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| Annual Report 1996 | ||
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| Annual Report 1996 | ||
Financial Liquidity and Capital Resources
At December 31, 1996, the Company's cash and cash equivalents and short-term investments amounted to $78 million, compared to $83 million at December 31, 1995. Working capital decreased to $623 million at December 31, 1996 from $730 million at December 31, 1995. The primary source for cash in 1996 was net operating activities which more than offset cash used by investing activities and financing activities. The primary source for cash in 1995 was a decrease in short-term investments, net cash provided by operating activities and an increase in short-term debt.
Capital spending during 1996 was $122 million and depreciation expense was $118 million. Capital spending during 1995 was $168 million and depreciation expense was $133 million. Capital expenditures in both 1996 and 1995 were primarily related to ongoing capital programs. In 1996, capital expenditures were also incurred in connection with the consolidation of the Company's coating facilities. In 1995, capital expenditures were also incurred on the Company's new coating facility, environmental improvements and to increase the capacity for manufacturing batteries for instant films. Capital expenditures in 1997 are expected to be approximately $120 million.
During 1996, the Company expended cash to make severance payments of $9.0 million under the 1995 first quarter severance program and $67 million under the December 1995 severance program, to purchase the conversion rights of the Debentures for $54 million, to reduce borrowings, to purchase $44 million of the Company's common stock, and to pay $27 million of dividends to common stockholders. In 1996, the Company also expended $28 million to purchase equity investments as part of the Helios transaction. Total cash severance payments related to the December 1995 program are expected to be approximately $110 million of which approximately $13 million and $14 million is expected to be paid in the first and second quarter of 1997, respectively. The remaining balance of cash severance payments of $16 million is expected to be paid in the second half of 1997. During 1995, the Company expended cash to reduce borrowings, to make cash payments of $47 million under the 1995 first quarter severance program, to purchase $40 million of the Company's common stock, and to pay $27 million of dividends to common stockholders.
The Company maintains a five year $150 million committed line of credit for general corporate purposes which expires in 1999. As of December 31, 1996 and 1995, there were no borrowings under this facility. The Company also has a long-term loan related to the Polaroid Stock Equity Plan (the ESOP loan). The outstanding balance of the ESOP loan at December 31, 1996 was $38 million. As of December 31, 1996, gross borrowings from the Company's international uncommitted lines of credit were $125 million. There were no borrowings from the Company's U.S. uncommitted lines of credit as of December 31, 1996. Additional available, uncommitted lines of credit for U.S. and international operations were $120 million and $140 million, respectively, at December 31, 1996. As of December 31, 1995, gross borrowings from international uncommitted lines of credit were $160 million. There were no borrowings from the Company's U.S. uncommitted lines of credit as of December 31, 1995. Additional available, uncommitted lines of credit for U.S. and international operations were $160 million and $135 million, respectively, at December 31, 1995.
In December 1996, the Company entered into additional credit agreements under which it may borrow up to $150 million. These credit agreements expire on March 15, 1997 and there were no borrowings under these agreements as of December 31, 1996.
In November 1996, the Company filed a shelf registration with the Securities and Exchange Commission to sell up to $400 million in debt securities. When combined with an earlier filing, this filing provides the Company with a total of $500 million of debt securities eligible to be sold. In January 1997, the Company issued $300 million of debt securities consisting of $150 million 7 1/4% Notes due January 15, 2007 and $150 million 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, 1997 and to exercise its right to repurchase the remaining principal amount of $139.5 million Debentures. The Company's available borrowing capacity is limited by certain debt covenants.
During 1996, the Company repurchased 1.1 million shares of its common stock for $44 million. In 1995, 1.2 million shares were repurchased for $40 million. As of December 31, 1996, the unexpended balance under the Company's $100 million common stock repurchase program, which was approved by the Board of Directors in January 1995, was $42 million. The Company may repurchase its common stock on the open market, in privately negotiated transactions or otherwise (which may include transactions with Polaroid stock option holders and with Polaroid retirement plans, including the employee stock ownership plan). The timing and amounts of any future purchases under this program depend upon many factors, including market conditions as well as the Company's business and financial condition.
The Company believes that its borrowing capacity and other existing corporate resources are adequate for at least the next twelve months to meet working capital needs, fund planned capital expenditures, pursue future growth opportunities, and fund other corporate requirements, including cash severance payments for the December 1995 restructuring program.
