U.S.

Not A Pretty Picture At Polaroid

By CBSNews.com staff CBSNews.com staff

June 13, 2001 / 10:19 AM EDT / CBS

Camera and film maker Polaroid, facing enormous debts as it tries to reposition itself as a digital imaging company, said Wednesday it would cut 2,000 jobs, or 25 percent of its global work force.

About half of the jobs cuts would come in the United States, said spokesman Skip Colcord. Most of the company's domestic work force is in Massachusetts.

Polaroid said the restructuring should save the Cambridge-based company between $175 million and $200 million annually by the end of 2003. The company will take restructuring charges of $150 million-$175 million in 2001 and 2002.

"This is an extremely difficult decision, but an absolutely necessary one if Polaroid is to compete in the digital future," said Gary T. DiCamillo, chairman and chief executive officer. "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."

The company faced debts of $860 million as of May 16, according to its latest quarterly report.

"It's long overdue. They had to do it," said analyst Ulysses Yannas of Buckman Buckman & Reid.

Yannas said the cuts would amount to a 10 percent cut in so-called "SG&A" costs.

"Their selling, general and administrative costs, which includes advertising and research, are way out of line with their competition," he said. "This is where, essentially, they have to do heavy cutting."

The company already cut 950 jobs in February as it announced a plan to reduce debt.

Polaroid's core business of instant photography has struggled as one-hour film developing laboratories have proliferated.

At an analysts conference last month, the company debuted new digital printing technology it said is part of a new business plan to collaborate with other companies to build kiosks, printers and related hardware.

But while trying to reshape its business, DiCamillo has struggled to pay down $950 million in debt since joining the company in 1995. In the last year, the company has sold several real estate assets, including its headquarters building in Cambridge and its Waltham office park.

In a separate development on the economic front, retail sales increased a disappointing 0.1 percent in May.

The smaller-than-expected increase in retail sales followed a big, 1.4 percent jump in April, according to revised figures, the Commerce Department reported Wednesday. Many analysts were forecasting a 0.3 percent rise in retail sales for May.

Economists were predicting that consumers would be more selective shoppers in May, given the weakening labor market, higher energy costs and lingering concerns from consumers about the economy's prospects.

In May, consumers cut back on purchases of cars, clothing, building supplies and electronics. But they spent more on gasoline, furniture and sporting goods.

Retail sales are closely monitored as a proxy for overall consumer spending that accounts for two-thirds of national economic activity. Analystsaid the sales figures reinforced the impression that the second quarter could be the weakest for the economy this year.

Paul Christopher, an economist with A.G. Edwards & Sons Inc. of St. Louis, Mo., said the figures were disappointing despite the fact that April sales were revised up from a — previously reported 1.1 percent gain. He said the April number was inflated by high gasoline prices.

He added that the economy was unlikely to perform strongly in the second quarter unless consumers lend a hand. "But we are still on the sunny side of zero, we are still growing," Christopher added.

New-car dealer sales that account for one-quarter of monthly retail business dropped 0.7 percent to $70.68 billion last month after climbing 2.3 percent in April. Excluding the auto business, retail sales in May were ahead 0.3 percent, still well behind April's 1.1 percent gain.

Some analysts said the May figures, building on April's strong gain, were moderately reassuring and that prospects were that spending would get a boost later in the year once tax rebates begin to flow back to consumers under the Bush administration's tax-cut plan.

"When you look at April and May together to form an estimate of consumption in the second quarter, personal consumption is still growing pretty strongly," said economist Richard Gilhooly of BNP Paribas in New York.

The Federal Reserve has cut interest rates five times so far this year and its policysetting Federal Open Market Committee is set to meet again on June 26-27.

Alan Ruskin, an economist with 4CAST Ltd. in New York, said the May retail sales figures implied that another quarter percentage point reduction in rates may flow from the Fed gathering. "There is a reasonable degree of comfort on that," Ruskin added.