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Polaroid's logo. Click here to visit the Polaroid website! Polaroid's problems persist!
(Wednesday, July 18, 2001 - 12:51 EDT)

80-year old company considers sale - but will buyers be lining up or shying away?

Polaroid Corp., probably amongst the most famous names in the photographic world, has had a very troubling time over the last week. Speculation began last Wednesday as the company reportedly considered filing for bankruptcy to gain protection from creditors, as it approached the expiration of a $360 million line of credit. Shares which were trading at almost $20 a year ago plummeted by 46% on Wednesday to the stock's lowest price in 10 years, trading at a low of $1.45 before closing at $1.87.

As the market closed, Polaroid announced that it had reached agreement with lenders to waive certain bank loan covenants through October 12, 2001, and a $19 million principal repayment that was scheduled for September 2001.

The company also announced it would fail to make interest payments of $11 million due July 16, 2001 on its 6-3/4% bond notes maturing on January 15, 2002 and its 7-1/4% notes maturing on January 15, 2007, as well as a $16 million interest payment due August 15, 2001 on its 11-1/2% notes maturing February 15, 2006. The press release noted that Polaroid would begin discussion with bondholders to restructure its debt, and had retained Dresdner Kleinwort Wasserstein and Zolfo Cooper LLC to assist in the negotiations.

Polaroid also announced that whilst maintaining its ongoing initiatives aimed at cutting costs and strengthening financial performance, it had also retained Dresdner Kleinwort Wasserstein and Merrill Lynch & Co. to assist in finding other strategic alternatives such as a sale of assets, a merger or sale of the company, and/or a strategic partnership.

The bad news continued on Thursday - Moody's Investors Service cut Polaroid's low junk credit and debt ratings, with the company's senior unsecured debt being given its second lowest grade, and the bank debt its fourth lowest. Standard & Poor's acted likewise, cutting the unsecured debt to its second lowest grade, and the bank debt to its third lowest. Another statement from New York-based Fitch saw similar action, and noted that it would cut the debt ratings still further on July 16th. The company's stock continued to slide on this news, closing at $1.60 after a low of $1.50.

After close of business on Thursday, Reuters suggested that the situation could get much worse before it gets better thanks to a wait-and-see approach from potential suitors shopping for bargains, quoting Saloman Smith Barney analyst Jonathan Rosenzweig as saying:
"Some suitors may wait for the company to file Chapter 11 before actively pursuing an acquisition. Barring a cash infusion, major asset divestiture, or sale of the business, the possibility of a Chapter 11 filing by year end seems increasingly plausible. The company has limited time to maneuver. Assets sales -- including the company's real estate, ID (identification) business and other small businesses -- have proven to be difficult for the company to execute, and, with Polaroid in distress, assets may not bring in much more than fire-sale prices."
Reuters' report identified a number of companies as potentially interested in Polaroid. Rivals Eastman Kodak Co. and Fuji Photo Film Co. Ltd. would not be attracted to Polaroid's brand name, but might find the company's patent portfolio of interest. Equity firm Schroder Ventures, which attempted to buy Belgian imaging company Agfa-Gevaert N.V. may be interested in using the Polaroid brand; the company had shown interest in Agfa's brand name in talks with that company and indeed the deal fell through when it couldn't secure rights to use the Agfa name. Rosenzweig predicted that Polaroid could also offer Schroder an entry into the Asian (and particularly the Japanese) markets, as well as a broad manufacturing platform. Agfa themselves are also mentioned as a possible suitor, with analysts feeling that the company could use Polaroid's brand to secure more shelf space in the USA, where its own brand-name isn't so well known. Canon Inc., Sony Corp. and Olympus Optical Co. (a company which has cooperated with Polaroid in the past) are also suggested as potentially interested, although in the case of these three they may find that Polaroid's instant printing technologies may conflict with their digital camera lines.

On Friday, Polaroid's stock plumbed new depths, closing at $1.46, near its low for the day of $1.41. The new week began with even lower numbers, with Monday's close of $1.24 after a low of $1.20 coinciding with the company's first defaulted bond payments of $11 million. As expected, Fitch again downgraded Polaroid's debt ratings, whilst Standard & Poor's announced that it would remove Polaroid altogether from its S&P SmallCap 600 Index after the close of trading today due to "lack of representation". Yesterday's low of $1.06 neared the one dollar mark, and the closing price of $1.11 wasn't a lot higher.

Early this morning, Polaroid released its figures for the second quarter. Forbes.com noted last Friday that analysts were expecting a loss of 69¢ per share for the quarter compared to 59¢ profit per share in the same quarter a year ago. The actual figures showed an operating loss of $52 million for the quarter, including $16 million in one-time losses associated with liquidation of discontinued models and product lines. The loss was about what the company had predicted in June... Diluted loss per share was much more than that projected by Forbes however, with a loss per share of $2.36 on revenues of $334 million, and a loss of 84¢ per share even after excluding a $53 million non-cash income tax charge, inventory liquidations and using a normal 35% effective tax rate.

As this article went to press, Polaroid's stock was trading at $1.01, after breaking the one dollar mark with a low of 91¢ - the current price being a drop of almost 10% on the day thus far.

Source: Polaroid Corp., Yahoo! News / Associated Press, Yahoo! Finance / Reuters, Yahoo! Finance / PR NewsWire, Yahoo! Finance / BusinessWire

Original Source Press Release:

CAMBRIDGE, Mass., July 18 /PRNewswire/ -- Polaroid Corporation today posted an operating loss of $52 million for the second quarter, including $16 million in one-time losses associated with the liquidation of discontinued models and product lines. Excluding these inventory liquidation charges, the second quarter operating loss was $36 million and in line with the company's previously announced expectations. In June the company had projected a second quarter operating loss of about the same as in the first quarter, which was $38 million excluding one-time charges and real estate gains.

Consistent with its strategy to focus on cash generation, Polaroid reported $7 million of positive net cash flow during the quarter. Working capital improved by $30 million, including a $61 million decrease in inventories versus the end of the first quarter. Net debt -- defined as gross debt less cash -- decreased by $7 million to $854 million at the end of the second quarter and includes $94 million in cash and equivalents.

Polaroid reported a diluted loss-per-share of $2.36 for the second quarter on revenues of $334 million compared to diluted earnings-per-share (EPS) of $0.59 for the second quarter last year on revenues of $486 million. This year's second quarter included a $53 million non-cash income tax charge to establish a valuation allowance against deferred tax assets. Excluding the tax charge, as well as one-time real estate gains and inventory liquidations, and using a normal 35 percent effective tax rate, the diluted loss-per-share would have been $0.84 for the second quarter.

Gary T. DiCamillo, chairman and chief executive officer, said that Polaroid continues to be focused on liquidity, cash generation and managing its debt. He summarized actions the company took last week consistent with this focus.

``First, we received waivers from our U.S. and European bank groups through October 12, 2001. This will allow us to proceed with our operational restructuring and continue dealing with our vendors and customers on a business-as-usual basis. Second, we announced that we would forgo bond interest payments in July and August with the objective of developing a capital structure that better supports our long-term business plans. We intend to begin good faith negotiations with our bondholders in August. Finally, we announced that Polaroid would be exploring strategic alternatives with the assistance of our investment bankers,'' he said.

DiCamillo noted that Polaroid continued to make progress on its five-point program in the second quarter. Polaroid:

  • announced its second restructuring plan of 2001 with the objective of achieving $235 million to $260 million of annual cost savings and reducing the number of manufacturing plants by one third;
  • reduced working capital by $30 million in the second quarter and by $75 million in the first half of 2001. The company also set a new goal of a $150 million reduction for the full year;
  • reduced capital expenditures to $16 million in the second quarter, about the same as in the first quarter and less than half the spending rate of last year;
  • sold its 56-acre Reservoir site for $70 million and, in partnership with Spaulding & Slye, sold a majority of its Memorial Drive site in Cambridge for $36 million. The company also committed to exploring further real estate sales this year;
  • accelerated its instant digital printing strategy with the introduction of Opal and Onyx technologies to the investment community on May 31 in New York City.
DiCamillo reiterated Polaroid's two-part business model announced at its May 31 investor meeting: (1) to manage the traditional instant film business for cash and profitability and (2) to create a new instant digital printing business designed for growth through partnerships. ``We are in negotiations with several business partners who have shown strong interest in our Opal and Onyx instant digital printing platforms. We plan to release more details in the third quarter,'' he said.

Second quarter revenues declined 31 percent from the same quarter last year. About half the decline was due to the weak economy and less demand for instant cameras and films. The balance reflected a difficult comparison with last year's second quarter, which included new product introductions, as well as product liquidations, dealer inventory reductions, discontinued businesses and the impact of foreign exchange.

Revenues in the Americas region totaled $226 million for the second quarter compared with $311 million for the same period last year. Within the Americas, sales in the U.S. were $194 million versus $273 million for the second quarter of 2000. Revenues in Europe totaled $62 million compared with $100 million in the same quarter last year. Asia Pacific sales were $46 million versus $75 million in the second quarter 2000.

Gross margin for the second quarter was 28 percent of sales compared to 46 percent of sales for the same quarter a year ago. The decline in gross margin was due primarily to the impact of higher manufacturing costs driven by a reduced production schedule and the decision to increase cash by selling off discontinued inventory. Excluding inventory liquidation sales, gross margin would have been 34 percent.

Marketing, research, engineering and administrative expenses totaled $143 million for the second quarter compared with $173 million spent on these expenses during the second quarter last year.

For the first six months of 2001, net cash usage was $14 million. The diluted EPS decreased from $0.56 for the first half of 2000 to a diluted loss-per-share of $4.35, including all charges, for the same period in 2001. Six-month revenues totaled $664 million versus $888 million for the same period last year.

Polaroid Corporation is the worldwide leader in instant imaging. The company supplies instant photographic cameras and films; digital imaging hardware, software and media; secure identification systems; and sunglasses to markets worldwide. Visit the Polaroid web site at www.polaroid.com .

``Polaroid'' is a registered trademark of Polaroid Corporation, Cambridge, Mass. 02139

Statements in this release may be forward-looking. Actual events will be dependent upon factors and risks including, but not limited to, the Company's ability to: successfully refinance, restructure or extend its existing credit facilities, reduce outstanding debt and negotiate with the lenders under its credit facilities and with its noteholders; market its core imaging products; penetrate new demographic markets; develop and implement its digital imaging strategy; compete successfully in the instant imaging market against larger and stronger competitors; implement its strategies to reduce costs and improve cash flow; comply with the covenants in its credit facilities and indentures governing its outstanding notes; manage the impact of foreign exchange and the effects of retail buying patterns; as well as the Company's ability to manage uncertainties and risk factors, including those described from time to time in the Company's filings with the Securities and Exchange Commission.

Condensed Consolidated Statement of Earnings
Periods ended July 2, 2000 and July 1, 2001
(In millions, except per share data)

                                          Second Quarter     Six Months
2000 2001 2000 2001

Net sales $485.6 $333.5 $887.9 $664.3
Cost of sales 262.0 241.9 486.3 455.1
Marketing, research, engineering
and administrative expenses 172.9 143.4 341.7 299.0
Restructuring and other charges 0.0 0.0 0.0 80.0
Total costs 434.9 385.3 828.0 834.1
Profit/(Loss) from operations 50.7 (51.8) 59.9 (169.8)
Other income/(expense) 11.6 25.2 20.2 26.5
Interest expense 21.3 24.8 41.2 47.9
Earnings/(loss) before
income taxes 41.0 (51.4) 38.9 (191.2)
Federal, state and foreign
income tax expense 14.4 58.5 13.7 9.6
Net earnings/(loss) $26.6 ($109.9) $25.2 ($200.8)
Basic earnings/(loss) per
common share $.59 ($2.36) $.56 ($4.35)
Diluted earnings/(loss) per
common share $.59 ($2.36) $.56 ($4.35)
Cash dividends per common share $.15 $.00 $.30 $.00
Weighted average common shares
used for basic earnings/(loss)
per share calculation
(in thousands) 44,826 46,605 44,749 46,211
Weighted average common shares
used for diluted earnings/(loss)
per share calculation
(in thousands) 45,176 46,605 45,102 46,211
Common shares outstanding at
end of period (in thousands) 44,912 47,036 44,912 47,036

Supplementary Financial Information
(In millions)

Six Months
Selected Cash Flow Data 2000 2001

Additions to property, plant, and equipment $67.4 $33.4
Depreciation $52.8 $55.0

At End of Second Quarter
Balance Sheet 2000 2001
Current assets:
Cash and cash equivalents $68.1 $94.0
Receivables 419.6 291.6
Raw materials 77.8 89.1
Work-in-process 150.0 148.8
Finished goods 230.2 202.5
Total inventories 458.0 440.4
Prepaid expenses and other assets 152.5 113.5
Total current assets 1,098.2 939.5

Net property, plant and equipment 574.6 510.6
Deferred tax assets 243.8 281.8
Other assets 75.5 78.1
Total assets $1,992.1 $1,810.0

Current liabilities:
Short-term debt $305.8 $524.5
Payables and accruals 300.2 259.6
Compensation and benefits 100.7 96.7
Federal, state and foreign income taxes 22.4 20.8
Total current liabilities 729.1 901.6

Long-term debt 573.2 423.9
Accrued postretirement benefits 235.8 221.2
Other long-term liabilities 86.3 87.7

Common stockholders' equity:
Common stock, $1 par value 75.4 75.4
Additional paid-in capital 384.1 296.6
Retained earnings 1,213.8 1,018.7
Accumulated other comprehensive income (64.7) (76.6)
Less: Treasury stock, at cost 1,240.8 1,138.5
Deferred compensation .1 --
Total common stockholders' equity 367.7 175.6
Total liabilities and common
stockholders' equity $1,992.1 $1,810.0

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