated revenues or its net monetary
assets denominated in nonfunctional currencies. However, these exclusions do not
affect the usefulness of the sensitivity analysis related to the fair value of
the Company's outstanding option contracts or its outstanding forward exchange
contracts.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the section entitled "Independent Auditors' Report" on page 33, the
section entitled "Financial Statements" on pages 34 to 37, the section entitled
"Notes to Consolidated Financial Statements" on pages 38 to 51, and Note 15,
"Supplementary Financial Information" on pages 51 to 53 of the Annual Report,
which pages are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AUDITING AND FINANCIAL
DISCLOSURE
None.
14
<PAGE>
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
of the Company's 2000 Proxy Statement (the "Proxy Statement"), which pages
are incorporated by reference.
b) EXECUTIVE OFFICERS OF THE REGISTRANT--Listed below are the executive
officers of the Company as of January 31, 2000. Officers are elected
annually by the Board of Directors. No family relationships exist between
any of the officers.
<TABLE>
<CAPTION>
NAME OFFICE AGE
- ---- ------------------------------------------------------ --------
<S> <C> <C>
Gary T. DiCamillo................... Chairman, Chief Executive Officer and Director 49
Judith G. Boynton................... Executive Vice President and Chief Financial Officer 45
John R. Jenkins..................... Senior Vice President 54
Paul E. Lambert..................... Senior Vice President 58
Sandra B. Lawrence.................. Senior Vice President 49
Thomas M. Lemberg................... Senior Vice President 53
Brian D. Poggi...................... Senior Vice President 43
Ian J. Shiers....................... Senior Vice President 52
Neal G. Goldman..................... Vice President, General Counsel and Secretary 48
Harvey M. Greenberg................. Vice President 56
</TABLE>
MR. DICAMILLO is Chief Executive Officer and Chairman of the Board of
Directors of the Company and has been a director since 1995. Prior to joining
the Company in 1995, he was employed at Black & Decker Corporation (a global
marketer and manufacturer of hardware and related products for consumer and
commercial applications). 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.
MS. BOYNTON joined the Company in 1998 as Executive Vice President and Chief
Financial Officer. In January 2000, Ms. Boynton was appointed to her current
position, as Executive Vice President, Business Development and Chief Financial
Officer. Prior to joining the Company, she was employed as Vice President and
Controller of Amoco Corporation. Prior to becoming Vice President and
Controller, she held various finance management positions within Amoco.
MR. JENKINS joined the Company in 1972 and has served in various capacities
including manufacturing, logistics, finance, advertising, international
operations and human resources. Mr. Jenkins was appointed to Vice President in
1996 and to his present position of Senior Vice President, Worldwide
Manufacturing and Logistics in June 1999.
MR. LAMBERT joined the Company in 1970 and has served in various capacities
since joining the Company. He was promoted to Vice President, Coating Strategy
and Technology in 1995, Vice President, Chemical Operations and Coating in 1996
and Vice President, Corporate Research and Development in 1997. Mr. Lambert was
appointed to his current position, Senior Vice President, Corporate Research and
Development in June 1999.
MS. LAWRENCE came to the Company in 1991 from The Gillette Company where she
served as Vice President--New Products and Business Development. Ms. Lawrence
joined the Company as Vice President, Strategic Marketing and was appointed to
her current position, Senior Vice President, Worldwide Marketing, in
August 1999.
15
<PAGE>
MR. LEMBERG joined the Company as Senior Vice President, General Counsel and
Secretary in September 1996 and was promoted to his current position, Senior
Vice President, Global Alliances, in September 1999. Prior to joining the
Company, he served as Vice President, General Counsel and Secretary at Lotus
Development Corporation from 1987 to 1995.
MR. POGGI joined the Company in 1980 as a sales and marketing representative
after leaving Proctor & Gamble. Since joining the Company he has served as
Divisional Vice President, Marketing and Sales, Europe and as Vice President and
head of the Company's European operations. Mr. Poggi was appointed to his
current position of Senior Vice President, primarily responsible for sales and
marketing in North America, in November 1999.
MR. SHIERS came to the Company from Telstra Corporation (a global
communications company based in Australia with annual revenues in excess of
approximately $11 billion) in 1997 and had previously held executive roles at
Motorola, Inc. and Unisys Corporation. Mr. Shiers joined the Company as Vice
President, Asia Pacific Region and was appointed to his current position of
Senior Vice President, primarily responsible for sales and marketing outside of
North America, in November 1999.
MR. GOLDMAN joined the Company as Vice President and Deputy General Counsel
in 1997. Prior to joining the Company, he served as Vice President, General
Counsel and Secretary of Nets Inc. (an e-commerce Internet company).
Mr. Goldman was appointed Vice President of the Law Department in
February 1999, and to his current position Vice President, General Counsel and
Secretary in September 1999.
MR. GREENBERG joined the Company in 1970 and has held a number of positions
since joining the Company. Mr. Greenberg was appointed to his current position,
Vice President, Human Resources in September 1999.
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 17 of the Proxy Statement,
which page is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the section entitled "Executive Compensation" on pages 10 to 17 of the
Proxy Statement, which pages are incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the section entitled "Beneficial Ownership of Shares" on pages 7 to 8
and the section entitled "Election of Directors" on pages 3 to 5 of the Proxy
Statement, which pages are incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section entitled "Election of Directors" on pages 3 to 6 of the
Proxy Statement, which pages are incorporated by reference.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE NO.
--------------
<S> <C> <C>
A) 1. FINANCIAL STATEMENTS
Independent Auditors' Report................................ 33*
Consolidated Statement of Earnings for the years ended
December 31, 1997, 1998 and 1999.......................... 34*
Consolidated Balance Sheet as of December 31, 1998 and
1999...................................................... 35*
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... 36*
Consolidated Statement of Changes in Common Stockholders'
Equity for the years ended December 31, 1997, 1998 and
1999...................................................... 37*
Notes to Consolidated Financial Statements.................. 38-51*
Supplementary Financial Information (Unaudited)............. 51-53*
A) 2. FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report................................ i
Schedule II--Valuation and Qualifying Accounts.............. ii
</TABLE>
All other Financial Statement Schedules are omitted, as they are either not
required or not applicable.
- ------------------------
* Page references are to the Annual Report, which pages are incorporated
herein by reference. Except for such pages and other information in the
Annual Report specifically incorporated in this report by reference, the
Annual Report is not to be deemed filed as part of this report.
A) 3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
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's Form 10-K for the year ended December 31,
1988, 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's Form 10-Q for the
quarter ended June 28, 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's Form 10-Q for the quarter
ended July 2, 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's Form 10-K for the year ended December 31,
1991, is hereby incorporated herein by reference).
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1(e) Amendment to Polaroid Corporation Restated Certificate of
Incorporation as of May 14, 1985 (The Amendment to the
Restated Certificate of Incorporation, included as Exhibit 3
to Polaroid Corporation's 10-Q for the quarter ended March
29, 1999, is hereby incorporated 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's Form 10-K
for the year ended December 31, 1993, 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's 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's Form 8 (Amendment No. 1 to the
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's 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 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's 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, 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's 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 and Fifth Amendment dated as of October
7, 1991 to Rights Agreement dated as of September 9, 1986
between Polaroid Corporation and First Chicago Trust Company
(as successor to Morgan Shareholder Services Trust Company),
as Rights Agent. (The Supplemental Rights Agreement and
Fifth Amendment, included as Exhibit 8 to Polaroid
Corporation's Form 8 (Amendment No. 5 to the Form 8-A filed
on September 15, 1986) as filed on January 30, 1989, is
hereby incorporated herein by reference).
4.7 Sixth Amendment (previously designated at the Fifth
Amendment) dated as of March 23, 1993 to 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).
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
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 Seventh Amendment dated as of July 13, 1998 to Rights
Agreement dated as of September 9, 1986 between Polaroid
Corporation and BankBoston, N.A. (as successor to First
Chicago Trust Company), as Rights Agent. (The Seventh
Amendment, included as Exhibit 11 to Polaroid Corporation's
Registration Statement on Form 8-A/A (Amendment No. 7 to the
Form 8-A filed on September 15, 1986) as filed on July 13,
1998, is hereby incorporated herein by reference).
4.10 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's Form 10-K for the year
ended December 31, 1991, is hereby incorporated herein by
reference).
4.11 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's Form 10-Q for the
quarter ended March 30, 1997, is hereby incorporated herein
by reference).
4.12 Supplemental Indenture dated as of February 17, 1999 between
Polaroid Corporation and State Street Bank and Trust
Company, as Trustee. (The Supplemental Indenture, included
as Exhibit 4.2 to Polaroid Corporation's Current Report on
Form 8-K filed on February 17, 1999, is hereby incorporated
herein by reference).
4.13 Form of Global Notes representing the 11 1/2% Notes due
2006. (The Form of Global Notes representing the 11 1/2%
Notes, included as Exhibit 4.3 to Polaroid Corporation's
Current Report on Form 8-K filed on February 17, 1999, is
hereby incorporated herein by reference).
10.1 $350,000,000 Amended and Restated Credit Agreement dated as
of December 11, 1998 among Polaroid Corporation, Morgan
Guaranty Trust Company of New York, as agent, and the Banks
listed therein. (The Amended and Restated Credit Agreement,
included as Exhibit 10.1 to Polaroid Corporation's Current
Report on Form 8-K filed on January 21, 1999, is hereby
incorporated herein by reference).
10.2 Amendment No. 1 dated as of March 31, 1999 to the
$350,000,000 Amended and Restated Credit Agreement
(Amendment No. 1, included as Exhibit 10 to Polaroid
Corporation's Form 10-Q for the quarter ended March 28,
1999, is hereby incorporated by reference).
10.3 Amendment No. 2 dated as of September 10, 1999 to the
$350,000,000 Amended and Restated Credit Agreement
(Amendment No. 2, included as Exhibit 10.1 to Polaroid
Corporation's Form 10-Q for the quarter ended September 26,
1999, is hereby incorporated by reference).
10.4(*) Amendment No. 3 dated as of November 10, 1999 to the
$350,000,000 Amended and Restated Credit Agreement.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.5 72.5 million euros Loan Agreement dated as of August 3, 1999
between Polaroid (U.K.) Limited (a wholly owned subsidiary
of Polaroid Corporation) as borrower; Polaroid Corporation
as guarantor and Duetsche Bank AG, Amstedam as agent,
Duetsche Bank Securities and ABN AMRO BANK NV as
co-arrangers and ABNAMERO BANK NV. (The 72.5 million euros
Loan Agreement, included as Exhibit 10.2 to Polaroid
Corporation's Form 10-Q for the quarter ended September 26,
1999, is hereby incorporated by reference).
10.6(**) Polaroid Incentive Plan for Executives, effective January 1,
1998. (The Plan, included as Exhibit 10.2 to Polaroid
Corporation's Form 10-K for the year ended December 31,
1998, is hereby incorporated herein by reference).
10.7(**) Polaroid Executive Equalization Retirement Plan, effective
January 1, 1984, as amended December 21, 1994. (The Plan,
included as Exhibit 10.8 to Polaroid Corporation's Form 10-K
for the year ended December 31, 1994, is hereby incorporated
herein by reference).
10.8(**) Polaroid Stock Incentive Plan, effective January 1, 1992, as
amended October 19, 1992. (The Plan, included as Exhibit
10.10 to Polaroid Corporation's Form 10-K for the year ended
December 31, 1992, is hereby incorporated herein by
reference).
10.9(*)(**) The 1993 Polaroid Stock Incentive Plan, effective January 1,
1999, as restated and amended March 27, 1997.
10.10(**) Polaroid Board of Directors Stock Plan, effective January 1,
1997. (The Plan, included as Exhibit 10.2 to Polaroid
Corporation's Form 10-Q for the quarter ended March 30,
1997, is hereby incorporated herein by reference).
10.11(*)(**) Polaroid Board of Directors Retirement Plan, effective
January 1, 1999 as restated and amended December 20, 1999.
10.12(**) 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's Form 10-Q for the
quarter ended March 30, 1997, is hereby incorporated herein
by reference).
10.13(**) Executive Deferred Compensation Plan dated as of May 12,
1997 effective January 1, 1997. (The Plan, included as
Exhibit 10.5 to Polaroid Corporation's Form 10-Q for the
quarter ended March 30, 1997, is hereby incorporated herein
by reference).
10.14(*)(**) Employment Agreement, effective January 1, 2000, as amended
and restated as of January 25, 2000 between Polaroid
Corporation and Gary T. DiCamillo.
10.15(**) Employment Agreement dated March 19, 1998 between Polaroid
Corporation and Judith G. Boynton. (The Amendment, included
as Exhibit 10.1 to Polaroid Corporation's Form 10-Q for the
quarter ended March 29, 1998, is hereby incorporated herein
by reference).
10.16(**) Change in Control Severance Agreement dated as of April 3,
1998 between Polaroid Corporation and Judith G. Boynton.
(The Agreement, included as Exhibit 10.2 to Polaroid
Corporation's Form 10-Q for the quarter ended March 29,
1998, is hereby incorporated herein by reference).
10.17(**) Employment Agreement dated May 12, 1997 between Polaroid
Corporation and Thomas M. Lemberg. (The Agreement, included
as Exhibit 10.8 to Polaroid Corporation's Form 10-Q for the
quarter ended March 30, 1997, is hereby incorporated herein
by reference).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.18(*)(**) Separation and Mutual General Release dated as of October
29, 1999 between Polaroid Corporation and William J.
O'Neill, Jr.
10.19(**) Change in Control and Severance Agreement dated as of April
25, 1997 between Polaroid Corporation and John Jenkins (The
Agreement, included as Exhibit 10.1 to Polaroid
Corporation's Form 10-Q for the quarter ended June 27, 1999,
is hereby incorporated by reference).
10.20(**) Change in Control and Severance Agreement dated as of April
25, 1997 between Polaroid Corporation and Paul E. Lambert
(The Agreement, included as Exhibit 10.2 to Polaroid
Corporation's Form 10-Q for the quarter ended June 27, 1999,
is hereby incorporated by reference).
10.21(**) Change in Control and Severance Agreement dated as of April
7, 1999 between Polaroid Corporation and Neal G. Goldman
(The Agreement, included as Exhibit 10.3 to Polaroid
Corporation's Form 10-Q for the quarter ended June 27, 1999,
is hereby incorporated by reference).
10.22(**) Change in Control and Severance Agreement dated as of April
7, 1999 between Polaroid Corporation and Harvey M. Greenberg
(The Agreement, included as Exhibit 10.4 to Polaroid
Corporation's Form 10-Q for the quarter ended June 27, 1999,
is hereby incorporated by reference).
10.23(*)(**) Change in Control and Severance Agreement dated as of April
25, 1997 between Polaroid Corporation and Brian D. Poggi.
10.24(*)(**) Letter of Understanding dated as of May 17, 1999 between
Polaroid Corporation and Ian Shiers.
11 Statement of Computation of Earnings per Share. (the
computation of earnings per share is included in Note 1 on
page 39 of the Annual Report, which page is incorporated by
reference).
12(*) Ratio of Earnings to Fixed Charges.
13(*) Annual Report to Stockholders for 1999. (The Annual Report
to Stockholders for 1999, except for the portions thereof
which are specifically incorporated by reference in this
report on Form 10-K, is furnished for the information of the
Securities and Exchange Commission and is not to be deemed
filed as part of this report on Form 10-K).
21(*) Subsidiaries of Polaroid Corporation.
23(*) Consent of KMPG LLP.
27(*) Financial Data Schedule.
</TABLE>
- ------------------------
(*) Filed herewith.
(**) Director or 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 to 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 1999, the Company did not file any current
reports on Form 8-K.
21
<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.
<TABLE>
<S> <C> <C>
POLAROID CORPORATION
(Registrant)
By /s/ GARY T. DICAMILLO
-----------------------------------------
Gary T. DiCamillo
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities and 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>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GARY T. DICAMILLO Chairman of the Board and Chief
--------------------------------- Executive Officer and Director March 28, 2000
Gary T. DiCamillo
/s/ JUDITH G. BOYNTON Executive Vice President, Business
--------------------------------- Development and Chief Financial March 28, 2000
Judith G. Boynton Officer
/s/ CARL L. LUEDERS Vice President and Controller
--------------------------------- March 28, 2000
Carl L. Lueders
/s/ STEPHEN A. BERNAZZANI Director
--------------------------------- March 28, 2000
Stephen A. Bernazzani
/s/ RALPH E. GOMORY Director
--------------------------------- March 28, 2000
Ralph E. Gomory
/s/ STEPHEN P. KAUFMAN Director
--------------------------------- March 28, 2000
Stephen P. Kaufman
/s/ JOHN W. LOOSE Director
--------------------------------- March 28, 2000
John W. Loose
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ALBIN F. MOSCHNER Director
--------------------------------- March 28, 2000
Albin F. Moschner
/s/ ALFRED POE Director
--------------------------------- March 28, 2000
Alfred Poe
/s/ RALPH Z. SORENSON Director
--------------------------------- March 28, 2000
Ralph Z. Sorenson
/s/ CAROLE F. ST. MARK Director
--------------------------------- March 28, 2000
Carole F. St. Mark
/s/ BERNEE D.L. STROM Director
--------------------------------- March 28, 2000
Bernee D.L. Strom
/s/ ALFRED M. ZEIEN Director
--------------------------------- March 28, 2000
Alfred M. Zeien
</TABLE>
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Polaroid Corporation
Under the date of January 24, 2000, except for Note 8 to which the date is
February 14, 2000, we reported on the consolidated balance sheet of Polaroid
Corporation and subsidiary companies as of December 31, 1999 and 1998, 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, 1999, as contained in the 1999 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 1999. 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.
[LOGO]
Boston, Massachusetts
January 24, 2000, except for Note 8 to which the date is February 14, 2000
i
<PAGE>
POLAROID CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF COSTS AND OTHER CHARGED TO END OF
DESCRIPTION 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
=====================================================================================================
1998
Doubtful accounts......... $17.1 $19.3 $ -- $ (3.6) $32.8
Cash discounts............ 8.5 -- 27.5 (26.8) 9.2
=====================================================================================================
1999
Doubtful accounts......... $32.8 $10.7 $ -- $(28.8) $14.7
Cash discounts............ 9.2 -- 30.7 (30.7) 9.2
=====================================================================================================
</TABLE>
ii
<PAGE>
Exhibit 10.4
[EXECUTION COPY]
AMENDMENT NO. 3 TO
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT dated as of November 10, 1999 to the Amended and Restated
Credit Agreement dated as of December 11, 1998 (as heretofore amended the
"CREDIT AGREEMENT") among POLAROID CORPORATION (the "COMPANY"), the LENDERS
party thereto (the "LENDERS"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Administrative Agent and Collateral Agent (the "AGENT"), and BANKBOSTON, N.A., a
Co-Agent.
W I T N E S S E T H :
WHEREAS, the parties hereto desire to amend the Credit Agreement to
include additional permissible Investments;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS; REFERENCES. Unless otherwise specifically
defined herein, each term used herein which is (i) defined in the Credit
Agreement shall have the meaning assigned to such term in the Credit Agreement
and (ii) defined in both the Credit Agreement and the Supplemental Indenture 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. AMENDMENT TO INVESTMENTS. Section 5.13 of the Credit
Agreement is amended by deleting the word "and" from subsection (b), relabeling
the current text of subsection (c) as subsection "(d)" (and changing the
reference in the last sentence thereof to "clause (d)") and inserting the
following new subsection (c) after subsection (b):
"(c) any Investment constituting all or any portion of the
consideration received by the Company or any
Subsidiary for the sale, transfer or other
disposition of the stock of a Designated Subsidiary
or any property or assets used in a Designated
Business (or
<PAGE>
any other Investment received in exchange for any
such Investment); and"
SECTION 3. CONSENT BY GUARANTORS. By its signature below, each
Guarantor hereby consents to this Amendment, and acknowledges that this
Amendment shall not alter, release, discharge or otherwise affect any of its
obligations under the Credit Agreement or any Financing Document (as defined in
the Credit Agreement), and hereby ratifies and confirms all of the Financing
Documents (as so defined) to which it is a party.
SECTION 4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 5. COUNTERPARTS. 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.
SECTION 6. EFFECTIVENESS. This Amendment shall become effective as of
the date hereof on the date when the Agent shall have received from each of the
Borrower, each Guarantor and the Required Lenders a counterpart hereof signed by
such party or facsimile or other written confirmation (in form satisfactory to
the Agent) that such party has signed a counterpart hereof.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
POLAROID CORPORATION
By: /s/ JUDITH G. BOYNTON
---------------------------------------
Name: Judith G. Boynton
Title: Executive Vice President,
Chief Financial Officer
INNER CITY, INC.
By: /s/ JOHN R. JENKINS
---------------------------------------
Name: John R. Jenkins
Title: President
POLAROID ASIA PACIFIC LIMITED
By: /s/ CARL L. LUEDERS
---------------------------------------
Name: Carl L. Lueders
Title: Director
POLAROID CARRIBEAN
CORPORATION
By: /s/ CARL L. LUEDERS
---------------------------------------
Name: Carl L. Lueders
Title: Director
POLAROID DIGITAL SOLUTIONS, INC.
By: /s/ CARL L. LUEDERS
---------------------------------------
Name: Carl L. Lueders
Title: Director
POLAROID EYEWEAR, INC.
<PAGE>
By: /s/ CARL L. LUEDERS
---------------------------------------
Name: Carl L. Lueders
Title: Director
POLAROID ID SYSTEMS, INC.
By: /s/ CARL L. LUEDERS
---------------------------------------
Name: Carl L. Lueders
Title: Director
POLAROID MALAYSIA LIMITED
By: /s/ CARL L. LUEDERS
---------------------------------------
Name: Carl L. Lueders
Title: Director
PRD CAPITAL INC.
By: /s/ CARL L. LUEDERS
---------------------------------------
Name: Carl L. Lueders
Title: Director
<PAGE>
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ DENNIS WILCZEK
---------------------------------------
Name: Dennis Wilczek
Title: Associate
ABN AMRO BANK N.V.
By: /s/ DAVID CARROLL
---------------------------------------
Name: David Carroll
Title: AVP
By: /s/ JAMES ADELSHEIM
---------------------------------------
Name: James Adelsheim
Title: Group Vice President
BANKBOSTON, N.A.
By: /s/ GRACE A. BARNETT
---------------------------------------
Name: Grace A. Barnett
Title: Vice President
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ PERRY VAVOULES
---------------------------------------
Name: Perry Vavoules
Title: Senior Vice President
<PAGE>
FOOTHILL CAPITAL (L.A.)
By: _______________________________________
Name:
Title:
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS
BRANCHES
By: /s/ ALEXANDER KAROW
---------------------------------------
Name: Alexander Karow
Title: Assistant Vice President
By: /s/ SUSAN L. PEARSON
---------------------------------------
Name: Susan L. Pearson
Title: Director
BANK ONE, NA
By: /s/ PHILLIP D. MARTIN
---------------------------------------
Name: Phillip D. Martin
Title: First Vice President
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as investment advisor
By: /s/ SCOTT H. PAGE
---------------------------------------
Name: Scott H. Page
Title: Vice President
<PAGE>
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH
By: /s/ LEO E. PAGARIGAN
---------------------------------------
Name: Leo E. Pagarigan
Title: Vice President
WACHOVIA BANK, N.A.
By: /s/ JOHN P. RAFFERTY
---------------------------------------
Name: John P. Rafferty
Title: Senior Vice President
FLEET NATIONAL BANK
By:
---------------------------------------
Name:
Title:
MELLON BANK, N.A.
By: /s/ R. JANE WESTRICH
---------------------------------------
Name: R. Jane Westrich
Title: Vice President
TEXTRON FINANCIAL CORPORATION
By: /s/ JANE M. LAVOIE
---------------------------------------
Name: Jane M. Lavoie
Title: AVP
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: /s/ DONALD V. DAVIS
---------------------------------------
Name: Donald V. Davis
Title: Vice President
KZH STERLING LLC
By: /s/ PETER CHIN
---------------------------------------
Name: Peter Chin
Title: Authorized Agent
<PAGE>
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Administrative Agent
By: /s/ DENNIS WILCZEK
---------------------------------------
Name: Dennis Wilczek
Title: Associate
BANKBOSTON, N.A., as Co-Agent
By: /s/ JANET G. O'DONNELL
---------------------------------------
Name: Janet G. O'Donnell
Title: Managing Director
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Collateral Agent
By: /s/ DENNIS WILCZEK
---------------------------------------
Name: Dennis Wilczek
Title: Associate
<PAGE>
DOCUMENT CONTROL NO.: SIP #3
1993 POLAROID STOCK INCENTIVE PLAN
AMENDED AND EFFECTIVE
JANUARY 1, 1999
<PAGE>
THE 1993 POLAROID STOCK INCENTIVE PLAN
The purpose of the Plan is to advance the interests of the Company and its
shareholders by affording officers, executives and other key employees of the
Company and its Subsidiaries an opportunity to increase their proprietary
interest in the Company by the grant of Awards under the terms set forth herein.
The Company seeks to motivate present employees as well as attract highly
competent individuals whose judgment, initiative, leadership, and continued
effort contribute to the success of the Company and its Subsidiaries. The
Company believes that this Plan can give an incentive to managers to increase
revenues and profits.
ARTICLE I
DEFINITIONS
1.01 AWARD. Award shall mean an incentive award granted under the Plan,
whether in the form of Options, Stock Appreciation Rights, Restricted
Stock, Performance Awards, or any other form of consideration (which
may provide for settlement in shares of Stock, cash and/or a
combination thereof) determined by the Committee to be consistent with
the purposes of the Plan, including but not limited to restricted
units, phantom stock, stock appreciation shares, limited stock
appreciation rights, stock acquisition rights, valuation protection
rights, reload options or any other type of award or combination or
derivative of various types of awards.
1.02 BOARD OR BOARD OF DIRECTORS. Board or Board of Directors shall mean
the Board of Directors of the Company.
1.03 CODE. Code shall mean the Internal Revenue Code of 1986, as amended,
unless otherwise specifically provided herein.
1.04 COMMITTEE. Committee shall mean a Committee of the Board of whom each
member:
(A) is not a current employee of the Company; and,
(B) is not otherwise disqualified from being:
Page 1 of 23
<PAGE>
(i) a "non-employee director" with respect to the Company for
purposes of Rule 16b-3(b)(3) under the Exchange Act (or any
successor rule); or
(ii) an "outside director" with respect to the Company for
purposes of Section 162(m) of the Code (or any successor statute)
and the rules and regulations of the Treasury Department
promulgated thereunder; PROVIDED, HOWEVER, that the failure of
any member of the Committee appointed by the Board in good faith
to meet the requirements of clause (B) above shall not invalidate
the Plan or any Award granted hereunder.
1.05 COMPANY. Company shall mean Polaroid Corporation, a Delaware
corporation, and any successor thereof.
1.06 EXCHANGE ACT. Exchange Act shall mean the Securities Exchange Act of
1934, as amended.
1.07 FAIR MARKET VALUE. Fair Market Value of the Stock shall mean the last
sale price at which Stock is traded on any given date or, if no Stock
is traded on such date, the most recent prior date on which Stock was
traded, as reflected in the New York Stock Exchange Composite
Transactions Index.
1.08 INCENTIVE STOCK OPTION. Incentive Stock Option shall have the meaning
given to it by Section 422 of the Code and as further defined in
Article V hereof.
1.09 NONSTATUTORY STOCK OPTION. Nonstatutory Stock Option shall mean any
Option granted by the Company pursuant to this Plan which is not an
Incentive Stock Option.
1.10 OPTION. Option shall mean an option granted by the Company to purchase
Stock pursuant to the provisions of this Plan and the Agreement
executed pursuant thereto.
1.11 OPTION PRICE. Option Price shall mean the price per share of Stock
purchasable under an Option. The Option Price shall be determined
by the Committee at the time of grant but, in the case of an Incentive
Stock Option, shall not be less than the Fair Market Value on the date
of grant.
Page 2 of 23
<PAGE>
1.12 PARTICIPANT. Participant shall mean an employee or former employee of
the Company or one of its Subsidiaries who has received an Award
granted by the Committee hereunder.
1.13 PERFORMANCE AWARD. Performance Award means an award made pursuant to
Article VIII that is subject to attainment of one or more Performance
Goals.
1.14 PERFORMANCE GOAL. Performance Goal means a standard established by the
Committee to determine in whole or in part whether a Performance Award
shall be earned.
1.15 PLAN. Plan shall mean the 1993 Polaroid Stock Incentive Plan, as
amended.
1.16 RESTRICTED STOCK AWARDS. A Restricted Stock Award shall mean a grant
made by the Committee entitling the Participant to acquire, at no cost
or for a purchase price determined by the Committee at the time of
grant, shares of Stock subject to such restrictions and conditions as
the Committee may determine at the time of grant ("Restricted Stock").
1.17 SECURITIES ACT. Securities Act shall mean the Securities Act of 1933,
as amended from time to time.
1.18 STOCK. Stock shall mean common stock, par value $1 per share, issued
by the Company.
1.19 STOCK APPRECIATION RIGHT OR SAR. A Stock Appreciation Right shall mean
a grant entitling the Participant to receive an amount in cash or
shares of Stock or a combination thereof having a value equal to (or if
the Committee shall so determine at the time of a grant, less than) the
excess of the Fair Market Value of a share of Stock on the date of
exercise over the Fair Market Value of a share of Stock on the date of
grant (or over the Option Price, if the Stock Appreciation Right was
granted in tandem with an Option) multiplied by the number of shares
with respect to which the Stock Appreciation Right shall have been
exercised, with the Committee having sole discretion to determine the
form of payment. A Stock Appreciation Right is further defined in
Article VI hereof.
Page 3 of 23
<PAGE>
1.20 STOCK INCENTIVE AGREEMENT OR AGREEMENT. Stock Incentive Agreement
or Agreement shall mean the agreement as described in Section 3.04 of
the Plan between the Company and the Participant under which such
Participant receives an Award pursuant to this Plan.
1.21 SUBSIDIARY. Subsidiary shall mean any corporation of which more
than fifty percent of the outstanding shares of voting stock are
beneficially owned directly or indirectly by the Company.
ARTICLE II
PARTICIPATION
2.01 PARTICIPATION. A grant under this Plan may be made by the Committee to
any officer, executive or other key employee of the Company or a
Subsidiary.
ARTICLE III
SHARES OF STOCK SUBJECT TO THE PLAN
3.01 LIMITATIONS.
(A) Subject to adjustments pursuant to the provisions of Section
3.03 hereof, the number of shares of Stock or Stock
equivalents which may be granted hereunder to Participants
under all forms of Awards shall not exceed 3,500,000 shares
plus the remaining shares available for grant under this
Plan, as of the date of approval of this Plan by the
Company's stockholders (the "Approval Date"), plus the number
of shares that become available under the 1990 Plan after the
Approval Date due to the lapse, termination or forfeiture of
grants under the 1990 Plan, including shares issued in lieu
of or upon reinvestment of dividends arising from grants. No
grants will be made under the 1990 Plan after the Approval
Date.
(B) For purposes of this Section 3.01, the shares of Stock that
shall be counted toward such limitation shall include all
Stock:
Page 4 of 23
<PAGE>
(1) Issued or issuable pursuant to Options that have been
or may be exercised;
(2) Subject to Stock Appreciation Rights that have been
or may be exercised (other than Stock Appreciation
Rights granted in tandem with outstanding Options or
any limited stock appreciation rights deemed to be
granted pursuant to Article XII); and,
(3) Issued as, or subject to issuance as Restricted Stock.
(C) Shares of Stock subject to grants under this Plan shall be
authorized and unissued shares of Stock or treasury stock.
3.02 AVAILABILITY OF SHARES ONCE ISSUED UNDER THE PLAN. Once grants of
Awards have lapsed, terminated or have been forfeited, the Committee
shall have the sole discretion to issue a new grant to any Participant,
covering the number of shares to which such lapsed, terminated or
forfeited grant related, provided that the Participant has received no
monetary benefits of ownership therefrom, such as dividends.
3.03 ADJUSTMENTS TO GRANTS ONCE ISSUED. In the event that the outstanding
shares of Stock are changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another
corporation by reason of merger, consolidation, other reorganization,
recapitalization, reclassification, combination of shares; stock
split-up, or stock dividend, the Committee shall make such
corresponding adjustments, if any, as deemed appropriate in its sole
discretion. The Committee may adjust the number and kind of shares
which may be granted under the Plan, the maximum number and kind of
shares which may be granted to any one eligible Participant, and the
number, the Option Price, and the kind of shares or property subject to
each outstanding grant.
3.04 GRANTS AND AGREEMENT. Each grant of an Award under this Plan shall be
evidenced by a written Stock Incentive Agreement dated as of the date
of the grant and executed by the Company and the Participant. This
Agreement shall set forth the terms and conditions of such Award, as
may be determined by the Committee consistent with this Plan, and if
such Agreement relates to the grant of an Option, shall indicate
whether the Option that it
Page 5 of 23
<PAGE>
evidences, if applicable, is intended to be an Incentive Stock Option
or a Nonstatutory Stock Option.
ARTICLE IV
OPTIONS
4.01 OPTION EXERCISE. Subject to Federal and State statutes then applicable,
the terms and procedures by which an Option may be exercised shall be
set forth in the Participant's Agreement or in procedures established
by the Committee. The Committee may permit payment of the Option Price
to be made through the tender of cash or securities, the withholding of
Stock or cash to be received through Awards, or any other arrangement
satisfactory to the Committee.
4.02 NONSTATUTORY STOCK OPTIONS. The Committee may grant Nonstatutory
Stock Options under this Plan. Such Nonstatutory Stock Options must
comply with all requirements of this Plan except for those contained
in Article V, Article VI, Article VII, and Article VIII hereof.
4.03 VESTING OF OPTIONS. The Stock Incentive Agreement shall specify the
date or dates on which the Participant may begin to exercise all or a
portion of his Option. Subsequent to such date or dates, the option
shall be deemed "vested." Notwithstanding the terms of any Stock
Incentive Agreement, the Committee at any time may accelerate such date
or dates and otherwise waive or amend any conditions of the grant.
A Participant's subsequent transfer or disposition of any Stock secured
through the grant shall be subject to any Federal and State laws then
applicable, specifically securities laws.
ARTICLE V
INCENTIVE STOCK OPTIONS
Page 6 of 23
<PAGE>
5.01 GENERAL. All Incentive Stock Options shall comply with all of the
restrictions and limitations set forth in Section 422 of the Code and
this Article. To the extent that any Option does not qualify as an
Incentive Stock Option, it shall constitute a Nonstatutory Stock Option.
ARTICLE VI
STOCK APPRECIATION RIGHTS
6.01 GRANT AND EXERCISE OF STOCK APPRECIATION RIGHTS. Stock Appreciation
Rights may be granted to Participants by the Committee in tandem with,
or independently of, any Option granted pursuant to Article IV or
Article V of this Plan. In the case of a Stock Appreciation Right
granted in tandem with a Nonstatutory Stock Option, such Stock
Appreciation Right may be granted either at or after the time of the
grant of such Nonstatutory Stock Option. In the case of a Stock
Appreciation Right granted in tandem with an Incentive Stock Option,
such Stock Appreciation Right may be granted only at the time of the
grant of such Incentive Stock Option.
A Stock Appreciation Right, or applicable portion thereof
granted in tandem with an Option, shall terminate and no longer be
exercisable upon the termination or exercise of the related Option.
However, if a Stock Appreciation Right is granted with respect to less
than the full number of shares covered by a related Option, such Stock
Appreciation Right shall terminate only if and to the extent that the
number of shares covered by the exercise or termination of the related
Option exceeds the number of shares not covered by such Stock
Appreciation Right.
6.02 TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. Stock Appreciation
Rights shall be subject to such terms and conditions as shall be
determined from time to time by the Committee and embodied in the
Agreements and in procedures established by the Committee. The
Committee at any time may accelerate the exercisability of any Stock
Appreciation Right and otherwise waive or amend any conditions of the
grant of a Stock Appreciation Right.
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<PAGE>
ARTICLE VII
RESTRICTED STOCK AWARDS
7.01 AGREEMENT. The Committee may grant a Participant a Restricted Stock
Award entitling the Participant to acquire, at no cost or for a
purchase price determined by the Committee at the time of grant, shares
of Stock subject to such restrictions and conditions as the Committee
may determine at the time of grant. At the sole discretion of the
Committee, stock subject to a Restricted Stock Award may be issued
effective the date of the grant, or effective only after all
restrictions on the Award have lapsed.
If the purchase of Restricted Stock is required by the
Agreement, a Participant who is granted a Restricted Stock Award shall
not have any rights with respect to such grant unless the Participant
shall have accepted the grant within 60 days (or such shorter time as
the Committee may specify) following the date of the grant by making
payment to the Company by certified or bank check or other instrument
acceptable to the Committee in an amount equal to the specified
purchase price, if any, of the shares covered by the grant and by
executing and delivering to the Company an Agreement in such form as
the Committee shall determine.
7.02 RIGHTS AS A SHAREHOLDER. After the Restricted Stock has been recorded
in the stock ledger of the Company and:
(A) Upon complying with Section 7.01 above, if the purchase of
Restricted Stock is required by the Agreement; or,
(B) Immediately, if no purchase of Restricted Stock is required by
the Agreement, a Participant shall have all the rights of a
shareholder with respect to such Restricted Stock including
voting and dividend rights, subject to non-transferability
restrictions and Company repurchase or forfeiture rights
described in this Section and Section 7.03, and subject to
such other conditions (including, but not limited to,
condition on voting and dividend rights) as are contained in
the Agreement. Unless the Committee shall otherwise determine,
certificates evidencing shares of
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<PAGE>
Restricted Stock shall remain in the possession of the Company
until such shares are vested as provided in Section 7.04 below
and the Agreement.
7.03 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered or disposed of except as
specifically provided herein. Restrictions on shares of Restricted
Stock shall be set forth in a Stock Incentive Agreement and may include
such vesting restrictions as the Committee shall determine, including,
but not limited to, restrictions related to timing, profitability of
the Company, and growth of the share price. In the event of a
Participant's termination of employment with the Company and its
Subsidiaries for any reason (including death) prior to the date shares
of Restricted Stock awarded to such Participant become vested, the
Company shall have the right, at the discretion of the Committee, to
repurchase such shares at their purchase price, or to require
forfeiture of such shares to the Company if acquired at no cost, from
such Participant or Participant's legal representative.
7.04 VESTING OF RESTRICTED STOCK. The Committee at the time of grant shall
specify the date or dates (which may depend upon or be related to the
attainment of performance goals and other conditions) on which the
restrictions imposed upon the Restricted Stock and the Company's right
of repurchase or forfeiture shall lapse. Subsequent to such date or
dates, the shares on which all restrictions have lapsed shall no longer
be Restricted Stock and shall be deemed "vested." The Committee at any
time may accelerate such date or dates and otherwise waive or amend any
conditions of the grant. A Participant may transfer or dispose of any
Restricted Stock that has vested, subject to any Federal and State laws
then applicable, specifically securities laws.
7.05 LIMITATION ON GRANTS. Except to the extent that any acceleration of
vesting pursuant to Section 13.01(A) hereof may be deemed to
constitute the grant of a new Award no Person may be granted
Restricted Stock covering more than 100,000 shares of Stock in any one
calendar year.
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<PAGE>
ARTICLE VIII
PERFORMANCE AWARDS
8.01 TERMS OF PERFORMANCE AWARDS. Subject to the limitations of the Plan,
the Committee shall designate those eligible persons to be granted
Performance Awards, shall determine the form and amount of each such
award, the time when each such award shall be granted, and the
Performance Goals applicable thereto, and may prescribe other
restrictions, terms and conditions applicable to such Award in addition
to those provided in the Plan. A Performance Award may be payable in
the form of cash, property or securities of the Company, including,
without limitation, Options, Stock Appreciation Rights and/or shares of
Restricted Stock (however a grant of Restricted Stock pursuant to
Article VII hereof shall not constitute a Performance Award hereunder,
even if subject in whole or in part to the achievement of performance
goal, unless the Committee shall otherwise determine at the time of
grant). A Performance Award shall be paid, vested or otherwise
deliverable solely on account of the attainment of one or more
pre-established, objective Performance Goals established by the
Committee prior to the earlier occurrence of:
(A) 90 days after the commencement of the period of service to which
the Performance Goal relates, and
(B) the passage of 25% of the period of service (as scheduled in good
faith at the time goal is established), and in any event while the
outcome is substantially uncertain.
A Performance Goal is objective if a third party having knowledge of
the relevant facts can determine whether the goal has been met.
8.02 PERFORMANCE GOAL CRITERIA. A Performance Goal may be based on one or
more business criteria that apply to the individual, one or more
business units of the Company, or the Company as a whole, and may
include one or more of the following: revenue, net income, cash flow
(as defined for such purpose by the Committee), stock price, market
share, earnings per share, return on equity, return on assets or
decrease in cost, economic value added, operating profit, earnings
before interest and taxes and gross margin percent.
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<PAGE>
Unless otherwise stated, such Performance Goals need not be based upon
an increase or positive result under a particular business criterion
and could include, for example, maintaining the status quo or limiting
economic losses (measured, in each case, by reference to specific
business criteria). In interpreting Plan provisions applicable to
Performance Goals and Performance Awards, it is the intent of the Plan
to conform with the standards of Section 162(m) of the Code and
Treasury Regulation Section 1.162-27(e)(2)(i), and the Committee in
establishing such goals and interpreting the Plan shall be guided by
such provisions.
8.03 COMMITTEE CERTIFICATION. Prior to the payment of any compensation based
on the achievement of Performance Goals, the Committee must certify in
writing that applicable Performance Goals and any of the material terms
thereof were, in fact, satisfied. Subject to the foregoing provisions,
the terms, conditions and limitations applicable to any Performance
Awards made pursuant to this Plan shall be determined by the Committee.
8.04 CERTAIN LIMITATIONS. Notwithstanding anything to the contrary contained
in this Plan, any Performance Awards made hereunder shall be limited so
that no person may be granted Performance Awards consisting of cash or
in any other form permitted under this Plan (other than Awards
consisting of Options or Stock Appreciation Rights, or Restricted Stock
subject to Article VII) in any one year having a value determined on
the date of grant in excess of $2,000,000.
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<PAGE>
ARTICLE IX
STOCK CERTIFICATES
9.01 STOCK CERTIFICATES. The Company shall not be required to issue or
deliver any certificate for shares of Stock under this Plan or of any
portion thereof prior to fulfillment of all of the following
conditions:
(A) The admission of such shares to listing on all stock exchanges on
which the Stock is then listed, if any;
(B) The completion of any registration or other qualification of such
shares under any Federal or State law, under the rulings or
regulations of the Securities and Exchange Commission, or under any
other governmental regulatory agency which the Committee shall in
its sole discretion determine to be necessary or advisable;
(C) The obtaining of any approval or other clearance from any Federal
or State governmental agency which the Committee shall in its sole
discretion determine to be necessary or advisable; and,
(D) The lapse of such reasonable period of time following the exercise
of the grant as the Committee from time to time may establish for
reasons of administrative convenience.
If these conditions are not satisfied, the employee may lose his
rights to such Stock as determined by the Committee.
ARTICLE X
DIVIDENDS
10.01 DIVIDENDS. At the time of each grant of an Award the Committee may, in
its sole discretion, determine whether the grant shall provide a
dividend or a dividend equivalent and the terms and conditions under
which any such dividend or dividend equivalent is to
Page 12 of 23
<PAGE>
be provided, including, but not limited to, permitting or requiring
immediate payment, deferral or investment of dividends or dividend
equivalents.
ARTICLE XI
PLAN ADMINISTRATION
11.01 PLAN ADMINISTRATION. The Plan and all Agreements shall be
administered, and all grants under this Plan shall be awarded, by the
Committee. The Committee shall have full authority and absolute sole
discretion:
(A) To determine, consistent with the provisions of this Plan,
which of the employees shall be granted Awards; the form and
terms of such Awards; the timing of such grants; the number of
shares subject to each Award and the Option Price of Stock
covered by each Option (if applicable); and the period over
which the Awards shall become and remain exercisable (if
applicable);
(B) To construe and interpret the Plan and the Agreements;
(C) To determine the terms and provisions of each respective Stock
Incentive Agreement, which need not be identical;
(D) To make all other determinations and take all other actions
deemed necessary or advisable for the proper administration of
the Plan;
(E) To adopt, alter, and repeal such rules, guidelines, and
practices for administration of the Plan and for its own acts
and proceedings as it shall deem advisable;
(F) To interpret the terms and provisions of the Plan and any
grant(including related Agreements);
(G) To make all determinations it deems advisable for the
administration of the Plan;
(H) To decide all disputes arising in connection with the Plan;
and,
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<PAGE>
(I) To otherwise supervise the administration of the Plan.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01 APPLICABLE LAW. To the extent that state law shall not have been
preempted by any laws of the United States, the Plan shall be
construed, regulated, interpreted and administered according to the
laws of the State of Delaware.
12.02 EXPENSES. The cost of benefit payments from this Plan and the
expenses of administering the Plan shall be borne by the Company.
12.03 GENDER AND NUMBER. Unless the context clearly requires otherwise,
the masculine pronoun whenever used shall include the feminine and
neuter pronoun, the singular shall include the plural, and vice
versa.
12.04 HEADINGS NOT PART OF THE PLAN. Headings of Articles and Sections are
inserted for convenience and reference; they constitute no part of
this Plan.
12.05 INDEMNIFICATION. No member of the Board of Directors or the Committee
shall be liable for any action or determination taken or made in good
faith with respect to this Plan nor shall any member of the Board of
Directors or the Committee be liable for any Agreement issued pursuant
to this Plan or any grants under this Plan. Each member of the Board of
Directors and the Committee shall be indemnified by the Company against
any losses incurred in such administration of the Plan, unless his
action constitutes serious and willful misconduct.
12.06 LIMITATION OF RIGHTS. Neither the adoption and maintenance of the
Plan or Agreement nor anything contained herein, with respect to any
Participant, shall be deemed to:
(A) Limit the right of the Company or any Subsidiary to discharge
or discipline any such person, or otherwise terminate or
modify the terms of his employment; or,
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<PAGE>
(B) Create any contract or other right or interest under the
Plan, or in any funds hereunder, other than as specifically
provided in the Plan and the Agreement.
12.07 NO DISTRIBUTION UNTIL COMPLIANCE WITH LEGAL REQUIREMENTS. The Committee
may require each Participant acquiring shares pursuant to a grant to
represent to and agree with the Company in writing that such
Participant is acquiring the shares without a view to distribution
thereof. No shares of Stock shall be issued pursuant to a grant until
all applicable securities laws and other legal and stock exchange
requirements have been satisfied. The Committee may require the placing
of such stop-orders and restrictive legends on certificates for Stock
and grants as it deems appropriate.
12.08 TIMING OF GRANTS. All Awards granted under this Plan shall be granted
on or prior to May 31, 2001.
12.09 NON-ASSIGNABILITY. A Participant's interest under this Plan shall not
be subject at any time, or in any manner, to alienation, sale,
transfer, assignment, pledge, attachment, garnishment or encumbrance of
any kind and any attempt to deliver, sell, transfer, assign, pledge,
attach, garnish or otherwise encumber such interest shall be void and
any interest so encumbered will terminate.
12.10 NON-TRANSFERABILITY. An Award shall not be transferable by the
Participant other than by will or the laws of descent and distribution.
During the lifetime of the Participant, such Award shall be exercisable
or perfected only by the Participant in accordance with the terms of
this Plan and the Agreement.
12.11 OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect any
other existing or future incentive or compensation plans for directors,
officers or employees of the Company or its Subsidiaries. Moreover, the
adoption of this Plan shall not preclude the Company or its
Subsidiaries from:
(A) Establishing any other forms of incentive or other compensation
for directors, officers or employees of the Company or its
Subsidiaries; or,
Page 15 of 23
<PAGE>
(B) Assuming any forms of incentives or other compensation of any
person or entity in connection with the acquisition of the business or
assets, in whole or in part, of any person or entity.
12.12 PLAN BINDING ON SUCCESSORS. This Plan shall be binding upon the
successors and assigns of the Company.
12.13 TAX WITHHOLDING. Each Participant shall, no later than the date as of
which the value of a grant or of any Stock or other amount received
thereunder first becomes includable in the gross income of the
Participant for Federal income tax purposes, pay to the Company, or
make arrangements satisfactory to the Committee regarding payment of
any Federal, State, or local taxes of any kind required by law to be
withheld with respect to such income. The Committee may permit payment
of such taxes to be made through the tender of cash or securities, the
withholding of Stock or cash to be received through Awards or any other
arrangement satisfactory to the Committee. The Company and its
Subsidiaries shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind otherwise due to the
Participant.
12.14 NON-CONTRAVENTION OF SECURITIES LAWS. Notwithstanding anything to the
contrary expressed in this Plan, any provisions hereof that vary from
or conflict with any applicable Federal or State securities laws
(including any regulations promulgated thereunder) shall be deemed to
be modified to conform to and comply with such laws.
12.15 UNENFORCEABILITY OF A PARTICULAR PROVISION. The unenforceability of
any particular provision of this document shall not affect the other
provisions and the document shall be construed in all respects as if
such unenforceable provision were omitted.
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<PAGE>
ARTICLE XIII
CHANGE OF CONTROL
13.01 ACCELERATION. Unless the Committee shall otherwise expressly provide in
the Agreement relating to an Award:
(A) Upon the occurrence of a Trigger Date (as hereinafter defined):
(1) In the case of Options and Stock Appreciation Rights, each
such Option and Stock Appreciation Right shall automatically
become fully exercisable;
(2) Restrictions and conditions applicable to Restricted Stock
shall automatically be deemed waived, and the recipients of such
grants shall become entitled to receipt of the Stock subject to
such grants; and,
(3) In the case of any other Award, the occurrence of such
Trigger Date shall have such effect on such Award as may be
provided in the Agreement related thereto or in the Committee's
procedures; and,
(B) The Committee may at any time accelerate the exercisability of any
Awards (if applicable) and may waive restrictions and conditions
on Awards (if applicable) to the extent it shall in its sole
discretion determine.
13.02 SPECIAL RIGHTS. Anything in this Plan and the 1990 Plan to the contrary
notwithstanding, but subject to Section 13.04, during the 90-day period
from and after a Trigger Date (the "Change of Control Exercise Period")
a Participant (other than a Participant who initiated the event that
resulted in the occurrence of such Trigger Date in a capacity other
than as an officer or director of the Company) shall have the following
rights, unless the Committee shall otherwise expressly provide in the
Agreement relating to an Award:
(A) With respect to any Option or 1990 Plan Option (or portion
thereof) granted to such Participant and unaccompanied by a Stock
Appreciation Right, such Participant shall have the right
(by giving written notice to the Company) to elect
Page 17 of 23
<PAGE>
(within the Change of Control Exercise Period) to surrender all
or a portion of such Option or 1990 Plan Option (as the case may
be) to the Company and to receive in cash, for each share of Stock
in respect of which such Option or 1990 Plan Option (as the case
may be) is surrendered, an amount equal to the amount by which the
Event Price exceeds the Option Price (as such term is defined in
the 1990 Plan in the case of a 1990 Plan Option) for such share;
(B) With respect to any Stock Appreciation Right granted to such
Participant, such Participant shall have the right (by giving
written notice to the Company) to elect (within the Change of
Control Exercise Period) to surrender such Stock Appreciation
Right to the Company and to receive in cash an amount equal to
the amount such Participant would have received if such Stock
Appreciation Right had been exercised and the Fair Market Value
of a share of Stock on the date of exercise had been the Event
Price;
(C) With respect to any Restricted Stock granted to such Participant
in respect of which such Participant has paid the required purchase
price (if any), such Participant shall have the right (by giving
written notice to the Company) to elect (within the Change of
Control Exercise Period) to surrender all or a portion of such
Restricted Stock to the Company and receive in lieu thereof a cash
payment equal to the Event Price for each share of Restricted
Stock so surrendered; and,
(D) With respect to any other type of Award granted to such
Participant, such Participant shall have the right to take such
action or make such election as may be permitted upon a Trigger
Date in the Agreement relating to such Award or in the Committee's
procedures.
13.03 SPECIAL MERGER PROVISIONS. Anything in this Plan and the 1990 Plan to
the contrary notwithstanding (other than Section 13.02 of this Plan
which shall control in the event of any conflict with this Section
13.03), upon consummation of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding
shares of Stock are exchanged for securities, cash or other property of
an unrelated corporation or
Page 18 of 23
<PAGE>
business entity or in the event of liquidation of the Company (in each
case, a "Transaction"), all outstanding Options (including under the
1990 Plan), SARs, Restricted Stock, Performance Awards and any other
Award shall become fully vested and exercisable and the Board or the
board of directors of any corporation assuming the obligation of the
Company, may, in its discretion, take any one or more of the following
actions, as to outstanding Awards:
a) provide that such Awards shall be assumed or equivalent options
shall be substituted, by the acquiring or succeeding corporation
(or an affiliate thereof),
b) upon written notice to the holder of an Option or SAR, provide
that all unexercised Options or SARs will terminate immediately
prior to the consummation of the Transaction unless exercised by
the holder within a specified period following the date of such
notice, and/or
c) in the event of a business combination under the terms of which
holders of the Stock of the Company will receive upon
consummation thereof a cash payment for each share surrendered in
the business combination, make or provide for a cash payment to
the holder of an Option or SAR equal to the difference between:
(i) the value (as determined by the Committee) of the
consideration payable per share of Stock pursuant to the
business combination (the "Merger Price") times the number
of shares of Stock subject to such outstanding Options or
SARs (to the extent then exercisable at prices not in excess
of the Merger Price) and
(ii) the aggregate exercise price of all such outstanding Options
or SARs in exchange for the termination of such Options or
SARs.
In the event Options and SARs will terminate upon the
consummation of the Transaction, each holder of such Award shall
be permitted, within a specified period determined by the
Committee, to exercise all outstanding Options or SARs held by
each holder of such Award that are then exercisable; and, subject
to the
Page 19 of 23
<PAGE>
consummation of the Transaction, all Options or SARs that would
become fully vested and exercisable solely as a result of the
Transaction.
(d) in the event of a business combination under the terms of which
holders of the Stock of the Company will receive upon
consummation thereof a cash payment for each share surrendered in
the business combination, make or provide for a cash payment to
the holder of Restricted Stock or other stock-based Award equal
to the Merger Price.
13.04 LIMITATION ON SPECIAL RIGHTS. If a Participant is subject to the
restrictions of Section 16(b) of the Exchange Act and has been granted
(or is deemed to have been granted) an Award under this Plan during the
six months prior to a Trigger Date, then the Change of Control Exercise
Period referred to in Section 13.02 shall, in respect of such Award,
begin on the Trigger Date and end 90 days after the date six months
after the later of the Approval Date or the date such Award was
granted. If a Trigger Date occurs prior to six months after the
Approval Date, then the Change of Control Exercise Period referred to
in Section 13.02 shall, in respect of 1990 Plan Options, begin on the
Trigger Date and end 90 days after the date six months after the
Approval Date. The Committee may at any time prior to the occurrence of
a Trigger Date provide that any or all of the exercises, surrenders,
elections and other actions that may be taken by Participants pursuant
to Section 13.02 shall occur automatically with respect to Participants
(or particular categories of Participants) subject to Section 16(b) of
the Exchange Act.
13.05 TERMINATION OF PARTICIPANT; MODIFICATION OF THE PLAN. The rights of a
Participant under Section 13.02 with respect to Awards or 1990 Plan
Options, may be exercised during the Change of Control Exercise Period
referred to therein (or, if applicable, in Section 13.03)
notwithstanding the termination of the Participant's employment by the
Company, unless provided otherwise in the Agreement relating to such
Award. Anything in this Plan to the contrary notwithstanding, no
termination amendment or modification of this Plan after the occurrence
of a Trigger Date shall in any manner adversely affect any
Participant's rights
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<PAGE>
under this Article XIII in respect of such Trigger Date without the
written consent of the affected Participant.
13.06 EVENT PRICE. In connection with a Trigger Date and an exercise,
surrender, election or other action contemplated by Section 13.02
with respect to an Award or a 1990 Plan Option, Event Price shall mean
a price per share of Stock equal to the higher of:
(A) The highest Fair Market Value of the Stock during the period beginning
90 days prior to such Trigger Date and ending on and including the
last trading day prior to such exercise, surrender, election or other
action; or,
(B) Whichever of the following is applicable (or the highest if more than
one is applicable):
(1) The highest per share price paid or to be paid in any tender or
exchange offer which is in effect at any time during such period
referred to in clause (A);
(2) The fixed or formula price for the acquisition of shares of Stock
in a merger or similar agreement approved by the Company's
stockholders or the Board, if such price is determinable on the
date of such exercise, surrender, election or other action;
and/or,
(3) The highest price per share paid or to be paid to any stockholder
of the Company in a transaction or group of transactions
(including any tender or exchange offer) giving rise to the
occurrence of such Trigger Date;
PROVIDED, HOWEVER, that a Participant may at the time of an election
pursuant to Section 13.02 request that certain of the foregoing
parameters be disregarded (which may include shortening applicable time
periods) in determining the Event Price applicable to one or more of
the Awards held by such Participant, so long as disregarding such
parameters does not increase the Event Price.
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<PAGE>
Any securities or property which are part or all of the
consideration paid or to be paid for shares of Stock in connection with
any event contemplated by clauses (B) (1), (2), and (3) above shall be
valued in determining the Event Price at the higher of (x) the
valuation placed on such securities or property by the person or entity
which paid or is to pay such price or (y) the valuation placed on such
securities or property by the Committee.
13.07 TRIGGER DATE. Trigger date shall have the meaning assigned to such
term in the Polaroid Extended Severance Plan as originally adopted
by the Company effective June 28, 1987 and amended from time to time
and as it may be further amended from time to time.
13.08 1990 PLAN OPTIONS. 1990 Plan Options shall mean "Options", as such
item is defined in the 1990 Plan.
ARTICLE XIV
PERMANENCY OF THE PLAN AND PLAN TERMINATION
14.01 EFFECTIVE DATE. This Plan originally effective as of May 11, 1993,
has been amended from time to time, with the most recent amendment
effective as of January 1, 1999.
14.02 TERMINATION, AMENDMENT, AND MODIFICATION OF THE PLAN. The Board of
Directors may at any time terminate or suspend, and may at any time
and from time to time and in any respect amend or modify, the Plan;
provided, however, that no such action of the Board of Directors
without approval of the shareholders of the Company may increase the
total number of shares of Stock subject to the Plan except as
contemplated in Section 3.03 hereof.
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<PAGE>
IN WITNESS WHEREOF, this Plan is hereby adopted effective January 1, 1999.
ATTEST: POLAROID CORPORATION
/s/ CHERYL A GOMES /s/ HARVEY M. GREENBERG
- -------------------------- ----------------------------------
Harvey M. Greenberg
Vice President, Human Resources
Page 23 of 23
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<PAGE>
Exhibit 10.11
THE POLAROID BOARD OF DIRECTORS
RETIREMENT PLAN
POLAROID CORPORATION
CAMBRIDGE, MASSACHUSETTS
AMENDED AND RESTATED
EFFECTIVE JANUARY 1, 1999
<PAGE>
THE POLAROID BOARD OF DIRECTORS RETIREMENT PLAN
The purpose of this Plan is to provide the non-employee members of the
Company's Board of Directors a retirement plan commensurate with their services
to the Company.
ARTICLE I
DEFINITIONS
1.01 ANNUAL RETAINER. Annual Retainer shall mean one-hundred percent (100%)
of the annual fee payable to a Participant as a non-employee member of
the Board of Directors on the date he resigns as a member of the Board
of Directors exclusive of amounts paid for attendance at Board of
Directors or Committee meetings and for acting as a Committee chairman.
Not withstanding the foregoing for any member of the Board of Directors
who is age sixty-eight (68) or less on January 1, 1997, and who resigns
after June 1, 1999, this Annual Retainer shall be capped at $30,000.
1.02 BOARD OF DIRECTORS. Board of Directors shall mean the Board of
Directors of the Company.
1.03 COMMITTEE. Committee shall mean the committee designated by the Chief
Executive Officer of the Company and shall consist of not less than a
chairman and at least two (2) other members.
1.04 COMPANY. Company shall mean Polaroid Corporation, a Delaware
corporation, and any successor thereof.
1.05 PARTICIPANT. A Participant shall mean each non-employee member of the
Board of Directors in service on or after January 1, 1990.
1.06 PLAN. Plan shall mean the Polaroid Board of Directors Retirement Plan
as amended from time to time.
1.07 SPOUSE. Spouse shall mean with respect to a deceased Participant, the
widow or widower of such deceased Participant who was legally married
to such Participant on the date of his death and who, if such death was
due to illness rather than accident or other reason, was
-2-
<PAGE>
legally married to such Participant for not less than six (6) months
immediately preceding such death.
1.08 RETIREMENT. Retirement shall mean a Participant's retirement or
termination from service as a member of the Board of Directors for any
reason.
1.09 SERVICE YEAR. Service Year shall mean each full twelve (12) month
period completed on the anniversary date of when a Participant first
joined the Board of Directors.
ARTICLE II
BENEFITS UNDER THE PLAN
2.01 PARTICIPANT'S BENEFIT. Each Participant who is vested, as set forth in
Section 2.04, shall begin receiving a lump sum payment in cash equal to
his Annual Retainer payable quarterly beginning on the first day of the
quarter following his retirement. Such annual payment shall continue
for the maximum period as set forth in Section 2.02 or for as long as
the Participant and his Spouse lives, whichever is shorter.
2.02 MAXIMUM PERIOD OF ANNUAL PAYMENTS. The maximum period of annual
payments under this Plan shall be equal to the LESSER of:
(a) the number of Service Years the Participant is a non-employee
member of the Board of Directors; or
(b) the first twenty-five (25) Service Years the Participant
serves as a non-employee member of the Board of Directors.
2.03 EXCEPTIONS OF BENEFIT ACCRUAL. Notwithstanding the foregoing, create
for service years for any Participant who is less than age sixty-eight
(68) effective January 1, 1997 shall cease.
2.04 VESTING. Each Participant who has completed five (5) Service Years on
the Board of Directors through his date of Retirement shall have a
non-forfeitable right to the benefits provided under this Plan. A
Participant who has not completed such service requirement
-3-
<PAGE>
on the day of his Retirement shall not be entitled to any of the
benefits provided under this Plan.
2.05 SPOUSE'S SURVIVOR BENEFIT. If a Participant dies and has not received
all of the maximum period of annual payments as provided under Section
2.02 of this Plan, his Spouse, if any, shall continue to receive such
payments until the earlier of:
(a) the maximum period of annual payments set forth in Section
2.02 hereof; or
(b) the death of such Spouse.
ARTICLE III
FINANCING
3.01 FINANCING. The benefits under this Plan shall be paid out of the
general assets of the Company.
3.02 UNSECURED INTEREST. No Participant or Spouse hereunder shall have any
interest whatsoever in any specific asset of the Company. To the extent
that any person acquires a right to receive payments under this Plan,
such right shall be no greater than the right of any unsecured general
creditor of the Company.
ARTICLE IV
PLAN ADMINISTRATION
4.01 PLAN ADMINISTRATION. This Plan shall be administered by the Committee.
The Committee shall have the full authority and absolute discretion:
(a) To construe and interpret the Plan; and
(b) To make all determinations and take all other actions
necessary or advisable for the proper administration of the
Plan.
All such actions and determinations shall be conclusively binding upon
all persons for all purposes.
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ARTICLE V
MISCELLANEOUS PROVISIONS
5.01 APPLICABLE LAW. This instrument shall be construed in accordance with
and governed by the laws of the State of Delaware.
5.02 TAXES. The Company shall have the right to deduct from any
distributions made under this Plan, any federal, state or local taxes
or any other amounts required by law to be withheld with respect to
such distribution.
5.03 EXPENSES. The cost of benefit payments from this Plan and the expenses
of administering the Plan shall be borne by the Company.
5.04 GENDER AND NUMBER. Unless the context clearly requires otherwise, the
masculine pronoun whenever used shall include the feminine and neuter
pronoun, the singular shall include the plural, and vice versa.
5.05 INDEMNIFICATION. No member of the Committee shall be liable for any
action or determination taken or made in good faith with respect to
this Plan, or any distributions under it. Each member of the Committee
shall be indemnified by the Company against any losses incurred in such
administration of the Plan, unless his action constitutes serious and
willful misconduct.
5.06 HEADINGS NOT PART OF PLAN. Headings of Articles and Sections are
inserted for convenience and reference; they constitute no part of this
Plan.
5.07 NON-ASSIGNABILITY. The interest of any Participant or Spouse under this
Plan shall not be subject at any time or in any manner to alienation,
sale, transfer, assignment, pledge, attachment, garnishment or
encumbrance of any kind and any attempt to deliver, sell, transfer,
assign, pledge, attach, garnish or otherwise encumber such interest
shall be void and any interest so encumbered will terminate.
5.08 NON-TRANSFERABILITY. In no event shall the Company make any payment
under this Plan to any assignee or creditor of a Participant or of a
Spouse, except as otherwise required by
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law. Prior to the time of a payment hereunder, a Participant or a
Spouse shall have no rights by way of anticipation or otherwise to
assign or otherwise dispose of any interest under this Plan, nor shall
rights be assigned or transferred by operation of law.
5.09 OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect fee
or compensation schedules which presently exist, or which may at a
later date be approved by the shareholders of the Company for members
of the Board of Directors.
5.10 PLAN BINDING ON SUCCESSORS. This Plan shall be binding upon the
successors and assigns of the Company.
5.11 UNENFORCEABILITY OF A PARTICULAR PROVISION. The unenforceability of any
particular provision of this document shall not affect the other
provisions, and the document shall be construed in all respects as if
such unenforceable provision were omitted.
ARTICLE VI
PERMANENCY OF THE PLAN AND PLAN TERMINATION
6.01 EFFECTIVE DATE. This Plan, originally effective January 1, 1990, has
been amended from time to time, with the most current amendment
effective January 1, 1999, unless specifically noted to the contrary.
6.02 RIGHT TO AMEND, MODIFY OR TERMINATE. The Company reserves the right to
amend, modify or terminate the Plan or payments thereunder at any time
by action of the Committee and does not intend to submit any amendments
or modifications to the Plan to stockholders of the Company for their
approval. However, without the consent of any Participant or his
Spouse, if applicable, no such amendment or termination shall reduce or
diminish such person's right to receive any benefit accrued hereunder
prior to the date of
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such amendment or termination. Notwithstanding the foregoing, the Chief
Executive Officer of the Company may adopt any amendments to the Plan
that do not materially and adversely affect the benefits to a
Participant accrued under the Plan and may adopt any amendments to the
Plan that do not materially affect the cost to the Company (excluding
any amendment that relates exclusively to himself).
IN WITNESS WHEREOF, Polaroid has caused this instrument to be executed
this 20th day of December, 1999, effective January 1, 1999.
Attest: POLAROID CORPORATION
/s/ ANGELA M. FERRARI By: /s/ GARY T. DICAMILLO
- --------------------- ------------------------
Chief Executive Officer
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
AGREEMENT, by and between Polaroid Corporation, a Delaware
corporation, together with its successors and assigns permitted under this
Agreement (the "Company"), and Gary T. DiCamillo (the "Executive") originally
entered into October 20, 1995, is hereby amended and restated this 25th day
of January 2000 and will be effective January 1, 2000.
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive and to enter into
an agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement; and
WHEREAS, the Executive is a skilled and dedicated employee who has
important management responsibilities and talents which benefit the Company, the
Company believes that its best interests will be served if the Executive is
encouraged to remain with the Company. The Company has determined that the
Executive's ability to perform the Executive's responsibilities and utilize the
Executive's talents for the benefit of the Company, and the Company's ability to
retain the Executive as an employee, will be significantly enhanced if the
Executive is provided with fair and reasonable protection from the risks of a
change in ownership or control of the Company.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. DEFINITIONS.
(a) "ACQUIRING PERSON" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, is the
Beneficial Owner of twenty percent (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 any of its
Subsidiaries or any Person holding Stock for or pursuant to the
terms of any such employee benefit plan.
(b) "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.
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(c) "ANNUAL BONUS" shall mean a bonus amount payable under the
Company's executive annual bonus plan (currently the Polaroid
Incentive Plan for Executives). Unless otherwise specifically
provided, this annual bonus shall be calculated assuming the
Company target has been achieved and that there are no factors
that reduce the ultimate distribution.
(d) "BASE SALARY" shall mean the annual rate of base salary
(disregarding any reduction in such rate that constitutes
Constructive Termination) as provided for in Section 4 below, as
increased by the Board from time to time.
(e) "BENEFICIAL OWNER" shall be a Person deemed to "beneficially own"
any securities:
(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 (i) arises
solely from a revocable proxy given to such Person in
response to a public proxy
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or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations
under the Exchange Act and (ii) is not also then
reportable on Schedule 13D under the Exchange Act (or
any comparable or successor report); 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 in Section
l(e)(ii)(B) of this Agreement) or disposing of any
securities of the Company.
(f) "BOARD" shall mean the Board of Directors of the Company.
(g) "CAUSE" means either of the following:
(i) Executive's willful malfeasance having a material adverse
effect on the Company; 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 the Company, or if Executive shall be entitled, under
applicable law or under an applicable Certificate of
Incorporation or By-Laws of the Company, as they may be amended
or restated from time to time, to be indemnified with respect to
such action or refusal.
(h) "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;
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(ii) the date on which there is a change in the composition of
the Board such that the individuals who, as of the effective
date of this Agreement, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; PROVIDED, HOWEVER, that for purposes of this
definition, any individual who becomes a member of the Board
subsequent to the effective date of this Agreement, whose
election, or nomination for election, by the Company's
stockholders was approved by a vote of at least seventy-five
percent (75%) of those individuals who are members of the
Board and who were also members of the Incumbent Board (or
deemed to be such pursuant to this proviso) shall be
considered as though such individual were a member of the
Incumbent Board; and PROVIDED FURTHER, HOWEVER, that any
such individual whose initial assumption of office occurs as
a result of or in connection with either an actual or
threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies or
consents by or on behalf of an entity other than the Board
shall not be so considered as a member of the Incumbent
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
(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;
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(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
thirty percent (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) fifty
percent (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 fifty percent
(50%) or more of the combined voting power of the
Company's then outstanding securities; or
(vi) the 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).
(i) "CODE" means the Internal Revenue Code of 1986, as amended.
(j) "CONFIDENTIAL INFORMATION" means nonpublic information relating
to the business plans, marketing plans, customers or employees of
the Company other than information the disclosure of which cannot
reasonably be expected to adversely affect the business of the
Company.
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(k) "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:
(i) unless effected with the Executive's consent, a reduction in
the Executive's Base Salary or the discontinuation of or any
reduction in the Executive's participation or membership in
any bonus, incentive or other benefit plan in which the
Executive was a participant or member, without an
economically equivalent replacement;
(ii) the reassignment of the Executive without his consent to a
location more than thirty (30) miles from his regular
workplace;
(iii) the reduction in the Executive's job title or level;
(iv) the provision of significantly less favorable working
conditions; or
(v) a significant diminution of duties or responsibilities or
the reassignment of the Executive to duties which represent
a position of lesser responsibility.
(l) "DISABILITY" shall mean the Executive's disability within the
meaning of the Polaroid Long Term Disability Plan.
(m) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
in effect on the date in question.
(n) "PERSON" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or
other entity.
(o) "SEVERANCE PERIOD" shall mean the period of thirty-six (36)
months following such termination.
(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 any other shares of capital stock of the Company into
which the Common Stock shall be reclassified or changed.
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(r) "SUBSIDIARY" of the Company shall mean any corporation of which
the Company owns, directly or indirectly, more than fifty percent
(50%) of the Voting Stock.
(s) "SUPPLEMENTAL PLANS" shall mean any and all Company non-qualified
benefit plans including, but not limited to, any supplemental
retirement plan.
(t) "TERM OF EMPLOYMENT" shall mean the period specified in Section 2
below.
(u) "TRADING DAY" is any day on which the Stock is traded on the New
York Stock Exchange.
(v) "TERMINATION DATE" shall mean the date of the Executive's
termination of employment from the Company.
(w) "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. TERM OF EMPLOYMENT. The Company hereby employs the Executive, and the
Executive hereby agrees to continue his employment for three (3) years
ending January 1, 2003, subject to earlier termination as provided below.
3. POSITION, DUTIES AND RESPONSIBILITIES.
(a) TERM. During the Term of Employment, the Executive shall be employed
as the Chief Executive Officer of the Company and be responsible for
the general management of the affairs of the Company. It is the
intention of the Parties that the Executive shall be elected to and
serve as a member of the Board and shall be Chairman of the Board. The
Executive, in carrying out his duties under this Agreement, shall
report to the Board.
(b) OTHER POSITIONS. Anything herein to the contrary notwithstanding,
nothing shall preclude the Executive from:
(i) serving, subject to approval of the Board, on the boards of
directors of a reasonable number of other corporations or the
boards of a reasonable number of trade associations and/or
charitable organizations;
(ii) engaging in charitable activities and community affairs; and,
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(iii) managing his personal investments and affairs, provided that
such activities do not interfere with the proper performance of
his duties and responsibilities as the Company's Chairman and
Chief Executive Officer.
4. BASE SALARY. The Executive shall be paid an annualized Base Salary of at
least $785,000, payable in accordance with the regular payroll practices of
the Company. The Base Salary shall be reviewed periodically by the Board.
5. ANNUAL BONUS. The Executive shall participate in the Company's annual bonus
plan using the targets and performance factors set forth in the Company's
annual bonus plan, with an annual target award opportunity of at least
eighty percent (80%) of Base Salary.
6. EMPLOYEE BENEFIT PROGRAMS. During the Term of Employment, the Executive
shall be entitled to participate in all employee pension and welfare
benefit plans and programs made available to the Company's senior level
executives, as such plans or programs may be in effect from time to time,
including, without limitation, long term incentive plan(s), pension,
savings and other retirement plans or programs, medical, dental,
hospitalization, short-term and long-term disability and life insurance.
Notwithstanding anything in this Agreement to the contrary, the terms of
this Agreement shall replace the Executive's participation in The Polaroid
Extended Severance Plan.
7. SUPPLEMENTAL PENSION. The Executive shall receive a retirement benefit that
is equal to the greater of (a) or (b) below:
(a) the final average pay plan benefit as determined pursuant to Article V
"Transitional Pension Benefit" of the Polaroid Pension Plan as
enhanced pursuant to the terms of this Agreement (specifically
Paragraph 7(c) below, and Paragraphs 11 and 12 as applicable); or
(b) the pension benefit calculated as a cash balance benefit pursuant to
Article IV "Pension Benefit" of the Polaroid Pension Plan as enhanced
pursuant to the terms of this Agreement (specifically Paragraph 7(c)
below, and Paragraphs 11 and 12 as applicable)
(c) After any additional credit which may become applicable under
provisions set forth in Sections 11 and 12, the Company shall provide
the Executive an additional monthly retirement benefit pursuant to the
terms of this Agreement which shall be equal to the excess of:
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(i) the monthly pension benefit that would be payable to the
Executive under the terms of the Polaroid Pension Plan enhanced
by the benefits under the Polaroid Retirement Parity Plan and the
Polaroid Executive Equalization Retirement Plan and any successor
plans thereto as in effect on the date hereof (collectively the
"Retirement Plan"), assuming that the Executive is credited with
one (1) additional year of service for each of his first ten (10)
years of actual service with the Company over
(ii) the monthly benefit under the Retirement Plan which is actually
payable to the Executive without regard to this Section 7
(in its entirety "Supplemental Pension"). In determining the amount of
any offset as provided in the preceding sentence, such amount shall be
calculated assuming the same frequency of payment, the same form of
annuity and the same commencement date of payment as the benefits to
be paid under this Section 7. This benefit shall be provided pursuant
to the Supplemental Retirement Benefit Plan.
8. REIMBURSEMENT OF BUSINESS AND OTHER EXPENSES. The Executive is authorized
to incur reasonable expenses in carrying out his duties and
responsibilities under this Agreement and the Company shall promptly
reimburse him for all business expenses incurred in connection with
carrying out the business of the Company, subject to documentation in
accordance with the Company's policy.
9. TERMINATION DUE TO DISABILITY OR DEATH. In the event the Executive's
employment is terminated due to his Disability or death, he, or his estate
or his beneficiaries, as the case may be, shall be entitled to:
(a) SALARY. Base Salary through the date of termination;
(b) ANNUAL BONUS. Pro-rata portion of the Annual Bonus for the year in
which the Executive's Disability or death occurs (Annual Bonus is to
be paid as soon as practicable or consistent with the Executive's
election under the Elective Deferred Compensation Plan); and,
(c) OTHER BENEFITS. Other benefits or entitlements in accordance with
applicable plans and programs of the Company.
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10. TERMINATION BY THE COMPANY FOR CAUSE. In the event the Company terminates
the Executive's employment for Cause, he shall be entitled to:
(a) SALARY. Base Salary through the date of the termination of his
employment for Cause;
(b) ANNUAL BONUS. Other benefits or entitlements, if any, in accordance
with applicable plans or programs of the Company; however,
notwithstanding the foregoing, the Executive shall not be entitled to
any bonus (annual or long term) for the year in which his termination
occurs.
11. A CONSTRUCTIVE TERMINATION OR A TERMINATION WITHOUT CAUSE. If prior to
Change in Control, the Executive's employment is terminated without Cause,
other than due to Disability or death, or in the event there is a
Constructive Termination, the Executive, upon the execution of a full and
complete release, shall be entitled to:
(a) SALARY. Base Salary through the date of termination of the Executive's
employment;
(b) SEVERANCE PAYMENT. Base Salary, at the annualized rate in effect on
the date of termination of the Executive's employment for the
Severance Period;
(c) TRANSITIONAL ASSISTANCE PAYMENTS. The Executive shall receive a
transitional assistance payment up to a maximum of two hundred fifty
thousand dollars ($250,000) based on the performance of the Executive.
This determination shall be made by the Human Resources Committee of
the Board of Directors, in its sole and complete discretion. The
transitional assistance payment, once determined, is payable in a lump
sum as soon as practicable after the Executive's termination;
(d) ANNUAL BONUS. Annual Bonus payments for the period from the beginning
of the year in which the termination occurs through the end of the
Severance Period based on the actual performance of the Company (i.e.,
Company target) without regard to any other factors that could reduce
the ultimate distribution; any such payment for a period of less than
a full year shall be pro-rated by the number of days for which payment
is made;
(e) RESTRICTED STOCK AND OPTIONS. Full vesting of all restricted stock,
and stock options and phantom stock options (collectively "Options")
with the lesser of three (3) years from his Termination Date or ten
(10)
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years from the date the Options were granted in which to exercise his
Options pursuant to the terms of the Executive's Option or
Supplemental Option Agreements;
(f) INSURANCE. Medical, dental and executive life insurance benefits
(collectively "Insurance Benefits") at the same rate as active
employees similarly situated for a period equal to the lesser of
thirty-six (36) months following the Executive's Termination Date or
until the Executive is eligible to receive comparable Insurance
Benefits through another employer (this benefit shall run coterminous
with COBRA rights);
(g) DISABILITY COVERAGE. Short- and long-term disability coverage that is
reasonably comparable to the coverage provided to the Executive on his
Termination Date and which can be purchased on the open market shall
be for a period equal to the lesser of thirty-six (36) months
following the Executive's Termination Date or until the Executive is
eligible to receive comparable benefits through another employer;
(h) OUTPLACEMENT COUNSELING. Outplacement services will be provided
consistent with the Company's outplacement practices in effect prior
to the Change in Control;
(i) SUPPLEMENTAL RETIREMENT AND PROFIT SHARING BENEFITS.
(i) On the Termination Date, the Executive shall become vested in the
benefits provided under the Company's Supplemental Plans.
(ii) Within ten (10) business days after the Termination Date, the
Company shall pay the Executive a lump sum cash amount equal to
the present value of the Executive's accrued benefit under the
Supplemental Plans. For purposes of computing the Executive's
accrued benefit under the Supplemental Plans, in addition to the
supplemental benefit provided pursuant to Section 7 above:
(A) and before applying Section 7 of this Agreement, the
Company shall credit the Executive with three (3) years
of plan participation and service and three (3) years of
age for all purposes (including additional accruals and
eligibility for early retirement) over the Executive's
actual years and fractional years of plan participation
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and service and age credited to the Executive on the
Termination Date; and,
(B) the Company shall apply the present value (and any other
actuarial adjustment required by this Agreement) using the
applicable actuarial assumptions set forth in the Polaroid
Pension Plan.
This benefit shall be provided pursuant to the Supplemental Retirement
Benefit Plan.
(j) OTHER BENEFITS. Other benefits or entitlements in accordance with
applicable plans and programs of the Company; and,
(i) SURVIVOR BENEFITS. Should the Executive become eligible to receive
payments and benefits under this Section and die prior to receipt of
all such payments and benefits, the residual payments shall be made to
the Executive's beneficiary(ies). 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.
12. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. Notwithstanding
anything in this Agreement to the contrary, if the Executive's employment
terminates (voluntarily or involuntarily) within eighteen (18) months
following a Change in Control for any reason other than Cause he shall be
entitled to the following benefits:
(a) SEVERANCE BENEFITS. Within ten (10) business days after the
Termination Date, the Company shall pay the Executive a lump sum
amount, in cash, equal to:
(i) three (3) times the sum of:
(A) the Executive's Base Salary; and
(B) the Executive's Annual Bonus; and
(ii) the Executive's Annual Bonus multiplied by a fraction, the
numerator of which shall equal the number of days the Executive
was employed by the Company in the calendar year in which the
Termination Date occurs and the denominator of which shall equal
three hundred sixty five (365).
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(b) INSURANCE. Until the third (3rd) anniversary of the Termination Date,
the Executive shall be entitled to participate in the Company's
medical, dental, and executive life insurance benefits, at the highest
level provided to the 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 the Executive
was paying immediately prior to Change in Control; provided, however,
that if the Executive becomes employed by a new employer, the
Executive's coverage under the applicable Company plans shall
continue, but the Executive's coverage thereunder shall be secondary
to (i.e., reduced by) any benefits provided under like plans of such
new employer.
(k) DISABILITY COVERAGE. Short- and long-term disability coverage that is
reasonably comparable to the coverage provided to the Executive on his
Termination Date and which can be purchased on the open market shall
be for a period equal to the lesser of thirty-six (36) months
following the Executive's Termination Date or until the Executive is
eligible to receive comparable benefits through another employer;
(c) PAYMENT OF ACCRUED BUT UNPAID AMOUNTS. Within ten (10) business days
after the Termination Date, the Company shall pay the Executive:
(i) Earned, but unpaid compensation, including, without limitation,
any unpaid portion of the bonus accrued with respect to the full
calendar year ended prior to the Termination Date; and,
(ii) all compensation previously deferred by the Executive on a
non-qualified basis but not yet paid.
(d) RETIREE-MEDICAL BENEFITS. If within three (3) years after Change in
Control, the Executive would be at least fifty-five (55) with the
Executive's age and service equal to sixty-five (65) and the Executive
would have at least five (5) years of service with the Company, the
Executive shall be eligible for retiree medical benefits (as such are
determined immediately prior to Change in Control). The Executive
shall 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.
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(i) On the Termination Date, the Executive shall become vested in the
benefits provided under the Company's Supplemental Plans.
(ii) Within ten (10) business days after the Termination Date, the
Company shall pay the Executive a lump sum cash amount equal to
the present value of the Executive's accrued benefit under the
Supplemental Plans. For purposes of computing the Executive's
accrued benefit under the Supplemental Plans in addition to the
supplemental benefit provided pursuant to Section 7 above:
(A) and before applying Section 7 of this Agreement, the Company
shall credit the Executive with three (3) years of plan
participation and service and three (3) years of age for all
purposes (including additional accruals and eligibility for
early retirement) over the Executive's actual years and
fractional years of plan participation and service and age
credited to the Executive on the Termination Date; and,
(B) the Company shall apply the present value (and any other
actuarial adjustment required by this Agreement) using the
applicable actuarial assumptions set forth in the Polaroid
Pension Plan.
In determining the Executive's benefits under this subsection
12(e), the terms of the Supplemental Plans as in effect
immediately prior to the Change in Control, except as expressly
modified in this subsection 12(e), shall govern. This benefit
shall be provided pursuant to the Supplemental Retirement Benefit
Plan.
(f) OUTPLACEMENT COUNSELING. Outplacement services will be provided
consistent with the Company's outplacement practices in effect prior
to the Change in Control.
(g) RESTRICTED STOCK AND OPTIONS. Full vesting of all restricted stock and
stock options and phantom stock options (collectively "Options") with
the lesser of three (3) years from his Termination Date or ten (10)
years from the date the Options were granted in which to exercise his
Options pursuant to the terms of the Executive's Option or
Supplemental Option Agreement;
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(the terms of this acceleration are set forth in draft in a
Supplemental Agreement attached as Exhibit A);
(h) PERFORMANCE SHARES. Full payout of Performance Shares issued under the
1993 Stock Incentive Plan, or any successor plan, assuming the
Company's objectives were achieved at target (the terms of this
acceleration are set forth in draft in a Supplemental Agreement
attached as Exhibit B); and,
(i) COSTS OF PROCEEDINGS. The Company shall pay all of the Executive's
costs and expenses, including attorneys' fees and disbursements, at
least monthly, in connection with any legal proceeding (including
arbitration), whether or not instituted by the Company or the
Executive, relating to the interpretation or enforcement of any
provision of this Agreement, except that if the Executive instituted
the proceeding and the judge, arbitrator or other individual presiding
over the proceeding affirmatively finds that the Executive instituted
the proceeding in bad faith, the Executive shall pay his own costs and
expenses, including attorneys' fees and disbursements. The Company
shall pay pre-judgment interest on any money judgment obtained by the
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
the Executive under this Section.
13. INDEMNIFICATION; DIRECTOR'S AND OFFICER'S LIABILITY INSURANCE. The
Executive shall, after the Termination Date, retain all rights to
indemnification under applicable law or under the Company's Certificate of
Incorporation or By-Laws, as they may be amended or restated from time to
time. In addition, the Company shall maintain Director's and Officer's
liability insurance on behalf of the Executive, at the better of the level
in effect immediately prior to the Change in Control or the Executive's
Termination Date, for the three (3) year period following the Termination
Date, and throughout the period of any applicable statute of limitations.
14. EFFECT ON EXISTING PLANS. All Change in Control provisions applicable to
the 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 the Executive without the
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 these terms.
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Notwithstanding the foregoing, no benefits shall be paid to the Executive,
however, under the Polaroid Extended Severance Plan or any other severance
plan maintained generally for the employees of the Company if the Executive
is eligible to receive severance benefits under this Agreement.
15. 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.
16. GROSS-UP.
(a) In the event it shall be determined that any payment, benefit or
distribution (or combination thereof) by the Company, or one or more
trusts established by the Company for the benefit of its employees, to
or for the benefit of the Executive (whether paid or payable or
distributed or 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 incurred by
the 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"), the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the 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, the 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 16(c), all determinations
required to be made under this Section 16, 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 the Executive (the
"Accounting Firm") which shall provide detailed supporting
calculations both to the
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Company and the Executive within fifteen (15) business days of the
receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. 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),
the 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 the
Company. Any Gross-Up Payment, as determined pursuant to this Section
16, shall be paid by the Company to the 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 the Executive, it shall so indicate to the Executive in
writing. Any determination by the Accounting Firm shall be binding
upon the Company and the 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 the Company should
have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts
its remedies pursuant to Section 16(c) and the 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 the Company to or for
the Executive's benefit.
(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 of the Company'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
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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 the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company 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
the Company;
(iii) cooperate with the Company in good faith in order to effectively
contest such claim; and,
(iv) permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company 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 the 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 Section 16(c), the Company 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 the Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the 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 the Company shall reasonably determine;
provided, however, that if the Company directs the Executive
to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an
interest-free basis, and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax
or income tax (including interest or penalties
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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 the Executive is
required to extend the statute of limitations to enable the
Company to contest such claim, the Executive may limit this
extension solely to such contested amount. The Company's
control of the contest shall be limited to issues with respect
to which a Gross-Up Payment would be payable hereunder and the
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 Executive receives an amount advanced by the Company
pursuant to Section 16(c), the Executive receives any refund with
respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 16(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the
Executive receives an amount advanced by the Company pursuant to
Section 16(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does
not notify the 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.
17. TERMINATION FOR CAUSE. Nothing in this Agreement shall be construed to
prevent the Company from terminating the Executive's employment for Cause.
If the Executive is terminated for Cause, only Section 10 shall apply.
18. DISPUTES. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Boston,
Massachusetts 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.
19. NONCOMPETITION AND CONFIDENTIALITY.
(a) NONCOMPETITION. During the period in which the Executive is employed
by the Company or any of its Subsidiaries and during any Severance
Period, as provided pursuant to Section 11 "A Constructive
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Termination or a Termination without Cause", above, but in no event
for a period of less than twelve (12) months following a
termination of his employment, the Executive shall not engage in
any activity directly or indirectly with Eastman Kodak Company, or
Fuji, whether as a principal, partner, employee, consultant,
shareholder (other than as a holder of not in excess of one percent
(1%) of the outstanding voting shares of any publicly traded
company) or otherwise.
(b) 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 at the time he was 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 19(b)).
(c) COMPANY PROPERTY. Promptly following the Executive's termination of
employment, the Executive shall return to the Company all property of
the Company, and all copies thereof in Executive's possession or under
his control.
(d) NONSOLICITATION OF EMPLOYEES. During the period in which the Executive
is employed by the Company or any of its Subsidiaries, and for a
period of twenty-four (24) months following the Executive's
Termination Date resulting from a termination as provided in Section
11 "A Constructive Termination or a Termination without Cause", the
Executive shall not, directly or indirectly, induce any employee of
the Company or any of its Subsidiaries to terminate employment with
such
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entity, and shall not, directly or indirectly, either individually
or as owner, agent, employee, consultant or otherwise, employ or
offer employment to any Person who is employed by the Company or a
Subsidiary thereof.
(e) INJUNCTIVE RELIEF WITH RESPECT TO COVENANTS. Executive acknowledges
and agrees that the covenants and obligations of the Executive with
respect to noncompetition, nonsolicitation, confidentiality and
Company property relate to special, unique and extraordinary matters,
including his own skills, and that a violation of any of the terms of
such covenants and obligations will cause the Company irreparable
injury for which adequate remedies are not available at law.
Therefore, the Executive agrees that the Company shall be entitled to
an injunction, restraining order or such other equitable relief
(without the requirement to post bond) restraining Executive from
committing any violation of the covenants and obligations contained in
this Section 19. These injunctive remedies are cumulative and are in
addition to any other rights and remedies the Company may have at law
or in equity.
(f) PROVISIONS SURVIVING BEYOND TERMINATION DATE. The obligations of the
Executive set forth in Subsections (a) ("Noncompetition") and (d)
("Nonsolicitation of Employees") above shall not extend beyond his
Termination Date where such date follows a Change in Control.
20. EFFECT OF AGREEMENT ON OTHER BENEFITS. Except as specifically provided in
this Agreement, the existence of this Agreement shall not prohibit or
restrict the Executive's entitlement to full participation in the employee
benefit and other plans or programs in which senior executives of the
Company are eligible to participate.
21. ASSIGNMENT. Except as otherwise provided herein, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the Company
and the Executive and their respective heirs, legal representatives,
successors and assigns. If the Company 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. The Company 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 the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform
this Agreement in the same
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manner and to the same extent that the Company would be required
to perform it if no such succession had taken place. The provisions of this
Agreement shall continue to apply to each subsequent employer hereunder in
the event of any subsequent merger, consolidation or transfer of assets of
such subsequent employer.
22. REPRESENTATION. The Company represents and warrants that it is fully
authorized and empowered to enter into this Agreement and each of the
parties represents and warrants that the performance of the obligations of
such party under this Agreement will not violate any agreement between that
party and any other Person, firm or organization.
23. ENTIRE AGREEMENT. This Agreement, with the plans and grant agreements
referenced herein, contains the entire understanding and agreement between
the Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties with respect thereto.
24. AMENDMENT OR WAIVER. No provision in this Agreement may be amended unless
such amendment is agreed to in writing and signed by the Executive and an
authorized officer of the Company. No waiver by either Party of any breach
by the other Party of any condition or provision contained in this
Agreement to be performed by such other Party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any prior or
subsequent time. Any waiver must be in writing and signed by the Executive
or an authorized officer of the Company, as the case may be.
25. SEVERABILITY. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole
or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
26. SURVIVORSHIP. The respective rights and obligations of the Parties
hereunder shall survive any termination of the Executive's employment to
the extent necessary to the intended preservation of such rights and
obligations.
27. BENEFICIARIES/REFERENCES. The Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary
or beneficiaries to receive any compensation or benefit payable
hereunder following the Executive's death by giving the Company written
notice thereof. In the event of the Executive's death or a
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judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his
beneficiary, estate or other legal representative. Absent any written
notice the beneficiary shall be the Executive's estate.
28. GOVERNING LAW. This Agreement shall be governed by, construed, and
interpreted in accordance with the laws of Massachusetts without reference
to principles of conflict of laws.
29. NOTICES. Any notice given to a Party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed
to the Party concerned at the address indicated below or to such changed
address as such Party may subsequently give such notice of:
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If to the Company:
Polaroid Corporation
784 Memorial Drive
Cambridge, MA 02139
Attention: Vice President, Human Resources
If to the Executive:
Gary T. DiCamillo
113 Cliff Road
Wellesley, MA 02481
30. HEADINGS. The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning
or construction of any provision of this Agreement.
31. COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts.
32. WITHHOLDING. The Company may, to the extent required by law, withhold
applicable federal, state and local income and other taxes from any
payments due to the Executive hereunder.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
POLAROID CORPORATION
By: /s/ HARVEY M. GREENBERG
-----------------------
Name: Harvey M. Greenberg
Title: Vice President of
Human Resources
/s/ GARY T. DICAMILLO
- ---------------------
Gary T. DiCamillo
<PAGE>
Exhibit 10.18
SEPARATION AGREEMENT AND MUTUAL RELEASE
BETWEEN
WILLIAM J. O'NEILL, JR.
AND
POLAROID CORPORATION
This Separation Agreement and Mutual General Release (the "Agreement")
is made by and between WILLIAM J. O'NEILL, JR. (the "Officer") and POLAROID
CORPORATION (the "Company") entered into this 29th day of October 1999, and
provided to the Officer on September 14, 1999.
RECITALS
A. The Officer is employed by the Company as an Executive Vice President.
B. The Officer and the Company have mutually agreed to terminate the
employment relationship.
C. The Officer and the Company desire to specify the terms of the
Officer's separation from the Company and to resolve fully and finally
any and all claims, disputes, or disagreements that the Officer and the
Company may have against each other.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. RESIGNATION. Upon mutual agreement, the Officer's employment with
the Company will terminate effective December 31, 1999 (the
"Separation Date").
2. ANNUAL BONUS PAYMENT. The Officer will receive a 1999 bonus from the
Polaroid Incentive Plan for Executives if a bonus is paid to active
employees. This payment would be made at the time the bonus, if any, is
paid for active employees.
3. SEVERANCE PAYMENT. The Company shall pay the Officer a severance amount
equal to twenty-four (24) months pay at the Officer's base rate in
effect on his Separation Date. Such severance shall be paid in a
stream of bi-weekly payments in accordance with the Company's regular
bi-weekly payroll schedule beginning shortly after his Separation
Date. Notwithstanding the foregoing, no payment shall be due for at
least one (1) week after the execution of this Agreement by both
parties.
4. MISCELLANEOUS ADJUSTMENTS. The Company shall have the right to deduct
from all payments referred to in this Agreement all amounts required by
applicable law to be
<PAGE>
withheld and any amounts which the Officer may owe the Company as of
his Separation Date (including, but not limited to, items such as
company store and corporate credit card obligations, garnishments, or
liens).
5. OPTIONS.
a. The Officer agrees that he shall forfeit all unexercised
options with an exercise price at or above $30.00 issued on or
after April 1, 1993, regardless of whether such options have
been vested or are unvested as of the Officer's Separation
Date. The terms of this forfeiture are set forth in draft in a
Supplemental Option Agreement attached as Appendix A
b. The Company shall fully vest all unexercised options held by
the Officer with an exercise price below $30.00 issued on or
after April 1, 1993, and all options issued prior to April 1,
1993. The Officer shall have the lesser of two (2) years from
his Separation Date or ten (10) years from the date the
options were issued in which to exercise his options. The
terms of this acceleration are set forth in draft in a
Supplemental Option Agreement attached as Appendix A.
c. The Officer shall be awarded a Phantom Stock Agreement
for a total of 101,000 units in the form and under such
terms as set forth in Appendix B.
6. PERFORMANCE SHARES. A pro-rata portion of the Officer's Performance
Awards will not be forfeited on the Officer's Separation Date and
Common Stock will be awarded pursuant to these awards at the time such
awards, if any, are made to active employees. For this purpose, the
pro-rata portion shall be based on the period the Officer was an
employee during the performance period of each award divided by the
total period of the Performance Award. These Performance Award
distributions, as adjusted for the pro-rata period, shall be based on
the Company's actual performance during the performance period for such
award. No performance awards shall be granted after the date of this
Agreement.
7. MEDICAL AND DENTAL BENEFITS.
a. RETIREE MEDICAL BENEFITS. The Officer is entitled to medical
benefits at the employee rate for two (2) years from the
Officer's Separation Date or until he becomes eligible for
substantially similar insurance from another employer,
whichever occurs first. Thereafter, the Officer shall be
entitled, as a bona-fide retiree, to medical benefits under
the same terms and conditions as they are available to other
bona-fide retirees of the Company.
b. DENTAL BENEFITS. For two (2) years from the Officer's
Separation Date, or until he becomes eligible for
substantially similar insurance from another employer,
whichever occurs first, the Company shall continue to provide
the Officer with dental insurance at the same cost to him as
to then currently employed officers similarly situated.
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The foregoing medical and dental benefits are intended to be in full
satisfaction of the Company's obligations under the Consolidated
Omnibus Budget Reconciliation Act of 1986 (COBRA). The Officer hereby
waives any rights under COBRA to which he otherwise would have been
entitled.
8. PENSION ENHANCEMENT. The Officer's pension benefit shall be enhanced
based upon the assumption that his age is sixty-five (65) on his
Separation Date for the calculation of his annuity. All forms of
benefits currently available shall be available to the Officer upon
his election. Such forms currently available include, but are not
limited to, lump sum distribution as of the Officer's Separation Date.
This benefit enhancement will be from the non-qualified Supplemental
Benefit Plan as set forth in draft in Appendix C.
9. OUTPLACEMENT. The Company will provide the Officer outplacement
assistance up to a maximum value of $30,000 in the twelve (12) month
period following the Separation Date. The Officer shall be entitled to
the services of any executive recruiter of his choice. The Company
hereby expressly waives any such pre-existing agreement with any
executive recruiter with respect to services for the Officer and for
no other purpose. The Company shall negotiate a contract and make
payments directly to the executive recruiter selected by the Officer.
10. EXECUTIVE LIFE INSURANCE BENEFITS. The Company shall continue to
provide the Officer with the executive life insurance program that is
being provided to other officers as of the Separation Date for two (2)
years from his Separation Date, or until he becomes eligible for
substantially similar insurance from another employer, whichever comes
first.
11. FINANCIAL PLANNING. Upon proper documentation that the expense has
been incurred, the Company agrees to reimburse the Officer in an
amount not to exceed eight thousand dollars ($8,000) for financial
planning expenses that he incurs during the calendar year 2000.
12. OFFICER'S GENERAL RELEASE. In exchange for the severance benefits
just described, except as otherwise provided below, which the Officer
acknowledges are in excess of what would otherwise have been due him,
the Officer agrees to and hereby does release all claims the Officer
may have against the Company, the Company's employee benefit plans
(including any trusts, or insurance contracts forming part of any such
plans), and its directors, trustees, officers, shareholders,
employees, agents, administrators, successors and assigns, including,
but not limited to, any claims arising out of or in connection with
the Officer's employment by the Company or the termination of the
Officer's employment. This release includes a waiver of any claims
that the Officer may have under the Age Discrimination in Employment
Act of 1967, as amended (29 U.S.C.Section 621), except for any claims
under that Act which may arise after the Effective Date of this
Agreement.
This release includes, but is not limited to, any pending grievances or
claims, internal or otherwise, and any claims which might be brought
under or on the basis of:
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- Any employment relations law;
- Any state, federal or local law, regulation or executive order
prohibiting discrimination on account of age, race, color,
sex, sexual orientation, national origin, religion, handicap
or veteran status, including, without limitation, the Age
Discrimination in Employment Act of 1967, as amended (29
U.S.C. Section 621);
- Common law, including, without limitation, claims arising from
any contract or tort law;
- Any public policy, law or equity claims for expenses,
attorneys' fees, or other monetary or equitable relief; and
- Any other claim arising out of the Officer's employment with
the Company or termination of the Officer's employment with
the Company, from his first date of employment to the
Effective Date of this Agreement.
This release will not preclude claims arising from workers compensation
laws or for vested accrued benefits under the Polaroid Pension Plan or
the Polaroid Retirement Savings Plan as determined by the plan
administrators of such Plans.
Further, nothing in this release shall operate as a release or waiver
by the Officer of any claims or rights to defense and/or
indemnification under any:
- Indemnification agreement to which the Company (including any
Polaroid subsidiary or parent) is a party;
- Applicable law;
- Certificates of Incorporation and/or By-Laws of the Company
(including any subsidiary or parent); or
- Directors' and Officers' Liability Policy.
This Agreement is an important and binding legal document, and the
Company therefore encourages the Officer to consider its terms
carefully and to seek the advice of an attorney before the Officer
signs it.
By signing this Agreement, the Officer acknowledges that he has been
given a period of at least twenty-one (21) days to consider the terms
of this Agreement. If the Officer chooses to sign this Agreement before
the end of the twenty-one (21) day period the Company has set, he
expressly waives any right to the balance of that period.
13. GENERAL COVENANTS.
a. For a period of five (5) years from the Officer's Separation
Date, the Officer shall not commit any act, or in any way
assist others to commit any action, intended to injure the
Company, nor shall the Officer divulge (except as required by
law) any confidential information or make available to any
others
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any documents, files, or other papers concerning the Company,
or its financial affairs.
b. For a period of five (5) years from the Officer's Separation
Date, the Officer, on behalf of himself and his spouse,
attorneys acting on his behalf, agents, and representatives,
agrees not to engage in any public criticism regarding his
employment or the business affairs of the Company, nor to
make any negative, detrimental, or derogatory comments
concerning the Company or its parents, partners, owners, and
affiliates, and their owners, stockholders, directors,
officers, employees, partners, trusts, agents, attorneys,
and representatives, past and present; the Company agrees to
make no public criticism regarding the Officer or his
employment with the Company.
c. The Officer shall not disclose the terms of this Agreement
unless required to do so by law; provided, however, that the
terms of this Agreement may be disclosed in confidence to
the following: to the Officer's immediate family, attorneys,
and tax or financial consultants. Before disclosing the
terms of this Agreement to anyone as permitted under this
paragraph, the Officer shall first obtain an agreement from
the person receiving the information that he or she will not
disclose the terms of the Agreement to any other person. The
unauthorized disclosure of the terms of this Agreement by
any person shall constitute a violation of this paragraph by
the party who initially disclosed the terms of this
Agreement. If and when this Agreement becomes a public
document, this paragraph shall become null and void.
14. MUTUAL AGREEMENT. The parties understand and agree that nothing
contained in this Agreement shall constitute or be construed in any way
as an admission of any liability whatsoever by either the Officer or
the Company.
15. NON-COMPETITION AND CONFIDENTIALITY.
a. NON-COMPETITION. For a period of twenty-four (24) months
following the Separation Date, the Officer shall not engage
in any activity or become associated with any entity or
venture, whether as a principal, partner, employee,
consultant, shareholder (other than as a holder of not in
excess of one percent (1%) of the outstanding voting shares)
or otherwise, of either Eastman Kodak Company or Fuji Film
Corporation, any affiliates thereof or any person or entity
working on their behalf. The intent of this Section is not
to prevent the Officer from working, but to protect the
Company and give the Company the opportunity to evaluate
situations in certain potentially sensitive areas.
Accordingly, the foregoing limitation on the Officer's
activities shall not apply to the extent the Company
consents to such activities.
Notwithstanding the foregoing, the immediately preceding
paragraph shall not apply when:
(i) the Officer has obtained consent from the appropriate
Company designee
5 of 9 pages
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that a certain job or venture is not in violation of
this Section 15; or,
(ii) if an Arbitrator concludes that the activity that the
Officer has undertaken does not violate the terms of
this Section as it exists when signed.
b. 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 Officer shall comply
with the Confidentiality Agreement the Officer 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 the Officer's
breach of this Section 15).
c. COMPANY PROPERTY. Promptly following the Officer's Separation
Date, the Officer shall return to the Company all property of
the Company, and all copies thereof in the Officer's
possession or under his control.
d. NON-SOLICITATION OF EMPLOYEES. For a period of twenty-four
(24) months following the Officer's Separation Date, the
Officer shall not directly or indirectly induce any employee
of the Company or any of its subsidiaries to terminate
employment with such entity, and shall not directly or
indirectly, either individually or as owner, agent, employee,
consultant or otherwise, employ or offer employment to any
person who is employed by the Company or a subsidiary unless
that person has received notice of termination of employment
by the Company or a subsidiary.
e. NON-SOLICITATION OF CUSTOMERS. For a period of twenty-four
(24) months following the Officer's Separation Date, the
Officer shall not solicit customers of the Company for any
venture or business opportunity, which could directly or
indirectly be considered in competition with the Company's
business, as reasonably determined by the Company in its sole
discretion.
16. INJUNCTIVE RELIEF WITH RESPECT TO COVENANTS. The Officer
acknowledges and agrees that his covenants and obligations with
respect to non-competition, non-solicitation, confidentiality and
Company property relate to special, unique and extraordinary matters,
including his own skills, and that a violation of any of the terms of
such
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covenants and obligations will cause the Company irreparable injury
for which adequate remedies are not available at law. Therefore, in
the event of a breach or threatened breach, the Officer agrees that
the Company shall be entitled to an injunction, restraining order, or
such other equitable relief (without the requirement to post bond)
restraining the Officer from committing any violation of the covenants
and obligations contained in this Agreement. These injunctive remedies
are cumulative and are in addition to any other rights and remedies
the Company may have at law or in equity.
The Officer agrees that restraints imposed upon him pursuant to this
section are necessary for the reasonable and proper protection of the
Company and its subsidiaries and affiliates and that each and every
one of the restraints is reasonable in respect to subject matter,
length of time and geographic area. The parties further agree that, in
the event that any provision of this Agreement shall be determined by
any court of competent jurisdiction to be unenforceable by reason of
its being extended over too great a time, too large a geographic area
or too great a range of activities, such provision shall be deemed to
be modified to permit its enforcement to the maximum extent permitted
by law.
The Officer agrees and convenants that he will not assert any claim of
any type (whether by complaint, counterclaim, cross-claim or
otherwise) in any forum or before any tribunal pursuant in which he
seeks to have declared unenforceable, in whole or in part, any of the
restraints imposed upon him by this section or to limit their
enforceability in any way. The Officer further agrees that, should he
file any such claim: (a) he will reimburse the Company for its
reasonable costs and attorneys fees should the Company succeed in
enforcing any such restraint in whole or in part; and (b) he will
repay to the Company any severance paid him under this Agreement.
17. PAYMENTS IN EVENT OF DEATH. Should the Officer 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 Officer's beneficiary
designation form for the Executive Deferred Compensation Plan. Any
residual family medical and dental benefits which the Officer was
receiving on the date of death shall continue to the family members to
the extent such family members had coverage under such medical and
dental plans on such date.
18. INDEMNIFICATION: DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The
Officer shall, after the Separation Date, retain all rights to defense
and indemnification:
- Under applicable law;
- Under any applicable agreements and/or insurance policies;
- Under any Company's subsidiary/parent Certificates of
Incorporation; or
- Under any Company's subsidiary/parent By-Laws, as they may be
amended or restated from time to time.
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In addition, the Company shall maintain Directors' and
Officers' liability insurance on the Officer's behalf, at
the level in effect immediately prior to the Officer's
Separation Date, for the first two (2) year period following
the Separation Date, and throughout the period of any
applicable statute of limitations.
19. ENTIRE AGREEMENT. This Agreement represents the sole and entire
agreement between the parties and supersedes all prior agreements,
negotiations, and discussions between the parties with respect to the
Officer's termination of employment with the Company and any and all
other subject matters covered by this Agreement. Any amendment to this
Agreement must be in writing, signed by the parties or their duly
authorized representatives, and must state the intention of the
parties to amend this Agreement.
20. BINDING TERMS. This Agreement shall be binding upon the Officer and
his spouse, heirs, administrators, representatives, executors,
successors, and assigns and shall inure to the benefit of the Company
and its parents, partners, owners, and affiliates, and their owners,
stockholders, directors, officers, employees, partners, trusts,
agents, attorneys, representatives, successors, and assigns.
21. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Massachusetts. In the
event that any part of this Agreement is found to be void or
unenforceable, all other provisions of the Agreement shall remain in
full force and effect.
22. DISPUTES. Subject to Section 16, all claims, disputes, questions,
or controversies arising out of or relating to this Agreement,
including, without limitation, the construction or application of any
of the terms, provisions, or conditions of this Agreement, shall, on
written request of either party served upon the other, be submitted to
final and binding arbitration. Such arbitration shall be compelled and
enforced by any court of competent jurisdiction and shall be conducted
according to the Model Employment Arbitration Procedures of the
American Arbitration Association ("AAA"), except as otherwise provided
herein. The arbitration shall be conducted before AAA or such other
arbitration service as the parties may, by mutual agreement, select.
The arbitrator shall be appointed by agreement of the parties hereto
or, if no agreement can be reached, by AAA pursuant to its rules.
Judgment on the award the arbitrator renders may be entered in any
court having jurisdiction over the parties. The arbitration shall be
conducted in Boston, Massachusetts. Costs, including reasonable
attorneys' fees, as well as the expenses of the arbitration, shall be
paid as awarded by the arbitrator.
23. REPRESENTATION AND VOLUNTARY EXECUTION.
a. The Officer represents and acknowledges that he has been
advised in writing to consult an attorney, that he has had an
adequate opportunity to consult and discuss all aspects of
this Agreement with an attorney and that he has carefully read
and fully understands all of its provisions.
b. The Officer represents and acknowledges that he has had an
adequate
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opportunity to make whatever investigation he or his counsel
may deem necessary or desirable in connection with the
subject matters of this Agreement.
c. The Officer represents and acknowledges that his decision to
enter into this Agreement has been made voluntarily,
knowingly, and without coercion of any kind.
25. EXECUTION. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which
together, shall be deemed to constitute a single document.
If the terms of this Agreement are acceptable to the Officer, please
sign and return it no later than November 5, 1999. The Officer may revoke this
Agreement at any time during the seven (7) day period immediately following the
date of the Officer signing. If the Officer does not revoke this Agreement, then
on the eighth (8th) day following the date of the Officer signing (that eighth
day being the "Effective Date" of this Agreement), this Agreement shall take
effect as a legally binding agreement between the Officer and the Company.
IN WITNESS WHEREOF, the parties hereto have each executed this
Agreement as of the date first above written.
WILLIAM J. O'NEILL, JR. POLAROID CORPORATION
/s/ WILLIAM J. O'NEILL, JR. By: /s/ GARY T. DICAMILLO
- --------------------------- ---------------------
Name: Gary T. DiCamillo
Title: Chairman and Chief Executive Officer
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Exhibit 10.23
CHANGE IN CONTROL SEVERANCE AGREEMENT
AGREEMENT made as of April 25th, 1997 between Polaroid Corporation
("Polaroid" or "Company") and Brian D. Poggi (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.
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(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
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(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.
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(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
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<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
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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
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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
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(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
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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 Section 5(c),
Polaroid
- 11 -
<PAGE>
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
- 14 -
<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/BRIAN D. POGGI
- ---------------------------------------
Brian D. Poggi
Executive
<PAGE>
To: Ian Shiers
From: Harvey Greenberg
Date: May 17, 1999
SUBJECT: LETTER OF UNDERSTANDING
Ian, further to recent discussions, we would like to confirm the offer of the
position of CORPORATE VICE PRESIDENT AND PRESIDENT, POLAROID
EUROPE/ASIA-PACIFIC. This position will be based at Stockley Park, currently
reporting to Gary DiCamillo, Chairman and CEO of Polaroid Corporation. This
position becomes effective from 1 OCTOBER 1998 and we currently expect it to end
by 1 OCTOBER 2000. The company reserves the right to reduce the length of the
assignment with 30 days notice. The Company also reserves the right to re-assign
and relocate you if business conditions warrant. If relocation involves
re-assignment to another expatriate location, the expatriate benefits shall
be consistent with the Company's policies and practices.
This international assignment falls under the classification of a Long Term
Expatriate Assignment. For all other purposes not specifically set forth in this
Agreement, Ian Shiers shall be considered an employee at will, governed by the
laws of New South Wales, Australia. Approved family members for relocation
benefits and allowances will be your wife, Joanne.
Costs associated with this assignment will be absorbed according to the
following schedule:
- - Q1 '99 80% Europe, 20% Asia Pacific
- - Q2' 99-end of assignment 100% Europe
COMPENSATION & BENEFITS
Your BASE SALARY will continue to be paid from Australia in accordance with
their payroll regulations, which is currently 12 pay periods per year. Your pay
and performance will be reviewed on an annual basis in accordance with the
Corporate Compensation review process. You will participate in the OFFICER BONUS
PLAN established for an individual in charge of a major sales region. Targets
for 1999 will be at 40%. You will receive a typical STOCK OPTION Grant for an
Officer at your level.
COMPANY CAR
You will be provided with a Company Car at Stockley Park, based on their local
policy. All car-related business expenses will be paid on your behalf.
<PAGE>
IAN SHIERS - PAGE 2
MEDICAL COVERAGE while you are in the U.K. will be two-fold: You will be covered
with private health care by the BUPA Gold Scheme. This will cover all medical
eventualities except accident and emergency provisions, for which, in the U.K.,
there is no private health cover. To ensure swift referral to a private hospital
or consultant for ongoing health care or as an out patient, you must enroll at
your earliest convenience with a local General Practitioner in order to
facilitate referral to a private hospital. In addition, you and your wife will
be covered by the U.K. National Health System for accident and medical
emergencies. This insurance will be 'free' for the first year. After 1999, you
will then be obligated to pay National Insurance Contributions. The Company,
however, will pay these contributions on your behalf as well as the added income
tax on them. Please direct any questions you may have about this to Gail White
in the U.K.
VACATION entitlement will be in accordance with Polaroid Australia's vacation
policy. Please report time taken to Karen Paterson, H R Manager in Australia.
RELOCATION ASSISTANCE
SHIPMENT OF GOODS
SURFACE SHIPMENT size and the method of transportation are determined based on
the items that are essential to provide an employee with comparable living
conditions in the host country, taking into account the space that will be
available at the new location. There are shipping weight limits, based on family
size. In addition, there are many items that Polaroid will not ship. The
Transportation Agent can provide you with specific details on both. Appliances
are not included in these limits. Before you ship appliances, you must verify
with the Transportation Agent that the appliances can function and be serviced
in your new location. For you and your wife, shipping weight will be limited to
8,000 lbs (and 1,000). This maximum limit applies to both shipments from Hong
Kong and Australia.
AIR SHIPMENT is allowed to accommodate your immediate needs upon arrival at the
assignment location (e.g. toiletries, clothes, etc.). The Transportation Agent
will advise you as to when you can expect arrival of air-shipped goods. You will
be reimbursed for the air shipment for personal necessities, limited to 200
lbs/90 kgs per adult.
All shipments must be in accordance with local regulations.
RELOCATION ALLOWANCE
In order to pay for miscellaneous costs associated with a move, the company will
pay an allowance at the commencement of an assignment. This allowance will be
one month's salary ($A 33,333), tax-free. It will be paid from Australia upon
approval of this letter.
If you initiate early termination of your assignment, you will be required to
return to the company that portion of this allowance that applies to uncompleted
months.
<PAGE>
IAN SHIERS - PAGE 3
ALLOWANCES/CONTRIBUTIONS
FOREIGN HOUSING
A foreign housing allowance of L 1,384 PER WEEK will be provided for you
while in London. Payment will be made directly to the landlord on your behalf.
FOREIGN UTILITIES
All utilities, excluding telephone, will be paid in the host location directly
by Polaroid (U.K.) Ltd. Payment will be made directly to each utility provider.
You will be reimbursed for installation of two telephones, but monthly operating
costs will be your responsibility.
HOUSING CONTRIBUTION
Polaroid no longer requires International Assignees to contribute toward their
foreign housing costs. However, all home country maintenance and expenses will
be your responsibility while away.
PURCHASING HOST COUNTY HOUSING
The Corporation recommends that employees on foreign assignment do not purchase
a home in the host country. If you choose to buy a home in the U.K., you may be
taking a high risk. If this is the case, the Corporation will not bear any
responsibility for adverse financial (including currency exchange loss),
material or tax affects you may experience upon purchase, re-sale or while
living in the home. In addition, the Company will discontinue the foreign
housing allowance upon purchase of a home.
PER DIEM
You will receive a daily per diem allowance for two of approximately L 57
per day.
PERSONAL CAR
You will receive a one-time lump sum payment in the amount of F 5,000, TAX-FREE,
to assist in the purchase of a personal car for your wife, Joanne. All other
costs associated with this car will be your responsibility.
CAR CONTRIBUTION
A car contribution will not be required.
EMPLOYMENT ASSISTANCE
You will be reimbursed for employment assistance on behalf of your wife, up to
the amount of L 1,500, payable over the duration of the assignment period.
Submit a relocation expense report to H.R. in the UK for reimbursement.
<PAGE>
IAN SHIERS - PAGE 4
EDUCATION ASSISTANCE
You will be reimbursed on behalf of your wife, up to the amount of L 1,500 per
year of assignment (per educational guidelines established by the company).
Submit a request to H.R. in the UK for pre-approval. Reimbursement will be made
directly from Polaroid to the educational institution.
LOSSES IN HONG KONG
You will be reimbursed L 3,500 for: 1) the cancellation of a course in which
your wife was enrolled in Hong Kong at the time of your transfer; and, 2) for
your wife's temporary loss of earning power.
PERSONAL GOODS INSURANCE
The Company will provide insurance on goods brought to the U.K. up to a maximum
premium of L 150 per annum. You will be responsible for insurance coverage and
costs in excess of this limit, as well as all insurance coverage in Australia.
(Ian will give cost estimate to insure his goods to Harvey.)
HOME LEAVE
Your Home Leave destination will be Australia. You will be entitled to one home
leave each 12-month period of time on assignment, and your wife will be entitled
to two. You both will be reimbursed for business class airfare and the cost of a
rental car for up to four weeks if a personal car is not available to you.
Should you decide to take your home leave elsewhere, the following will apply:
- You will be reimbursed for the lower of the cost of round-trip
airfare between the host country and your established Home Leave
Destination (Australia) by the most direct route, or the cost of airfare to
the alternative destination.
- Car rental will not be reimbursed.
In addition, your daughter will be entitled to one round-trip economy airfare,
Australia-UK-Australia, each 12-month period of time you are on assignment.
EMERGENCY LEAVE
Emergency Leave provisions will apply in the event of death or serious illness
of you, your wife and family members in Australia. If such an event occurs at
the Host Location, all necessary expenses in excess of those normally incurred
will be reimbursed, including travel expenses to Australia for you and your
wife. Time off is provided according to Australian plan provisions.
If such an event occurs in Australia, travel expenses to Australia for you and
your wife will be reimbursed. Family member is defined as you or your wife's
parents, grandparents, siblings or children. Other family members may be
included if approved by your Assignment Supervisor.
<PAGE>
IAN SHIERS - PAGE 5
OTHER PROGRAMS
MEDICAL EVACUATION PROGRAM
You will be enrolled into a medical evacuation program with International SOS
Assistance, Inc. In addition to this service, medical, personal and travel
assistance is available. A membership card will be provided to you by Global
Relocation along with some literature on how and when to use this service.
TAX REIMBURSEMENT
Polaroid will provide you with foreign tax preparation while on assignment. It
is expected, based on your business plan for time spent in various countries,
that you will incur actual tax liabilities on your Polaroid income only in the
U.K. These actual taxes will be paid on your behalf by the Corporation and
charged to the U.K. Should you incur an actual tax liability on base pay or
bonus in Hong Kong (or another country) as a result of Polaroid business needs,
these taxes will also be paid on your behalf by the Corporation and charged to
H.K.
If you receive any foreign tax refunds that were paid by Polaroid on your
behalf, please endorse them, make them payable to Polaroid and send them to the
appropriate Finance Manager in the U.K. (or H.K.) for deposit with the Company.
Because you are remaining on the Australian payroll, base pay and bonus will be
paid from there. Your contribution for taxes to Polaroid will be an assessment
of a hypothetical tax at a flat rate of 10%. This 10% will be deducted from base
pay and bonus. Income realized from the grant, exercise or sale of Polaroid
Stock Options will be included in an annual hypothetical tax reconciliation at
which time 10% will be due to Polaroid. Payment of actual tax in Australia on
non-Polaroid income will be your responsibility. Non-Polaroid income will be
equalized up to a maximum equivalent of US$ 15,000. The Company will provide tax
preparation by Ernst & Young in Sydney. Spousal income earned while on
assignment is excluded from this program but will be included as non-Polaroid
income, up to the maximum limit. Polaroid does not provide tax preparation if an
individual tax return is elected or required.
Actual tax incurred on Polaroid and/or personal income on a worldwide basis
prior to 01/01/99 will be your responsibility.
It is important that you become familiar with how these tax filings and
reimbursements will be processed for both your actual and your hypothetical
taxes. When you meet with Ernst & Young, they will discuss Polaroid's program
and how/when your taxes will be prepared, filed and paid.
<PAGE>
IAN SHIERS - PAGE 6
Tax effective compensation planning has been addressed with Ernst & Young. The
Company has the right to disperse the nature, timing and reimbursement of income
in order to reduce your worldwide tax obligations. This planning will not in any
way reduce your expatriate benefits or allowances.
ADMINISTRATIVE MATTERS
CHANGE IN FAMILY STATUS: If you have a change in family status during your
assignment, please notify Polaroid Australia Pty Ltd as well as the U.K. and
Global Relocation. In the unlikely event you and your wife seek a divorce during
this period of assignment, the Company will reimburse your wife for relocation
expenses. This reimbursement will include shipment of goods and one-way airfare
to Australia.
WORKING HOURS will be in accordance with local laws and customs established in
the U.K.
EXPENSE REPORTS: While on assignment, all relocation reimbursements, as
described in this Letter of Understanding, must be reimbursed by Human
Resources, either by the H R office in the U.K., via GAIL WHITE, or by H. R. or
Finance in Australia. This can be accomplished by completing a Relocation
Expense Report and submitting it to the appropriate H R office for those
reimbursements that are not paid directly by the Company.
All business travel and expenses are to be submitted to your assignment
supervisor and submitted directly to the U.K. for reimbursement.
TERMINATION
In the case of resignation by mutual consent or under a Polaroid Severance
Program, the Corporation will reimburse airfare and shipment of goods to
Australia if your return takes place within 90 days of termination. A relocation
Allowance will be paid.
In the case of resignation without mutual consent, or in the unlikely event you
are discharged for cause, you will be responsible for all repatriation costs and
a Relocation Allowance will not be paid.
Regardless of the circumstances under which you terminate, Polaroid reserves the
right to withhold any amounts you owe the company including, but not limited to,
tax amounts. Payment may be withheld from any amounts owed you by the company
before or after termination.
Please sign and return the original of this letter, along with a signed Exhibit
I (see enclosures) to Natalie Perry, Corporate Relocation, R1-1, indicating your
understanding and acceptance of these terms and to confirm receipt of the
enclosures. Please keep a copy for your files.
<PAGE>
IAN SHIERS - PAGE 7
We wish you and your wife a smooth transition and relocation to England and
would like to take this opportunity to wish you every success in this new
location.
With best wishes.
APPROVALS:
/s/ GARY T. DICAMILLO 24 MAY '99 /s/ HARVEY M GREENBERG 24 MAY 1999
- -------------------------------- ----------------------------------
Gary T DiCamillo Date Harvey Greenberg Date
Chairman and CEO Vice President, Human Resources
Agreement:
/s/ IAN SHIERS 25 MAY 1999
- --------------------------------
Ian Shiers Date
ENCLOSURES:
- - Highlights of Tax Reimbursement Program, January 1998
- - Exhibit I - Tax Reimbursement Program Agreement Form
- - Guide to Business Conduct
<PAGE>
May 17, 1999
Mr. Ian Shiers
22 Ashe House
33 Clevedon Road
East Twickenham TWI 2TT
United Kingdom
Dear Ian:
This letter serves as an addendum and supersedes your Letter of Understanding,
dated 17 May 1999, as it regards your position, Corporate Vice President and
President, Polaroid Europe/Asia-Pacific. This position was effective as of 1
October 1998 and, in nature, will be for a 3-5 year period of time. After three
years, if Polaroid Corporation decides that it is in the best interests of the
Corporation to assign you a role which requires you and your family to relocate
outside Europe or Asia Pacific, and if the Corporation and you do not agree to
that, you are eligible to severance pay of one years base salary, in lieu of any
severance program in effect at that time, and relocation to Australia or another
major city in Asia Pacific. In such a case, all severance will be paid in
Australian currency immediately following this cessation of assignment.
You will be granted the following severance protection for your initial 36
months employment. If your employment is terminated at Polaroid's initiative for
any reason, other than deliberate or gross material misconduct on your part,
during the mentioned protection period, you will receive as severance 18 months
of salary. If the first 12 months have not been completed when this termination
takes place, your bonus will calculated as though the target had been achieved.
Subsequent to the first 12 months, should performance targets be reached that
cause a bonus to be paid to you, such bonus will be calculated on a prorated
basis. All severance will be paid in a stream of monthly payments at your then
current salary rate in Australian currency, beginning immediately following your
termination. The arrangements for tax payments, tax reimbursement and tax
preparation will reflect the same intent as during your assignment. If, at any
time, you resign voluntarily, you will not receive any severance entitlement.
<PAGE>
IAN SHIERS - PAGE 2
In addition, the per diem that you will receive will be the equivalent of a
cost-of-living adjustment each month, based on an index of the cost difference
of a market basket of goods between Sydney and London. This index is adjusted
for cost and exchange rate increases and decreases on a regular basis. This
C-O-L-A will be paid from Australia.
With best wishes.
Approvals:
/s/ GARY T. DICAMILLO 24 MAY '99 /s/ HARVEY M GREENBERG MAY 24, 1999
- -------------------------------- -----------------------------------
Gary T DiCamillo Date Harvey Greenberg Date
Chairman and CEO Vice President, HR
AGREEMENT:
/s/ IAN SHIERS 25/5/99
- --------------------------------
Ian Shiers Date
<PAGE>
Exhibit 12
EXHIBIT 12 - RATIO OF EARNINGS TO FIXED CHARGES
Year ended December 31, 1995, 1996, 1997, 1998 and 1999
(IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996 1997 1998 1999
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Earnings/(loss):
Earnings/(loss) before income tax
expense/(benefit) per consolidated
statement of earnings $(201.4) $31.2 $(191.9) $(38.9) $13.4
Add:
Interest expense 52.1 47.4 47.8 57.6 77.4
Portion of rent representative of an
interest factor 11.7 9.3 10.7 10.5 10.2
------------- ------------- -------------- ------------- -------------
Adjusted earnings/(loss) before income tax
benefit/(expense) $(137.6) $87.9 $(133.4) $29.2 $101.0
============= ============= ============== ============= =============
Fixed charges:
Interest expense $ 52.1 $47.4 $ 47.8 $ 57.6 $77.4
Portion of rent representative of an
interest factor 11.7 9.3 10.7 10.5 10.2
Capitalized interest 4.8 5.1 2.6 2.2 3.0
------------- ------------- -------------- ------------- -------------
Total fixed charges $ 68.6 $61.8 $ 61.1 $ 70.3 $90.6
============= ============= ============== ============= =============
Ratio of earnings to fixed charges N/A(a) 1.4(b) N/A(c) .4(d) 1.1
============= ============= ============== ============= =============
</TABLE>
(a) 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.
(b) 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.
(c) 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 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.
(d) Earnings were insufficient to cover fixed charges by $41.1 million after
giving effect to the pre-tax expense for restructuring and other charges of
$50.0 million. Excluding the pre-tax restructuring and other charges, the
ratio of earnings to fixed charges was 1.1.
<PAGE>
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
The Company is managed in five primary segments: the Americas Region; the
European Region; the Asia Pacific Region; Global Operations; and Research and
Development. The Americas Region is comprised of all the countries in North and
South America. The European Region includes all of the countries comprising the
European continent, the United Kingdom, Russia, the middle-eastern countries
and the African continent. The Asia Pacific Region includes Japan, China,
Australia and the Asian continent, excluding Russia. These three regions consist
of sales and marketing operations. Global Operations consists of worldwide
activities associated with manufacturing, distribution, logistics, new product
manufacturing development and inventory management. Research and Development is
comprised of corporate research and engineering activities.
Additionally, the Company has one category called Corporate, which it does not
consider to be a segment. This category includes central marketing, general and
administrative costs and certain other corporate costs, including worldwide
restructuring and other charges and other credits.
The Company evaluates the performance of its segments primarily based on profit
from operations with consideration of assets employed. In the regional sales and
marketing segments, profit from operations is based on standard product costs
excluding intercompany margins and therefore reflects their contribution to
worldwide Company profits related to segment third party sales. Non-standard
manufacturing costs along with new product manufacturing development costs and
regional warehousing and distribution costs are reported as incurred in the
Global Operations segment. Research and Development segment costs are recorded
as incurred.
The Company uses the following terminology to discuss sales and profit from
operations: core imaging business; other core products; and non-core
businesses. The core imaging business consists of new instant cameras, film and
digital products; instant cameras and film other than new products; and other
core products that consist primarily of conventional 35mm cameras and film,
videotapes, unique ID products and digital hardware other than new products.
Non-core businesses consist primarily of graphics, which was contributed to a
joint venture in 1999, sunglasses, which was rationalized in 1999, and polarizer
and holography which have been or are in the process of being exited.
The Company uses qualitative terms to explain changes in unit volumes of its
shipments of instant film and in retail sales dollars. The following table
quantifies the use of these terms:
TERM REPRESENTS CHANGE OF
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low single digits 1 to 4 percent
high single digits 5 to 9 percent
low double digits 10 to 19 percent
mid double digits 20 to 39 percent
high double digits 40 to 99 percent
The Company has reclassified certain prior year information to conform with the
current year presentation.
1999 WORLDWIDE RESULTS COMPARED WITH 1998
Sales
Worldwide net sales to customers increased 7% to $1,979 million in 1999 compared
with $1,846 million in 1998. The increase was due to sales of new products in
all of the Company's regions. The increase was offset, in part, by lower sales
of other core products.
In 1999, on a unit basis, worldwide shipments to customers of instant cameras
increased 106% to 9.7 million from 4.7 million in 1998 while shipments to
customers of instant film increased by high single digits compared with 1998.
The increase in shipments of instant cameras was due primarily to new products
and, to a lesser degree, instant cameras other than new products. The increase
in shipments of instant film was due to new products.
Sales in the Americas Region increased 9% to $1,230 million in 1999 compared
with $1,132 million in 1998. The increase was due to sales of new products
primarily in the United States offset, in part, by lower sales of other core
products. Sales in the Region during 1998 declined following a decision, made in
conjunction with the Company's major dealers, to reduce inventories at the
dealer level in the United States.
In the Americas Region, on a unit basis, shipments to customers of instant
cameras increased 79% while shipments to customers of instant film increased by
low single digits in 1999 compared with 1998. The increase in shipments of
instant cameras and film was due to sales of new products. At the retail level
in the United States, based on an independent survey of retail sales of the
Company's products at food, drug and mass retailers by ACNielsen, dollar sales
of instant cameras increased 30% while dollar sales of integral film increased
by low single digits in 1999 compared with 1998.
Sales in the European Region decreased 5% to $428 million in 1999 compared with
$449 million in 1998. The decrease was due to lower sales of other core
products, the sales mix of instant film other than new products and the
unfavorable impact of foreign exchange. The decrease was offset, in part, by
sales of new products and, to a lesser degree, returns of instant film other
than new products from dealers in Russia that occurred in 1998 and did not recur
in 1999. The
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loss associated with those returns was offset by reducing a reserve established
in 1998 for that purpose.
In the European Region, on a unit basis, shipments to customers of instant
cameras increased 97% while shipments to customers of instant film increased by
low double digits in 1999 compared with 1998. The increase in shipments of
instant cameras and film reflected sales of new products.
Sales in the Asia Pacific Region increased 21% to $321 million in 1999 compared
with $265 million in 1998. The increase was due to sales of new products,
principally in Japan, and, to a lesser degree, the favorable impact of foreign
exchange. The increase was offset, in part, by a decrease in sales of other core
products.
In the Asia Pacific Region, on a unit basis, shipments to customers of instant
cameras increased 180% while shipments to customers of instant film increased by
low double digits in 1999 compared with 1998. The increase in shipments of
instant cameras and film was due to sales of new products.
Profit/(Loss) from Operations
Worldwide profit from operations in 1999 was $108 million compared with a loss
from operations of $49 million in 1998. Profit from operations in 1999 included
a charge of $40 million related to the Company's graphic arts business. Profit
from operations in 1999 also included a settlement gain of $25 million related
to the Company's pension plan which essentially offset approximately $24 million
of charges and losses recorded in the fourth quarter of 1999 primarily
associated with certain non-core businesses that were being rationalized or
exited during 1999 and certain core products being phased out. Profit from
operations in 1998 included a restructuring charge of $50 million and asset
write-offs unrelated to restructuring of $53 million. Excluding the charges,
losses, write-offs and settlement gain described above, profit from operations
increased to $147 million in 1999 compared with $54 million in 1998. The
increase was due to lower manufacturing costs, savings from restructuring and
the impact of higher sales of new products. These increases were offset, in
part, by the impact of lower sales of other core products and the unfavorable
impact of foreign exchange.
In the third quarter of 1999, the Company agreed to contribute the net assets of
its graphic arts business to a joint venture in exchange for a redeemable
preferred equity interest and a less than 20% common equity interest in the
joint venture. In connection with this transaction, the Company recorded charges
of $16 million to increase reserves primarily for trade accounts receivable and
inventories, $4 million for liabilities related to the disposition of the
business and $3 million for severance costs related to approximately 30
employees who were terminated as a result of the agreement. The majority of
these liabilities are expected to be paid by the end of 2000. In addition, the
Company recorded an impairment loss of $17 million based on its evaluation of
the estimated fair value of its investment in the new joint venture. The
transaction was completed during the fourth quarter of 1999. Under the terms of
the agreement, the Company is not required to provide any future funding to the
joint venture. Of the total $40 million charge related to the graphic arts
business, approximately $25 million was recorded in cost of goods sold and $15
million was recorded in marketing and administrative expenses. On a segment
basis, the Company allocated $5 million to the Americas Region, $3 million to
the European Region, $11 million to Global Operations and $21 million to the
non-segment Corporate category.
In connection with the Company's strategy to focus on its core imaging business,
the Company began a process in 1998 to rationalize or exit certain non-core
businesses and less profitable core products in order to maximize shareholder
value. The $24 million of charges and losses incurred in the fourth quarter of
1999 was a continuation of that strategy and included $17 million related to
non-core businesses and $7 million related to less profitable core products. Of
the $24 million, $14 million primarily related to inventory write-offs,
approximately half of which reflected lower of cost or market adjustments and
half of which related to obsolete products. The amount of the inventory write-
offs was based on individual assessments of the recoverability of the net
carrying value of the assets and reflects adjustments of the net carrying values
to fair market values. The $24 million also included $10 million of fourth
quarter operating losses related primarily to non-core businesses that were
being rationalized or exited. The Company recorded approximately $17 million of
these charges in cost of goods sold and $7 million in marketing and
administrative expense. On a segment basis, the Company allocated $12 million to
the Americas Region, $1 million to the European Region and $11 million to Global
Operations.
The settlement gain of approximately $25 million was a non-cash item recorded
in the fourth quarter of 1999 related to the large number of employees that left
the Company, primarily under the Company's involuntary severance program, and
elected to receive lump sum distributions under the Company's pension plan in
1999. The lump sum distributions eliminated the obligation of the pension plan
to make future payments to those employees. As a result, the Company was
required to recognize certain deferred gains that had accumulated primarily from
favorable investment experience on pension assets. The Company recorded
approximately half of this gain in cost of goods sold and half in marketing and
administrative expense. The gain was allocated to the non-segment Corporate
category.
In 1998, the Company recorded a restructuring charge of $50 million that related
to an extension of the Company's 1997 restructuring program. Refer to the
section titled "Restructuring and Other Charges" below for a summary of the
Company's restructuring program.
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The asset write-offs in 1998 consisted of $30 million related to the Company's
operations in Russia and an additional $23 million associated with a number of
non-core businesses and less profitable core products. The write-offs related
to the Company's total investment in its Russian operations included $10 million
in reserves for trade accounts receivable recorded in the second quarter of 1998
and an additional $10 million in reserves for trade accounts receivable recorded
in the fourth quarter of 1998. The remainder of the $30 million consisted of $4
million of prepaid expenses, $3 million of abandoned fixed assets, $2 million of
inventory and $1 million of liquidation costs. These charges reflected the
collapse of the Russian economy in 1998 and, due to the lack of liquidity in
Russia, the low likelihood of realizing value for those assets. The likelihood
of realizing value for the trade accounts receivable was further reduced because
the Russian legal system provided limited potential to enforce collection of
those accounts. The Company also reassessed its business model in Russia and
determined that the continuation of the subsidiary operating structure had
become untenable because of the precipitous decline in the level of business and
the complicated governmental regulatory environment. The Company subsequently
closed its Russian subsidiary and relocated its sales operations to its
subsidiaries outside of Russia. Of the total $30 million, the Company recorded
$28 million of these write-offs in marketing and administrative expenses and $2
million in cost of goods sold. On a segment basis, the entire $30 million was
allocated to the European Region.
The remaining write-offs of $23 million recorded in the fourth quarter of 1998
related to a number of non-core businesses and less profitable core products
that resulted from the Company's strategy to refocus on its core imaging
business in order to maximize shareholder value. In connection with this
strategy, the Company began a process of rationalizing or exiting certain non-
core businesses. These charges primarily represented an adjustment of recorded
asset values to fair market value and were based on individual assessments of
the recoverability of the assets net carrying value. The $23 million consisted
of $12 million of inventory reserves related to a number of products that were
being phased out to reflect lower of cost or market exposure based on lower
selling prices, $5 million of tooling and equipment write-offs associated with
the phased out products, $4 million of reserves for trade accounts receivable
and $2 million of penalty costs associated with the cancellation of certain
contracts and distributor agreements. Of the total $23 million, the Company
recorded $19 million in cost of goods sold and $4 million in marketing and
administrative expenses. On a segment basis, approximately $11 million was
allocated to the Americas Region and $12 million to Global Operations.
Profit from operations in the Americas Region was $335 million in 1999 compared
with $309 million in 1998. The increase was due to the impact of higher sales of
new products and, to a lesser degree, the impact of sales mix and a change in
the Company's promotional strategy for instant film other than new products.
Profit from operations in the European Region was $70 million in 1999 compared
with $41 million in 1998. The change reflected $30 million of asset write-offs
recorded in 1998 that did not recur in 1999. The asset write-offs related to
the Company's operations in Russia as described above. Profit from operations
also increased due to lower marketing and administrative expenses, primarily
reflecting the consolidation of the operations in the Region, and, to a lesser
degree, the impact of higher sales of new products. These increases were offset,
in part, by the impact of sales mix for instant film other than new products,
the impact of lower sales of other core products and the unfavorable impact of
foreign exchange.
Profit from operations in the Asia Pacific Region was $74 million in 1999
compared with $61 million in 1998. The increase was due to the impact of higher
sales of new products and, to a lesser degree, the favorable impact of foreign
exchange. These increases were offset, in part, by higher spending on
advertising and promotional activities and the impact of lower sales of other
core products.
Global Operations costs were $167 million in 1999 compared with $185 million in
1998. The decrease was primarily the result of lower manufacturing costs
(including savings from restructuring) in 1999. Global Operations costs in 1998
were unfavorably impacted by reduced production volumes and start-up costs for
new products.
Research and Development costs were $85 million in 1999 compared with $120
million in 1998. The decrease was the result of savings from restructuring and
the continuing focus of the Company's research and development activities on its
core imaging business.
Corporate costs were $119 million in 1999 compared with $155 million in 1998.
Corporate costs in 1999 included a settlement gain of approximately $25 million
and asset write-offs related to the Company's graphic arts business of
approximately $21 million. Corporate costs in 1998 included a restructuring
charge of $50 million. Excluding the settlement gain, asset write-offs and the
restructuring charge described above, Corporate costs were $123 million in 1999
and $105 million in 1998. This increase was due to higher expenses, including
depreciation, for centralized information systems and increased central
marketing activities.
The net of other income and expense was an expense of $17 million in 1999
compared with income of $68 million in 1998. In 1999, the Company recorded a
non-cash charge of $35 million to write-off the carrying value of its
preferred stock investment in Sterling Dry Imaging Systems, Inc. ("SDIS"), a
subsidiary of SDI Holding Corporation ("SDHI"). The Company had obtained
investment positions in SDHI and SDIS in exchange for the Company's Helios
medical diagnostic imaging equipment line. In 1999, a third party acquired SDHI,
excluding
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS, CONTINUED
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SDIS, which under the acquisition agreement was spun-off to a liquidating
trust. Based on available information, the Company determined that SDIS was not
viable as a stand-alone business and the proceeds of the liquidating trust were
not sufficient to redeem the Company's investment. In addition, the decrease in
other income from 1998 to 1999 was due to lower gains on the sale of real estate
which totaled $12 million in 1999 and $68 million in 1998. The decreases were
offset, in part, by an increase in royalty income associated with certain
technology licensing agreements.
Interest expense increased to $77 million in 1999 compared with $58 million for
the same period in 1998. The increase was due to higher interest rates on
outstanding debt and, to a lesser degree, higher levels of debt outstanding
during 1999.
Income tax expense in 1999 was $5 million, or 35% of a reported profit before
income taxes of $13 million. Income tax expense of $12 million was recorded in
1998 on a reported loss before income taxes of $39 million. In 1998, although a
tax benefit on the net operating loss generated in the United States was
reflected at the U.S. statutory rate of 35%, the tax benefit was more than
offset by taxable income generated in certain foreign jurisdictions, and taxable
losses and special charges in other countries for which no or little tax benefit
was provided, such as the case of losses and asset write-downs in Russia.
The Company recorded net income of $9 million, or $.20 basic earnings per common
share in 1999, compared with a net loss of $51 million, or $1.15 basic loss per
common share in 1998. Diluted earnings/(loss) per common share was the same as
basic earnings/(loss) per common share in 1999 and 1998.
1999 FOURTH QUARTER RESULTS
Sales
Worldwide net sales to customers increased 20% to $650 million in the fourth
quarter of 1999 from $542 million in the fourth quarter of 1998. The increase
was due to sales of new products and, to a lesser degree, instant film and
cameras other than new products. The increase was offset, in part, by decreases
in sales from non-core businesses.
In the fourth quarter of 1999, on a unit basis, worldwide shipments to customers
of instant cameras increased 165% to 4.5 million from 1.7 million for the same
period in 1998 while shipments to customers of instant film increased by low
double digits compared with the fourth quarter of 1998. The increase in
shipments of instant cameras and film was due to sales of new products and, to a
lesser degree, instant cameras and film other than new products.
Sales in the Americas Region increased 21% to $417 million in the fourth quarter
of 1999 compared with $344 million in the fourth quarter of 1998. The increase
was due to sales of new products primarily in the United States and, to a lesser
degree, the sales mix of instant film other than new products. These increases
were offset, in part, by lower sales from non-core businesses.
In the Americas Region, on a unit basis, shipments to customers of instant
cameras increased 143% while shipments to customers of instant film increased by
low double digits in the fourth quarter of 1999 compared with the fourth quarter
of 1998. The increase in shipments of instant cameras and film was due to sales
of new products. At the retail level in the United States, based on an
independent survey of retail sales of the Company's products at food, drug and
mass retailers by ACNielsen, dollar sales of instant cameras increased 66% while
dollar sales of integral film increased by high single digits in the fourth
quarter of 1999 compared with the fourth quarter of 1998.
Sales in the European Region increased 11% to $141 million in the fourth quarter
of 1999 compared with $127 million in the fourth quarter of 1998. The increase
was due to sales of new products and, to a lesser degree, instant cameras and
film other than new products. The increase was offset, in part, by the
unfavorable impact of foreign exchange and a decrease in sales from other core
products and non-core businesses.
In the European Region, on a unit basis, shipments to customers of instant
cameras increased 330% while shipments to customers of instant film increased by
high double digits in the fourth quarter of 1999 compared with the fourth
quarter of 1998. The increase in shipments of instant cameras and film was due
to sales of new products and, to a lesser degree, instant cameras and film other
than new products.
Sales in the Asia Pacific Region increased 30% to $92 million in the fourth
quarter of 1999 compared with $71 million in the fourth quarter of 1998. The
increase was due to sales of new products principally in Japan and, to a lesser
degree, the favorable impact of foreign exchange.
In the Asia Pacific Region, on a unit basis, shipments to customers of instant
cameras increased 109% while shipments to customers of instant film increased by
low double digits in the fourth quarter of 1999 compared with the fourth quarter
of 1998. The increase in shipments of instant cameras and film was due primarily
to sales of new products.
Profit/(Loss) from Operations
Worldwide profit from operations in the fourth quarter of 1999 was $62 million
compared with a loss from operations of $82 million in the fourth quarter of
1998. Profit from operations in the fourth quarter of 1999 included a settlement
gain of approximately $25 million related to the Company's pension plan which
essentially offset approximately $24 million of charges and losses primarily
associated with certain non-core businesses that were being rationalized or
exited during 1999 and certain core products being phased out. Profit from
operations in the fourth quarter of 1998 included a
POLAROID AR99
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restructuring charge of $50 million and $43 million of asset write-offs not
related to restructuring. Excluding the charges, losses, write-offs and
settlement gain described above, profit from operations increased to $61 million
in the fourth quarter of 1999 compared with $11 million for the same period in
1998. The increase was due to lower manufacturing costs, savings from
restructuring and the impact of higher sales of new products and instant film
other than new products.
The Company recorded a settlement gain of $25 million and charges and losses of
$24 million in the fourth quarter of 1999 which have been described previously.
Refer to the section titled "1999 Worldwide Results Compared with 1998" above
for a summary of these items.
In 1998, the Company recorded a restructuring charge of $50 million that related
to an extension of the Company's 1997 restructuring program. Refer to the
section titled "Restructuring and Other Charges" below for a summary of the
Company's restructuring program. In addition to the restructuring charge, the
Company recorded $43 million of asset write-offs in the fourth quarter of 1998
that were unrelated to restructuring and have been described previously. Refer
to the section titled "1999 Worldwide Results Compared with 1998" above for a
summary of these write-offs.
Profit from operations in the Americas Region was $101 million in the fourth
quarter of 1999 compared with $81 million in the fourth quarter of 1998. The
increase was due to the impact of sales mix and a change in the Company's
promotional strategy for instant film other than new products and, to a lesser
degree, the impact of higher sales of new products.
Profit from operations in the European Region was $22 million in the fourth
quarter of 1999 compared with a loss from operations of $1 million in the fourth
quarter of 1998. The change reflected $20 million of asset write-offs recorded
in the fourth quarter of 1998 that did not recur in 1999. The asset write-offs
were related to the Company's operations in Russia as described above. Profit
from operations also increased due to the impact of higher sales of instant
cameras and film other than new products and new products. The increase was
offset, in part, by the unfavorable impact of foreign exchange and the impact of
lower sales from non-core businesses.
Profit from operations in the Asia Pacific Region was $20 million in the fourth
quarter of 1999 compared with $9 million in the fourth quarter of 1998. This
increase was due to the impact of higher sales of new products and the favorable
impact of foreign exchange.
Global Operations costs were $46 million in the fourth quarter of 1999 compared
with $60 million in the fourth quarter of 1998. The decrease was the result of
lower manufacturing costs (including savings from restructuring) in the fourth
quarter of 1999 offset, in part, by the unfavorable impact of foreign exchange
on manufacturing costs. Global Operations costs in the fourth quarter of 1998
were unfavorably impacted by reduced production volumes and start-up costs for
new products.
Research and Development costs were $21 million in the fourth quarter of 1999
compared with $31 million in the fourth quarter of 1998. The decrease was the
result of savings from restructuring and the continuing focus of the Company's
research and development activities on its core imaging business.
Corporate costs were $14 million in the fourth quarter of 1999 compared with $80
million in the fourth quarter of 1998. Corporate costs in the fourth quarter of
1999 included a settlement gain of approximately $25 million while Corporate
costs for the same period of 1998 included a restructuring charge of $50
million. Excluding the settlement gain and the restructuring charge described
above, Corporate costs were $39 million in the fourth quarter of 1999 and $30
million in the fourth quarter of 1998. This increase primarily reflected higher
expenses, including depreciation, for centralized information systems and
increased central marketing activities.
Other income was $2 million in the fourth quarter of 1999 compared with $23
million in the fourth quarter of 1998. Other income in the fourth quarter of
1999 was primarily related to royalty income associated with certain technology
licensing agreements. Other income in 1998 included gains on the sale of real
estate of $24 million.
Interest expense increased to $20 million in the fourth quarter of 1999 compared
with $17 million for the same period in 1998. The increase was due to higher
interest rates on outstanding debt. The average debt outstanding during the
fourth quarter of 1999 was essentially the same as the average debt outstanding
during the fourth quarter of 1998.
Income tax expense in the fourth quarter of 1999 was $15 million or 35% of a
reported profit before income taxes of $44 million. In the fourth quarter of
1998, a tax benefit of $1 million was recognized against a loss before income
taxes of $77 million. In 1998, the amount of tax benefit recognized was limited
due to recognition of losses in certain foreign jurisdictions for which no or
little tax benefit could be recognized.
The Company recorded net income of $29 million, or $.64 basic earnings per
common share in the fourth quarter of 1999, compared with a net loss of $76
million, or $1.72 basic loss per common share in the fourth quarter of 1998.
Diluted earnings/(loss) per common share was the same as basic earnings/(loss)
per common share in the fourth quarter of 1999 and 1998.
1998 WORLDWIDE RESULTS COMPARED WITH 1997
Sales
Worldwide net sales to customers decreased 14% to $1,846 million in 1998 from
$2,146 million in 1997. The decrease was due primarily to lower sales of instant
film across all regions of the world. In 1998, on a unit basis, worldwide
shipments to customers of instant cameras
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS, CONTINUED
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decreased 8% to 4.7 million from 5.1 million in 1997 while shipments to
customers of instant film decreased by mid double digits compared with 1997.
Sales in the Americas Region decreased 8% to $1,132 million in 1998 compared
with $1,233 million in 1997. The decrease was due primarily to lower sales of
instant film, mostly in the United States. The primary factor contributing to
lower sales of instant film was the Company's decision, made in conjunction with
its major dealers, to reduce inventories at the dealer level in the United
States. In 1998, on a unit basis, shipments to customers of instant cameras
decreased 10% while shipments to customers of instant film decreased by low
double digits compared with 1997. At the retail level in the United States,
based on an independent survey of retail sales of the Company's products at
food, drug and mass retailers by ACNielsen, dollar sales of instant cameras
increased 7% while dollar sales of integral film increased by high single
digits.
Sales in the European Region decreased 22% to $449 million in 1998 compared with
$578 million in 1997. The decrease was due primarily to lower sales of instant
film, nearly half of which occurred in Russia, where the Company ceased
shipments during the third quarter of 1998 because of the collapse of the
Russian economy. The Company's shipments of instant film were also adversely
affected by a decline in sales at the retail level and the Company's decision to
reduce inventories, primarily in distributor channels. In 1998, on a unit basis,
shipments to customers of instant cameras decreased 23% while shipments to
customers of instant film decreased by mid double digits compared with 1997.
Sales in the Asia Pacific Region decreased 21% to $265 million in 1998 compared
with $335 million in 1997. The decrease was primarily due to lower sales of
instant film. The largest decrease of instant film occurred in emerging markets
due, in part, to a deterioration of economic conditions. The decline was also
partially attributable to the unfavorable impact of foreign exchange and, to a
lesser degree, lower sales of instant cameras other than new products. These
adverse factors were offset, in part, by sales of new products in Japan. In
1998, on a unit basis, shipments to customers of instant cameras increased 18%
while shipments to customers of instant film decreased by low double digits
compared with 1997.
Profit/(Loss) from Operations
In 1998, the Company incurred a loss from operations of $49 million compared
with a loss from operations of $159 million in 1997. The loss from operations in
1998 and 1997 included restructuring and other charges of $50 million in 1998
and $340 million in 1997. The loss from operations in 1998 and 1997 also
included asset write-offs which were unrelated to restructuring of $53 million
in 1998 and $20 million in 1997. Excluding restructuring and other charges and
asset write-offs unrelated to the restructuring described above, profit from
operations was $54 million in 1998 and $201 million in 1997. This decrease was
due primarily to the impact of lower sales of instant film.
Refer to the section titled "Restructuring and Other Charges" below for a
summary of the Company's restructuring program. In addition to the restructuring
charge, the Company recorded $53 million of asset write-offs in 1998 that were
unrelated to restructuring and have been described previously. Refer to the
section titled "1999 Worldwide Results Compared with 1998" above for a summary
of these write-offs.
In 1997, the Company conducted a review of its product offerings and related
inventory positions in connection with its efforts to consolidate operations and
improve profitability in a competitive environment. As a result, the Company
recorded approximately $20 million of above normal inventory write-offs
consisting of $8 million for obsolete products that were being phased out and
for which the Company determined inventories exceeded the existing demand, $6
million related to defective color film pack components for which rework efforts
had proven unsuccessful and $6 million related to a number of slow moving
products to reflect lower of cost or market exposure based on lower selling
prices. The $20 million of write-offs was recorded in cost of goods sold and on
a segment basis was allocated to Global Operations.
Profit from operations in the Americas Region was $309 million in 1998 compared
with $380 million in 1997. The decrease was due principally to the impact of
lower sales of instant film, primarily in the United States and the Region's
emerging markets and, to a lesser degree, asset write-offs. These adverse
factors were offset, in part, by a reduction in sales and marketing spending.
Profit from operations in the European Region was $41 million in 1998 compared
with $109 million in 1997. The decrease was due primarily to the Company's
decision to cease shipments in Russia in the third quarter of 1998 and $30
million of asset write-offs related to the collapse of the Russian economy. In
addition, profit from operations decreased due to the impact of lower sales of
instant film and the Company's decision to reduce inventories primarily in
distributor channels. These adverse factors were offset, in part, by a reduction
in sales and marketing spending.
Profit from operations in the Asia Pacific Region was $61 million in 1998
compared with $76 million in 1997. The decrease was due to the impact of lower
sales of instant film in the Region's emerging markets and, to a lesser degree,
the unfavorable impact of foreign exchange. These adverse factors were offset,
in part, by a reduction in sales and marketing expenses and, to a lesser degree,
the impact of higher sales of new products, principally in Japan.
Global Operations costs were $185 million in 1998 compared with $155 million in
1997. The increase was due primarily to unfavorable
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film manufacturing variances caused by reduced production volumes and start-up
costs for new products. The increase was offset, in part, by lower manufacturing
spending, including savings from restructuring, and lower inventory write-offs.
Research and Development costs were $120 million in 1998 compared with $116
million in 1997. This increase was due primarily to spending related to new
products.
Corporate costs were $155 million in 1998 compared with $453 million in 1997.
Excluding restructuring and other charges of $50 million in 1998 and $340
million in 1997, Corporate costs were $105 million in 1998 and $113 million in
1997. The decrease was due primarily to a reduction in corporate overhead
spending, including savings from restructuring.
Other income was $68 million in 1998 compared with $15 million in 1997. In 1998,
other income included $68 million in gains from the sale of real estate. In
1997, other income included 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 Company determined that the change in the method
of applying FAS 52 was appropriate because of changes in its operational and
financial structure internationally coupled with increasing globalization of the
Company's procurement and manufacturing activities. The gain of $16 million
resulted from the remeasurement of non-functional currency net monetary assets
to functional currencies. As described in the section of this report titled
"Foreign Currency Exchange," the Company engages in a foreign currency borrowing
program to minimize the impact of foreign currency fluctuations on its foreign
currency denominated net assets. The Company reviewed and revised its foreign
currency borrowing program in connection with the change in method of applying
FAS 52. As a result, certain non-functional currency net monetary assets
subject to currency remeasurement existed in the first quarter of 1997. The
resulting gain arose from the significant weakening of certain foreign
currencies relative to the U.S. dollar during the first quarter of 1997. Also in
1997, other income included a combination of a gain on a real estate sale of $19
million, offset by a donation of $19 million to endow charitable giving.
Interest expense increased to $58 million in 1998 compared with $48 million in
1997. The increase was due primarily to higher obligations.
Income tax expense in 1998 was $12 million on a reported loss before income
taxes of $39 million. In 1998, a tax benefit on the net operating loss generated
in the United States was reflected at the 35% U.S. statutory rate. However, an
overall tax charge for the year was reported as a result of the Company
achieving earned taxable income in certain foreign jurisdictions, and taxable
losses and special charges in other countries for which no or little tax
benefits were provided, such as in the case of losses and asset write-downs
associated with Russia. The reported tax benefit for 1997 of $65 million was
based on a worldwide effective tax rate of 34%.
Including restructuring and other charges totaling $50 million in 1998 and $340
million in 1997, the Company recorded a net loss of $51 million or $1.15 basic
loss per common share in 1998 and a net loss of $127 million or $2.81 basic loss
per common share in 1997. Diluted loss per common share was the same as the
basic loss per common share in 1998 and 1997.
RESTRUCTURING AND OTHER CHARGES
In 1997, the Company recorded restructuring and other charges of $340 million
which consisted of severance costs, impairment losses on certain long-lived
assets, other asset write-downs and exit costs associated with certain
businesses. Of this amount, approximately $17 million represented inventory
write-downs which were included in cost of goods sold. In 1998, the Company
recorded a $50 million restructuring charge related to an expansion of the
severance component of the 1997 program. These charges (the "1997 Program") were
allocated to the non-segment Corporate category and were undertaken as the
result of management's assessment of the Company's infrastructure, to strengthen
its competitive cost position, to streamline operations and to improve
profitability by consolidating and selling manufacturing facilities and reducing
corporate overhead. The strategic objective of the 1997 Program was to reduce
the cost of developing, manufacturing, selling and distributing the Company's
products; to change and improve business processes; to deliver new products more
efficiently; to improve financial performance; and to fundamentally alter how
the Company conducts business globally.
Approximately $150 million of the charges recorded in 1997 for the 1997 Program
related to an involuntary severance program under which approximately 1,800
employees (consisting of sales and marketing employees in the regional segments:
Americas -16%; Europe -24%; Asia Pacific -9%; primarily manufacturing
employees in Global Operations -36%; research and engineering employees in
Research and Development -5%; and administrative employees in the non-segment
Corporate category -10%) were expected to leave the Company. The 1998 extension
to this involuntary severance program added approximately 1,000 additional
employees (consisting of sales and marketing employees in the regional segments:
Americas -7%; Europe -14%; Asia Pacific -3%; primarily manufacturing
employees in Global Operations -65%; research and engineering employees in
Research and Development -10%; and administrative employees in the non-segment
Corporate category -1%). At December 31, 1997, no terminations or severance
payments had occurred under the 1997 Program. At December 31, 1998,
approximately 1,360 of the 2,800 expected terminations
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had occurred and approximately $69 million of severance payments had been made
related to the 1997 Program. At December 31, 1999, approximately 2,580 of the
expected terminations had occurred and approximately $138 million of severance
payments had been made related to the 1997 Program. The Company expects the
remaining terminations to occur by mid-2000 and the severance payments to be
substantially completed by the end of 2000. Of the total amount provided for
severance, approximately $10 million related to pension curtailment costs and $5
million related to pension enhancement costs incurred primarily for certain non-
U.S. employees expected to be terminated under this program.
In the Americas, European and Asia Pacific segments, the major impact of the
1997 Program consists of reducing the number of employees associated with sales
and marketing activities. The impact of the 1997 Program in the European segment
also consists of consolidating back office activities in a centralized location.
The impact of the 1997 Program in Global Operations consists of reducing the
number of direct and indirect employees located at manufacturing facilities in
both the United States and Europe that are associated with the manufacture of
instant film and, to a lesser degree, instant hardware, along with employees
required to procure goods and services and distribute finished products. The
1997 Program in Global Operations also included employees at the Company's
chemical manufacturing facility in Freetown, Massachusetts which was sold in
February 1998.
The impact of the 1997 Program in the Research and Development segment consists
of reducing the number of employees associated with research, engineering and
development activities in the United States and to focus the Company's research
and development activities on its core imaging business.
The 1997 Program affects the non-segment Corporate category by reducing the
number of employees in the United States that support functions such as central
marketing, finance, legal, information management, administration, human
resources and facilities support.
In addition to severance, the asset impairment portion of the 1997 Program
amounted to approximately $163 million. Of the $163 million, approximately $106
million 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 New Bedford coating facility was designed and
specially built to manufacture large volumes of high quality media for the
Company's graphics and medical diagnostic imaging businesses. However, growth of
these businesses did not materialize as planned and as a result, the Company
continues to pursue several strategic options for the future use of this
facility, including outright sale. Approximately $22 million of the asset
impairment related to the write-off of battery assembly equipment that was not
required to support anticipated production requirements. This equipment was
initially constructed in anticipation of significant growth in instant film
sales in the emerging markets of Russia and Asia. During 1997, it became clear
that these volume assumptions were no longer valid based on weakness in demand
and an unfavorable outlook in those emerging markets. In 1997, the Company
abandoned this special-purpose equipment in place because it believed that it
had no future use or salvage value and sale to a third party was not likely.
The $163 million also included a loss of approximately $22 million on the sale
of the Company's underutilized chemical manufacturing facility in Freetown,
Massachusetts. The Freetown facility was used to manufacture certain chemical
components of the Company's instant film. Because of competitive changes in the
specialty chemical industry and because expectations of future sales of instant
film in certain emerging markets did not materialize, the Company sought the
outright sale of the Freetown facility. The loss on the sale of the Freetown
facility was based on the terms of a purchase and sale agreement and the terms
of a long-term supply agreement under which the Company agreed to purchase
certain chemicals used to manufacture its instant film. The Company entered both
the purchase and sale agreement and the long-term supply agreement in the fourth
quarter of 1997. The sale of the Freetown facility was completed in the first
quarter of 1998. Additionally, the asset impairment portion of the 1997 Program
included approximately $13 million related to other fixed assets which were not
individually material. The write-down of these fixed assets occurred because the
assets were no longer required in the Company's U.S. manufacturing operations
due primarily to the consolidation of certain manufacturing operations. The
assets related to the asset impairment portion of the 1997 Program were
primarily located in Global Operations. The Company also recorded approximately
$4 million for exit costs and, to a lesser degree, severance liabilities related
to the sale of the Freetown facility.
In addition to the severance and asset write-downs, the balance of the 1997
Program consisted of approximately $17 million of inventory write-downs and
approximately $6 million of exit costs. The inventory write-downs consisted of
reserves for chemical inventories made obsolete by the sale of the Freetown
facility, lower of cost or market provisions on inventories of a first
generation digital camera and, to lesser degree, inventory reserves related to
the Company's decision to exit a portion of its holography business. The exit
costs related primarily to lease and contract terminations and other costs
directly related to restructuring.
Under the 1997 Program, the Company realized benefits of approximately $55
million in 1998 and an additional $60 million in 1999. The Company expects to
further benefit by approximately $25 million in 2000 bringing the estimated
total benefit from the 1997 Program to approximately $140 million on an
annualized basis after the benefits are fully realized.
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FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's cash and cash equivalents totaled $92
million, compared with $105 million at December 31, 1998. The primary sources of
cash in 1999 were $131 million generated from operating activities and $68
million from the sale of real estate and other investments. The primary sources
of cash in 1998 were $151 million from the sale of real estate and fixed assets,
$98 million generated from operating activities and $21 million generated from
financing activities.
Working capital was essentially unchanged at $367 million at December 31, 1999,
compared with $360 million at December 31, 1998, despite higher revenues in the
fourth quarter of 1999 compared with the fourth quarter of 1998.
In 1999, capital spending totaled $170 million and depreciation expense was $106
million compared with capital spending of $191 million and depreciation expense
of $91 million in 1998. The decrease in capital spending was due to lower
spending for on-going operations and, to a lesser degree, the consolidation of
real estate. The decrease was offset, in part, by increases in spending for new
products and the Company's new enterprise-wide software system. Capital
expenditures in 2000 are expected to be approximately $150 million, of which
approximately $55 million will be used for the maintenance of the Company's
property, plant and equipment.
In addition to capital expenditures and working capital requirements during
1999, the Company expended approximately $69 million for severance payments
relating to the 1997 Program and $27 million to pay dividends to common
stockholders. In 1998, the Company expended $69 million for severance payments
relating to the 1997 Program, $46 million to repurchase the Company's common
stock, $27 million to pay dividends to common stockholders and $19 million to
make two acquisitions in the digital imaging industry.
The Company has financed its operations with the following sources of debt: the
Amended Credit Agreement (defined below), the U.K. Credit Agreement (defined
below), short-term lines of credit and the Company's outstanding 6 3/4% Notes
due 2002, 7 1/4% Notes due 2007 and 11 1/2% Notes due 2006.
In December 1998, the Company amended its existing $350 million Credit Agreement
to provide loans of up to $350 million on a revolving basis through December 31,
2001. The amendment provided the lenders the right to incorporate covenants
given to the holders of notes or other securities of the Company which, in the
lenders judgment are more restrictive. The lenders exercised their right to
incorporate certain covenants of the 2006 Notes (defined below) in Amendment No.
1., dated March 31, 1999, to the Amended Credit Agreement (hereinafter referred
to as the "Amended Credit Agreement").
Funds borrowed under the Amended Credit Agreement bear interest, at the
Company's option, at either the prime rate of Morgan Guaranty Trust Company
("Prime") plus a margin or LIBOR on euro-dollar loans plus a margin. The
margins range from 0.085% to 2.0% for Prime-based loans and from 0.275% to 3.0%
for euro-dollar loans based on the Company's credit rating. In addition, the
Company pays the lenders a commitment fee on unused commitments ranging from 0%
to 0.025% on an annual basis depending on the Company's credit rating, and a fee
to the administrative agent.
In connection with the Amended Credit Agreement, the Company entered into a
collateral agreement and certain related documents that granted the lenders a
first security interest in certain of the Company's domestic inventories and
trade accounts receivable. Under the collateral agreement, the security will be
released if the Company's credit rating is BBB-or higher by Standard and Poor's
("S&P") and Baa3 or higher by Moody's Investor's Services, Inc. ("Moody's").
On August 3, 1999, the Company's wholly-owned subsidiary, Polaroid (U.K.)
Limited ("Polaroid U.K."), as borrower, and the Company, as guarantor, entered
into a new loan agreement with Deutsche Bank A.G. and ABN AMRO Bank NV for a
maximum commitment of 72.5 million euros (approximately $73 million at December
31, 1999) (the "U.K. Credit Agreement") which refinanced most of the Company's
existing short-term lines of credit with these banks. Borrowings under this
facility bear a margin of approximately 25 basis points higher than that paid
under the Amended Credit Agreement. The facility is scheduled to mature on
December 31, 2001. Several of the Company's foreign subsidiaries granted the
lenders under this facility a security interest in certain foreign inventories
and receivables.
The Amended Credit Agreement and the U.K. Credit Agreement require the Company
to maintain financial ratios related to the maximum level of debt to earnings
before interest, taxes, depreciation and amortization and minimum interest
coverage. In addition to financial ratios, the Amended Credit Agreement and the
U.K. Credit Agreement restrict, among other things, the Company's ability to do
the following: make certain capital expenditures; make certain payments; incur
debt in addition to the 2006 Notes; incur certain liens; make certain
investments; enter into certain sale leaseback transactions; merge, consolidate,
sell or transfer all or substantially all of the Company's assets subject to
certain financial conditions and to enter into certain transactions with
affiliates.
The Amended Credit Agreement and the U.K. Credit Agreement also restrict the
Company's ability to pay dividends and repurchase stock. The agreements limit
the payment of dividends and repurchase of Company stock to $3.75 million per
quarter in excess of the value of the shares of the Company's stock issued to
the Retirement Savings Plan and proceeds from the exercise of stock options on a
cumulative
POLAROID AR99
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS, CONTINUED
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basis. Because the Company issues shares of its common stock to all qualified
United States employees as part of their compensation, this amount is expected
to total approximately $13 million in 2000. As a result, the Company believes it
is likely to be able to continue the current dividend payment of $.60 per share
per annum.
At December 31, 1998, the Company had several short-term lines of credit that
totaled $204 million to support international operations and $25 million to
support U.S. operations. At December 31, 1999, in addition to the Amended Credit
Agreement and the U.K. Credit Agreement, the Company had several short-term
lines of credit that totaled $23 million to support international operations. As
previously noted, the Company replaced a portion of its short-term lines of
credit with the U.K. Credit Agreement. The Company was further able to reduce
its short-term lines of credit because it began to use forward exchange
contracts to manage its exposure to currency exchange fluctuations. A summary of
the Company's strategy to manage its exposure to currency exchange fluctuations
is provided in the section of this report titled "Foreign Currency Exchange"
below. The weighted average interest rate on amounts outstanding under short-
term lines of credit was 4.0% at December 31, 1998 and 3.2% at December 31,
1999.
At December 31, 1999, the Company had $259 million outstanding in short-term
debt. The amounts outstanding were comprised of $235 million under the Amended
Credit Agreement, $8 million under the U.K. Credit Agreement and $16 million
under short-term lines of credit. Subject to the limitations in the Amended
Credit Agreement and the U.K. Credit Agreement, at December 31, 1999, the
Company had an additional $115 million available to it under the Amended Credit
Agreement, an additional $65 million available under the U.K. Credit Agreement,
and an additional $7 million available under short-term lines of credit. At
December 31, 1998, the Company had $332 million outstanding in short-term debt
which was comprised of $220 million of borrowings under the Company's Credit
Agreement and $112 million borrowed under short-term lines of credit. Subject
to the limitation in the Company's $350 million Credit Agreement, at December
31, 1998, the Company had an additional $130 million available to it under the
Credit Agreement, an additional $25 million available under short-term lines of
credit to support U.S. operations and an additional $92 million available under
short-term lines of credit to support international operations.
In February 1999, the Company issued $275 million of 11 1/2% Notes due
February 15, 2006 (the "2006 Notes"). The 2006 Notes were placed at par value.
The net proceeds of $268 million from the sale of the 2006 Notes were used
primarily for the payment of $200 million aggregate principal amount of the
Company's 8% Notes which were due on March 15, 1999 and for general corporate
purposes, including reducing amounts outstanding under the Amended Credit
Agreement and short-term lines of credit. The indenture, pursuant to which the
2006 Notes were issued, contains certain covenants that restrict, among other
things: the Company and its subsidiaries from making certain restricted
payments, including dividends on and the purchase of the Company's common stock
and certain other payments; incurring additional debt and issuing preferred
stock; incurring certain liens; entering into sale leaseback transactions;
entering into certain transactions with affiliates and entering into certain
mergers and consolidations or selling all or substantially all of the properties
or assets of the Company.
In February 2000, the Company filed a shelf registration statement with the
Securities and Exchange Commission to issue securities of up to $275 million.
When combined with $225 million of securities that remain unissued under an
existing shelf registration statement, the Company can issue up to an additional
$500 million of debt securities, preferred stock, depository shares, common
stock, preferred stock rights, stock purchase contracts, stock purchase units,
warrants and warrant units.
The Company's cost of borrowing is dependent, in part, on the Company's
corporate long-term debt credit ratings. Currently, the Company's long-term
debt is rated BB-by S&P, Ba3 by Moody's and BB by Duff & Phelps Credit Ratings
Co.'s ("D&P"). In early 1999, Moody's lowered its long-term debt rating from
Baa3 to Ba3 with a negative outlook. In February 2000, Moody's upgraded its
outlook from negative to stable.
In October 1997, the Company's Board of Directors authorized the repurchase of
up to five million shares of the Company's common stock over three years. In
1999, the Company did not repurchase any of its common stock. As of December 31,
1999, approximately 2.8 million shares remain to be purchased under the current
program. Given the restricted payment covenants contained in the Amended Credit
Agreement, the U.K. Credit Agreement and the 2006 Notes, it is unlikely that the
Company will complete the repurchase program within the three year period.
The Company believes that the availability of funds under the Amended Credit
Agreement, the U.K. Credit Agreement, short-term lines of credit and funds
generated from operations, together with additional borrowing capacity will be
adequate for at least the next twelve months to meet working capital needs, to
fund spending for growth and maintenance of existing operations and make
severance payments associated with the 1997 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 exchange rate movement can be positive or
negative in any given period. The Company's ability to counteract currency
exchange rate movement is
POLAROID AR99
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primarily dependent on pricing in local markets and, to a lesser degree, in the
short-term, on hedging through nonfunctional currency denominated borrowings,
forward exchange contracts and the purchase of currency options.
The Company maintains a Monetary Control Center (the "MCC") which operates under
written policies and procedures that define the day-to-day operating
guidelines, including exposure limits to contract for nonfunctional currency
denominated borrowings, currency exchange swaps, forward exchange contracts and
currency options. 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 supervisory committee detailing foreign
currency activities.
To minimize the impact of currency fluctuations on net monetary assets
denominated in currencies other than the relevant functional currency
("nonfunctional currencies"), the Company engages in nonfunctional currency
denominated borrowings. The Company determines the aggregate amount of such
borrowings based on forecasts of each entity's nonfunctional currency
denominated net monetary asset position and the relative strength of the
functional currencies compared with the nonfunctional currencies. These
borrowings create nonfunctional currency denominated liabilities that hedge the
Company's nonfunctional currency denominated net monetary 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. The amount of the Company's outstanding short-term
debt incurred for hedging purposes was $107 million at December 31, 1998 and $24
million at December 31, 1999.
Periodically, the Company has used 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
was used to replace a hedge, the currency received by the Company in the spot
market component of the currency exchange swap was used to close out the
borrowings, and, simultaneously, the hedge was reinstituted through a forward
contract with terms not exceeding six months. The Company did not enter into
currency exchange swaps for trading purposes. At December 31, 1998, the
aggregate notional value of the Company's outstanding foreign exchange swap
contracts was $50 million. There were no forward exchange swap contracts
outstanding at December 31, 1999.
Alternatively, the Company may use forward exchange contracts to minimize the
impact of currency fluctuations on its net monetary assets denominated in
nonfunctional currencies. The term of these contracts typically does not exceed
six months. The Company does not enter into forward exchange contracts for
trading purposes. There were no forward exchange contracts outstanding at
December 31, 1998. At December 31, 1999, the aggregate notional value of the
Company's outstanding forward exchange contracts was $102 million.
The Company has limited flexibility to increase prices in local currencies and
offset the adverse impact of foreign exchange. As a result, the Company
purchases U.S. dollar call/foreign currency put options which allows it to
protect a portion of its expected foreign currency denominated revenues from
adverse currency exchange movement. The term of purchased options typically does
not exceed 18 months, and all of the option contracts outstanding at December
31, 1999 expire in 2000. The Company does not write options or purchase options
for trading purposes. The notional value of the Company's outstanding option
contracts, which were primarily denominated in Japanese yen and euros, was $240
million at December 31, 1998 and $131 million at December 31, 1999.
IMPACT OF INFLATION
Inflation continues to be a factor in many countries in which the Company does
business. The Company's pricing strategy and continuing efficiency improvements
have offset to a considerable degree inflation and normal cost increases. The
overall inflationary impact on the Company's earnings has not been material.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standards Board Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133") that establishes accounting and
reporting requirements for derivative instruments and for hedging activities.
FAS 133 requires companies to recognize all derivatives as either assets or
liabilities in the statement of financial position at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge of
the exposures to changes in fair value of recognized assets or liabilities or
unrecognized firm commitments, a hedge of the exposure to variable cash flows of
a forecasted transaction, or a hedge of the foreign currency exposure of a net
investment in a foreign operation, unrecognized firm commitments, an
available-for-sale security or a foreign-currency denominated forecasted
transaction. The accounting for changes in fair value under FAS 133 depends on
the intended use of the derivative and the resulting designation. In June 1999,
the FASB decided that the effective date for adopting the requirements of FAS
133 should be delayed one year to fiscal years beginning after June 15, 2000.
This delay, published as Financial Accounting Standards Board Statement No. 137,
applies to quarterly and annual financial statements. The Company is currently
evaluating the effect FAS 133 will have on the results of its operations and its
financial position.
POLAROID AR99
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EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
(the "legacy currencies") and one common currency (the "euro"). The
participating countries adopted the euro as their common currency on January 1,
1999. The euro is now traded on currency exchanges and may be used in business
transactions. On January 1, 2002, new euro-denominated bills and coins will be
issued by the participating countries. The legacy currencies will then be
withdrawn and will cease to be legal tender effective June 30, 2002. During the
period from January 1, 1999 to June 30, 2002, parties may use either the euro or
a participating country's legacy currency as legal tender.
In 1998, the Company formed an Economic and Monetary Union Steering Committee
and Project Team (the "EMU Committee"). The EMU Committee has analyzed the
impact of the euro conversion on the Company in a number of areas, including the
Company's information systems, product pricing, finance and banking resources,
foreign exchange management, contracts and accounting and tax departments. While
the Company is in the process of making certain adjustments to its business and
its operations to accommodate the euro conversion, the EMU Committee believes,
based on information available at this time and on several assumptions, that the
euro conversion process will not have a material adverse impact on the Company's
financial position or the results of its operations.
YEAR 2000 DATE CONVERSION
The Year 2000 problem is the result of computer programs and embedded chips
being written with two digits rather than four to define the applicable year. To
prepare for the year 2000, the Company formed a Year 2000 Steering Committee
(the "Year 2000 Committee") to identify the major areas of the Company that
could be affected and manage the Year 2000 readiness plan. By the end of 1999,
the Year 2000 Committee had completed its Year 2000 readiness plan and any
required remediation. As a result, the Company was well prepared for the
transition to the Year 2000 and did not experience any significant Year 2000
problems with respect to the major areas identified by the Year 2000 Committee.
During the actual date rollover to 2000, the Company implemented and monitored
its plan and was able to continue its normal business activities. Thus far, the
Company has not experienced any major Year 2000 problems and has experienced
only a few minor Year 2000 issues. The Company continues to monitor its systems
and applications, with an emphasis on data accuracy, to uncover any hidden
transition problems but has no reason to expect any such issues.
In preparing for the transition to the Year 2000, the Year 2000 Committee
reviewed its business information systems, hardware and software, embedded chips
and related systems, physical plants and equipment and products. All of the
areas identified were tested and remediated or replaced where needed. The Year
2000 Committee also communicated with material third-parties, including
suppliers and customers, regarding their state of readiness. In addition, the
Company had developed contingency plans to address the most reasonably likely
worst case scenario resulting from Year 2000 problems. The Company executed a
portion of its contingency plans in the fourth quarter of 1999 by ordering an
additional one-month supply of certain critical raw materials to supplement
inventory levels and provide a buffer in case of unanticipated production or
supply issues. In addition, the Company established a Year 2000 Command Center
to serve as a hotline for reporting problems and a central area for deploying
resources. The Company will continue to operate the Year 2000 Command Center
until it is no longer deemed necessary.
The Year 2000 Committee had forecasted that the total cost of completing the
Year 2000 project to be approximately $22 million to $25 million. The projected
costs include internal staff costs associated with the Year 2000 readiness plan
but does not include the estimated costs of the Company's new enterprise-wide
software system. The Company had spent approximately $22 million on the Year
2000 readiness plan at December 31, 1999.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Some statements in this report may be forward looking in nature, or "forward-
looking statements" as defined in the Private Securities Litigation Reform Act
of 1995 (the "Act"). These statements may be identified by the use of forward-
looking words or phrases such as "believe", "expect", "anticipate", "should",
"plan", "goal", "outlook", "target", "intend", "will", "estimate" and
"potential" among others. 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 in or
implied by any forward-looking statement as a result of a wide variety of
factors, which include, but are not limited to those set forth below. Many of
the important factors below have been discussed in prior filings by the Company
with the Securities and Exchange Commission.
Ability to Revitalize the Core Imaging Business
Revitalizing the Company's core imaging business is an important part of its
strategy. To revitalize the core imaging business, the Company's plan calls for,
among other steps, the introduction of a number of new products each year,
increased instant camera sales at profitable prices, continued penetration of
retail outlets that are frequented by teens and young adults, the continued
reduction of costs and the improvement of operating efficiencies from
restructuring. The Company's plan to increase profits relies on successful
implementation of this strategy.
As part of this strategy, the Company is promoting new uses of, and new markets
for, its products and technology and is targeting new demographic segments, such
as children, teens and young adults, through product innovations and marketing
campaigns. In addition to
POLAROID AR99
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these marketing campaigns, it is necessary to promptly design, develop,
manufacture, market and deliver innovative imaging products to market. There can
be no assurance that the Company will be able to effectively implement this
strategy on a continuous basis. If this strategy is not successful, the
Company's business and results of operations could be negatively impacted.
Similarly, a decline in retail demand could have a material effect on the
Company's business and financial results.
Developing Digital Imaging Products Market
The Company's plans to develop its digital imaging business call for, among
other things, the transfer of the Company's technology and expertise in instant
imaging to the developing market for digital imaging products, the
commercialization of products that show promise and the development, manufacture
and marketing of new digital imaging products in anticipation of changing trends
among end-users of these products. The Company faces several risks in
implementing this strategy, including its ability to successfully anticipate and
respond to trends in the rapidly changing digital imaging business, to develop
and market new digital imaging products in a timely and profitable manner, to
develop relationships and alliances with other companies in the field and to
market digital imaging products in a focused and effective way. The digital
imaging business is highly competitive. In addition, the digital imaging
business, for many companies, carries high research and development and other
costs and is a relatively low margin business. There can be no assurance that
the Company will be able to compete effectively or profitably in the digital
imaging business on a continuous basis. In addition, the market for digital
imaging products is evolving in rapid and, in some cases, unpredictable ways and
may erode the growth or absolute size of the Company's instant imaging business.
Highly Competitive Markets
The timing and introduction of new products by the Company's competitors could
have a material negative impact on the Company's introduction of new or enhanced
products. The Company has competitors worldwide, ranging from large corporations
to smaller and more specialized companies. In the instant imaging market, the
Company faces competition from Fuji Photo Film Co., Ltd. ("Fuji"), which has
introduced selected new products in Japan and Europe. In the digital imaging
market, the Company faces competition from Eastman Kodak Company, Fuji, Hewlett-
Packard Company, Canon U.S.A., Inc., Sony Corporation, and others. Many of the
Company's competitors are larger and have greater financial and other resources.
There can be no assurance that the Company will be able to compete successfully
on a continuous basis and its failure to do so could have a material adverse
effect on its business and financial results.
Net Losses
The Company has experienced net losses in prior years. If net losses were to
recur, the Company may be required to find additional sources of funding to fund
operating deficits, implement its business strategy and meet anticipated capital
expenditures, research and development costs and financing commitments. There
can be no assurance that if the Company needs to obtain additional financing,
that it will find it on acceptable terms or that it would be permitted under the
Amended Credit Agreement, the U.K. Credit Agreement or the indenture governing
the 2006 Notes.
Substantial Level of Debt
The Company has a significant amount of debt. The Company's level of debt could
have important consequences to investors or stockholders. For example, it could:
make it more difficult to satisfy its debt and other obligations; increase the
Company's vulnerability to general adverse economic and industry conditions;
limit the Company's ability to fund future working capital needs, capital
expenditures, acquisitions, research and development costs and other general
corporate requirements; require the Company to dedicate a substantial portion of
its cash flow from operations to payments on its debt, thereby reducing the
availability of the Company's cash flow to fund working capital needs, capital
expenditures, acquisitions, research and development costs and other general
corporate requirements; limit the Company's flexibility in planning for, or
reacting to, changes in its business and the industry in which it operates;
place the Company at a competitive disadvantage compared with its competitors
that are less leveraged and limit its ability to borrow additional funds.
Restrictions Imposed by the Company's Debt and Financial Flexibility
The Company has financial and other restrictive covenants in the Company's debt
instruments including restrictions in the event of a change in control. Failure
to comply with these covenants could result in an event of default under the
Amended Credit Agreement, the U.K. Credit Agreement, the indenture governing the
2006 Notes and certain of the agreements governing short-term lines of credit.
If such default is not cured or waived, it could have a material adverse effect
on the Company.
The Company's ability to make payments on and to refinance its debt, to execute
its business strategy, to make capital expenditures and to fund research and
development costs will depend on its ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory, exchange rate fluctuation and other
factors, including retail demand and dealer inventory practices, that are beyond
the Company's control. It is also subject to the Company's success in
implementing its strategies. There can be no assurance that the Company will
generate sufficient cash flow or that future borrowings will be available to the
Company under the Amended Credit Agreement, the U.K. Credit Agreement or short-
term lines of credit in an amount sufficient to enable the Company to repay its
debt and to fund other liquidity needs.
POLAROID AR99
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS, CONTINUED
- --------------------------------------------------------------------------------
Customer Concentration
One customer, Wal-Mart Stores, Inc., (Wal-Mart) comprises over 10% of the
Company's net sales. Net sales to this customer as a percentage of the Company's
annual net sales totaled 12.5% in 1997, 13.0% in 1998 and 14.8% in 1999. If
Wal-Mart or several of the Company's other top customers were to stop purchasing
the Company's products or significantly change their purchasing practices, there
would be a material adverse effect on the Company's business and financial
results.
Foreign Exchange Rate Fluctuations
The Company sells and markets its products worldwide. A major risk associated
with the Company's worldwide operations is the fluctuation of foreign exchange
rates, particularly the Japanese yen and euro. Although the Company engages in
some foreign currency hedging, fluctuations in foreign currencies could have a
material adverse effect on the business and financial results of the Company.
Failure to Reduce Cycle Time
The Company has already reduced and is committed to further reduce 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.
Contract Manufacturing, Raw Materials and Supplies
The Company is dependent on certain sole source suppliers for certain finished
products and components. The Company uses vendors to supply some of the raw
materials and supplies necessary for the manufacture of its products, including
chemicals, polyester film base, specialty paper and components. The Company is
dependent on these suppliers' ability to meet its production needs at a
competitive cost and quality.
Loss of Patents and Trademarks
The Company obtains patents where feasible to protect its investment in research
and development. The ownership of patents contributes to the Company's ability
to use its inventions and at the same time may provide significant patent
license revenue. In addition, the Company owns a number of valuable trademarks,
including the trademark "Polaroid", which are important to its business. The
loss of certain significant patents or trademarks would have a material adverse
effect on the Company's business and financial results.
Potential Exposure to Environmental Liabilities
The Company's businesses and facilities are subject to a number of federal,
state and local laws and regulations that govern, among other things, the
discharge of hazardous materials into the air and water as well as the handling,
storage and disposal of such materials. Under certain environmental laws, a
current or previous owner or operator of land may be liable for the costs of
investigation, removal or remediation of hazardous materials at that property.
These laws typically impose a liability whether or not the owner or operator of
the land knew of, or was responsible for, the presence of the hazardous
materials or for the disposal or treatment of hazardous materials. The owner or
operator may also be liable for the costs of investigation, removal or
remediation of such substances at the disposal or treatment site, regardless of
whether the affected site is owned or operated by that party.
Because the Company owns and operates a number of facilities and because it
arranges for the disposal of hazardous materials at many disposal sites, the
Company expects to incur costs for investigation, removal and remediation, as
well as capital costs associated with the compliance of these laws. In addition,
changes in environmental laws or unexpected investigations and clean-up costs
could have a material adverse effect on the Company's business and financial
condition.
Dependence on Key Personnel
The Company's success depends on the continued contribution of a number of key
senior managers and the loss of the services provided by them could have a
material adverse effect on the Company. In particular, the loss of services
provided by Gary T. DiCamillo, the Chairman and Chief Executive Officer, as well
as certain other senior managers, could have a material adverse effect on the
Company's business and development. If that were to occur, there is no assurance
that the Company would be able to locate qualified personnel or employ them on
acceptable terms or on a timely basis.
In addition, the Company's continued growth depends in part on its continuing
ability to attract and retain qualified senior managers who can implement the
Company's business strategy. There can be no assurance that the Company will be
able to attract and retain such senior managers.
Impact of the Year 2000 Problem
The failure of the Company's material third-party customers, suppliers and
vendors to make their systems Year 2000 compliant could have a material adverse
impact on the results of operations and financial condition of the Company. The
Year 2000 problem continues to have certain inherent risks that are difficult to
measure and that could arise during 2000. There can be no assurance that the
Company or its material third party customers, suppliers and vendors will
foresee all Year 2000 problems that could yet occur during the year and be able
to correct them on a timely basis.
OTHER MATTERS
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 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 aggregate will not
have a material adverse effect on the financial condition or operating results
of the Company.
POLAROID AR99
32
<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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of their
operations and cash flows for each of the years in the three-year period ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
January 24, 2000, except for Note 8 for which the date is February 14, 2000
- --------------------------------------------------------------------------------
MANAGEMENT'S REPORT
- --------------------------------------------------------------------------------
Financial Reporting and Controls
The financial statements presented in this report were prepared in accordance
with generally accepted accounting principles. The Company maintains a number of
measures to assure the accuracy of its financial information. To that end, a
system of internal accounting controls and procedures has been developed to
provide reasonable assurance that assets are safeguarded and that transactions
are recorded and reported properly. The Company also maintains financial
policies and procedures, and a program of internal audits, management reviews
and careful selection and training of qualified personnel.
The Audit Committee is composed 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
Chairman
and Chief Executive Officer
/s/ JUDITH G. BOYNTON
Executive Vice President,
Business Development and Chief Financial Officer
POLAROID AR99
33
<PAGE>
FINANCIAL STATEMENTS: CONSOLIDATED STATEMENT OF EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Polaroid Corporation and Subsidiary Companies Years ended December 31,
(In millions, except per share data) 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 2,146.4 $ 1,845.9 $ 1,978.6
Cost of goods sold 1,229.8 1,108.4 1,170.5
Marketing, research, engineering and administrative expenses (Note 2) 752.2 736.5 700.5
Restructuring and other (Note 2) 323.5 50.0 --
--------- --------- ---------
Total costs 2,305.5 1,894.9 1,871.0
--------- --------- ---------
Profit/(loss) from operations (159.1) (49.0) 107.6
Other income/(expense):
Interest income 3.7 2.9 2.7
Other 11.3 64.8 (19.5)
--------- --------- ---------
Total other income/(expense) 15.0 67.7 (16.8)
Interest expense 47.8 57.6 77.4
--------- --------- ---------
Earnings/(loss) before income tax expense/(benefit) (191.9) (38.9) 13.4
Federal, state and foreign income tax expense/(benefit) (Note 4) (65.2) 12.1 4.7
--------- --------- ---------
Net earnings/(loss) $ (126.7) $ (51.0) $ 8.7
========= ========= =========
Basic earnings/(loss) per common share (Note 1) $ (2.81) $ (1.15) $ .20
Diluted earnings/(loss) per common share (Note 1) $ (2.81) $ (1.15) $ .20
Cash dividends per common share $ .60 $ .60 $ .60
</TABLE>
See accompanying notes to consolidated financial statements.
POLAROID AR99
34
<PAGE>
FINANCIAL STATEMENTS: CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Polaroid Corporation and Subsidiary Companies December 31,
(In millions except number of shares) 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 105.0 $ 92.0
Receivables, less allowances of $42.0 in 1998 and $23.9 in 1999 (Note 6) 459.6 489.7
Inventories (Notes 5 and 6) 533.3 395.6
Prepaid expenses and other assets (Note 4) 195.5 139.6
-------- --------
Total current assets 1,293.4 1,116.9
Property, plant and equipment:
Land 29.4 14.7
Buildings 351.4 322.7
Machinery and equipment 1,450.5 1,620.1
Construction in progress 144.6 65.5
-------- --------
Total property, plant and equipment 1,975.9 2,023.0
Less accumulated depreciation 1,409.4 1,423.8
-------- --------
Net property, plant and equipment 566.5 599.2
Deferred tax assets (Note 4) 208.2 243.7
Other assets 129.6 80.2
-------- --------
Total assets $2,197.7 $2,040.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt (Note 6) $ 331.7 $ 259.4
Payables and accruals (Note 7) 358.4 338.0
Compensation and benefits (Notes 10 and 11) 208.5 138.1
Federal, state and foreign income taxes (Note 4) 34.4 14.7
-------- --------
Total current liabilities 933.0 750.2
Long-term debt (Note 8) 497.4 573.0
Accrued postretirement benefits (Note 11) 241.9 234.8
Other long-term liabilities 135.5 111.5
-------- --------
Total liabilities 1,807.8 1,669.5
Preferred Stock, Series A and D, $1 par value, authorized 20,000,000 shares; all shares unissued -- --
Common stockholders' equity (Note 9)
Common stock, $1 par value, authorized 150,000,000 shares (75,427,550 shares issued in 1998 and 1999) 75.4 75.4
Additional paid-in capital 413.4 395.2
Retained earnings 1,226.7 1,208.8
Accumulated other comprehensive income (33.4) (48.9)
Less: Treasury stock, at cost (31,437,933 and 30,811,263 shares in 1998 and 1999, respectively) 1,291.5 1,259.7
Deferred compensation .7 .3
-------- --------
Total common stockholders' equity 389.9 370.5
-------- --------
Total liabilities and common stockholders' equity $2,197.7 $2,040.0
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
POLAROID AR99
35
<PAGE>
FINANCIAL STATEMENTS: CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Polaroid Corporation and Subsidiary Companies Years ended December 31,
(In millions) 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings/(loss) $(126.7) $ (51.0) $ 8.7
Depreciation of property, plant and equipment 111.5 90.7 105.9
Decrease/(increase) in receivables (36.2) 79.0 (52.7)
Decrease/(increase) in inventories 9.8 (28.4) 88.0
Decrease/(increase) in prepaids and other assets (75.6) 39.0 62.4
Increase/(decrease) in payables and accruals (28.6) 25.3 (16.5)
Increase/(decrease) in compensation and benefits 68.9 (21.0) (72.5)
Decrease in federal, state and foreign income taxes payable (4.3) (29.9) (54.0)
Gain on the sale of real estate (19.5) (68.2) (11.7)
Contribution of real estate 19.1 -- --
Other non-cash items 203.7 62.2 73.8
------- ------- -------
Net cash provided by operating activities 122.1 97.7 131.4
------- ------- -------
Cash flows from investing activities
Decrease/(increase) in other assets (31.5) (25.4) 16.5
Additions to property, plant and equipment (134.3) (191.1) (170.5)
Proceeds from the sale of property, plant and equipment 7.7 150.5 36.6
Acquisitions, net of cash acquired -- (18.8) --
------- ------- -------
Net cash used by investing activities (158.1) (84.8) (117.4)
------- ------- -------
Cash flows from financing activities
Net increase/(decrease) in short-term debt (maturities 90 days or less) 138.4 131.2 (86.2)
Short-term debt (maturities of more than 90 days)
Proceeds 44.8 73.0 41.8
Payments (63.7) (117.2) (24.9)
Proceeds from issuance of long-term debt 296.6 -- 268.2
Repayment of long-term debt (327.8) -- (200.0)
Cash dividends paid (27.1) (26.5) (26.6)
Purchase of treasury stock (57.4) (45.5) --
Proceeds from issuance of shares in connection with stock incentive plan 31.7 6.0 .3
------- ------- -------
Net cash provided/(used) by financing activities 35.5 21.0 (27.4)
------- ------- -------
Effect of exchange rate changes on cash (4.3) 3.1 .4
------- ------- -------
Net increase/(decrease) in cash and cash equivalents (4.8) 37.0 (13.0)
Cash and cash equivalents at beginning of year 72.8 68.0 105.0
------- ------- -------
Cash and cash equivalents at end of year $ 68.0 $ 105.0 $ 92.0
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
POLAROID AR99
36
<PAGE>
FINANCIAL STATEMENTS: CONSOLIDATED STATEMENT OF CHANGES
IN COMMON STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Polaroid Corporation and Subsidiary Companies
Years ended December 31, 1997, 1998 and 1999
(In millions except number of shares)
<TABLE>
<CAPTION>
Accumulated Total
other common
Additional compre- Deferred stock-
Common Common paid-in Retained hensive Treasury compen- holders'
1997 shares stock capital earnings income stock sation equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period 44,819,390 $75.4 $409.4 $1,457.8 $ -- $(1,244.8) $(39.6) $658.2
Comprehensive income:
Net loss (126.7) (126.7)
Other comprehensive income:
Foreign currency
translation adjustments (Note 1) (39.8) (39.8)
------
Total comprehensive income/(loss) (166.5)
Stock options exercised - tax benefit 6.6 6.6
Issuance of shares in connection with
compensation and stock
incentive plans (Note 10) 983,510 9.2 22.8 .3 32.3
Dividends declared - common stock (27.1) (27.1)
ESOP dividend tax benefit received
on unallocated shares .1 .1
Repurchase of shares (1,266,600) (57.4) (57.4)
Stock options - 1993 (Note 10) .5 .5
Loan repayments from ESOP trust 37.7 37.7
---------- ----- ------ -------- ------ --------- ------ ------
Balance at end of period 44,536,300 $75.4 $425.2 $1,304.1 $(39.8) $(1,279.4) $(1.1) $484.4
========== ===== ====== ======== ====== ========= ====== ======
1998
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period 44,536,300 $75.4 $425.2 $1,304.1 $(39.8) $(1,279.4) $(1.1) $484.4
Comprehensive income:
Net loss (51.0) (51.0)
Other comprehensive income:
Unrealized gain/(loss) on available-for-sale
securities (net of tax of $1.0) 1.4 1.4
Foreign currency
translation adjustments (Note 1) 5.0 5.0
------
Total comprehensive income/(loss) (44.6)
Stock options exercised - tax benefit .9 .9
Issuance of shares in connection with
compensation and stock
incentive plans (Note 10) 192,197 (4.1) 9.7 .4 6.0
Dividends declared - common stock (26.4) (26.4)
Repurchase of shares (1,213,600) (45.5) (45.5)
Common stock issued to
ESOP fund (Notes 9 and 11) 474,720 (8.6) 23.7 15.1
---------- ----- ------ -------- ------ --------- ------ ------
Balance at end of period 43,989,617 $75.4 $413.4 $1,226.7 $(33.4) $(1,291.5) $(.7) $389.9
========== ===== ====== ======== ====== ========= ====== ======
1999
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of period 43,989,617 $75.4 $413.4 $1,226.7 $(33.4) $(1,291.5) $(.7) $389.9
Comprehensive income:
Net earnings 8.7 8.7
Other comprehensive income:
Unrealized gain/(loss) on available-for-sale
securities (net of tax of $.3) .5 .5
Foreign currency
translation adjustments (Note 1) (16.0) (16.0)
------
Total comprehensive income/(loss) (6.8)
Issuance of shares in connection with
compensation and stock
incentive plans (Note 10) 6,330 (.4) .6 .4 .6
Dividends declared - common stock (26.6) (26.6)
Common stock issued to
ESOP fund (Notes 9 and 11) 620,340 (17.8) 31.2 13.4
---------- ----- ------ -------- ------ --------- ------ ------
Balance at end of period 44,616,287 $75.4 $395.2 $1,208.8 $(48.9) $(1,259.7) $(.3) $370.5
========== ===== ====== ======== ====== ========= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
POLAROID AR99
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 investments with maturities of three
months or less when purchased to be cash equivalents.
Derivatives:
The Company uses forward exchange contracts, currency exchange swaps and
purchased currency options to manage its exposure to foreign exchange rate
fluctuations. The Company applies hedge accounting to these instruments based on
its determination that these instruments effectively reduce the Company's
exposure to foreign exchange rate fluctuations. The determination of hedge
effectiveness is performed at the inception of the hedge and periodically over
the life of the hedge.
Forward exchange contracts are contracts to exchange the currencies of two
different countries at a specified price on a specified date. Exchange gains and
losses on the foreign currency component of the contract are recognized in
earnings as incurred. Currency exchange swaps are contracts that consist of a
simultaneous spot exchange transaction and a forward contract to exchange the
currencies of two different countries at a specified price on a specified date.
Similar to forward exchange contracts, exchange gains and losses on the foreign
currency component of the contract are recognized in earnings as incurred.
Purchased currency option contracts allow, but do not require, the Company to
exchange currencies at a specified price on a specified date. The Company
amortizes the premium it pays on purchased currency options over the term of the
contract and defers gains until the option exercise date.
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:
The provision for income taxes includes amounts currently payable or recoverable
and deferred taxes. 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:
Property, plant and equipment are stated at cost less accumulated depreciation.
In the fourth quarter of 1997, retroactive to January 1, 1997, the Company
changed its method of depreciation 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. The Company believes that the straight-
line method more appropriately measures the economic benefits received from
these assets and because the straight-line method is the predominant method
used in the industry in which it operates, the change increases the
comparability of the Company's results with those of its competitors. Property,
plant and equipment acquired prior to 1997 continue to be depreciated primarily
by accelerated depreciation methods over the estimated useful lives of those
assets. The impact of this change was not material to either the Company's
statement of earnings or balance sheet for 1997. For financial reporting, the
estimated useful lives of the Company's assets are as follows: buildings, 20 -
40 years; machinery and equipment, 3 - 15 years.
Long-Lived Assets:
The Company evaluates its long-lived assets and certain identifiable intangible
assets for impairment as events or changes in circumstances indicate that the
carrying value of those assets may not be fully recoverable. The Company
evaluates the recoverability of long-lived assets to be held and used by
estimating the undiscounted future cash flows associated with the expected use
and eventual disposition of those assets and compares that amount to the
carrying value of those assets. When these comparisons indicate that the
carrying value of those assets is greater than the respective undiscounted
future cash flows, the Company recognizes an impairment loss for the amount that
the carrying value exceeds the fair value. The Company evaluates the
recoverability of long-lived assets to be disposed of, whether by sale or
abandonment, by comparing the carrying value of those assets to their estimated
fair value less costs to sell them. If the carrying value of assets to be
disposed of exceeds the respective fair value less expected costs to sell, the
Company recognizes an impairment loss for the amount of that excess.
Other Long-term Liabilities:
Other long-term liabilities include amounts that are not expected to be settled
within the next twelve months. Those amounts include pension, postemployment
benefits and other non-current liabilities.
Foreign Currency Translation:
Amounts in the financial statements related to foreign currency translation are
determined using the principles of Financial Accounting Standards Board No. 52
"Foreign Currency Translation" ("FAS 52"). Effective January 1, 1997, the
Company determined that the local currency is the functional currency for most
of its subsidiaries outside the U.S. The Company determined that the change in
method of applying FAS 52 was appropriate because of the changes in its
operational and financial structure internationally coupled with increasing
globalization of the Company's procurement and manufacturing activities. 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 balance sheet as of
January 1, 1997.
POLAROID AR99
38
<PAGE>
- --------------------------------------------------------------------------------
Patents and Trademarks:
Patents and trademarks are valued at $1.
Revenue Recognition:
Revenue is recognized on the shipment of products to customers.
Product Warranty:
Estimated product warranty costs are accrued at the time the products are sold.
Advertising Costs:
The Company expenses the cost of advertising in the year incurred in accordance
with American Institute of Certified Public Accountants' Statement of Position
93-7, "Reporting on Advertising Costs."
Stock Incentive Plans:
The Company accounts for its stock-based compensation under the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations and provides disclosure related to its
stock-based compensation under the provisions of Financial Accounting Standards
Board Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").
Earnings Per Common Share:
Basic earnings/(loss) per common share are computed by dividing net
earnings/(loss) 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 performance shares. Diluted earnings per common share are computed
by dividing net earnings/(loss) by the weighted average number of common shares
and all dilutive securities. The numerators and denominators of the basic and
diluted earnings/(loss) per common share computations for the Company's reported
net earnings/(loss) are as follows:
Net Per
Earnings/ Share
(In millions, except per share amounts) (Loss) Shares Amount
- --------------------------------------------------------------------------------
1997
Basic loss per share $ (126.7) 45.1 $ (2.81)
======== ==== ========
Diluted loss per share $ (126.7) 45.1 $ (2.81)
======== ==== ========
1998
Basic loss per share $ (51.0) 44.2 $ (1.15)
======== ==== ========
Diluted loss per share $ (51.0) 44.2 $ (1.15)
======== ==== ========
1999
Basic earnings per share $ 8.7 44.3 $ .20
======== ==== ========
Diluted earnings per share $ 8.7 44.3 $ .20
======== ==== ========
In 1997, 1998 and 1999, stock options for shares of common stock totaling 3.9
million, 5.8 million and 6.2 million, respectively, were outstanding but were
not included in the calculations of diluted earnings/(loss) per share because
the effects were anti-dilutive. In addition, the effect of .1 million, .2
million and .3 million outstanding performance shares for 1997, 1998 and 1999,
respectively, were not included because performance criteria had not been met.
New Accounting Standards:
Effective January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130 "Reporting Comprehensive Income" ("FAS 130") which
establishes standards for reporting and display of comprehensive income and its
components in a full set of financial statements. For the Company, comprehensive
income includes net earnings/(loss), unrealized gains and losses on available-
for-sale securities and unrealized gains and losses from foreign currency
translation. Prior period information presented for comparative purposes has
been formatted to comply with the requirements of FAS 130.
Effective January 1, 1998, the Company adopted American Institute of Certified
Public Accountants' Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1") which
establishes guidelines to account for the costs of all computer software
developed or obtained for internal use. SOP 98-1 must be applied on a
prospective basis as of the adoption date. Under SOP 98-1, certain payroll and
related costs for employees working on computer software for internal use must
be capitalized and amortized over the expected useful life of the software.
Previously, the Company had expensed these costs as incurred. At adoption, SOP
98-1 did not have a material impact on the Company's results of operations or
financial position.
Effective for 1998, the Company adopted Financial Accounting Standards Board
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131") that requires companies to determine reportable
segments based on available information used by the Company's chief operating
decision maker to allocate resources to the segments and measure segment
performance. Certain new information and quarterly disclosures are required by
FAS 131. In addition, new entity-wide disclosures are required about products
and services and the countries in which material assets are located and that
report material revenues. Prior period information presented has been restated
to comply with FAS 131.
Effective January 1, 1998, the Company adopted Financial Accounting Standard
Board Statement No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("FAS 132"). The implementation of FAS 132 had no
impact on the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standard Board issued Financial
Accounting Standards Board Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133") that establishes accounting and
reporting requirements for derivative instruments and for hedging activities.
FAS 133 requires companies to recognize all derivatives as either assets or
liabilities in the statement of financial position at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge of
the exposures to changes in fair value of recognized assets or liabilities or
unrecognized firm commitments, a hedge of the exposure to variable cash flows of
a forecasted transaction, or a hedge of the foreign currency exposure of a net
investment in a foreign operation, unrecognized firm commitments, an available-
for-sale security or a foreign-currency denominated forecasted transaction. The
accounting for changes in fair value under FAS 133 depends on the intended use
of the derivative and the resulting designation. In June 1999, the FASB decided
that the effective date for adopting the requirements of FAS 133 should be
delayed to fiscal years beginning after June 15, 2000. This delay, published as
Financial Accounting Standards Board Statement No. 137, applies to quarterly and
annual financial statements. The Company is currently evaluating the effect FAS
133 will have on the results of its operations and its financial position.
Reclassification:
Certain prior year information has been reclassified to conform with current
year presentation of data.
POLAROID AR99
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
2. SUPPLEMENTAL INFORMATION
Research, Engineering and Development Costs:
(In millions) 1997 1998 1999
- --------------------------------------------------------------------------------
Research, engineering and
development costs $116.1 $120.0 $ 85.5
Advertising Costs:
(In millions) 1997 1998 1999
- --------------------------------------------------------------------------------
Advertising costs $127.9 $113.0 $139.5
At December 31, 1998 and 1999, the amount of advertising costs reported as
prepaid expenses on the consolidated balance sheet were $2.0 and $1.4 million,
respectively.
Interest Capitalization:
The Company has capitalized interest costs relating to certain qualifying
assets. In 1997, 1998 and 1999, the amounts of interest costs capitalized were
$2.6 million, $2.2 million and $3.0 million, respectively.
Cash Flow Information:
Cash payments for interest and income taxes were:
(In millions) 1997 1998 1999
- --------------------------------------------------------------------------------
Interest $46.7 $56.5 $74.9
Income taxes 22.2 12.9 11.9
In 1997, non-cash items of $203.7 million included $177.8 million of fixed
asset and inventory write-downs and $7.5 million of pension curtailment costs,
all of which were related to the Company's plan to streamline worldwide
operations as 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
that were not included in the restructuring.
In 1998, the Company recorded non-cash items of $62.2 million which consisted
primarily of $46.9 million for write-off of assets not related to restructuring
and $15.1 million for the issuance of shares relating to the Retirement Savings
Plan.
In 1999, the Company recorded non-cash items of $73.8 million which consisted
primarily of $44.0 million of charges related to non-core businesses being
rationalized or exited, $35.0 million to write-off the carrying value of its
investment in Sterling Dry Imaging Systems, Inc. and $13.4 million for the
issuance of shares relating to the Retirement Savings Plan. Non-cash items also
included a settlement gain of $24.5 million related to Company's pension plan.
Acquisitions:
In 1998, the Company acquired two companies in the digital imaging industry, NBS
Imaging Systems, Inc. and Appraisers Choice, Inc., for a total purchase price of
$18.8 million.
Restructuring and Other Charges:
In 1997, the Company recorded restructuring and other charges of $340.0 million
which consisted of severance costs, impairment losses on certain long-lived
assets, other asset write-downs and exit costs associated with certain
businesses. Of this amount, approximately $17.0 million represented inventory
write-downs which were included in cost of goods sold. In 1998, the Company
recorded a $50.0 million restructuring charge related to an expansion of the
severance component of the 1997 program. These charges (the "1997 Program") were
allocated to the non-segment Corporate category and were undertaken as the
result of management's assessment of the Company's infrastructure, to strengthen
its competitive cost position, to streamline operations and to improve
profitability by consolidating and selling manufacturing facilities and reducing
corporate overhead. The strategic objective of the 1997 Program was to reduce
the cost of developing, manufacturing, selling and distributing the Company's
products; to change and improve business processes; to deliver new products more
efficiently; to improve financial performance; and to fundamentally alter how
the Company conducts business globally.
Approximately $150.0 million of the charges recorded in 1997 for the 1997
Program related to an involuntary severance program under which approximately
1,800 employees (consisting of sales and marketing employees in the regional
segments: Americas - 16%; Europe - 24%; Asia Pacific - 9%; primarily
manufacturing employees in Global Operations - 36%; research and engineering
employees in Research and Development - 5%; and administrative employees in the
non-segment Corporate category - 10%) were expected to leave the Company. The
1998 extension to this involuntary severance program added approximately 1,000
additional employees (consisting of sales and marketing employees in the
regional segments: Americas - 7%; Europe - 14%; Asia Pacific - 3%; primarily
manufacturing employees in Global Operations - 65%; research and engineering
employees in Research and Development - 10%; and administrative employees in the
non-segment Corporate category - 1%). At December 31, 1997, no terminations or
severance payments had occurred under the 1997 Program. Approximately 1,360 and
2,580 of the 2,800 expected terminations had occurred at December 31, 1998 and
1999, respectively, with the remaining terminations expected to occur by mid-
2000. Approximately $69.2 million and $138.1 million of cash payments related to
the severance component of the 1997 Program had been made at December 31, 1998
and 1999, respectively. The Company expects the remaining severance payments to
be substantially completed by the end of 2000. Of the total amount provided for
severance, approximately $10.1 million related to pension curtailment costs and
$4.7 million related to pension enhancement costs incurred primarily for certain
non-U.S. employees expected to be terminated under this program.
In the Americas, European and Asia Pacific segments, the major impact of the
1997 Program consists of reducing the number of employees associated with sales
and marketing activities. The impact of the 1997 Program in the European segment
also consists of consolidating back office activities in a centralized location.
The impact of the 1997 Program in Global Operations consists of reducing the
number of direct and indirect employees located at manufacturing facilities in
both the United States and Europe that are associated with the manufacture of
instant film and, to a lesser degree, instant hardware, along with employees
required to procure goods and services and distribute finished products. The
1997 Program in Global Operations also included employees at the Company's
chemical manufacturing facility in Freetown, Massachusetts that the Company sold
in February 1998.
The impact of the 1997 Program in the Research and Development segment consists
of reducing the number of employees associated with research, engineering and
development activities in the United States and to focus the Company's research
and development activities on its core imaging business.
The 1997 Program affects the non-segment Corporate category by reducing the
number of employees in the United States that support functions such as central
marketing, finance, legal, information management, administration, human
resources and facilities support.
POLAROID AR99
40
<PAGE>
- --------------------------------------------------------------------------------
In addition to severance, the asset impairment portion of the 1997 Program
amounted to approximately $163.0 million. Of the $163.0 million, approximately
$106.0 million 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 New Bedford coating facility was designed and
specially built to manufacture large volumes of high quality media for the
Company's graphics and medical diagnostic imaging businesses. However, growth of
these businesses did not materialize as planned and as a result, the Company
continues to pursue several strategic options for the future use of this
facility, including outright sale. Approximately $22.0 million of the asset
impairment related to the write-off of battery assembly equipment that was not
required to support anticipated production requirements. This equipment was
initially constructed in anticipation of significant growth in instant film
sales in the emerging markets of Russia and Asia. During 1997, it became clear
that the volume assumptions were no longer valid based on weakness in demand and
an unfavorable outlook in those emerging markets. In 1997, the Company abandoned
this special-purpose equipment in place because it believed that it had no
future use or salvage value and a sale to a third party was not likely.
The $163.0 million also included a loss of approximately $22.0 million on the
sale of the Company's underutilized chemical manufacturing facility in Freetown,
Massachusetts. The Freetown facility was used to manufacture certain chemical
components of the Company's instant film. Because of competitive changes in the
specialty chemical industry and the fact that the Company's expectation of
future sales of instant film in certain emerging markets did not materialize,
the Company sought the outright sale of the Freetown facility. The write-down of
the Freetown facility was based on the terms of a purchase and sale agreement
and the terms of a long-term supply agreement under which the Company agreed to
purchase certain chemicals used to manufacture its instant film. The Company
entered both the purchase and sale agreement and the long-term supply agreement
in the fourth quarter of 1997. The sale of the Freetown facility was completed
in the first quarter of 1998. Additionally, the asset impairment portion of the
1997 Program included approximately $13.0 million related to other fixed assets
which were individually not material. The write-down of these fixed assets
occurred because the assets were no longer required in the Company's U.S.
manufacturing operations due primarily to the consolidation of certain
manufacturing operations. The assets related to the asset impairment portion of
the 1997 Program were primarily located in Global Operations. The Company also
recorded approximately $4.0 million for exit costs and, to a lesser degree,
severance liabilities related to the sale of the Freetown facility.
In addition to the severance and asset write-downs, the balance of the 1997
Program consisted of approximately $17.0 million of inventory write-downs and
approximately $6.0 million of exit costs. The inventory write-downs consisted of
reserves for chemical inventories made obsolete by the sale of the Freetown
facility, lower of cost or market provisions on inventories of a first
generation digital camera, and to lesser degree, inventory reserves related to
the Company's decision to exit a portion of its holography business. The exit
costs related primarily to lease and contract terminations and other costs
directly related to restructuring.
The reserves established for the 1997 Program and related cash and non-cash
charges are as follows:
<TABLE>
<CAPTION>
Pension
Enhancement
and Asset Exit
(In millions) Severance Curtailments Impairments Costs Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ -- $ -- $ -- $ -- $ --
Restructuring and other 144.0 7.5 162.5 9.5 323.5
Reclassification of
pension enhancements (1.6) 1.6 -- -- --
Non-cash charges -- (9.1) (162.5) -- (171.6)
------ ------ ------ ------ ------
Balance at
December 31, 1997 142.4 -- -- 9.5 151.9
Restructuring and other 47.4 2.6 -- -- 50.0
Reclassification of
pension enhancements (2.4) 2.4 -- -- --
Cash charges (69.2) -- -- (7.1) (76.3)
Non-cash charges -- (5.0) -- -- (5.0)
------ ------ ------ ------ ------
Balance at
December 31, 1998 118.2 -- -- 2.4 120.6
Reclassification of
pension enhancements (.7) .7 -- -- --
Cash charges (68.9) -- -- (.2) (69.1)
Non-cash charges -- (.7) -- -- (.7)
------ ------ ------ ------ ------
Balance at
December 31, 1999 $ 48.6 $ -- $ -- $ 2.2 $ 50.8
====== ====== ====== ====== ======
</TABLE>
Medical Imaging:
In the fourth quarter of 1996, the Company sold its Helios medical diagnostic
imaging equipment line to Sterling Dry Imaging Systems, Inc. ("SDIS"), a
subsidiary of SDI Holding Corporation ("SDHI"), and acquired a minority interest
in the buyer (i.e., SDIS) and its parent company (i.e., SDHI).
The Company's interest as of December 31, 1998 consisted of: (1) 14% of the
common stock of SDHI with a carrying value of approximately $14.0 million; (2)
preferred stock of SDIS with a carrying value of approximately $35.0 million;
and (3) 111 shares of SDIS common stock valued at $.01 per share. These
investments were made in cash and were carried at cost. The carrying value of
these investments was initially supported by an independent third-party
business valuation and was subsequently confirmed periodically by comparing
SDHI's actual operating results, including SDIS, with SDHI's original and
revised business plans.
In January 1999, Agfa-Gevaert N.V. ("AGFA") agreed to acquire SDHI, excluding
SDIS which, under the acquisition agreement, would not be acquired by AGFA and
which would be spun off to a liquidating trust, the proceeds of which would be
distributed to the shareholders of SDHI. In the first quarter of 1999, the
Company recorded a non-cash charge of $35.0 million in other income and expense
to write-off the carrying value of its preferred stock investment in SDIS
because it was probable based on available information that SDIS was not viable
as a stand-alone business and that the proceeds from the liquidation were not
sufficient to redeem the preferred stock. During the second quarter of 1999,
AGFA completed its acquisition of SDHI and the Company received cash proceeds of
approximately $16.0 million in return for its investment in SDHI. The net gain
of approximately $2.0 million on the transaction was recorded in other income
and expense.
In a related transaction, during the second quarter of 1999 the Company acquired
certain assets of SDIS consisting of machinery
POLAROID AR99
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
and equipment and intellectual property in return for the Company's preferred
and common stock in SDIS, forgiveness of approximately $2.0 million of amounts
owed the Company by SDIS and the Company's rights under certain supply and
technology agreements with SDIS. The machinery and equipment and intellectual
property acquired from SDIS were deemed to have no value by the Company. The
Company recognized the cost of forgiveness of approximately $2.0 million in
other income and expense.
Graphic Arts:
In October 1999, the Company contributed the net assets of its graphics arts
business to a joint venture. Under the terms of the agreement, the Company will
not be required to provide any future funding to the joint venture. In
consideration for its contribution, the Company received a redeemable preferred
equity interest and a less than 20% common equity interest in the joint venture.
In connection with this transaction the Company recorded charges of $15.7
million to increase reserves primarily for trade accounts receivables and
inventories; $4.4 million for liabilities related to the disposition of this
business and $3.0 million for severance costs related to approximately 30
employees who were terminated as a result of the agreement. The majority of
these liabilities are expected to be paid by the end of 2000. In addition, the
Company recorded an impairment loss of approximately $16.9 million based on its
evaluation of the estimated fair value of its investment in the new joint
venture. Of the $40.0 million charge, approximately $25.4 million was reported
in cost of goods sold and approximately $14.6 million was reported in marketing
and administrative expenses. On a segment basis, the Company allocated $5.2
million to the Americas Region; $2.5 million to the European Region; $11.1
million to Global Operations and $21.2 million to the non-segment Corporate
category.
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 currency exchange
fluctuations. The impact of currency exchange rate movement can be positive or
negative in any given period. The Company's ability to counteract currency
exchange rate movement is primarily dependent on pricing in local markets and,
to a lesser degree, in the short-term, on hedging through nonfunctional
currency denominated borrowings, forward exchange contracts and the purchase of
currency options.
To minimize the impact of currency fluctuations on net monetary assets
denominated in currencies other than the relevant functional currency
("nonfunctional currencies"), the Company engages 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 currency
denominated net monetary asset position and the relative strength of the
functional currencies compared with the nonfunctional currencies. These
borrowings create nonfunctional currency denominated liabilities that hedge the
Company's nonfunctional currency denominated net monetary 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, 1998 and 1999, the amount of the
Company's outstanding short-term debt incurred for hedging purposes was $106.6
million and $24.4 million, respectively.
Periodically, the Company has used 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
was used to replace a hedge, the currency received by the Company in the spot
market component of the currency exchange swap was used to close out the
borrowings, and, simultaneously, the hedge was reinstituted through a forward
contract with a term not exceeding six months. The Company did not enter into
currency exchange swaps for trading purposes. At December 31, 1998, the
aggregate notional value of the Company's outstanding foreign exchange swap
contracts was $49.8 million. There were no forward exchange swap contracts
outstanding at December 31, 1999.
Alternatively, the Company may use forward exchange contracts to minimize the
impact of currency fluctuations on its net monetary assets denominated in
nonfunctional currencies. The term of these contracts typically does not exceed
six months. The Company does not enter into forward exchange contracts for
trading purposes. There were no forward exchange contracts outstanding at
December 31, 1998. At December 31, 1999, the aggregate notional value of the
Company's outstanding forward exchange contracts was $101.6 million.
The Company has limited flexibility to increase prices in local currency to
offset the adverse impact of foreign exchange. As a result, the Company
primarily purchases U.S. dollar call/foreign currency put options which allows
it to protect a portion of its expected foreign currency denominated revenues
from adverse currency exchange movement. The term of purchased options typically
does not exceed 18 months and all of the option contracts outstanding at
December 31, 1999 expire in 2000. The Company does not write options or purchase
call options for trading purposes. The notional value of the Company's
outstanding option contracts, which was primarily denominated in Japanese yen
and euros, was $240 million at December 31, 1998 and $131 million at December
31, 1999.
Fair Value:
The carrying amounts of cash, cash equivalents, trade accounts receivable,
short-term debt and trade accounts payable approximate fair value because of
the short maturity of these financial instruments. Other assets include
investments in non-marketable private companies, publicly traded companies and
certain equity investments held in a trust. Investments in private companies 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, 1998 and 1999. Investments in publicly traded companies and equity
investments held in the trust are reported at fair value with related unrealized
gains and losses reported net of tax in accumulated other comprehensive income,
a component of stockholders' equity. The investments reported at fair value and
the related unrealized and realized gains and losses were not material to the
Company's financial position or the results of its operations for the years
ended December 31, 1998 and 1999.
The estimated fair value of the Company's forward exchange contracts, currency
exchange swaps and currency options generally reflect 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. At December 31, 1998 and 1999, the net carrying value and fair value
of these derivative financial instruments were not material to the financial
position of the Company.
As of December 31, 1998, the carrying amount and fair value of the Company's
long-term debt was $497.4 million and $477.5 million, respectively. As of
December 31, 1999, the carrying amount and fair value of the Company's long-
term debt was $573.0 million and $532.9 million, respectively.
POLAROID AR99
42
<PAGE>
- --------------------------------------------------------------------------------
Dealer quotes are available for the Company's forward exchange contracts, 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. In addition, 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 forward
exchange contract, the forward component of a currency exchange swap contract or
a currency option were to fail to meet its contractual obligation, in which case
the Company would be required to replace the contract at the 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 forward exchange contracts, currency exchange
swaps and purchased currency 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 trade
accounts receivable are adequate.
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)
======= ======= =======
1998
- --------------------------------------------------------------------------------
Federal $ .9 $ (.3) $ .6
State .5 -- .5
Foreign 16.6 (5.6) 11.0
------- ------- -------
Total $ 18.0 $ (5.9) $ 12.1
======= ======= =======
1999
- --------------------------------------------------------------------------------
Federal $ 1.1 $ (17.2) $ (16.1)
State .5 2.3 2.8
Foreign 5.6 12.4 18.0
------- ------- -------
Total $ 7.2 $ (2.5) $ 4.7
======= ======= =======
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 $330.0 million and $330.4 million
as of December 31, 1998 and 1999, respectively. Significant components of those
amounts shown on the balance sheet as of December 31 were as follows:
(In millions) 1998 1999
- --------------------------------------------------------------------------------
Deferred tax assets:
Property, plant and equipment and trademarks $ (2.8) $(22.8)
Inventory 34.8 35.2
Compensation and benefits 85.6 41.6
Postretirement and postemployment benefits 113.4 110.6
Loss and credit carryforwards 139.0 202.6
All other 3.3 4.8
------ ------
373.3 372.0
Valuation allowance (30.3) (30.3)
------ ------
Total deferred tax assets 343.0 341.7
Deferred tax liabilities:
Property, plant and equipment and trademarks 7.2 6.6
Inventory 3.5 4.9
Compensation and benefits 2.7 1.5
All other (.4) (1.7)
------ ------
Total deferred tax liability 13.0 11.3
------ ------
Net deferred tax asset $330.0 $330.4
====== ======
Valuation allowances of $30.3 million were established at both December 31, 1998
and 1999 for the prepaid taxes primarily associated with foreign tax credits.
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, 1999 and 1998, the Company did not
believe it was more likely than not that it would generate a sufficient level
and proper mix of taxable income within the appropriate period to utilize all
the foreign tax credits.
Management believes that it 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, 1999, the Company has a net
operating loss carryforward of $413.7 million, of which $.1 million expires in
2010; $50.0 million expires in 2011; $66.2 million expires in 2012; $134.1
million expires in 2018 and $163.3 million expires in 2019. The Company also has
a foreign tax credit carryforward of $28.4 million (against which, there is a
full valuation allowance) and an alternative minimum tax credit carryforward of
$7.1 million as of December 31, 1999. Approximately $17.0 million of the foreign
tax credit expires in 2000; $3.1 million expires in 2001; $4.4
POLAROID AR99
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
million expires in 2002; and $3.9 million expires in 2003. 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. Nevertheless, there can be no assurance that the Company
will generate any specific level of continuing earnings or where these earnings
will be generated.
For alternative minimum tax purposes, the Company had an alternative minimum tax
net operating loss carryforward of $296.4 million at the end of 1999, of which
$24.2 million will expire in 2011; $39.6 will expire in 2012; $92.0 million will
expire in 2018; and $140.6 million will expire in 2019. In addition, the Company
had an alternative minimum tax foreign tax credit carryforward at the end of
1999 of $29.4 million. Approximately $18.3 million expires in 2000; $3.1 million
expires in 2001; $4.4 million expires in 2002; and $3.6 million expires in 2003.
An analysis of earnings/(loss) before income tax expense/(benefit) follows:
(In millions) 1997 1998 1999
- --------------------------------------------------------------------------------
Domestic $(189.9) $ (33.6) $ (52.8)
Foreign (2.0) (5.3) 66.2
------- ------- -------
Total $(191.9) $ (38.9) $ 13.4
======= ======= =======
A reconciliation of differences between income tax expense/(benefit) computed at
the statutory U.S. federal income tax rate (35% for all years presented) and the
Company's reported income tax expense/(benefit) follows:
(In millions) 1997 1998 1999
- --------------------------------------------------------------------------------
Income tax expense/(benefit) at
U.S. statutory rate $(67.2) $(13.6) $ 4.7
State taxes (3.2) 1.5 2.6
Benefit plan deductions (1.0) .1 (2.8)
Loss carryforwards (1.5) (4.0) --
Nondeductible expenses/
nontaxable income (3.9) 1.0 .9
Valuation allowance change 5.9 2.9 --
Tax effect resulting from foreign activities 2.8 23.6 (.9)
Other 2.9 .6 .2
------ ------ ------
Reported income tax expense/(benefit) $(65.2) $ 12.1 $ 4.7
====== ====== ======
Undistributed earnings of foreign subsidiaries held for reinvestment in overseas
operations amounted to $437.5 million at December 31, 1999. Additional U.S.
income taxes may be due upon remittance of those earnings (net of foreign tax
reductions because of the distribution), but it is impractical to determine the
amount of any such additional taxes. If all those earnings were distributed as
dividends, foreign withholding taxes of approximately $23.2 million would be
payable.
5. INVENTORIES
The classification of inventories at December 31 follows:
(In millions) 1998 1999
- --------------------------------------------------------------------------------
Raw materials $ 83.5 $ 84.3
Work-in-process 190.5 135.8
Finished goods 259.3 175.5
------ ------
Total $533.3 $395.6
====== ======
6. SHORT-TERM DEBT
At December 31, 1999, the Company had $259.4 million outstanding in short-term
debt. The amounts outstanding were comprised of $235.0 million under the Amended
Credit Agreement (defined below), $8.4 million under the U.K. Credit Agreement
(defined below) and $16.0 million under short-term lines of credit. At December
31, 1998, the Company had $331.7 million outstanding in short-term debt. The
amounts outstanding were comprised of $220.0 million under the Amended Credit
Agreement and $111.7 million under short-term lines of credit.
In December 1998, the Company amended its existing $350 million Credit Agreement
to provide loans of up to $350 million on a revolving basis through December 31,
2001. The amendment provided the lenders the right to incorporate covenants
given to the holders of notes or other securities of the Company which, in the
lenders judgment are more restrictive. The lenders exercised their right to
incorporate certain covenants of the 2006 Notes in Amendment No. 1., dated March
31, 1999, to the Amended Credit Agreement (hereinafter referred to as the
"Amended Credit Agreement").
Funds borrowed under the Amended Credit Agreement bear interest, at the
Company's option, at either the prime rate of Morgan Guaranty Trust Company
("Prime") plus a margin or LIBOR on euro-dollar loans plus a margin. The margins
range from 0.085% to 2.0% for Prime-based loans and from 0.275% to 3.0% for
euro-dollar loans based on the Company's credit rating. In addition, the Company
pays the lenders a commitment fee on unused commitments ranging from 0% to
0.025% on an annual basis depending on the Company's credit rating, and a fee to
the administrative agent. The weighted average interest rate on amounts
outstanding under the Amended Credit Agreement was 6.9% and 7.6% at December 31,
1998 and 1999, respectively.
In connection with the Amended Credit Agreement, the Company entered into a
collateral agreement and certain related documents that granted the lenders a
first security interest in certain of the Company's domestic inventories and
trade accounts receivable. Under the collateral agreement, the security will be
released if the Company's credit rating is BBB- or higher by Standard and Poor's
("S&P") and Baa3 or higher by Moody's Investor's Services, Inc. ("Moody's").
On August 3, 1999, the Company's wholly-owned subsidiary, Polaroid (U.K.)
Limited ("Polaroid U.K."), as borrower, and the Company, as guarantor, entered
into a new loan agreement with Deutsche Bank A.G. and ABN AMRO Bank NV for a
maximum commitment of 72.5 million euros (approximately $73.0 million at
December 31, 1999) (the "U.K. Credit Agreement") which refinanced most of the
Company's existing foreign short-term lines of credit with these banks.
Borrowings under this facility bear a margin approximately 25 basis points
higher than that paid under the Amended Credit Agreement. The facility is
scheduled to mature on December 31, 2001. Several of the Company's foreign
subsidiaries granted the lenders under this facility a security interest in
certain foreign inventories and receivables. The weighted average interest rate
on amounts outstanding under the U.K. Credit Agreement was 7.5% at December 31,
1999.
The Amended Credit Agreement and the U.K. Credit Agreement require the Company
to maintain financial ratios related to the maximum level of debt to earnings
before interest, taxes, depreciation and amortization and minimum interest
coverage. In addition to financial ratios, the Amended Credit Agreement and the
U.K. Credit Agreement restrict, among other things, the Company's ability to do
the following: make certain capital expenditures; make certain payments; incur
debt in addition to the 2006 Notes (see Note 8); incur certain liens; make
certain investments; enter into certain sale leaseback transactions; merge,
consolidate, sell or transfer all or substantially all of the Company's assets
subject to certain financial conditions and to enter into certain transactions
with affiliates.
POLAROID AR99
44
<PAGE>
- --------------------------------------------------------------------------------
The Amended Credit Agreement and the U.K. Credit Agreement also restrict the
Company's ability to pay dividends and repurchase stock. The agreements limit
the payment of dividends and repurchase of Company stock to $3.75 million per
quarter in excess of the value of the shares of the Company's stock issued to
the Retirement Savings Plan and proceeds from the exercise of stock options on a
cumulative basis. Because the Company issues shares of its common stock to all
qualified United States employees as part of their compensation, this amount is
expected to total approximately $13 million in 2000. As a result, the Company
believes it is likely to be able to continue the current dividend payment of
$.60 per share per annum.
In addition to the Amended Credit Agreement and the U.K. Credit Agreement, the
Company had several short-term lines of credit with a number of commercial
banks outside of the United States that totaled $23.0 million in maximum
commitments with a weighted average interest rate of 3.2% on amounts outstanding
at December 31, 1999. At December 31, 1998, the Company had short-term lines of
credit totaling $25.0 million to support U.S. operations and $204.1 million to
support international operations. The weighted average interest rate on amounts
outstanding under short-term lines of credit at December 31, 1998 was 4.0%.
Interest expense on U.S. short-term borrowings was $8.9 million and $17.5
million in 1998 and 1999, respectively. The weighted average interest rates on
these borrowings were 6.6% and 7.6% in 1998 and 1999, respectively. Interest
expense on foreign short-term borrowings was $8.4 million in 1998 and $3.9
million in 1999. The weighted average interest rates on these borrowings ranged
between 4.6% and 5.2% in 1998 and 3.2% and 3.7% in 1999.
7. PAYABLES AND ACCRUALS
The following items are included in payables and accruals at December 31:
(In millions) 1998 1999
- --------------------------------------------------------------------------------
Trade accounts payable $184.8 $180.0
Reserve for marketing programs 36.6 31.0
Other accrued expenses and current liabilities 137.0 127.0
------ ------
Total $358.4 $338.0
====== ======
8. LONG-TERM DEBT
Long-term debt outstanding as of December 31 was as follows:
(In millions) 1998 1999
- --------------------------------------------------------------------------------
6-3/4% Notes $149.0 $149.3
7-1/4% Notes 148.4 148.7
8% Notes 200.0 --
11-1/2% Notes -- 275.0
------ ------
Total $497.4 $573.0
====== ======
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 $150.0 million
principal amount of the Company's 7 1/4% Notes due January 15, 1997 and to
exercise the Company's right to repurchase 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.
In February 1999, the Company issued $275 million of 11 1/2% Notes due
February 15, 2006 (the "2006 Notes"). The 2006 Notes were placed at par value.
The net proceeds of $268 million from the sale of the 2006 Notes were used
primarily for the payment of $200 million aggregate principal amount of the
Company's 8% Notes which were due on March 15, 1999 and for general corporate
purposes, including reducing amounts outstanding under the Amended Credit
Agreement and short-term lines of credit. Because the Company intended to
refinance the 8% Notes, the principal amount of these notes were classified as a
long-term note payable on December 31, 1998. The indenture, pursuant to which
the 2006 Notes were issued, contains certain covenants that restrict, among
other things: the Company and its subsidiaries from making certain restricted
payments, including dividends on and the purchase of the Company's common stock
and certain other payments; incurring additional debt and issuing preferred
stock; incurring certain liens; entering into sale leaseback transactions;
entering into certain transactions with affiliates and entering into certain
mergers and consolidations or selling all or substantially all of the properties
or assets of the Company.
The $200 million 8% Notes due March 15, 1999 (the "8% Notes") were issued with a
discount and were not redeemable prior to maturity.
In February 2000, the Company filed a shelf registration statement with the
Securities and Exchange Commission to issue securities of up to $275.0 million.
When combined with $225.0 million of securities that remain unissued under an
existing shelf registration statement, the Company can issue up to an additional
$500.0 million of debt securities, preferred stock, depository shares, common
stock, preferred stock rights, stock purchase contracts, stock purchase units,
warrants and warrant units.
The aggregate scheduled repayments on long-term debt outstanding at December 31,
1999 were $150.0 million in 2002 and $425.0 million in 2005 and thereafter.
9. COMMON STOCKHOLDERS' EQUITY
On October 21, 1997, the Company's Board of Directors authorized the repurchase
of up to 5 million shares of the Company's common stock over three years. In
1997 and 1998, the Company repurchased 1.3 million and 1.2 million shares of its
common stock for $57.4 million and $45.5 million, respectively. The Company did
not repurchase any shares in 1999. As of December 31, 1999, approximately 2.8
million shares remain to be purchased under the current program. Given the
restricted payment covenants included in the Amended Credit Agreement, the U.K.
Credit Agreement and in the 2006 Notes, it is unlikely that the Company will
complete this repurchase plan in the three year time frame.
In 1998 and 1999, the Company contributed .5 and .6 million shares,
respectively, of its common stock valued at $15.1 million and $13.4 million,
respectively, to the Company's Retirement Savings Plan (see Note 11). Shares
held by the Company's Retirement Savings Plan on December 31, 1998 and 1999 were
7.3 million and 7.4 million, respectively, all of which were allocated to
participants.
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 $1.0 million in 1997, $4.1 million in 1998 and $15.2 million in 1999.
POLAROID AR99
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
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 was 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. As a
result, a maximum of 6,500,000 shares of the Company's common stock has 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 for officers and key employees was 3,224,105, 1,119,699 and 517,108 at
December 31, 1997, 1998 and 1999, respectively.
Prior to 1999, the options typically vested proportionately over approximately
four years and could be exercised for approximately ten years from the date of
grant, if the holder remained in the employ of the Company. In 1999, the Company
changed the vesting period to three years for grants after August 1998 and the
exercise period to seven years if the holder remained in the employ of the
Company for grants after August 1999. In general, if the option holder's
employment terminates for reasons other than a change of control or death no
further vesting can occur.
The Human Resource Committee of the Company's Board of Directors, composed 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"), granting 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 May 1997, the Company, with shareholder approval, amended the Directors' Plan
to allow for awards of 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. Current non-employee directors are
also granted stock options annually valued at $35,000 (see Note 11).
Under the Directors' 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 one year 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. As of
December 31, 1999, a cumulative total of 140,500 options have been granted at
prices ranging from $21.06 to $52.00 under the Directors' Plan.
A summary of the Company's fixed stock option awards as of December 31, 1997,
1998 and 1999 and changes during the years ending on those dates is presented
below:
Number of Options Weighted-Average
(In thousands) Exercise Price
- --------------------------------------------------------------------------------
Outstanding at January 1, 1997 4,125 $34.85
Granted 812 $43.17
Exercised (981) $32.33
Forfeited (44) $39.01
------
Outstanding at December 31, 1997 3,912 $37.16
Granted 2,159 $32.92
Exercised (190) $30.52
Forfeited (114) $39.38
------
Outstanding at December 31, 1998 5,767 $35.74
Granted 1,429 $25.63
Exercised (9) $24.80
Forfeited (935) $34.54
------
Outstanding at December 31, 1999 6,252 $33.63
======
Options exercisable at December 31:
Number of Options Weighted-Average
(In thousands) Exercise Price
- --------------------------------------------------------------------------------
1997 2,247 $33.96
1998 2,760 $35.87
1999 3,515 $36.36
Weighted-average fair value of options granted during the year:
1997 $13.19
1998 $ 9.14
1999 $ 8.58
Options outstanding at December 31, 1999:
Weighted-Average
Range of Number of Options Remaining Contractual Weighted-Average
Exercise Prices (in thousands) Life (years) Exercise Price
- --------------------------------------------------------------------------------
$17 to $25 1,396 6.7 $24.53
$26 to $35 2,339 6.7 $28.83
$36 to $43 1,619 5.9 $41.93
$44 to $60 898 4.0 $45.29
------
$17 to $60 6,252 6.1 $33.63
======
Options exercisable at December 31, 1999:
Range of Number of Options Weighted-Average
Exercise Prices (in thousands) Exercise Price
- --------------------------------------------------------------------------------
$17 to $25 715 $24.79
$26 to $35 1,019 $32.56
$36 to $43 1,034 $41.90
$44 to $60 747 $44.96
------
$17 to $60 3,515 $36.36
======
If compensation cost for the Company's fixed stock option awards had been
determined based on fair value at grant date for awards
POLAROID AR99
46
<PAGE>
- --------------------------------------------------------------------------------
under the plans consistent with FAS 123, the Company's net earnings/(loss) and
basic earnings/(loss) per common share would have been changed to the pro forma
amounts as follows:
(In millions, except per share data) 1997 1998 1999
- --------------------------------------------------------------------------------
Net earnings/(loss):
As reported $(126.7) $ (51.0) $8.7
Pro forma (133.2) (59.0) .7
Basic earnings/(loss) per share:
As reported (2.81) (1.15) .20
Pro forma (2.95) (1.33) .02
Diluted earnings/(loss) per common share for 1997, 1998 and 1999 was the same as
the basic earnings/(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 1998 1999
- --------------------------------------------------------------------------------
Dividend yield 1.4% 1.9% 2.4%
Expected volatility 22.4% 25.6% 36.6%
Risk free interest rate 6.6% 4.9% 5.8%
Expected option life 5.5 years 5.5 years 5.0 years
Dividend equivalent payments on outstanding stock options of $1.6 million, $1.3
million and $1.2 million were made in 1997, 1998 and 1999, respectively. No
options were granted in 1997, 1998 or 1999 with dividend equivalents.
Under the 1993 Plan, the Company awarded 25,000 shares of restricted stock at
$46.50 per share in 1995 and 15,000 shares of restricted stock at $45.88 per
share in 1996. The 1995 restricted shares vest proportionately each year over a
five year period. The 1996 restricted shares vested if the Company achieved
certain financial objectives within 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.
In 1999, 10,000 of the 1996 restricted shares were forfeited because the
financial objectives were not achieved. In addition, the Company awarded 10,000
shares of restricted stock in 1998 that vest proportionately over a four year
period. The receipt of the shares was deferred and the related cost is being
accrued over the vesting period. Amounts charged to expense related to
restricted stock awards were $.4 million, $.1 million and $.3 million in 1997,
1998 and 1999, respectively. The Company's balance sheet amounts for deferred
compensation included $.7 million and $.3 million at December 31, 1998 and 1999,
respectively, related to restricted stock issued under the 1993 Plan.
Officers and a limited number of senior executives of the Company are eligible
to receive performance share awards payable in shares of the Company's common
stock. These awards are tied to the achievement of specific financial metrics
critical to the long-term success of the Company. Performance is measured over a
three year period and is based on improvements in the Company's revenue and
return on net assets. Awards are valued at the fair value of the Company's
common stock on the date the awards are earned. No awards are made unless both
of the threshold performance targets are reached. Amounts charged to expense
related to performance shares were $1.1 million, $(.1) million and $2.3 million
in 1997, 1998 and 1999, respectively.
11. BENEFIT PLANS
The Company maintains a qualified noncontributory trusteed pension plan covering
substantially all domestic employees. Through 1997, the benefits were based on
years of service and final average compensation at retirement. 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 was reflected in the funded status of the Company's plans as of December
31, 1997. In general, the Company's 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,
publicly traded common stocks and investments in private equity and 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 1998 1999
- --------------------------------------------------------------------------------
Service cost $ 23.8 $ 26.3 $ 26.7
Interest cost 78.5 83.3 84.4
Expected return on assets (96.0) (102.0) (109.8)
Amortization of:
Unrecognized transition asset (11.1) (11.1) (11.1)
Unrecognized prior service cost 2.0 3.4 3.6
Unrecognized (gain)/loss (.4) (.9) (.4)
Curtailment cost 7.5 2.6 --
Settlement gain -- -- (24.5)
------- ------- -------
Net periodic pension cost/(credit) $ 4.3 $ 1.6 $ (31.1)
======= ======= =======
The following tables set forth the plans' reconciliations of projected benefit
obligations, plan assets, funded status and amounts recognized in the Company's
consolidated balance sheet at December 31:
(In millions) 1998 1999
- --------------------------------------------------------------------------------
Projected benefit obligation at beginning of year $1,233.5 $1,339.9
Service cost 26.3 26.7
Interest cost 83.3 84.4
Plan participants' contributions .4 .7
Plan amendments .3 4.5
Curtailment cost 2.2 --
Special termination benefits 5.5 .7
Actuarial (gain)/loss 76.3 (56.7)
Foreign currency exchange rate change 7.7 (17.5)
Transfers in -- 4.0
Benefits paid (95.6) (164.7)
-------- --------
Projected benefit obligation at end of year $1,339.9 $1,222.0
======== ========
POLAROID AR99
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(In millions) 1998 1999
- --------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $1,350.5 $1,544.6
Actual return on plan assets 276.0 145.8
Employer contributions .9 4.6
Plan participants' contributions .4 .7
Transfers in -- 4.0
Benefits paid (95.6) (164.7)
Foreign currency exchange rate change 12.4 (27.3)
-------- --------
Fair value of plan assets at end of year $1,544.6 $1,507.7
======== ========
(In millions) 1998 1999
- --------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation $ 204.7 $ 285.7
Unrecognized:
Transition asset (37.9) (24.3)
Prior service cost 30.4 31.0
(Gain)/loss (275.9) (336.3)
-------- --------
Accrued liability at end of year $ (78.7) $ (43.9)
======== ========
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 1998 1999
- --------------------------------------------------------------------------------
Weighted average discount rate 7.1% 6.7% 7.3%
Weighted average rate of
increase in compensation levels 3.9% 3.8% 3.8%
Weighted average expected
long-term rate of return on assets 9.3% 9.3% 9.4%
The Company recorded a settlement gain of $24.5 million in 1999 related to the
large number of employees that left the Company, primarily under the Company's
involuntary severance program, and elected to receive lump sum benefit
distributions under the Company's pension plan in 1999. The Company recorded
approximately half of this gain in cost of goods sold and half in marketing and
administrative expense. The gain was allocated to the non-segment Corporate
category.
In 1988, the Company's Board of Directors approved a leveraged employee stock
ownership plan that it called the Polaroid Stock Equity Plan ("ESOP") primarily
for the benefit of its domestic employees. Prior to 1998, 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 which was repaid in 1997.
Amounts charged to expense in 1997, which represented the amount of principal
repayment on the ESOP loan less dividends paid on unallocated shares, was $37.6
million. In 1997, the ESOP was merged into the Company's Retirement Savings Plan
becoming the ESOP fund. Effective January 1, 1998, the Company began
contributing an amount of the Company's common stock equal to 5% of each
eligible domestic employees' pay to the ESOP fund. The amount charged to expense
for this contribution in 1998 and 1999 was $15.1 million and $13.4 million,
respectively. Also in 1998, the Company began contributing an amount equal to 3%
of each eligible domestic employees' annual pay in cash to the Retirement
Savings Plan. The amount charged to expense for these cash contributions was
$9.2 million and $8.2 million in 1998 and 1999, respectively.
The Company currently provides certain health and life insurance benefits to
eligible retired employees. Substantially all domestic employees who retire from
the Company, and meet the minimum age and service requirements of 55 and 10
years, respectively, become eligible for these benefits. The plans are currently
unfunded and may be modified in accordance with the terms of the plan documents.
The Company funds these benefits on a pay-as-you-go basis. Eligible retirees
under age 65 are required to contribute to the cost of their health care
benefits. Upon reaching age 65, eligible retirees' health care benefit coverage
is coordinated with Medicare. In 1995, the Company established an amount it
would contribute toward the cost of the retirees' selected 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 1998 1999
- --------------------------------------------------------------------------------
Service cost $ 6.3 $ 6.6 $ 6.2
Interest cost 15.7 16.8 17.2
Amortization of unrecognized
prior service cost (10.7) (10.6) (9.0)
Curtailment gain -- (1.3) (1.9)
------- ------- -------
Net periodic postretirement
benefit cost $ 11.3 $ 11.5 $ 12.5
======= ======= =======
The following table sets forth the plan's reconciliations of accumulated
postretirement benefit obligation and plan assets, the funded status of the plan
and amounts recognized in the Company's consolidated balance sheet at December
31:
(In millions) 1998 1999
- --------------------------------------------------------------------------------
Accumulated postretirement benefit
obligation at beginning of year $ 264.1 $ 265.4
Service cost 6.6 6.2
Interest cost 16.8 17.2
Plan participants' contributions 1.6 1.3
Actuarial (gain)/loss (6.1) (22.8)
Benefits paid (17.6) (20.2)
------- -------
Accumulated postretirement benefit
obligation at end of year $ 265.4 $ 247.1
======= =======
(In millions) 1998 1999
- --------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ -- $ --
Employer contributions 16.0 18.9
Plan participants' contributions 1.6 1.3
Benefits paid (17.6) (20.2)
------- -------
Fair value of plan assets at end of year $ -- $ --
======= =======
(In millions) 1998 1999
- --------------------------------------------------------------------------------
Plan obligations in excess of plan assets $(265.4) $(247.1)
Unrecognized:
Prior service cost (16.9) (6.0)
(Gain)/loss 22.9 .2
------- -------
Accrued liability at end of year $(259.4) $(252.9)
======= =======
The Accumulated Postretirement Benefit Obligation ("APBO") at December 31, 1998
and 1999 was determined using a discount rate of 6.75% and 7.5%, respectively.
The assumed health care cost
POLAROID AR99
48
<PAGE>
- --------------------------------------------------------------------------------
trend rate used in measuring the APBO at December 31, 1998 and 1999 was 8% and
7.5%, 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. A one
percentage point change in the Company's assumed health care cost trend rates
would have the following effects for the year ended December 31, 1999:
(In millions) 1% Increase 1% Decrease
- --------------------------------------------------------------------------------
Effect on total of service and interest cost $ .3 $ (.3)
Effect on accumulated
postretirement benefit obligation $3.0 $(2.9)
The Company has a Board of Directors' Retirement Plan (the "Directors'
Retirement Plan") primarily for the benefit of former non-employee directors.
The estimated present value of future benefit payments under the Directors'
Retirement Plan is accrued annually based on the credited service up to the
participants' actual retirement dates and is charged to expense. For the years
1997, 1998 and 1999, $.8 million, $.2 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, 1999, under noncancelable
leases, principally for real estate, are payable as follows:
(In millions)
- --------------------------------------------------------------------------------
2000 $ 18.6
2001 15.1
2002 12.9
2003 10.9
2004 9.5
2005 and thereafter 59.8
------
Total minimum lease payments $126.8
======
Minimum payments have not been reduced by minimum sublease rentals of $1.7
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 1998 1999
- --------------------------------------------------------------------------------
Minimum rentals $ 27.4 $ 24.7 $ 24.6
Contingent rentals 4.6 6.7 5.9
------- ------- -------
Total $ 32.0 $ 31.4 $ 30.5
======= ======= =======
Sublease income amounted to $1.1 million, $1.7 million and $1.5 million in 1997,
1998 and 1999, respectively.
13. BUSINESS
Nature of Operations:
The Company designs, develops, manufactures, and markets instant and digital
imaging and related products worldwide including digital peripherals, software
and system solutions. The Company's principal products are instant film, instant
and digital cameras, digital peripherals, secure identification systems,
software and system solutions. In addition, the Company designs, develops,
manufactures and/or markets hardware accessories for the instant imaging market,
conventional 35mm cameras and film and videotapes. The Company has also operated
certain non-core businesses such as graphics, which was contributed to a joint
venture in 1999, sunglasses, which was rationalized in 1999, and polarizer and
holography which have been or are in the process of being exited.
The Company sells its products directly to and through mass merchandisers; food,
drug, discount and department stores; specialty stores; wholesalers; original
equipment manufacturers; independent agents; retail outlets; and distributors.
Segments of Business:
Effective for 1998, the Company adopted Financial Accounting Standards Board
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company is managed in five primary segments: the Americas
Region; the European Region; the Asia Pacific Region; Global Operations; and
Research and Development. The Global Operations segment includes worldwide non-
standard cost related activities associated with manufacturing, distribution,
logistics, new product manufacturing development and inventory management. The
Company's segments are individually managed by senior executives who are
directly responsible for the segment's marketing, operational or technical
strategies employed. The segments have separate financial results that are
reviewed by the Company's chief operating decision-maker. The Company's
principal products are sold across all regional segments.
Regional segment assets consist primarily of accounts receivable and fixed
assets related to sales and administrative activities. Global Operations assets
consist primarily of worldwide inventories and worldwide fixed assets related to
manufacturing and distribution facilities. Research and Development assets
consist primarily of fixed assets related to research and engineering
activities. The Company evaluates performance of the segments primarily based on
profit/(loss) from operations with a recognition of assets employed.
The Corporate category includes central marketing, general and administrative
costs, and certain other corporate costs, including worldwide restructuring and
other charges and other credits. Corporate assets include cash and cash
equivalents, prepaid expenses and other assets.
The accounting policies of the Company's segments are the same as those
described in the Company's Summary of Significant Accounting Policies (see Note
1). For management reporting purposes, segment results are not reported on a
legal entity basis. Regional segment product cost of goods sold have been
adjusted to reflect worldwide standard costs excluding intercompany margins and
excluding non-standard manufacturing costs and other regional warehousing and
distribution costs that are reported in Global Operations. Therefore, segment
profit/(loss) from operations reflects a contribution to worldwide Company
profits related to segment third party sales.
The following is a summary of information related to the Company's segments at
December 31. Certain prior year segment information has been reclassified to
conform with the current year presentation.
Segment Information
(In millions) 1997 1998 1999
- --------------------------------------------------------------------------------
Net sales to customers
Americas Region $1,232.8 $1,132.1 $1,230.4
European Region 578.1 448.9 427.7
Asia Pacific Region 335.5 264.9 320.5
Global Operations -- -- --
Research and Development -- -- --
-------- -------- --------
Subtotal Segments 2,146.4 1,845.9 1,978.6
Corporate -- -- --
-------- -------- --------
Total $2,146.4 $1,845.9 $1,978.6
======== ======== ========
POLAROID AR99
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(In millions) 1997 1998 1999
- --------------------------------------------------------------------------------
Profit/(loss) from operations
Americas Region $ 380.2 $ 309.1 $ 334.8
European Region 109.1 40.5 69.7
Asia Pacific Region 75.8 61.5 74.2
Global Operations (155.0) (184.7) (167.0)
Research and Development (116.1) (120.0) (85.5)
-------- -------- --------
Subtotal Segments 294.0 106.4 226.2
Corporate (1) (453.1) (155.4) (118.6)
-------- -------- --------
Total $ (159.1) $ (49.0) $ 107.6
======== ======== ========
- --------------------------------------------------------------------------------
Assets
Americas Region $ 282.3 $ 253.6 $ 287.0
European Region 221.5 187.4 177.0
Asia Pacific Region 74.4 62.7 69.8
Global Operations 871.6 924.8 794.8
Research and Development 44.5 36.4 31.6
-------- -------- --------
Subtotal Segments 1,494.3 1,464.9 1,360.2
Corporate 638.4 732.8 679.8
-------- -------- --------
Total $2,132.7 $2,197.7 $2,040.0
======== ======== ========
- --------------------------------------------------------------------------------
Depreciation and amortization
Americas Region $ 2.5 $ 4.7 $ 4.3
European Region 2.9 4.7 7.1
Asia Pacific Region 2.2 2.0 1.0
Global Operations 79.7 59.0 66.0
Research and Development 9.6 8.0 7.2
-------- -------- --------
Subtotal Segments 96.9 78.4 85.6
Corporate 15.1 15.0 22.9
-------- -------- --------
Total $ 112.0 $ 93.4 $ 108.5
======== ======== ========
- --------------------------------------------------------------------------------
Expenditures for long-lived assets
Americas Region $ 6.3 $ 10.4 $ 9.0
European Region 11.2 8.4 9.0
Asia Pacific Region 1.0 .9 .5
Global Operations 95.1 100.5 91.4
Research and Development 5.7 3.0 1.2
-------- -------- --------
Subtotal Segments 119.3 123.2 111.1
Corporate 15.0 67.9 59.4
-------- -------- --------
Total $ 134.3 $ 191.1 $ 170.5
======== ======== ========
(1) Profit/(loss) from operations for Corporate includes worldwide
restructuring and other charges of $340.0 million and $50.0 million in
1997 and 1998, respectively.
Geographic Information
(In millions) 1997 1998 1999
- --------------------------------------------------------------------------------
Net sales to customers (1)
United States $1,063.0 $ 983.9 $1,082.6
Other foreign countries 1,083.4 862.0 896.0
-------- -------- --------
Total $2,146.4 $1,845.9 $1,978.6
======== ======== ========
- --------------------------------------------------------------------------------
Long-lived assets
United States $ 409.6 $ 450.5 $ 443.3
Other foreign countries 102.9 116.0 155.9
-------- -------- --------
Total $ 512.5 $ 566.5 $ 599.2
======== ======== ========
(1) Net sales are attributable to countries based on location of the Company
entity recording the sale which generally is the same as the location of
the customer.
The Company's principal products, which have been described above, represented
approximately 85% of the Company's net sales in 1997, 1998 and 1999, while sales
of instant cameras and film represented approximately 75% of the Company's net
sales in 1997, 1998 and 1999.
During 1997, 1998 and 1999 sales to one customer, Wal-Mart Stores, Inc.,
amounted to 12.5%, 13.0% and 14.8%, respectively, of the Company's total net
sales. Most of these sales were recorded in the Americas Region.
14. CONTINGENCIES
The Company owns and operates facilities that are subject to certain federal,
state and local laws and regulations relating to environmental protection,
including those governing the investigation and remediation of contamination
resulting from past or present releases of hazardous substances. Certain of
these laws and regulations may impose joint and several liability on the Company
for the costs of investigation or remediation of such contamination, regardless
of fault or the legality of original disposal.
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, 1998 and 1999 was $1.5 million and $1.4 million
respectively. The Company currently estimates that the majority of $1.4 million
reserved for environmental liabilities will be payable over the next two to
three years. The Company reviews the analysis of the data that supports the
adequacy of this reserve 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.
POLAROID AR99
50
<PAGE>
- --------------------------------------------------------------------------------
The Company is currently involved in several lawsuits, the unfavorable
disposition of which could have a material adverse effect on the financial
condition or operating results of the Company.
In April 1999, a tribunal of the International Chamber of Commerce's
International Court of Arbitration entered a ruling against the Company's
wholly-owned subsidiary Polaroid Far East Limited, in an arbitration proceeding
brought by Columbia Enterprises for breach of two distributor agreements
regarding the distribution of photographic equipment in the Philippines in 1996.
The proceeding has entered the damages phase, but the Company cannot predict the
likely amount of the award.
A consolidated suit has been filed in United States District Court for the
District of Massachusetts against the Company and certain of its officers by
individuals claiming to have purchased stock in the Company and purporting to
represent a class of its shareholders in actions alleging violations of federal
securities law regarding public disclosure of information about the Company's
business during a time between April 16, 1997 and August 28, 1998. The Company
believes that these suits are without merit and intends to defend them
vigorously.
A declaratory judgment action was filed by the Company against the successor to
the former trustee of the Polaroid Stock Equity Plan and its insurer. The
amended complaint in the action was filed in United States District Court for
the District of Massachusetts in June 1999. The Company has requested the court
to rule that the Company is not liable under an indemnity provision of the Trust
Agreement between the Company and the former trustee for attorney fees incurred
by the declaratory defendants in defending claims by the United States
Department of Labor that the former trustee breached its fiduciary duty as
trustee, or for the resulting settlement amounts paid by the defendants. The
former trustee and its insurer both indicated that they would seek
indemnification from the Company for the costs incurred in the Department of
Labor action.
In June 1999, the Company received a Notice of Service of Process in a patent
infringement action filed against it and many others by the Lemelson Medical,
Education and Research Foundation alleging that a broad range of the Company's
manufacturing equipment and products infringe a number of patents. The Company
believes that the suit is without merit and intends to defend it vigorously.
In addition, 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 51-53 entitled Supplementary Financial Information has not
been audited by the Company's independent auditors. Those auditors have,
however, made a limited review of the 1998 and 1999 quarterly data on page 51 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.
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
Polaroid Corporation and Subsidiary Companies
(In millions, except per share and stock price data)
<TABLE>
<CAPTION>
1998 First Second Third Fourth Year
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $390.6 $464.7 $448.8 $541.8 $1,845.9
Restructuring and other -- -- -- 50.0 50.0
Profit/(loss) from operations (13.0) 4.8 41.6 (82.4) (49.0)
Net earnings/(loss) (17.4) 12.1 29.8 (75.5) (51.0)
Basic earnings/(loss) per common share (.39) .27 .68 (1.72) (1.15)
Diluted earnings/(loss) per common share (.39) .27 .68 (1.72) (1.15)
Cash dividends per common share .15 .15 .15 .15 .60
Stock prices*
High 49.94 45.89 38.25 27.75 49.94
Low 41.06 35.81 25.00 17.88 17.88
<CAPTION>
1999 First Second Third Fourth Year
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $379.0 $486.8 $463.0 $649.8 $1,978.6
Profit/(loss) from operations (6.9) 40.9 11.8 61.8 107.6
Net earnings/(loss) (30.8) 14.8 (3.8) 28.5 8.7
Basic earnings/(loss) per common share (.70) .33 (.09) .64 .20
Diluted earnings/(loss) per common share (.70) .33 (.09) .64 .20
Cash dividends per common share .15 .15 .15 .15 .60
Stock prices*
High 24.74 27.75 30.06 27.81 30.06
Low 17.06 19.06 20.94 17.25 17.06
</TABLE>
Stockholders of record as of January 28, 2000: 8,940
*Recorded on the New York Stock Exchange Composite.
POLAROID AR99
51
<PAGE>
TEN YEAR FINANCIAL SUMMARY (UNAUDITED)
- --------------------------------------------------------------------------------
Polaroid Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
Years ended December 31
(Dollar amounts in millions, except per share data) 1990 1991 1992 1993 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings
Net sales 1,971.7 2,070.6 2,152.3 2,244.9 2,312.5
Cost of goods sold 1,011.8 1,082.5 1,178.0 1,296.5 1,324.2
Marketing, research, engineering and administrative expenses 675.6 741.5 760.5 763.0 788.0
Restructuring and other -- -- -- 44.0 --
Special charges -- -- -- -- --
-------- -------- -------- -------- --------
Total costs 1,687.4 1,824.0 1,938.5 2,103.5 2,112.2
-------- -------- -------- -------- --------
Profit/(loss) from operations 284.3 246.6 213.8 141.4 200.3
-------- -------- -------- -------- --------
Litigation settlement, net of employee incentives -- 871.6 -- -- --
Other income 15.0 23.4 7.8 8.2 7.0
Interest expense 81.3 58.4 58.5 47.9 46.6
-------- -------- -------- -------- --------
Earnings/(loss) before income tax expense/(benefit) 218.0 1,083.2 163.1 101.7 160.7
Federal, state and foreign income tax expense/(benefit) 67.0 399.5 64.1 33.8 43.5
-------- -------- -------- -------- --------
Earnings/(loss) before extraordinary item and cumulative
effect of changes in accounting principle $ 151.0 $ 683.7 $ 99.0 $ 67.9 $ 117.2
======== ======== ======== ======== ========
Net earnings/(loss) $ 151.0 $ 683.7 $ 99.0 $ (51.3) $ 117.2
======== ======== ======== ======== ========
Basic earnings/(loss) per common share before extraordinary item
and cumulative effect of changes in accounting principles $ 2.20 $ 13.07 $ 2.08 $ 1.45 $ 2.52
Basic earnings/(loss) per common share $ 2.20 $ 13.07 $ 2.08 $ (1.10) $ 2.52
Diluted earnings/(loss) per common share before extraordinary item
and cumulative effect of changes in accounting principles $ 2.20 $ 10.88 $ 2.03 $ 1.45 $ 2.43
Diluted earnings/(loss) per common share $ 2.20 $ 10.88 $ 2.03 $ (1.10) $ 2.43
Cash dividends per common share $ .60 $ .60 $ .60 $ .60 $ .60
Common shares outstanding at end of year (in thousands) 50,070 48,919 46,668 46,806 45,998
Selected Balance Sheet Information
Working capital $ 600.7 $ 684.7 $ 778.5 $ 826.7 $ 879.7
Net property, plant and equipment 461.0 549.4 657.3 718.2 747.3
Total assets 1,701.3 1,889.3 2,008.1 2,212.3 2,316.7
Long-term debt 513.8 471.8 637.4 602.3 566.0
Redeemable preferred stock equity 348.6 -- -- -- --
Common stockholders' equity 207.7 772.9 808.9 767.3 864.4
Other Statistical Data
Additions to property, plant and equipment $ 120.9 $ 175.8 $ 201.5 $ 165.6 $ 146.7
Depreciation $ 87.2 $ 85.5 $ 89.1 $ 100.3 $ 118.2
Payroll and benefits $ 587.6 $ 690.6 $ 670.2 $ 699.2 $ 720.6
Number of employees, end of year 11,768 12,003 12,359 12,048 12,104
Return on average common stockholders' equity* 63.3% 148.6% 12.7% 9.3% 14.7%
</TABLE>
*1993 is shown prior to the cumulative effects of FAS 106, 109 and 112.
POLAROID AR99
52
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings
Net sales 2,236.9 2,275.2 2,146.4 1,845.9 1,978.6
Cost of goods sold 1,298.6 1,283.8 1,229.8 1,108.4 1,170.5
Marketing, research, engineering and administrative expenses 849.1 796.6 752.2 736.5 700.5
Restructuring and other 247.0 110.0 323.5 50.0 --
Special charges -- 33.0 -- -- --
-------- -------- -------- -------- --------
Total costs 2,394.7 2,223.4 2,305.5 1,894.9 1,871.0
-------- -------- -------- -------- --------
Profit/(loss) from operations (157.8) 51.8 (159.1) (49.0) 107.6
-------- -------- -------- -------- --------
Litigation settlement, net of employee incentives -- -- -- -- --
Other income 8.5 26.8 15.0 67.7 (16.8)
Interest expense 52.1 47.4 47.8 57.6 77.4
-------- -------- -------- -------- --------
Earnings/(loss) before income tax expense/(benefit) (201.4) 31.2 (191.9) (38.9) 13.4
Federal, state and foreign income tax expense/(benefit) (61.2) 16.2 (65.2) 12.1 4.7
-------- -------- -------- -------- --------
Earnings/(loss) before extraordinary item and cumulative
effect of changes in accounting principle $ (140.2) $ 15.0 $ (126.7) $ (51.0) $ 8.7
======== ======== ======== ======== ========
Net earnings/(loss) $ (140.2) $ (41.1) $ (126.7) $ (51.0) $ 8.7
======== ======== ======== ======== ========
Basic earnings/(loss) per common share before extraordinary item
and cumulative effect of changes in accounting principles $ (3.09) $ .33 $ (2.81) $ (1.15) $ .20
Basic earnings/(loss) per common share $ (3.09) $ (.90) $ (2.81) $ (1.15) $ .20
Diluted earnings/(loss) per common share before extraordinary item
and cumulative effect of changes in accounting principles $ (3.09) $ .33 $ (2.81) $ (1.15) $ .20
Diluted earnings/(loss) per common share $ (3.09) $ (.90) $ (2.81) $ (1.15) $ .20
Cash dividends per common share $ .60 $ .60 $ .60 $ .60 $ .60
Common shares outstanding at end of year (in thousands) 45,533 44,819 44,536 43,990 44,616
Selected Balance Sheet Information
Working capital $ 730.3 $ 623.3 $ 572.8 $ 360.4 $ 366.7
Net property, plant and equipment 691.0 666.2 512.5 566.5 599.2
Total assets 2,261.8 2,201.6 2,132.7 2,197.0 2,040.0
Long-term debt 526.7 489.9 496.6 497.4 573.0
Redeemable preferred stock equity -- -- -- -- --
Common stockholders' equity 717.7 658.2 484.4 389.9 370.5
Other Statistical Data
Additions to property, plant and equipment $ 167.9 $ 121.8 $ 134.3 $ 191.1 $ 170.5
Depreciation $ 132.7 $ 118.3 $ 111.5 $ 90.7 $ 105.9
Payroll and benefits $ 709.3 $ 641.2 $ 608.6 $ 565.1 $ 545.2
Number of employees, end of year 11,662 10,046 10,011 9,274 8,784
Return on average common stockholders' equity* (17.8)% (6.2)% (19.7)% (11.4)% 2.4%
</TABLE>
POLAROID AR99
53
<PAGE>
Exhibit 21
EXHIBIT 21 - SUBSIDIARIES
Year ended December 31, 1999
<TABLE>
<CAPTION>
Place of
Incorporation or
Name of Subsidiary or Entity Establishment
- --------------------------------------------------------------------------------
<S> <C>
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 Commerce GmbH Luxembourg
Polaroid Canada Inc. Canada
Polaroid Caribbean Corporation Delaware
Reifschneider Peru S.A. Peru
Polaroid de Argentina S.A. Argentina
Polaroid Contracting CV Bermuda
Polaroid Espana, S.A. Spain
Polaroid Eyewear Inc. Delaware
Polaroid Eyewear A.G. (Switzerland) Switzerland
Polaroid Eyewear Espana S.A. Spain
Polaroid Eyewear (France) EURL France
Polaroid Eyewear (Sweden) AB Sweden
Polaroid Eyewear GmbH (Austria) Austria
Polaroid Eyewear (Nederlands) B.V. Netherlands
Polaroid Eyewear UK Limited United Kingdom
Polaroid Far East Limited Hong Kong
Polaroid Foreign Sales B.V. Netherlands
Polaroid Foundation, Inc. Delaware
Polaroid Gesellschaft mit beschrankter Haftung Germany
Polaroid Gesellschaft m.b.H. Austria
Polaroid India Private Limited India
Polaroid ID Systems Inc. Delaware
DEK Processes of LA Inc. Louisiana
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Polaroid International B.V. Netherlands
Darfilm Ticaret ve Sanayi A.S. Turkey
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
Polaroid Polska Sp. zo.o. Poland
Photographic Supplies S.R.C. Czech Republic
Polaroid Hungary Kft. Hungary
Polaroid Eyewear (Italia) S.r.l. Italy
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 Partners, Inc. Delaware
Polaroid Singapore Private Limited Singapore
Polaroid (U.K.) Limited United Kingdom
Polaroid Leasing, Ltd. United Kingdom
Inner City, Inc. Delaware
PMC, Inc. Massachusetts
PRD Capital Inc. Delaware
PRD Investment Inc. Delaware
PRD Management Limited Bermuda
PRD Services Limited Bermuda
PRD Overseas Limited Bermuda
Sub Debt Partners Corp. Delaware
Troon, Inc. Delaware
Polaroid Digital Solutions, Inc. Delaware
</TABLE>
Subsidiaries of subsidiary companies are indented and listed below the
respective companies through which they are controlled.
<PAGE>
Exhibit 23
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS'
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
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, No.
333-32283 on Form S-8, No. 333-32285 on Form S-8, No. 333-67647 on Form S-3 and
No. 333-96051 on Form S-3 of Polaroid Corporation of our reports dated January
24, 2000, except to Note 8 to which the date is February 14, 2000 relating to
the consolidated balance sheet of Polaroid Corporation and subsidiary companies
as of December 31, 1999 and 1998, and the related consolidated statements of
earnings, cash flows, and changes in common stockholders' equity, and related
financial statement schedule for each of the years in the three year period
ended December 31, 1999, which reports appear in the December 31, 1999 annual
report on Form 10-K of Polaroid Corporation.
/S/ KPMG LLP
Boston, Massachusetts
March XX, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 92,000
<SECURITIES> 0
<RECEIVABLES> 513,600
<ALLOWANCES> (23,900)
<INVENTORY> 395,600
<CURRENT-ASSETS> 1,116,900
<PP&E> 2,023,000
<DEPRECIATION> (1,423,800)
<TOTAL-ASSETS> 2,040,000
<CURRENT-LIABILITIES> 750,200
<BONDS> 573,000
0
0
<COMMON> 75,400
<OTHER-SE> 295,100
<TOTAL-LIABILITY-AND-EQUITY> 2,040,000
<SALES> 1,978,600
<TOTAL-REVENUES> 1,978,600
<CGS> 1,170,500
<TOTAL-COSTS> 1,871,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,700
<INTEREST-EXPENSE> 77,400
<INCOME-PRETAX> 13,400
<INCOME-TAX> 4,700
<INCOME-CONTINUING> 8,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,700
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
</TABLE>
