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 Polaroids 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 companys 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 Polaroids new two-part business model to: (1) manage the companys 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. Todays 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 40s 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.
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.
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