Chief Financial Officer

Polaroid Corp. has today filed for Chapter 11 Bankruptcy Protection (according to Fox News). This has been on the cards for several days, it now seems to have finally happened. Polaroid’s last recorded share value was 28 cents compared to a 10 year high of $60.31 back in July 1997. According to Reuters Polaroid owes almost $1 billion in total ($600 million to bond holders, $350 million to two groups of banks).

Reuters story: (from Fox News)

Polaroid Files for Ch. 11 Bankruptcy Protection

CAMBRIDGE, Mass. — Polaroid Corp. , an American icon that became famous for a camera that delivered pictures in seconds, Friday said it filed for bankruptcy protection after being hounded by bondholders for missing interest payments this summer.

Waylaid by one-hour film developing shops and a heavy debt load, the Cambridge, Massachusetts-based company’s core business suffered from the rise of digital cameras while being late to develop its own digital technologies.

Polaroid, once propelled by the wizardry of Harvard University dropout Edwin Land and his camera that squeezed out pictures almost instantly, said it filed for protection under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court in Delaware. Polaroid owes about $600 million to holders of its bonds and about $350 million to two groups of banks.

Its shares have not traded since Tuesday on the New York Stock Exchange as speculation mounted that the one-time member of the “Nifty 50″ group of fast-growing stocks would seek bankruptcy protection. The stock, which reached a high of $60.31 in July 1997, closed at 28 cents Tuesday on the New York Stock Exchange, down 98 percent in the past year.

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This from PRNewsWire:

Polaroid Files Voluntary Chapter 11 Petition, Receives $50 Million in New Financing

CAMBRIDGE, Mass., Oct. 12 /PRNewswire/ — Polaroid Corporation (PRD) today announced that, following this year’s steep decline in its revenues and the resulting impact on its liquidity, the company and its U.S. subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The filings were made in the U.S. Bankruptcy Court in Wilmington, Delaware. Polaroid intends to use the Chapter 11 process to restructure its business operations and finances.

Polaroid is open and conducting business in the U.S. and elsewhere around the world. Polaroid’s non-U.S. subsidiaries, including those in Europe, Asia and Japan, are not part of the filing.

In order to address immediate liquidity concerns created by the dramatic shortfall in revenue, Polaroid has obtained a commitment for $50 million in debtor-in-possession financing from a bank group led by J.P. Morgan Chase & Co. Upon court approval, which is expected shortly, $40 million of these funds will be available immediately on an interim basis to supplement the company’s existing cash flow and help Polaroid fulfill obligations associated with operating its business, including payment to suppliers, vendors and other business partners for goods and services provided on or after today’s filing. The full $50 million commitment is subject to final court approval and other conditions.

Polaroid intends to continue to manufacture, market and distribute its core instant imaging products and to provide customer service and support for these products. Employees are being paid in the usual manner and their medical, dental and life insurance benefits are expected to continue unchanged.

Polaroid also announced that the company and its lenders have agreed to accelerate and intensify its exploration of a possible sale of all or parts of the company. Polaroid believes that such a sale would be in the best interests of all constituencies, including employees. As previously announced, Polaroid has retained financial advisors to assist with this process.

Additionally, in light of its reduced revenue base and the uncertain economic outlook, the company has initiated a thorough evaluation of all aspects of its business operations with the objective of achieving significant cost savings beyond those already provided by the company’s previously announced restructuring activities. This process will result in the disposition or elimination of non-core products and businesses, additional asset sales, facility closings, and a further reduction in personnel.

Gary T. DiCamillo, chairman and chief executive officer, said, “After a thorough analysis of Polaroid’s financial condition and the rapidly changing outlook in our key markets, the board of directors and senior management concluded that today’s court filings by our U.S. operations were both prudent and necessary. Despite our best efforts to stabilize revenue, reduce costs and maximize cash flow, the company’s financial condition deteriorated further in recent weeks.

“Filing for Chapter 11 at this time allows Polaroid to enhance its liquidity by supplementing cash flow from operations with $50 million in new financing. It also allows us to initiate a formal process in which to intensify our exploration of strategic alternatives and work with our creditors to develop a plan to resolve their financial claims.

“From an operational standpoint,” DiCamillo continued, “we intend to continue shipments of our core instant imaging products to customers as normal and meet our post-petition obligations to suppliers, vendors and other business partners. We will also continue to pursue opportunities to maximize the potential of our Opal and Onyx instant digital printing technologies.”

In conjunction with today’s court proceedings, Polaroid expects to file a variety of “first day motions” to support its employees, customers and suppliers. These include motions seeking court permission to: continue payments for employee payroll and health benefits; honor existing warranties; obtain interim financing authority and maintain cash management programs; and retain legal, financial, and other professionals to support the company’s reorganization. In accordance with applicable law and court orders, suppliers who provided goods or services to Polaroid or its U.S. subsidiaries before today’s filing may have pre-petition claims, which will be frozen pending court authorization of payment or consummation of a plan of reorganization.

William L. Flaherty, executive vice president and chief financial officer, said, “Polaroid made significant progress over the last year toward reducing costs through restructuring, improving working capital, consolidating manufacturing, reducing capital spending and selling non-core assets. However, it is evident that with the company’s substantially reduced revenue stream, additional steps must be taken during the reorganization process to improve the viability of the core instant imaging business, optimize the sale process and maximize the value of the enterprise.”

Anyone who has been following Polaroid’s fortunes over the last six months won’t be surprised by the events of the last week or so. There’s been plenty of talk of bankruptcy, sales and mergers. They’ve simply not moved quickly enough to embrace digital photography or digital photo finishing. “Pending the announcement, Polaroid shares were suspended near the end of trading Wednesday after falling 30 percent to $1.92 on the New York Stock Exchange (news – web sites) amid reports it was considering filing for bankruptcy.”

AP:

Polaroid to Explore Merger, Sale

BOSTON (AP) – Polaroid Corp. (NYSE:PRD – news) said Wednesday it would explore a merger or sale and said it received a reprieve from lenders, as the the camera and film maker tries to dig out from beneath a mountain of debt.

The company announced a waiver, good through Oct. 12, on a $363 million line of credit that was set to expire Thursday, but said it would miss payments to bond holders next month. It now faces negotiations with bondholders to restructure that debt.

The company also has retained advisers to explore several options for the future of the company, including “a sale of assets, a merger or sale of the company, and/or a strategic partnership,” said Polaroid spokesman Skip Colcord.

Pending the announcement, Polaroid shares were suspended near the end of trading Wednesday after falling 30 percent to $1.92 on the New York Stock Exchange (news – web sites) amid reports it was considering filing for bankruptcy.

The company must now negotiate with bondholders, who after 30 days could use the missed payments to force Polaroid into involuntary bankruptcy, said Buckman, Buckman & Reid analyst Ulysses Yannas.

“At this stage Polaroid has no intention of either declaring bankruptcy or going into a prepackaged bankruptcy,” he said. “At least that’s what the statement implies. It’s a question of how successful they can be renegotiating these notes.”

Polaroid said it would miss an $11 million interest payment due Monday and $16 million due August 15, as well as a $19 million principal payment due in September.

The company said it had retained Dresdner Kleinwort Wasserstein and Zolfo Cooper LLC to help it negotiate with bondholders. It has retained that firm and Merrill Lynch & Co to explore “strategic alternatives.”

“The receipt of these waivers demonstrates both the company’s continuing support from its bank group and the progress we are making in implementing our previously announced five-point plan to strengthen our financial position,” said chairman and chief executive Gary T. DiCamillo in a statement.

Yannas said it was little surprise that the company would consider a sale.

“When you are examining alternatives, you look at every alternative possible,” he said.

Previously, some analysts had indicated a waiver was likely because lenders had nothing to gain if Polaroid filed for protection. They said one clue was that lenders, who have tight controls over Polaroid’s purse strings, have allowed the company to spend $120 million on severance packages related to recent layoffs. The banks couldn’t recoup that money if the company declared bankruptcy.

Polaroid, founded in 1937, made its name producing instant cameras and film, but it was caught flat-footed by the recent shift to digital technology.

In May, Polaroid debuted a line of Opal and Onyx digital printers, and unveiled a plan to share the technology with other companies and build kiosks in high-traffic areas like shopping malls.

But while the technology impressed analysts, some said it came too late to make a dent in Polaroid’s debts, which totaled $860 million last month. The company laid off 950 workers in February and another 2,000 last month.

Kevin Kuzio, a debt analyst at KDP Investment Advisors Inc. in Montpelier, Vt., said before the announcement that even with a waiver, Polaroid still faces a serious crisis.

“We don’t think it’s any longer a situation where Polaroid is independently going to be able to finesse the transition to a provider of digital photo printing,” he said.

Reuters:

Polaroid gets waivers, mulls its sale

By Franklin Paul

NEW YORK, July 11 (Reuters) – Troubled camera and film maker Polaroid Corp.(NYSE:PRD – news) on Wednesday dodged a bullet by obtaining critical loan waivers with its U.S. bank lenders, but said it expected to miss other interest payments and was mulling the possible sale of the company.

The news came after Polaroid shares had tumbled as much as 46 percent on Wednesday to a low of $1.45 amid concerns the company might be on the brink of bankruptcy, amid a looming July 12 deadline to get back in compliance with two loans.

The stock was halted late in the session, and its last trade, at $1.86, was off 84 cents, or about 31 percent. Since the beginning of the year, Polaroid’s stock has underperformed that of photography giant Eastman Kodak Co.(NYSE:EK – news) by more than 70 percent.

Experts had predicted that Polaroid would likely come to an agreement with the banks, but still harbor concerns about the company’s ability to focus on its core operations while devoting so much energy to managing its debt obligations.

“Just because they get a waiver of 90 days does not mean that they are on Easy Street,” said John Moore, analyst at Moody’s. “They have to develop and prove that they can make the step technologically to what will continue to be Polaroid.”

Cambridge, Massachusetts-based Polaroid also said it expects to report second quarter financial results about in line with previously discussed expectations.

Following closely watched talks with its bank lenders, Polaroid said it obtained a waiver of some of its bank loan covenants through Oct. 12, as well as a waiver of a $19 million principal repayment that had been scheduled for September.

But Polaroid said it will not make interest payments on its bonds, totaling $11 million due on July 16, and a $16 million interest payment due Aug. 15. The company plans to start talks with bondholders toward a restructuring of its unsecured debt.

Polaroid said the waivers would maintain the company’s near-term liquidity and operational stability.

“In light of these and other cash conservation measures, the company is comfortable that its current cash resources and bank facility provide sufficient funding for the company’s business activities and its obligations to suppliers and vendors,” Polaroid Chief Financial Officer William Flaherty said in a statement.

In the meantime, the company has hired financial advisers Dresdner Kleinwort Wasserstein and Merrill Lynch to assist in an exploration of strategic alternatives, which could include a sale of assets, a merger or sale of the company.

Polaroid plans to spell out the progress of its cost cutting and debt reduction efforts on July 18, when it reports its second quarter financial results.

In June it said second-quarter operating results are likely to be around the operating loss reported in the first quarter, excluding special items.

For the first quarter, Polaroid posted an operating loss of $38 million, or 85 cents a share, excluding an $80 million restructuring charge.

Wall Street analysts have estimated Polaroid’s second quarter loss at 69 cents a share, according to Thomson Financial/First Call.

Polaroid said that if it had failed to get the extensions, the banks, led by J.P. Morgan Chase & Co. (NYSE:JPM – news), could call in the loans. The loans totaled at least $363 million.

Buckman Buckman & Reid analyst Ulysses Yannas, said the loan deal would give Polaroid time to raise cash, and could lead to the sale of small units that make sunglasses or produce pictures for identification. He predicted the company’s shares will rebound on Thursday.

“We will see some fireworks tomorrow,” he said.

Polaroid, which still boasts a huge installed base of instant camera users who continue to buy its film, has been working to trim expenses, raise cash, and reduce debt by cutting inventories, consolidating manufacturing, and selling assets.

To that end, in recent months it has suspended its dividend, set a restructuring, cut jobs, sold real estate, and realigned its executive ranks.

In recent weeks, Carl Lueders, vice president of finance and former acting chief financial officer and John Jenkins, senior vice president for global operations, have left the company.

Polaroid which ended 2000 with some 8,800 employees, had about 7,700 at the end of May. The company projects its ranks will shrink to 5,500 by the end of 2002.

In a press release today Polaroid Corp. announced a “major global restructuring plan” which is designed to reduce debt. Approximately 2,000 jobs out of a global workforce of 8,000 will be “phased out” over the next one and a half years. This doesn’t come as too much of a surprise after the recent appointment of a new CFO and various press releases concerning its troubled business.

Polaroid Announces Restructuring to Drive Profitability and Reduce Debt

Plans to Reduce Workforce by 2,000 Positions over 18 Months

CAMBRIDGE, MA – June 13, 2001 – Polaroid Corporation (NYSE: PRD) today announced a major global restructuring plan designed to reduce debt and return the company to profitability. Approximately 2,000 positions, or 25 percent of the global workforce of 8,000, will be phased out over the next 18 months.

The restructuring program should realize total annual cost savings of between $175 million and $200 million by the end of 2003, and the company will take a series of restructuring charges in 2001 and 2002 to reduce its cost base. These charges are expected to total between $150 million and $175 million. In addition to significant reductions in personnel, the restructuring will involve a reduction and reconfiguration of Polaroid’s global operations.

“This is an extremely difficult decision, but an absolutely necessary one if Polaroid is to compete in the digital future. We must focus on our new Opal and Onyx instant digital printing technologies and manage our core instant business to generate cash and reduce debt,” said Gary T. DiCamillo, chairman and chief executive officer.

This is the second restructuring announced by Polaroid this year and will impact virtually all of the company’s global operations, including about 1,000 employees in the United States – most of them in Massachusetts. In February, the company announced a restructuring to reduce its workforce by approximately 950 jobs. That plan combined with the one announced today will reduce the total number of Polaroid employees worldwide to approximately 5,500 by the end of 2002.

DiCamillo acknowledged that the Polaroid core instant business is experiencing steeper declines than projected due to the soft economy and the competing growth of digital imaging. He said the restructuring plan is consistent with Polaroid’s new two-part business model to: (1) manage the company’s core instant products for cash and profitability; and (2) develop an instant digital printing business with significant opportunity for double-digit growth.

Polaroid introduced this new business model on May 31 at a meeting with investors in New York, where Ian Shiers, executive vice president – worldwide sales and marketing, previewed steps the company would take to compete in the digital future.

“Our infrastructure clearly is too big, and the changes in our business require a significant reduction of our cost base in line with our conservative revenue expectations for the next two to three years,” he said in New York. Today’s announcement supports that premise and puts Polaroid in a solid position to meet the short-term financial targets that Shiers outlined:

• Gross margins in the low 40’s as a percentage of sales
• Overhead around 30 percent of sales
• Double-digit operating margins
• Improved cash flow through strong EBITDA and a focused reduction of working capital and capital expenditures.

Second Quarter

Polaroid continues to focus on cash generation as its top 2001 priority. Cash flow for the quarter is ahead of plan due to asset sales and reductions in working capital and capital expenditures. Operating results for the second quarter, however, are likely to be in the area of the operating loss reported in the first quarter, excluding potential one-time charges and real estate gains.

Polaroid has today announced two new “revolutionary” digital printing platforms. Opal is a two sheet thermal print medium with fast print speed and long lasting characteristics is aimed at home and retail users. Onyx is a single sheet thermal print medium designed to be used in mobile applications such as PDAs, mobile phones or one-off printers. Expect to see devices based on Onyx technology by the end of this year and Opal in 2002.

Press release:

Polaroid Announces Revolutionary Digital Printing Technologies

Outlines New Model for Instant and Digital Businesses

NEW YORK and CAMBRIDGE, Mass., — May 31, 2001 – Polaroid Corporation (NYSE: PRD) today announced two new digital printing technologies that are poised to shape the future of imaging for consumers and commercial users. Code-named “Opal” and “Onyx,” the printing platforms are central to Polaroid’s digital strategy and mark a dramatic shift from the company’s heritage in silver halide-based film. The technologies and the company’s new business model were revealed today at a meeting for the investor and media communities at The Digital Sandbox in New York.

“The Opal and Onyx technologies will revolutionize how we move digital images from pixels to prints,” said Gary T. DiCamillo, Polaroid’s chairman and chief executive officer. “These are real game changers – true innovations that will set new standards for instant digital printing quality, mobility and affordability. They offer 35mm quality in a digital print, with speed and simplicity unrivaled by current print options. We expect Opal and Onyx technology to have application to a variety of mobile printing requirements, but also to meet new requirements for retail kiosks, microlabs and a new generation of home photo printers. What’s more, Polaroid will open these technologies to a variety of partners to bring digital printing products to market in many different forms.”

Opal and Onyx: The Future of Instant Digital Printing

The Opal and Onyx platforms have been developed by a dedicated research and development team at Polaroid over the past two years. To the surprise of some industry analysts, Opal and Onyx represent a break from the company’s heritage in silver halide-based media, and instead are based on thermal print technologies. Designed as an open architecture platform, the technologies feature speed, mobility, affordability and quality, making them ideal for a range of applications from mobile printing and dedicated home printers to commercial kiosk and microlab use.

Dr. Samuel H. Liggero, vice president of media research and development, has spearheaded the development of Opal and Onyx. Citing the limitations of existing digital printing technologies, such as dye diffusion thermal transfer (D2T2), thermal wax and inkjet, Liggero lauded the speed, quality and versatility of Opal and Onyx describing them as the most significant technologies to be developed by Polaroid in many years. “Opal can be optimized to produce 35mm-quality prints at the rate of 50-to-60 per minute,” he said.

About Opal and Onyx

Polaroid’s “Opal” technology is a two-sheet, thermal print medium that combines the best of traditional thermal transfer and inkjet technologies to generate photographic-quality color prints. Opal’s high image quality and stability, combined with fast print speed, make it an optimal technology for dedicated home photo printers or the retail photo finishing environment.

Onyx is a single-sheet, thermal print media that features versatility and mobility, combined with very affordable cost. Because of this, Onyx can be deployed in a variety of consumer and commercial applications, such as mobile printer extensions for PDAs and wireless phones; mobile printers for one-time items; and in-dash printers for GPS and mapping systems in automobiles.

New Business Model

DiCamillo stated that Polaroid is poised to create a new standard in digital printing – making it simple and fast without compromising quality. Opal and Onyx emphasize speed, stability and affordability, and their open platforms create new opportunities for Polaroid to team up with other businesses. “These two printing platforms will form the building blocks of our digital imaging business strategy,” said DiCamillo. “Polaroid is entering an era marked by alliances, partnerships and open architecture, and our digital printing business will fit into that model. Polaroid will concentrate on its strengths – brand equity, product innovation, well-developed trade channels and promising intellectual property – but we’ll work with others to develop product applications and new products.”

DiCamillo acknowledged the decline in film sales faced by Polaroid and other traditional photographic companies as the imaging industry migrates to digital. He said the company is managing that decline to support both its debt reduction and its new instant digital printing business. According to DiCamillo, “Polaroid has reached the time for change and it’s driven by the exponential growth of digital imaging – the same force that is both eroding our traditional business as it ironically helps build a new foundation for the future.”

DiCamillo outlined the company’s new two-part business model. First, Polaroid will continue to support its traditional instant film business, which, despite declining sales, will be managed to generate healthy margins and cash flow for a number of years. Second, and most significantly, Polaroid has created a new instant digital printing business focused on the Opal and Onyx technologies, which are designed for growth and partnerships.

DiCamillo emphasized that Polaroid will continue to generate a steady flow of new products and that innovation will drive both sides of the business. “New products will continue to play a central role in Polaroid’s future. That’s why we’re here today,” he said.

Market Strategy

Sandra B. Lawrence, senior vice president and general manager of instant digital printing, said that Polaroid plans to bring the Opal and Onyx technologies to market with a variety of business partners. “We will not face the future alone. Business models for the new digital age require a very different mindset. Partnerships must be formed across technologies and platforms – even across industries. Opal and Onyx are steps in that direction and we’re actively working with companies who share our vision to leverage these new technologies, and to provide everyday consumers with new and inventive ways to print digital images instantly – anytime, anywhere.”

Lawrence explained, “Our major research expenses are behind us. And we are confident about a variety of consumable products with margins capable of ranging from 40 to 60 percent or more.”

Lawrence discussed how the game-changing technologies of Opal and Onyx will be brought to market and help drive the migration from analog to digital printing. Recognizing the convergence of computer, telephonic and imaging industries, all of which are migrating to real-time, wireless standards, she said, “The opportunities for our Opal and Onyx technologies in retail, home and mobile digital printing are tremendous. Together, these new digital printing opportunities could create a billion-dollar revenue opportunity for Polaroid and its partners by 2005. Polaroid will focus on its intellectual property and particularly its high-margin output consumables, all leading to a double-digit operating profit target.”

Lawrence said that the Onyx technology is a perfect fit for the wireless industry and that so far Polaroid is negotiating terms for Onyx-based partnerships with two Fortune 500 companies that play in the wireless space. She said the company expects to make formal announcements this summer.

Managing the Existing Business

Ian Shiers, executive vice president, worldwide sales and marketing, summarized the current alignment of Polaroid’s instant business and outlined some short-term financial objectives. “Our consumer products are divided into end-user groups that target teens, young adults and adults with both film and digital products. These products represent about 55 percent of our 2000 revenues. The remaining 45 percent of our revenues comes from our commercial business, which includes passport photography, professional photography, analytical and technical imaging and business imaging applications,” he said.

Shiers indicated that Polaroid must reduce the size of its infrastructure to manage changes in its business. “This requires a significant reduction of our cost base, in line with our revenue expectations for the next two-to-three years,” he said.

Shiers acknowledged that the Polaroid core business is not growing, but said it holds potential to become more profitable. “Our new model is built on conservative revenue expectations for the next two-to-three years. Our targets are: gross margins in the low 40s; overhead around 30 percent of sales, and double-digit operating margins. We are projecting improved cash flow generation, through improving EBITDA combined with a focused reduction of working capital and capital expenditures. We intend to accomplish all this within two years,” he said.

Shiers noted that Polaroid will reconfigure its manufacturing operations to match substantially lower volume. “This right-sizing is critical for maintaining our gross margin in the low 40s. Today we have more than 25,000 unique product identification codes and we plan to rationalize a substantial number of these products. We will complete this review within 90 days,” he said.

Opal and Onyx Plans

Polaroid plans to introduce the first Polaroid-branded Onyx consumer product by the end of this year and the first Opal products in 2002.