Polaroid 2008 Annual Report (Fake) by Topher Edwards

Polaroid 2008 ANNUAL REPORT

Contents: 02

Financial Highlights

Letter to Shareholders

Managements Discussions and Analysis of Operations

Auditors Report

Consolidated Statements

Board of Directors

Financial Highlights Polaroid Corporation and Subsidiary Companies (In millions, except per share and percent data)

2008 Net Sales Profit from Operations Restructuring and Other Expenses Special Charges Profit (Loss) from Operations Earnings (Loss) Before Income Tax Expense (Benefit) Earnings (Loss) Before Extraordinary Item Extraordinary Item Net Earnings (Loss) Primary Earnings (Loss) Per Common Share: Earnings (Loss) Before Extraordinary Item Extraordinary Item Net Earnings (Loss) Earning Per Common Share Cash Dividends per Common Share Advertising Research, Engineering and Development Cash and Cash Equivalents Short-Term Investments Working Capital Common Stockholdersâ&#x20AC;&#x2122; Equity Additions to Property, Plant and Equipment Depreciation Earnings (Loss) Before Extraordinary Items as a Percent of Sales

Net Sales

Profits

2008

2007

2006

2007

2006

2,275.2 201.8* 110.0 33.0* 51.8 31.2 15.0 (56.1) (41.1)

2,236.9 89.2 247.0

2,312.5 200.3

(157.8) (201.4) (140.2)

200.3 160.7 117.2

(140.2)

117.2

.32 (1.21) (.89) 2.27* .60 134.6 116.3 72.8 5.5 623.3 658.2 121.8 118.3 0.7%

(3.09)

2.49

(3.09) .45 .60 124.1 165.5 73.3 9.8 730.3 717.7 167.9 132.7 (6.3%)

2.49 .60 121.2 165.7 143.3 85.6 879.7 864.4 146.7 118.2 5.1%

Stockholders Equity

250

2300

800

200

2250

700

150

2200

600

100

2150

500

2100

400

2050

300

2008

2007

2006

(In millions)

2008

2007

2006

Letter to Shareholders March 19, 2007 Polaroid Chairman and CEO, Gary DiCamillo

To our shareholders, customers and friends, In efforts to keep up with changing times and rapidly growing technology, we have decided to end the production of instant Polaroid 600 film and invest more in the digital future. This meant combining the satisfaction of instant film with todays convenience of cellular devices and digital cameras and continually expanding on our household electronics. In my year and a half as chief executive, I have made a point of listening to many Polaroid users, dealers, retailers, employees, investors, suppliers and even competitors on four continents. These candid exchanges have given me a firm fix on our strengths and opportunities. Last year was a turning point for Polaroid - a year of re-establishing a strong foundation for the future. To sum it up, we restructured, we reorganized, and - most important - we achieved our operating profit plan for the year. We focused on shareholder value and sharply improved our Economic Value Added (EVA).

â&#x20AC;&#x153;To sum it up, we restructured, we reorganized, and - most important - we achieved our operating profit plan for the year.â&#x20AC;?

We had impressive financial and marketplace performances last year in a number of international markets, especially Japan, western Europe and South America. Retail sales were up strongly in Japan and western Europe behind new marketing initiatives. We achieved double-digit sales and profit growth in virtually all of our developing markets.

These results are evidence that our core instant imaging business is healthy and growing. We are confident that further growth can be achieved, as our market-driven initiatives expand and as new products are introduced. Through your continuing support we can realize our vast potential in the rapidly changing field of imaging. I am enthusiastic about our future, and I appreciate your confidence in Polaroid.

Gary T. DiCamillo,

Polaroid Corporation Chairman and Chief Executive Officer

Managements Discussion and Analysis of Operations March 19, 2007 2008 Worldwide Results Compared with 2007

Worldwide sales of Polaroid Corporation and its subsidiaries increased 2% to $2.28 billion in 2008 compared with $2.24 billion in 2007. Worldwide shipments of instant film in 2008 increased slightly compared to 2007. Excluding instant film shipments in Russia, 2008 shipments increased in the mid-single digits compared to 2007 shipments. In 2008, the Company sold 5.1 million cameras compared with 5.4 million cameras in 2007. Excluding camera shipments in Russia, 2008 camera shipments increased moderately compared to 2007. Conventional film shipments increased significantly and videotape shipments increased slightly in 2008 compared to 2007.

Gross margins as a percent of sales increased to 44% for 2008 from 42% for 2007. The increase in gross margin in 2008 reflects the impact of savings from restructuring, favorable pricing on instant film, licensing income on patents and more cost-effective promotions. In 2008, the gross margin was also negatively affected by foreign currency translation. Marketing, research, engineering and administrative expenses decreased to $797 million (35% of sales) in 2008 from $849 million in 2007 (38% of sales), primarily as a result of lower spending in research and engineering expenses. Research and engineering expenses were $116 million in 2008 compared to $166 million in 2007, a 30% decrease.

In 2008, sales in the United States were $1.06 billion, an increase of 4% compared to $1.02 billion in 2007. In 2008, U.S. shipments of instant cameras decreased moderately and shipments of instant film increased slightly compared to 2007. Sales in the U.S. in 2008 also included approximately $10 million to $20 million of licensing income on patents.

1.1

2008’s Sales in the United States

The $110 million restructuring and other expenses represents the balance of severance and pension enhancement costs and inventory write-downs related to the December 2007 program (as more fully described in the section “2007 Worldwide Results Compared with 2006”.) The $110 million charge includes approximately $55 million pre-tax costs related to the severance program. Additionally, approximately $45 million represents enhanced retirement benefits provided under the early retirement program that will be funded from the Company’s pension plans, and therefore has been reflected as a non-cash item in the Company’s consolidated statement of cash flows.

1.075 1.05 1.025 1

2008

2007

#4%

International sales in 2008 of $1.21 billion were comparable to international sales of $1.22 billion in 2007, despite the decline in sales in Russia and the negative impact of foreign currency translation. Sales in 2008 in the European region, excluding Russia, increased compared to 2007. Including Russia, sales in the European region decreased 10% to $664 million in 2008 compared with $739 million in 2007. The Company’s sales in Russia in 2008 decreased over 40% compared to a year ago. In 2008, sales in the Asia Pacific, Canada, Latin and South America regions increased 15% to $551 million compared to $479 million in 2007 despite the negative impact of foreign currency translation, in particular, the yen.

The 2008 fourth quarter $40 million pre-tax cost includes $25 million related to the previously announced costs associated with the sale of the Company’s Helios medical diagnostic imaging equipment line and $15 million to write down parts and capital equipment under development for a printer project and other costs. Inventory write-offs of $7 million related to these matters were recorded in cost of sales, in accordance with new accounting guidelines and $33 million was reported as special charges. The $33 million special charge reflects the write-offs of fixed assets, severance and other costs.

Excluding one-time costs, operating profit for 2008 was $202 million compared to $89 million in 2007. The increase in operating profit primarily reflects the impact of savings from restructuring and lower losses in the Company’s digital imaging businesses. Including one-time costs, operating profit was $52 million in 2008 compared to a loss from operations of $158 million in 2007.

in 2008 increased slightly compared to 2007. Excluding instant film shipments in Russia, 2008 shipments increased in the mid-single digits compared to 2007 shipments. In 2008, the Company sold 5.1 million cameras compared with 5.4 million cameras in 2007. Excluding camera shipments in Russia, 2008 camera shipments increased moderately compared to 2007. Conventional film shipments increased significantly and videotape shipments increased slightly in 2008 compared to 2007.

Total losses in the Company’s digital imaging businesses in 2008 declined approximately $60 million compared to total losses of approximately $190 million in 2007. Reduction of these losses was achieved through restructuring and the growth of new product revenue, particularly in digital products which included LCD panels and projectors, the Company’s PDC-2000 digital camera and color film recorders.

Other income was $27 million in 2008 compared with $9 million in 2007. This increase primarily reflects a $23 million gain on the sale of real estate partially offset by lower interest income. Included in other income was a foreign currency loss of $2 million from balance sheet translation in 2008 compared to a foreign currency loss of $3 million a year ago. Interest expense decreased to $47 million in 2008 from $52 million in 2007 primarily as a result of lower average borrowings and lower average interest rates.

One-time costs relate to special charges in 2008 and charges for restructuring and other in 2008 and 2007. In 2008, one-time costs totaled $150 million pre-tax of which $110 million was recorded in the first quarter of 2008 and $40 million was recorded in the fourth quarter of 2008. In 2007, one-time costs totaled $247 million. The $110 million restructuring and other expenses represents the balance of severance and pension enhancement costs and inventory write-downs related to the December 2007 program (as more fully described in the section “2007 Worldwide Results Compared with 2006”.) The pre-tax costs related to the severance program.

Worldwide sales of Polaroid Corporation and its subsidiaries increased 2% to $2.28 billion in 2008 compared with $2.24 billion in 2007. Worldwide shipments of instant film

Percentage of Worldwide Sales $250

Yr.

$200

2004 2005 2006 2007 2008

n n

29%

47%

$150

$100

$50

24%

2008 2007 • Excludes impact of $44 million of charges related to restructuring and other expenses. • Excludes impact of $247 million of charges related to restructuring and other expenses. • Excludes impact of $110 million of charges related to restructuring and other expenses and $40 million

(In millions)

United States Europe Asia Pacific, Canada, Latin and South America

Managements Discussion and Analysis of Operations The following table summarizes the relation to net sales of income and expense items included in the Consolidated Statement of Earnings for 2008, 2007 and 2006 and the changes in those items from the respective prior years.

Income and Expense Items as a Percent of Net Sales

07-08 2007 06-07 2008

Percent Increase/(Decrease)

05-06 2006

47% 53% 100%

46% 54% 100%

50% 50% 100%

56 35 5 2

58 38 11 -

57 34 -

(7)

1 2

07-08 2007 06-07 2008

05-06 2006

United States International Total Net Sales

4% 2

(12)% 6 (3)

(2)% 8 3

Cost of Goods Sold Marketing, Research, Engineering and Administrative Expenses Restructuring and Other Expenses Special Charges

(1) (6) (55) 100

(2) 8 100

2 3 (100)

Profit/(Loss) from Operations

Other Income Interest Expense

215 (9)

21 12

(15) (3)

1 -

(9) (3)

7 2

Earnings/(Loss) Before Income Tax Federal, State and Foreign Income Tax Expense/(Benefit)

NM NM

NM 29

1 (3)

(6) -

5 -

Earnings/(Loss) Before Extraordinary Item Extraordinary Item

NM -

(2)%

(6)%

71%

73%

Net Earnings/(Loss)

NM - Not meaningful because of a fluctuation from a positive amount to a negative amount or from a negative amount to a positive amount.

Financial Liquidity and Capital Resources At December 31, 2008, the Company’s cash and cash equivalents and short-term investments amounted to $78 million, compared to $83 million at December 31, 2007. Working capital decreased to $623 million at December 31, 2008 from $730 million at December 31, 2007. The primary source for cash in 2008 was net operating activities which more than offset cash used by investing activities and financing activities. The primary source for cash in 2007 was a decrease in shortterm investments, net cash provided by operating activities and an increase in short-term debt. Capital spending during

2008 was $122 million and depreciation expense was $118 million. Capital spending during 2007 was $168 million and depreciation expense was $133 million. Capital expenditures in both 2008 and 2007 were primarily related to ongoing capital programs. In 2008, capital expenditures were also incurred in connection with the consolidation of the Company’s coating facilities. In 2007, capital expenditures were also incurred on the Company’s new coating facility, environmental improvements and to increase the capacity for manufacturing batteries for instant films.

2008

2007

(2)%

(6)%

2008

NET EARNINGS/(LOSSES)

CHARTS

The Company also has a long-term loan related to the Polaroid Stock Equity Plan (the ESOP loan). The outstanding balance of the ESOP loan at December 31, 2008 was $38 million.

Earning

During 2008, the Company expended cash to make severance payments of $9.0 million under the 2007 first quarter severance program and $67 million under the December 2007 severance program, to purchase the conversion rights of the Debentures for $54 million, to reduce borrowings, to purchase $44 million of the Company’s common stock, and to pay $27 million of dividends to common stockholders. In 2008, the Company also expended $28 million to purchase equity investments as part of the Helios transaction. Total cash severance payments related to the December 2007 program are expected to be approximately $110 million of which approximately $13 million and $14 million is expected to be paid in the first and second quarter of 2009, respectively. The remaining balance of cash severance payments of $16 million is expected to be paid in the second half of 2009. During 2007, the Company expended cash to reduce borrowings, to make cash payments of $47 million under the 2007 first quarter severance program, to purchase $40 million of the Company’s common stock, and to pay $27 million of dividends to common stockholders.

Loss

U.S. uncommitted lines of credit as of December 31, 2008. Additional available, uncommitted lines of credit for U.S. and international operations were $120 million and $140 million, respectively, at December 31, 2008. As of December 31, 2007, gross borrowings from international uncommitted lines of credit were $160 million. There were no borrowings from the Company’s U.S. uncommitted lines of credit as of December 31, 2007. Additional available, uncommitted lines of credit for U.S. and international operations were $160 million and $135 million, respectively, at December 31, 2007. In December 2008, the Company entered into additional credit agreements under which it may borrow up to $150 million. These credit agreements expire on March 15, 2009 and there were no borrowings under these agreements as of December 31, 2008. In November 2008, the Company filed a shelf registration with the Securities and Exchange Commission to sell up to $400 million in debt securities. When combined with an earlier filing, this filing provides the Company with a total of $500 million of debt securities eligible to be sold. In January 2009, the Company issued $300 million of debt securities consisting of $150 million 7 1/4% Notes due January 15, 2007 and $150 million 6 3/4% Notes due January 15, 2002. The net proceeds from the sale of the Notes were used primarily for the payment of $150 million principal amount of 7 1/4% Notes due January 15, 2009 and to exercise its right to repurchase the remaining principal amount of $139.5 million Debentures. The Company’s available borrowing capacity is limited by certain debt covenants.

The Company maintains a five year $150 million committed line of credit for general corporate purposes which expires in 2012. As of December 31, 2008 and 2007, there were no borrowings under this facility. The Company also has a long-term loan related to the Polaroid Stock Equity Plan (the ESOP loan). The outstanding balance of the ESOP loan at December 31, 2008 was $38 million. As of December 31, 2008, gross borrowings from the Company’s international uncommitted lines of credit were $125 million. There were no borrowings from the Company’s

№1 in instant photography.

• • • • • • • • •

Aesthetics Construction Dentistry Identification Systems Law Enforcement and Documenting Family Violence Life Sciences: Gel Documentation Passport and Document Photography Professional Photography and Creative Techniques Wound care

Polaroid in the 21st Century Polaroid, the company that pioneered instant photography, has become a leading consumer electronics brand. Building on its 70-year heritage of visual innovation, Polaroid is a leading U.S. seller of mass-market digital cameras and personal DVD players, and ranks among the top five makers of LCD televisions. Through its new line of digital entertainment products, Polaroid helps consumers capture, share, and enjoy their memories in new ways. Today, more than a decade in the making, the ZINK™ Zero Ink™ Printing Technology originally hatched within the walls of Polaroid, before spinning out as a separate company. As the company’s namesake innovation reaches the digital age, it’s only fitting that Polaroid will pioneer this inkless printing technology through its new digital instant printer.

Auditorâ&#x20AC;&#x2122;s Report The Board of Directors Polaroid Holding Company and Subsidiary Companies

To the Stockholders, We have audited the accompanying consolidated balance sheets of Polaroid Holding Company and Subsidiary Companies (the "Company") as of December 31, 2007 and 2006, and the related consolidated statements of earnings, cash flows and changes in common stockholders' equity for the year ended December 31, 2003 and the period from Inception (see Note 1 to the consolidated financial statements) to December 31, 2006. We have also audited the consolidated statement of earnings, cash flows and changes in common stockholders' equity for Primary PDC, Inc. (formerly named Polaroid Corporation) and Subsidiary Companies (the "Predecessor") for the period from January 1 through July 31, 2006. In connection with our audits of the consolidated financial statements, we also audited the accompanying financial statement schedule of Valuation and Qualifying Accounts. These consolidated financial statements and financial statement schedule are the responsibility of the Companies' managements. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. As discussed in Notes 1 and 2 to the consolidated financial statements, the Predecessor filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code on October 12, 2006. This transaction was accounted for as a purchase acquisition by the Company in accordance with Financial Accounting Standards Board Statement No. 141, Business Combinations. As a result of the Transaction, the consolidated financial information for the periods after the Transaction is presented on a different cost basis than that for the periods before the acquisition and, therefore, is not comparable.

KPMG LLP Boston, Massachusetts February 4, 2007

Consolidated Statements Polaroid Corporation and Subsidiary Companies (In millions, except percent data)

2008

2007

$72.8 5.5 535.2 548.8 224.1

$73.3 9.8 550.4 615.5 200.3

1,386.4

1,449.3

35.0 352.3 1,663.5 112.8 2,163.6 1,497.4 666.2 98.8 50.2

35.9 355.1 1,649.3 124.1 2,164.4 1,473.4 691.0 113.3 8.2

$2,201.6

$2,261.8

$124.9 37.7 310.5 238.4 51.6

$160.4 39.7 274.9 197.4 46.6

763.1

719.0

489.9 248.5 41.9

526.7 257.2 41.2

Total Liabilities

1,543.4

1,544.1

Common Stockholders’ Equity Common Stock, $1 Par Value, Authorized 150,000,000 Shares Additional Paid - In Capital Retained Earnings Less: Treasury Stock, at Cost Deferred Compensation

75.4 409.4 1,457.8 1,244.8 39.6

75.4 401.9 1,525.8 1,205.4 80.0

658.2 $2,201.6

717.7 $2,261.8

Assets Current Assets Cash and Cash Equivalents Short-Term Investments Receivables, less allowances Inventories Prepaid Expenses and Other Assets

Total Current Assets Property, Plant and Equipment Land Buildings Machinery and Equipment Construction in Process Total Property, Plant and Equipment Less Accumulated Depreciation Net Property, Plant and Equipment Prepaid Taxes - Non-Current Other Assets Total Assets Liabilities and Stockholders’ Equity Current Liabilities Short-Term Debt Current Portion of Long-Term Debt Payables and Accruals Compensation and Benefits Federal, State and Foreign Income Taxes Total Current Liabilities Long-Term Debt Accrued Post-Retirement Benefits Accrued Post Employment Benefits

Total Common Stockholders’ Equity Total Liabilities and Stockholders’ Equity

Consolidated Statement of Cash Flow

Gain

Stockholder Equity

Loss

Long-Term Debt

Total Common Equity

Total Liabilities

$7.51% $8.29% $2.73% Down 7.51% in 2008

Down 8.29% in 2008

Down 2.73% in 2008

2008

2007 2006

Cash Flows from Operating Activities $(41.1) 56.1 118.3 4.1 82.2 (26.7) 42.1 (25.4) 7.9 (23.2) 118.1

$(140.2) 132.7 (.1) (68.1) (66.6) (6.3) 44.2 (1.6) 168.8

$117.2 118.2 30.5 .8 (1.7) 22.4 (8.2) (28.2) 71.4

312.4

62.8

322.4

(Increase)/Decrease in Short-Term Investments (Increase)/Decrease in Other Assets Additions to Property, Plant and Equipment Proceeds from Sale of Fixed Assets

4.3 (42.0) (121.8) 35.4

75.7 (1.1) (167.9) 4.8

(60.5) .2 (146.7) .2

Net Cash Used by Investing Activities

(124.1)

(88.5)

(206.8)

(28.5)

42.5

1.4

(39.5) (27.3) (43.6) (56.1) 9.6

(34.3) (27.3) (40.2) 19.5

8.9 (8.9) (31.2) (27.9) (30.6) 3.2

(185.4)

(39.8)

(85.1)

(3.4) (.5) 73.3

(4.5) (70.0) 143.3

(1.6) 28.9 114.4

$72.8

$73.3

$143.3

Net Earnings/(Loss) Extraordinary Item Depreciation of Property, Plant and Equipment (Increase)/Decrease in Receivables (Increase)/Decrease in Inventories Increase in Prepaids and Other Assets Increase/(Decrease) in Payables and Accruals Increase/(Decrease) in Compensation and Benefits Increase/(Decrease) in Federal, State and Foreign Income Taxes Payable Gain on Sale of Real Estate Other Non-Cash Items

Net Cash Provided by Operating Activities Cash Flows from Investing Activities

Cash Flows from Financing Activities Net increase/(decrease) in Short-Term Debt (Maturities 90 Days or Less) Short-term Debt (Maturities Over 90 Days): Proceeds Payments Repayments of Long-Term Debt Cash Dividends Paid Purchases of Treasury Stock Extinguishment of Debt Proceeds from Issuance of Shares in Connection with Stock Incentive Net Cash Used by Financing Activities Cash Equivalents Effect of Exchange Rate Changes on Cash Net Increase/(Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents At Beginning of Year Cash and Cash Equivalents at End of Year

Board of Directors Polaroid Corporation and Subsidiary Companies

Gary T. DiCamillo Chairman and Chief Executive Officer

Lestwer Pollack Senior Managing Director, Corporate Advisors, L.P. Managing Director, Centre Partners Management L.L.C.

Ralph E. Gomory President, Alfred P. Sloan Foundation Frank S. Jones Distinguished Leadership Professor, Morehouse College

Charles P. Slichter Center for Advanced Study Professor of Physics and Chemistry, University of Illinois

John W. Loose President, Corning Communication, Corning Inc.

Ralph Z. Sorenson Professor Emeritus, University of Colorado

Albin F. Moschner Vice Chairman, DIBA Inc.

Delbert C. Staley Retired Chairman and Chief Executive Officer, Nynex Corporation

Henry Necarsulmer Consultant, Lehman Brothers Inc.

Bernee D.L. Strom President and Chief Executive Officer, USA Digital Radio Partners, LP

Kenneth H. Olsen Chairman, Advanced Modular Solutions, Inc.

Alfred M. Zeien Chairman and Chief Executive Officer, The Gillette Company

Ronald F. Olsen Technical Specialist, Polaroid Corporation

Member, Executive Committee (Gary T. DiCamillo, Chairman) Member, Audit Committee (Henry Necarsulmer, Chairman) Member, Human Resources Committee (Delbert C. Staley, Chairman) Member, Committee on Directors (Alfred M. Zeien, Chairman) Member, Committee of Outside Directors Will not be standing for re-election to the Board of Directors at the companyâ&#x20AC;&#x2122;s 2009 annual meeting

Notes

Regional Headquarters: Polaroid Corporation Corporate Headquarters 300 Baker Avenue Concord, MA 01742-2131 Phone: +1 781-386-2000 Corporate Headquarters: Polaroid Corporation Corporate Headquarters 300 Baker Avenue Concord, MA 01742-2131 Phone: +1 781-386-2000