THROUGHOUT corporate America, the economic aftermath of Sept. 11 means hard times. For a company like the Polaroid Corporation, which was already well down the path to insolvency, it could mean the end of the road.
The sluggish economy was already causing trouble for photography companies, long before terrorism reared its head. For example, the Eastman Kodak Company said last week that its third-quarter earnings would be much lower than the company had anticipated, because of low sales in August. Now Kodak, like many film companies, finds its bleak outlook even bleaker, as travel and revelry -- prime picture-taking opportunities -- are in a slump.
But Kodak, Fuji, Canon and most other photography players will probably revive when the economy does. Analysts are not as optimistic about Polaroid.
''Polaroid just does not generate enough cash to make it through until the economy recovers, and Sept. 11 made it even less likely that the company will ever be healthy,'' said Gibboney Huske, a Credit Suisse First Boston analyst who dropped coverage of Polaroid stock in July because she no longer saw equity value in it.
The stock, which traded at $14.19 a year ago, closed yesterday at 49 cents a share, down 6 cents, on the New York Stock Exchange. About 17 percent of those penny-stock shares are owned by employees.
On Monday, the company, which is based in Cambridge, Mass., notified its employees that its pension fund had a $100 million shortfall, though Polaroid added that the fund's existing assets of more than $900 million would cover 90 percent of benefits.
Gary T. DiCamillo, Polaroid's chief executive since 1995, turned down requests for an interview, and no one at the company would speculate about its future.
Polaroid's problems have been a long time building. Financial missteps grew from maneuvers the company took in 1988 to duck a hostile takeover. And strategic blunders included a delayed reaction and a series of clumsy responses to the threat digital photography posed to Polaroid's chemical-and-paper instant pictures.
For years, though, the magnitude of those mistakes were not evident to the outside world. In February 1996 the company's management was promising Wall Street that by 2000 its annual sales would be more than $3.4 billion. In fact, last year's revenue was only $1.9 billion. The company began losing money in the third quarter of 2000, and the red ink keeps flowing.
Today, its credit and bond ratings are barely above junk grade. Polaroid has about $950 million in debt, more than half of it short term. Even though its banks have kept giving short-term waivers on principal repayments, the company's credit line will run out on Dec. 31. It has defaulted on several interest payments to bondholders and has $150 million in bonds that mature on Jan. 15.
Polaroid says the negotiations with its bondholders are going well, but if they break down, they could force the company into bankruptcy. Some analysts have suggested that Polaroid pre-empt such a move by filing for voluntary bankruptcy, or reach a deal with bondholders that would let it trade much of its debt for equity.
Other analysts expect either a financial investor or a camera company to buy Polaroid. Several point to Canon, which would welcome Polaroid's consumer distribution network, or to Olympus Optical, which already produces a hybrid digital and instant-film camera in partnership with Polaroid. Neither company would comment on the speculation.
''I expect by the time the year is out, the chairman will have resigned, Polaroid will have sold significant assets or the whole company, or bondholders will have clamped down,'' Ms. Huske said.
The real financial trouble dates to the hostile takeover attempted by Shamrock Holdings in 1988. Polaroid fought back by creating its employee stock plan, buying back shares and issuing preferred stock that was convertible to debt. Polaroid kept its independence, but by 1989 it was $600 million in debt -- $920 million, counting the preferred stock. It has rarely been debt-free since.
Analysts say Polaroid should have paid down the debt using some of the $925 million it received in 1991, when Kodak settled a patent violation suit. Instead, Polaroid tried to shore up its plunging stock by buying back shares, and to become more efficient by buying expensive resource planning software. Both moves pushed it further into a fiscal hole.
Nor was digital photography a sudden new threat. ''We'd known for 20 years that digital imaging was coming,'' said Carol Ulrich, a former president of commercial imaging who resigned in 1999 after 30 years with Polaroid.
Ms. Ulrich had suggested a year earlier -- when Polaroid shares were selling at about $42 -- that the company sell itself. But Polaroid's board chose a different path: it would slash costs and sell real estate; farm out manufacturing and bring in marketing partners; milk older products for cash to finance newer ones.
Polaroid's new instant cameras, like the JoyCam and the I-Zone, are selling well, but few analysts expect them to attain the popularity that instant cameras once had. ''Polaroid mistakenly thought its new cameras were growth businesses, when in fact they have half the life and half the consumption of the older ones,'' said Robert L. Renck, who runs the brokerage firm R. L. Renck & Company.
The company does have some promising new technologies -- notably, a couple of thermal printing processes that dispense with toners and inks. But these may be arriving too late.
While many other companies are now pegging problems to the Sept. 11 attacks, Polaroid might have trouble making that case. Consumers rarely took Polaroid's bulky cameras on vacations, for example, so canceled trips would have less impact on it than, say, Kodak or Fuji. And government agencies and private companies, fearful of terrorism, might have clamored to utilize Polaroid's considerable expertise in making picture ID's.
Mining that niche, though, has been more beneficial to a small company, Viisage Technology, which specializes in ID cards. Its shares soared from less than $2 on Sept. 10 to $9.80 last week before closing at $6.15 in Nasdaq trading yesterday -- even though Polaroid's $200 million annual ID business dwarfs Viisage's $26 million.
''Even if the ID business takes off, it'll be too little too late,'' Ms. Huske said.
Investors might not even notice an uptick, said Ulysses Yannas, an analyst with Buckman, Buckman & Reid. He noted that Polaroid has been talking about selling the ID unit to raise cash.
''The market knows that Polaroid has valuable assets,'' Mr. Yannas said, ''but it still thinks the company is kaput.''