This spreadsheet supports STUDENT analysis of

the case, "Polaroid Corporation, 1996" (UVA -F-

1181, v. 1.7 ).
Please note:

This is a working model. Assumptions / Inputs

presented can be changed to vary the results.
Please press F9 to recalculate results after
changing assumptions.

This model contains an intentional circularity. To

resolve this circularity, please set Excel to
recalculate the model a number of times (20 to 50).
See TOOLS/OPTIONS/CALCULATION, and check
ITERATION.

Revised, December 10, 2001.

Copyright (C) 1998, by the University of Virginia Darden School Foundation.
 AAA AA A BBB BB
Cost of Debt(pre-tax) 6.70% 6.90% 7.00% 7.40% 9.00%
Cost of Equity 10.25% 10.30% 10.40% 10.50% 11.75%

Existing Capital Structure

Total Debt (book) 726.8 726.8 726.8 726.8 726.8
Total Equity (book) 717.7 717.7 717.7 717.7 717.7
Total Equity (equity) 2157.13 2157.13 2157.13 2157.13 2157.13
D/V Ratio (book) 0.50 0.50 0.50 0.50 0.50
D/V Ratio (market) 0.25 0.25 0.25 0.25 0.25

Financial Flexibility
Max. permissible D/V Ratio 25.90% 33.60% 39.70% 47.80% 59.40%
Implied D/E Ratio (book) 34.95% 50.60% 65.84% 91.57% 146.31%
MTB ratio of equity 3.01 3.01 3.01 3.01 3.01
Implied D/E Ratio (market) 11.63% 16.84% 21.90% 30.47% 48.68%

Max Debt capacity imprlied by credit rating 250.86 363.17 472.52 657.20 1050.03
Actual Debt 726.80 726.80 726.80 726.80 726.80
Unused debt capacity / Fin flexibilty -475.94 -363.63 -254.28 -69.60 323.23

Interest Coverage Ratios

Max. permissible debt 250.86 363.17 472.52 657.20 1050.03
Interest Expense 16.81 25.06 33.08 48.63 94.50
EBIT , normal
EBIT , downside
Implied ICR, normal
Implied ICR, downside

Max. permissible D/V ratio(mkt) 10.42% 14.41% 17.97% 23.35% 32.74%

Implied E/V ratio (mkt) 89.58% 85.59% 82.03% 76.65% 67.26%

CoC (Hudson's estimate) 9.60% 9.41% 9.29% 9.08% 9.67%

Cost of Equity (CAPM)

Beta 1.05 1.05 1.05 1.05 1.05
Ubeta 0.9815147 0.9536647 0.9280298 0.8877241 0.8126528
Relever beta 1.05
Rf 6.24% 6.24% 6.24% 6.24% 6.24%
Rm-Rf 5.40% 5.40% 5.40% 5.40% 5.40%
Ke 11.91% 11.91% 11.91% 11.91% 11.91%
B
10.60%
13.00%

726.8
717.7
2157.13
0.50
0.25

69.50%
227.87%
3.01
75.81%

1635.41
726.80
908.61

1635.41
173.35

43.12%
56.88%

10.14%

1.05
0.7217055

6.24%
5.40%
11.91%
 1996 1997 1998 1999 2000
FCFF 120.8126 94.34573 99.1828 105.1338 103.0971
TCF 116.4194 90.91498 95.57616 101.3107 99.34814
Nett 237.2319 3.430754 3.606647 3.823046 3.748986
Firm value ₹ 383.66
Debt 726.80
Equity Val ₹ -343.14
NOSO 45.533
Intrinsic Share price
CMP
TGR 6%
Discount 10%
 Exh. 1

1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Selected Income Statement Information
Net Sales U.S. $1,019.0 $1,160.3 $1,178.8 $1,145.7 $1,113.6 $1,058.3 $1,091.8 $1,048.3 $1,009.3 $964.3
International 1,217.9 1,152.2 1,066.1 1,006.6 957.0 913.4 812.9 814.6 754.6 664.9
Total 2,236.9 2,312.5 2,244.9 2,152.3 2,070.6 1,971.7 1,904.7 1,862.9 1,763.9 1,629.2
Operating Expenses 2,147.7 2,112.2 2,059.5 1,938.5 1,824.0 1,687.4 1,600.5 1,689.1 1,610.1 1,493.5
Profit from Opns. Before Restructuring Exp. 89.2 200.3 185.4 213.8 246.6 284.3 304.2 173.8 153.8 135.7
Restructuring Expense 247.0 0.0 44.0 0.0 0.0 0.0 40.5 151.9 0.0 0.0
Interest Expense 52.1 46.6 47.9 58.5 58.4 81.3 86.2 29.0 15.0 18.6
Net Earnings -140.2 117.2 -51.3 99.0 683.7 151.0 145.0 -22.6 125.2 108.2

Common Shares, End of Year (000s) 45,533 45,998 46,806 46,668 48,919 50,070 52,110 71,635 61,918 61,918
Common Shares Repurchased (000s) 1,218 941 0 2,258 1,151 2,040 19,525 0 0 0
Repurchase Outlay ($ millions) $40.2 $30.6 $0.0 $63.4 $30.6 $55.6 $950.6 $0.0 $0.0 $0.0
Common Shares Issued (000s) 753 133 138 7 0 0 0 9,717 0 0

Earnings Per Share -$3.09 $2.49 -$1.10 $2.06 $12.54 $2.20 $1.96 -$0.34 $2.02 $1.75
Dividend Per Share $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.50

Selected Balance Sheet Information

Working Capital $738.5 $886.8 $833.6 $789.0 $695.3 $609.1 $642.0 $980.0 $652.6 $602.4
Net Property, Plant & Equipment 691.0 747.3 718.2 657.3 549.4 461.0 430.9 433.8 359.6 357.7
Total Assets 2,261.8 2,316.7 2,212.3 2,008.1 1,889.3 1,701.3 1,776.7 1,957.2 1,599.4 1,444.6
Long-Term Debt 526.7 566.0 602.3 637.4 471.8 513.8 602.2 402.3 0.0 0.0
Redeemable Preferred Stock 0.0 0.0 0.0 0.0 0.0 348.6 321.9 0.0 0.0 0.0
Common Stockholders' Equity 717.7 864.4 767.3 808.9 772.9 207.7 148.8 1,011.5 1,048.2 960.1

Addns. to Property Plant and Equip. 167.9 146.7 165.6 201.5 175.8 120.9 94.5 127.0 116.6 82.9
Depreciation $132.7 $118.2 $100.3 $89.1 $85.5 $87.2 $87.4 $81.9 $75.7 $71.2
Book Value LT Debt/Capital 42.3% 39.6% 44.0% 44.1% 37.9% 48.0% 56.1% 28.5% 0.0% 0.0%
Market Value LT Debt/Capital 19.6% 27.5% 27.8% 30.5% 26.6% 25.3% 28.5% 23.4% 0.0% 0.0%

Selected Valuation Information (at years' ends)

Polaroid Stock Price $47.38 $32.50 $33.50 $31.13 $26.63 $23.38 $22.88 $18.38 $11.88 $33.25
S&P 500 Index 615.93 459.27 466.25 435.71 417.09 330.22 353.40 277.72 247.08 242.17
Polaroid Average P/E (1) 12.1 13.3 15.6 14.2 12.2 15.6 21.8 NMF 14.7 16.6
S&P Industrials Average P/E (1) 15.2 15.5 18.4 19.8 19 14.4 12.6 10.8 15.3 17.5
Polaroid Market/Book Ratio 3.01 1.73 2.04 1.80 1.69 5.63 8.01 1.30 0.70 2.14
Polaroid Beta 1.05 1.05 1.15 1.15 1.20 1.25 1.25 1.25 1.20 1.10
Yield on 30-Year T-Bonds 6.88% 7.37% 6.59% 7.67% 8.14% 8.61% 8.45% 8.96% 8.59% 7.80%
Yield on 90-day T-Bills 5.49% 4.25% 3.00% 3.43% 5.38% 7.50% 8.11% 6.67% 5.78% 5.97%
Total Annual Return on Large Co. Stocks 33.00% 1.30% 9.90% 7.67% 30.55% -3.17% 31.49% 18.81% 5.23% 18.47%

Notes: 1. P/E ratios are computed on earnings before restructuring charges, litigation award, and other extraordinary items.

Page 6
 Exh. 3

Exhibit 3
Consolidated Statement of Earnings
(In $ millions)

Years ended December 31,

1995 1994
Net Sales
United States $1,019.0 $1,160.3
International 1,217.9 1,152.2
Total Net Sales 2,236.9 2,312.5

Cost of Goods Sold 1,298.6 1,324.2

Marketing, Research, & Admin. 849.1 788.0
Restructuring & Other. 247.0 0.0
Total Costs 2,394.7 2,122.2
Profit/(Loss) from Operations -157.8 200.3

Interest Income 8.7 9.7

Other Income -0.2 -2.7
Interest Expense 52.1 46.6
Earnings/(Loss) Before Taxes -201.4 160.7
Tax Expense -61.2 43.5
Net Earnings/(Loss) -140.2 117.2

Page 7
 Exh. 4

Exhibit 4
Consolidated Balance Sheet
(In $ millions)

1995 1994
Assets
Current Assets
Cash and Cash Equivalents $73.3 $143.3
Short-Term Investments 9.8 85.6
Receivables, less allowances 550.4 541.0
Inventories 615.5 577.4
Prepaid Expenses and Other 208.5 141.4
Total Current Assets 1,457.5 1,488.7
Gross Property Plant and Equipment 2,164.4 2,043.4
Less Accumulated Depreciation 1,473.4 1,296.1
Net Property, Plant and Equipment 691.0 747.3
Prepaid Taxes -- non-current 113.3 80.7
Total Assets $2,261.8 $2,316.7

Liabilities and Stockholders' Equity

Current Liabilities
Short-Term Debt $160.4 $117.1
Current Portion of Long-Term Debt 39.7 35.9
Payables and Acrruals 274.9 275.7
Compensation & Benefits 197.4 121.4
Taxes Payable 46.6 51.8
Total Current Liabilities 719.0 601.9
Long-Term Debt 526.7 566.0
Accrued Postretirement Benefits 257.2 247.2
Accrued Postemployment Benefits 41.2 37.2
Total Liabilities 1,544.1 1,452.3
Preferred Stock 0.0 0.0
Common Stockholders' Equity
Common Stock (1) 75.4 75.4
Additional Paid-In Capital 401.9 387.2
Retained Earnings 1,525.8 1,692.1
Less Treasury Stock, at Cost 1,205.4 1,174.5
Less Deferred Compensation 80.0 115.8
Total Common Stockholders Equity 717.7 864.4
Total Liabilities and Stockholders' Equity $2,261.8 $2,316.7

Page 8
 Exh. 6

Exhibit 6
Financial Forecast, 1996-2000

Actual Projected
1995 1996 1997 1998 1999
Annual Increase in Sales -3.2% 2.0% 5.0% 6.0% 6.0%
Opng. Profit/Sales 4.0% 8.0% 9.5% 10.0% 10.0%
Tax Rate 40.0%
Wkg. Capital/Sales 37.0%

Income Statement
Net Sales $2,236.9 $2,281.6 $2,395.7 $2,539.5 $2,691.8
Operating Profit 89.2 182.5 227.6 253.9 269.2
Interest Income 8.5 5.0 5.0 5.0 5.0
Interest Expense -52.1 (52.1) (52.1) (52.1) (52.1)
Pre-Tax Income 45.6 135.4 180.5 206.8 222.1
Tax Expense -61.2 (54.2) (72.2) (82.7) (88.8)
Net Income -15.6 81.3 108.3 124.1 133.2
Dividends 27.3 27.3 27.3 27.3 27.3
Retentions to Earnings $ (42.9) $ 53.9 $ 81.0 $ 96.8 $ 105.9

Balance Sheet
Cash $ 83.1 $ 148.3 $ 187.1 $ 230.7 $ 280.3
Working Capital (without debt) 855.5 844.2 886.4 939.6 996.0
Prepaid Tax 113.3 113.3 113.3 113.3 113.3
Net Fixed Assets 691.0 691.0 691.0 691.0 691.0
Total Assets 1,742.9 1,796.8 1,877.8 1,974.6 2,080.5

Debt (long and short term) 726.8 726.8 726.8 726.8 726.8
Other Long-Term Liabilities 298.4 298.4 298.4 298.4 298.4
Stockholders' Equity 717.7 771.6 852.6 949.4 1,055.3
Total Liabilities & Stockholders' Equity $1,742.9 $1,796.8 $1,877.8 $1,974.6 $2,080.5

Free Cash Flows

EBIT $ 182.5 $ 227.6 $ 253.9 $ 269.2
Less Taxes on EBIT (73.0) (91.0) (101.6) (107.7)
Plus Depreciation 140.0 140.0 140.0 140.0
Less Capital Expenditures (140.0) (140.0) (140.0) (140.0)
Less Additions/plus Reductions in Wkg. Cap. 11.3 (42.2) (53.2) (56.4)
Free Cash Flow $ 120.8 $ 94.3 $ 99.2 $ 105.1

Page 9
 Exh. 6

2000
7.0%
10.0%

$2,880.3
288.0
5.0
(52.1)
240.9
(96.4)
144.6
27.3
$ 117.2

$ 327.8
1,065.7
113.3
691.0
2,197.8

726.8
298.4
1,172.6
$2,197.8

$ 288.0
(115.2)
140.0
(140.0)
(69.7)
$ 103.1

Page 10
 Exh. 9

Exhibit 9
Key Industrial Financial Ratios
Three-Year Medians (1993-1995)

AAA AA A BBB BB
Pretax interest coverage (x) 13.50 9.67 5.76 3.94 2.14
EBITDA Interest coverage (x) 17.08 12.80 8.18 6.00 3.49
Funds from operations/total debt (%) 98.20% 69.10% 45.50% 33.30% 17.70%
Free operating cash flow/total debt (%) 60.00% 26.80% 20.90% 7.20% 1.40%
Pretax return on permanent capital (%) 29.30% 21.40% 19.10% 13.90% 12.00%
Operating income/sales (%) 22.60% 17.80% 15.70% 13.50% 13.50%
Long-term debt/capital (%) 13.30% 21.10% 31.60% 42.70% 55.60%
Total debt/capitalization incl. short-term debt (%) 25.90% 33.60% 39.70% 47.80% 59.40%

Source: Standard & Poor's CreditWeek October 30, 1996, page 26.

Page 11
 Exh. 9

B
1.17
2.16
12.80%
-0.90%
9.00%
12.30%
65.50%
69.50%

Page 12