Polaroid picture clears

Polaroid products face competition from one-hour photo shops and digital cameras

Instant-photography pioneer Polaroid has won a reprieve from some its debt, allowing the camera and film maker to live on for another few months.

The news came after shares of the troubled company endured a harrowing day on Wall Street, losing as much as 46% in New York trading and ending the day at a price of $1.86 a share after trading was halted.

US Banks on Wednesday granted Cambridge, Massachusetts-based Polaroid three months beyond the original 12 July deadline on assurances the company finds a long-term solution to its problems.

Huge challenges ahead

Still, the company faces huge challenges as it digs out from under a mountain of debt.

"Just because they get a waiver for 90 days does not mean that they are on Easy Street," said John Moore, an analyst at Moody's, a bond-rating service.

"They have to develop and prove that they can make the step technologically to what will continue to be Polaroid," he said.

Polaroid said the waivers extend to some of its bank-loan agreements through 12 October as well as a $19m principal payment that had been slated for September.

The waivers, the company said, would become effective "upon receipt of a similar waiver from Polaroid's UK lenders," which the company expects to receive shortly.

However, the company said it would not make interest payments on its bonds, which total $11m and $16m, due on 16 July and 15 August, respectively.

Wednesday's waivers, however, would afford the company some 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," said Polaroid chief financial officer William Flaherty.

Focusing on the future

Polaroid's options include selling business units as well as its assets.

Polaroid has retained investment-banking-firm Merrill Lynch to explore several options, including "a sale of assets, a merger or sale of the company, and/or a strategic partnership," a company spokesman said.

Polaroid's failure to move beyond its core instant-photography business is often cited as the cause of its current woes. The company is struggling to transform itself into a digital-imaging company.

Analysts have said the company rested on its laurels for far too long and failed to anticipate competitive challenges such as one-hour photo shops and digital cameras.

But it is not an assessment all who cover the pioneering camera firm agree with. "The magic is still there," Buckman Buckman & Reid analyst Ulysses Yannas told the BBC prior to Wednesday's announcment.

Demand still exists

Mr Yannas said much of Polaroid's instant photography business still enjoys big demand from law enforcement and the insurance industry.

"Polaroid film is still the only thing that the courts will accept as evidence because you cannot alter it," he says, adding that digital photography is particularly vulnerable to alteration.

"Once [a Polaroid] shot is made, that is it," he says. "Original and negative are the same thing."

Mr Yannas also pointed to new initiatives the company has launched that will allow it to resume profitability, including one that would allow consumers to print digital photos instantly on Polaroid film.

That, Mr Yannas says, is where the profits lie, "in the film - not the cameras."

Cost cutting

The company, in recent months, has undertaken a fierce cost-reduction programme, and expects to reduce it costs by $100m in 2001.

In cutting costs, layoffs have been announced. Polaroid has plans to cut nearly 3,000 jobs, with hopes of reducing its workforce by 35%.

In June, Polaroid said it intended to cut 2,000 jobs on top of the 950 positions it announced in February.

The company ended 2000 with 8,800 employees but had cut that number to 7,700 by the end of May.

Last year, the company sold several real estate assets, including its headquarters building in Cambridge, Massachusetts.