ITEM 1. BUSINESS GENERAL Polaroid Corporation, a Delaware corporation founded in 1937, and its subsidiaries (the "Company") comprise a worldwide enterprise with 1993 sales of $2.24 billion. The Company designs, manufactures and markets a variety of products primarily in instant image recording fields. These include instant photographic cameras and films, electronic image recording devices, videotapes, conventional films, and light polarizing filters and lenses. The Company's products are used in amateur and professional photography, business, industry, science, medicine and education.
PRODUCTS Polaroid designs, manufactures and markets worldwide a variety of products, including more than 50 different types of film and over 100 instruments, camera backs, film holders and specialized equipment designed for a broad range of applications in photographic imaging. In addition, the Company is developing and producing high resolution imaging and electronic imaging systems products.
During 1993, Polaroid introduced Captiva in the United States and JoyCam in Japan, its new single lens reflex, autofocus instant system that features the first in-camera picture storage compartment that allows up to ten instant prints to develop inside the camera. To support the camera's introduction in the United States, the Company ran an extensive advertising campaign in consumer magazines and on network and cable television during the second half of 1993. In the U.S. market, Polaroid introduced its first single use 35mm camera called SideKick. Available in models with and without flash, the cameras come pre-loaded with Polaroid 35mm High Definition film. Polaroid augmented this product line with Talking SideKick, the first talking single use camera.
The Company also introduced the MicroCam SLR in 1993. Designed to photograph any specimen through virtually any light microscope, MicroCam is a fully- automatic, single lens reflex instant camera with digital controls for producing high quality black-and-white and color prints. The system can be moved from microscope to microscope to serve an entire laboratory. Polaroid's Polacolor Ultraviolet ID Film was introduced in 1993. Designed as a new security identification film, Polacolor Ultraviolet ID Film produces images for ID cards that are virtually tamper-proof and impossible to duplicate. An invisible ultraviolet security pattern featuring the word "Polaroid" is printed onto the film during manufacturing; the resulting random pattern is visible only when viewed with a UV scanning light.
The first shipments of Polaroid's Helios 810 Laser Imaging System were made to customers in the United States and Europe in 1993. This digital dry-process laser imaging system produces 8x10-inch transparencies in 90 seconds and eliminates the need for conventional silver halide film and its need for proper disposal of toxic chemicals. A number of new digital imaging and networking enhancements have been developed for the Helios 810 Laser Imaging System. With the appropriate image management software, radiologists and diagnosticians can direct images to Helios from multiple systems, through a local area network, a removable disk system that enables Helios to print images captured from mobile exams or remote locations, or a high resolution video interface for connecting to nuclear medicine workstations.
In 1993, Polaroid completed its Mexican Voter Registration Program. This comprehensive program incorporated specialized Polaroid Identifilm, specially- made ID cameras, central image and data storage and retrieval, and on-the-spot card issuance at more than 6,900 locations.
Polaroid won a five-year contract to implement an instant digital imaging drivers license system for the State of Colorado in 1994. This digital system will capture portraits, signatures, fingerprints and other data and will produce an estimated one million Colorado driver's licenses each year.
DISTRIBUTION Worldwide sales of imaging products are made by the Company to photographic stores, retail, food, drug, discount and department stores, wholesalers, hospitals, original equipment manufacturers, independent agents and distributors. Distributors of the Company include unrelated distributors and subsidiaries of the Company.
COMPETITION The worldwide market for imaging products is highly competitive in price, quality, service and product performance. The Company has competitors worldwide, ranging from large corporations to smaller and more specialized companies.
RAW MATERIALS AND SUPPLIES Sufficient raw materials and supplies were available in 1993 to maintain operations of all manufacturing plants.
RESEARCH, ENGINEERING AND DEVELOPMENT The Company continues to place great emphasis on research, engineering and development. The amount expended for research, engineering and development included in general and administrative expenses was $160.8 million during 1993 compared with $154.7 million in 1992 and $153.8 million in 1991. Manufacturing development costs (previously called "start-up costs") for major new products included in cost of sales were approximately $30 million in 1993, $40 million in 1992, and $10 million in 1991.
PATENTS AND TRADEMARKS The Company continued to obtain patents in 1993. In the judgment of the Company, its patents are important to its business. The Company also owns a number of valuable trademarks, including "Polaroid", which are important to its business.
ENVIRONMENTAL COMPLIANCE Approximately 11% of Polaroid's capital spending in 1994 will be for environmental improvement projects.
The Company, together with other parties, is currently designated a Potentially Responsible Party (PRP) by the United States Environmental Protection Agency (EPA) and certain state agencies with respect to the response costs for environmental remediation at several sites identified below. 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 where the Company is able to determine the likely exposure, such amount has been included in the Company's reserve. Where a range of comparably likely exposures exists, the Company has included in its reserve the minimum amount of the range. The Company's aggregate reserve for these liabilities was $6.0 million as of December 31, 1993. The Company's analysis of data which underlies its establishment of this reserve is undertaken on a quarterly basis. The reserve for such liability does not provide for associated litigation costs, which, if any, are expected to be inconsequential in comparison with the amount of the reserve. The Company will continue to accrue in its reserve appropriate amounts from time to time as circumstances warrant. This reserve does not take into account potential recoveries from third parties.
Federal law provides that PRPs may be held jointly and severally liable for response costs. Based on current estimates of those costs and after consideration of the potential estimated liabilities of other PRPs with respect to those sites and their respective estimated levels of financial responsibility, the Company does not believe its potential liability will be materially enlarged by the fact that liability is joint and several.
The Company has been advised of the intention of the EPA to seek recovery under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) from it and other PRPs of response costs related to the sites of: Bridgeport Rental and Oil Services in Logan Township, New Jersey; Sealand
Restoration in Lisbon, New York; Solvents Recovery Service of New England in Southington, Connecticut; Ironhorse Park in Billerica, Massachusetts; Old Southington Landfill in Southington, Connecticut; and Jack's Creek/Sitkin Smelting in Mifflin County, Pennsylvania; to which were allegedly delivered hazardous substances generated or transported by or otherwise related to the Company and those other PRPs. The Company and other PRPs have initiated litigation with the objective of minimizing their exposure with respect to the Bridgeport Rental and Oil Services site.
In 1988, the United States of America, the State of New Hampshire and the Commonwealth of Massachusetts commenced actions against the Company and other PRPs in the United States District Court for Massachusetts. The plaintiffs asked for recovery under Section 107 of CERCLA of response costs related to four sites located in Bridgewater and Plymouth, Massachusetts, and Londonderry and Nashua, New Hampshire. All of the sites are associated with the Cannons Engineering Corporation, a company which was engaged in disposing of hazardous wastes. The Company has entered into a consent decree to resolve the issues raised in these actions. The consent decree has been entered by the court and the court's decision has been affirmed in an appellate proceeding. Remediation activities are under way.
In 1989, the United States of America and the Commonwealth of Massachusetts commenced actions against the Company and other PRPs in the United States District Court for Massachusetts. The plaintiffs ask for recovery under CERCLA of response costs related to the Charles George Reclamation Trust Landfill in Tyngsboro, Massachusetts. The Company has entered into a consent decree to resolve the issues raised in these actions. The consent decree was entered by the court on May 24, 1993. An appeal by non-settling parties is presently pending.
In 1990, an Administrative Order was issued by the EPA under Section 106 of CERCLA ordering the Company and other PRPs to perform remediation activities at the Landfill and Resource Recovery, Inc. site in North Smithfield, Rhode Island. The Company and other PRPs are presently performing remediation activities at the site.
Also in 1990, Transtech Industries, Inc., et al. commenced actions against the Company and other entities in the United States District Court for New Jersey. The plaintiffs ask for contribution toward response costs they have paid, and will pay, for remediation activities at the Kin-Buc Landfill in Edison, New Jersey. The Company has filed its answer to the complaints.
In 1993, the United States of America and the Commonwealth of Massachusetts commenced actions against the Company and other PRPs in the United States District Court for Massachusetts. The plaintiffs asked for recovery under CERCLA and Massachusetts General Laws Chapter 21E for response costs related to the Silresim Chemical Corporation site in Lowell, Massachusetts. The Company has entered into a consent decree to resolve the issues raised in these actions. The consent decree was entered by the Court on October 12, 1993.
Also in 1993, the United States of America commenced an action against the Company and other PRPs in the United States District Court for West Virginia. The plaintiff asks for recovery under CERCLA of response costs related to the Artel Chemical Corporation site in Nitro, West Virginia. The Company has not yet filed its answer to the complaint.
Also in 1993, Duffy Brothers Construction Company, Inc., et al., commenced an action against the Company and other entities in the United States District Court for Massachusetts. The plaintiffs ask for contribution toward response costs they have paid, and will pay, for remediation activities at property owned by them and located at Waverly Oaks Park in Waltham, Massachusetts. The Company has filed its answer to the complaint.
On August 16, 1988, the Company initiated litigation against certain of its insurance carriers seeking defense costs and indemnification with respect to the Silresim, Charles George and Cannons sites. On August 5, 1992, Commercial Union Insurance Company, Fireman's Fund Insurance Company, and The Travelers Indemnity Company filed a separate action against the Company seeking a declaratory judgement that they "have neither the obligation to defend nor the obligation to indemnify Polaroid with respect to any Environmental Claims asserted or to be asserted against Polaroid by third parties", except for those claims already in litigation with respect to the Silresim, Charles George and Cannons sites. On April 7, 1993, the Supreme Judicial Court of the
Commonwealth of Massachusetts held that the Company was not entitled to indemnification under the involved policies for damage done to the Cannons sites. On November 5, 1993, the Company settled all outstanding litigation with its insurance carriers. The settlement agreements require that the terms be held in confidence.
EMPLOYEES The Company had 12,048 and 12,359 employees at December 31, 1993 and 1992, respectively. The population included approximately 250 worldwide temporary employees in 1993 and approximately 400 in 1992. In addition, the Company had a non-employee temporary population in the U.S. of approximately 1,500 and 1,000 at December 31, 1993 and 1992, respectively.
INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND SIGNIFICANT CUSTOMERS Please see note 13, "Segments of Business", on pages 44 and 45 of the Polaroid Corporation Annual Report to Stockholders for 1993 (the "Annual Report").
ITEM 2.
ITEM 2. PROPERTIES The Company's worldwide corporate headquarters is located in Cambridge, Massachusetts, along with administrative offices, marketing, research and engineering. The Cambridge properties consist of approximately 1,153,000 square feet of space owned in fee and leased premises, under leases expiring between 1995 and 2003.*
Over 90% of the Company's space in the United States is located in Eastern Massachusetts (Waltham, Norwood, New Bedford, Freetown, Newton and Needham). These communities contain sites which house essentially all of the Company's principal U.S. manufacturing facilities plus additional research and engineering functions and warehousing operations. Following is a summary description of such facilities: Approximate Space Location (Square Feet) ----- -------------- Waltham 1,660,000 Norwood 788,000 New Bedford 739,000 Freetown 137,000 Newton 165,000 Needham 598,000 --------- 4,087,000 =========
Approximately 93% of these U.S. manufacturing and warehousing facilities and the land they occupy are owned by the Company. The Newton facility is leased in its entirety and 54,000 square feet of the Waltham facility and 51,000 square feet of the Needham facility are leased.
The Company also currently maintains, in principal cities throughout the U.S., a network of three marketing and distribution centers (Atlanta, Chicago and Santa Ana) and twenty regional sales offices in other locations.
Principal manufacturing facilities outside the U.S. are located in Dumbarton, Scotland; Enschede, The Netherlands and Queretaro, Mexico. Following is a summary description of such facilities: Approximate Space Location (Square Feet) ----- -------------- Scotland 446,000 The Netherlands 527,000 Mexico 253,000 --------- 1,226,000 =========
[FN] - --------- *All lease expiration dates are the end of the current term for leases not containing a renewal option and the end of the last renewal term for leases containing renewal options.
Approximately 73% of these facilities are owned by the Company. This space also houses certain administrative and marketing activities.
Marketing subsidiaries or sales offices are located in England, France, Germany, Italy and eight other European countries. Additional marketing and distribution facilities are established in Russia, the Western Hemisphere (Canada, Puerto Rico, Mexico and Brazil) and in fifteen locations in the Asia Pacific region (China, Australia -- four locations, Hong Kong -- two locations, and Japan -- nine locations).
Manufacturing facilities operated at reasonable levels of production capacity during 1993. The capacity of the facilities is sufficient to meet current demand for the Company's products.
All the Company's premises are in good repair and its machinery and equipment are maintained in good operating condition. The facilities are suitable for the production of Company products.
The Company does not anticipate any difficulty in renewing outstanding leases as they expire or in finding satisfactory alternative premises.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS Please see note 14, "Contingencies", on pages 46 to 48, inclusive, of the Annual Report.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None in the fourth quarter of 1993.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Please see the table entitled "Quarterly Financial Data" on page 49 of the Annual Report.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA Please see the table entitled "Ten Year Financial Summary" on pages 50 to 51, inclusive, of the Annual Report.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Please see the section entitled "Management's Discussion and Analysis of Operations" on pages 23 to 28, inclusive, of the Annual Report.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Please see the section entitled "Independent Auditors" Report'' on page 29, the sections entitled "Financial Statements" and "Notes to Consolidated Financial Statements" on pages 30 to 48, inclusive, and the section entitled "Supplementary Financial Information" on pages 48 to 51, inclusive in each case, of the Annual Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT a) DIRECTORS - Please see the section entitled "Election of Directors" on pages 3 to 7, inclusive, of the Polaroid Corporation 1994 Proxy Statement (the "Proxy Statement").
b) EXECUTIVE OFFICERS OF THE REGISTRANT - Listed below are the executive officers of the Company. Officers are elected annually by the Board of Directors. No family relationship exists between any of the officers.
Mr. Booth joined the Company in 1958. He was elected Assistant Vice President and Assistant to the President in 1975, Vice President and Assistant to the President in 1976, Senior Vice President in 1977, Executive Vice President in 1980, Executive Vice President and Chief Operating Officer in 1982, President, Chief Operating Officer and Director in 1983, and to his present position as President, Chief Executive Officer and Director in 1986. Mr. Booth was elected Chairman of the Board in 1991.
Dr. Buckler joined the Company in 1964. He was elected Assistant Vice President in 1969, Vice President in 1972, Group Vice President in 1975, Senior Vice President in 1977, Executive Vice President in 1980, and to his present position as Vice Chairman of the Board in 1990. He will retire in June 1994.
Mr. Henry joined the Company in 1967. He was elected Vice President in 1987. He held the position of Chief Financial Officer from 1988 to 1990, and was elected to his present position as Executive Vice President in 1992.
Mr. Oldfield joined the Company in 1966. He was elected to Vice President in 1987, and to his present position as Executive Vice President in 1992.
Mr. O'Neill joined the Company in 1969. He was elected Corporate Controller in 1980, Vice President and Controller in 1982, Group Vice President in 1984, Group Vice President and Chief Financial Officer in 1990, and to his present position as Executive Vice President and Chief Financial Officer in 1992.
Mr. Agrawal joined the Company in 1971. He was elected to his present position as Vice President in 1992.
Mr. Brown joined the Company in 1969. He was elected Corporate Controller in 1984, Vice President and Controller in 1985, and to his present position as Vice President and Treasurer in 1989.
Mr. deLima joined the Company as Secretary and Chief Resident Counsel in 1972. He was elected Vice President and Secretary in 1975, and to his present positions as Vice President, Secretary and General Counsel in 1989.
Dr. Ionson joined the Company in 1991 as Vice President and Director of Research. Prior to joining the Company, Dr. Ionson was the director of the Strategic Defense Initiative Organization's Office of Innovative Science during the Reagan administration, and subsequent to this owned an advanced technology management consulting company, JDC, Inc.
Mr. LeBlanc joined the Company in 1978. He was elected to his present position as Vice President in 1991.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION Please see the section entitled "Executive Compensation" on pages 8 to 14, inclusive, of the Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Please see the section entitled "Beneficial Ownership of Shares" on pages 4 to 6, inclusive and the section entitled "Election of Directors" on pages 3 to 7, inclusive, of the Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Please see the section entitled "Election of Directors" on pages 3 to 7, inclusive, of the Proxy Statement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders POLAROID CORPORATION:
Under the date of February 1, 1994, we reported on the consolidated balance sheet of Polaroid Corporation and subsidiary companies as of December 31, 1993 and 1992, and the related consolidated statement of earnings, cash flows, and changes in common stockholders' equity for each of the years in the three-year period ended December 31, 1993, as contained in the 1993 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 1993. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in Item 14(a)2 of this Report. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Notes 3 and 11 in the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes and for certain postretirement and postemployment benefits.
KPMG PEAT MARWICK
Boston, Massachusetts February 1, 1994
POLAROID CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE I - MARKETABLE SECURITIES - OTHER INVESTMENTS December 31, 1993 (In millions)
POLAROID CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT Years ended December 31, 1993, 1992 and 1991 (In millions)
DEPRECIATION METHODS The cost of buildings and machinery and equipment is depreciated, primarily by accelerated depreciation methods, over the estimated useful lives of such assets, as follows: Buildings: 20 - 40 years Machinery and equipment: 3 - 12 years
POLAROID CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT Years ended December 31, 1993, 1992 and 1991 (In millions)
POLAROID CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 1993, 1992 and 1991 (In millions)
POLAROID CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE IX - SHORT-TERM BORROWINGS Years ended December 31, 1993, 1992 and 1991 (In millions)
DESCRIPTION OF SHORT-TERM BORROWINGS: The Company maintains a domestic working capital line of credit of $150 million and there were no amounts outstanding at December 31, 1993.
Notes payable to banks include unsecured obligations of the Company's foreign subsidiaries (normally maturing within 180 days) and borrowings under the working capital portion of the credit agreement.