Polaroid

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Bruner: Case Studies in
Finance: Managing for
Corporate Value Creation,
4/e

VI. Management of the
Corporate Capital Structure

31. Polaroid Corporation,
1996

© The McGraw−Hill
Companies, 2003

CASE 31

Polaroid Corporation, 1996

In late March 1996, Ralph Norwood, the recently appointed treasurer of Polaroid Corporation, reflected on several matters of concern about the firm’s debt policy that would require his attention in the coming months. One immediate concern was Polaroid’s outstanding $150 million, 7.25 percent notes, which were due to mature in January 1997. Investment bankers, keenly interested in garnering advisory and underwriting business from Polaroid, had sought to present proposals for refunding the issue. However, Norwood felt that any refunding decision should be part of a larger review of the firm’s financial policies. Accordingly he undertook a review of the firm’s overall debt policy, focusing primarily on the mix of debt and equity and on the maturity structure of the debt. He also sought to consider issues of control, the establishment of any special advisory relationships, and the use of new financial instruments.

In recent years Polaroid’s share price had traded in a narrow range, reflecting small sales and earnings growth. However, a new plan to exploit aggressively the existing Polaroid brand, introduce product extensions, and enter new emerging markets (such as Russia) had been proposed to spur the firm’s performance. The restructuring plan was spearheaded by Gary T. DiCamillo, the first outsider appointed chief executive officer (CEO) in the firm’s history. DiCamillo had only recently joined the firm in November 1995. Norwood believed the plan would reinvigorate the company without materially increasing its operating risk. With important changes in the works, Norwood felt it essential that his financial policies afford Polaroid the necessary funding and flexibility to pursue the initiatives of the new CEO.

This case was written by Professors Robert Bruner and Susan Chaplinsky as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright © 1997 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an email to [email protected] No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Rev. 12/01. Version 1.7.

405

Bruner: Case Studies in
Finance: Managing for
Corporate Value Creation,
4/e

406

VI. Management of the
Corporate Capital Structure

31. Polaroid Corporation,
1996

© The McGraw−Hill
Companies, 2003

Case 31: Polaroid Corporation, 1996

THE EARLY YEARS
Polaroid Corporation was founded in 1937 by Edwin Land, who had dropped out of Harvard College to pursue ideas on the polarization of light. The early years of Polaroid reflected the characteristics of Land: inventive, determined, and single-minded. The first instant camera was produced in 1948 and from that moment 90 percent of the company’s efforts were dedicated to the development of the field. Within four decades, sales of the firm grew from $142,000 to over $1 billion, largely on the basis of Land’s interest and oversight of the research effort in instant photography. Significant breakthroughs included instant black-and-white film (1954), instant color film (1960), and the SX-70 camera and film (1972) which freed the user from having to coat the developing picture. In 1977 the firm’s sales exceeded $1 billion for the first time, though this achievement was offset by increasing pressures from the sales force for new sources of growth, in the form of cheaper products. Internally there had been major efforts to develop products beyond instant...