In july managers announced that the company would

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Unformatted text preview: picture perfect for Polaroid Corp. In February, management suspended the common stock dividend and embarked on a major restructuring plan to cut the workforce, streamline operations, reduce capital expenditures, and sell underutilized assets. In July, managers announced that the company would miss the August payments on its almost $1 billion of long-term debt. At the same time, bank lenders granted the instant-imaging company a waiver on a $363-million line of credit, hoping that additional time would enable the company to stabilize revenue, reduce costs, and maximize cash flow. Despite these and other drastic measures, on October 12, 2001, Polaroid filed a petition for voluntary reorganization under Chapter 11 of the Bankruptcy Reform Act of 1978. Polaroid’s banks provided $50 million of debtor-in-possession financing so that it could continue to operate during the restructuring process. CEO Gary DiCamillo called the filing “prudent and necessary” to allow Polaroid to evaluate strategic alternatives and work with its creditors on a plan to resolve their financial claims. The imaging technology pioneer’s downward slide began in 1995 as sales dropped sharply and it laid off 2,500 employees. Stockholders criticized management for moving away from its core business of instant photography to explore new technology. Ironically, the rise of digital-photography technology, which competed with the company’s exclusive instantphotography franchise, was a factor in the company’s eventual fail- 739 In Practice ure. Its new digital-printing technology came too late to save the company, forcing it to compete in a crowded field with Sony, Eastman Kodak, and Fuji Film, and Polaroid’s low-end digital camera made little headway against wellcapitalized competitors such as Olympus, Sony, and Canon. As of early 2002, Polaroid’s future remained blurry: Would it remain intact? Or would have to sell off its primary assets—its brand name, the instant-camera business, and the Opal and Onyx printing technologies? Sources: Adapted from James Bandler, “Polaroid Hopes Its New Inventions Develop Into Profits,” Wall Street Journal (August 22, 2001), p. B4; “Polaroid Files Voluntary Chapter 11 Petition, Receives $50 Million in New Financing,” press release, Polaroid Corp., downloaded from www.Polaroid.com; Justin Pope, “Polaroid Heads for Bankruptcy,” San Diego Union-Tribune (October 13, 2001), pp. C1–2. In the case of creditor groups, approval of the plan is required by holders of at least two-thirds of the dollar amount of claims, as well as by a numerical majority of creditors. In the case of ownership groups (preferred and common stockholders), two-thirds of the shares in each group must approve the reorganization plan for it to be accepted. Once accepted and confirmed by the court, the plan is put into effect as soon as possible. Role of the Debtor in Possession (DIP) recapitalization The reorganization procedure under which a failed firm’s debts are generally exchanged for equity or the maturities of...
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