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Annual Report 1996


8. Long-term Debt
Principal amounts of long-term debt outstanding as of December 31 are as follows:
(In millions)
1996

Long-term

Current

Total


ESOP loan

$-

$37.7

$37.7

7 1/4% Notes

150.0

-

150.0

8% Notes

199.4

-

199.4

8% Subordinated Convertible Debentures

140.4

-

140.4

Other

.1

-

.1

Total

$489.9

$37.7

$527.6

1995

Long-term

Current

Total


ESOP loan

$37.7

$39.7

$77.4

7 1/4% Notes

149.8

-

149.8

8% Notes

199.1

-

199.1

8% Subordinated Convertible Debentures

140.0

-

140.0

 Other

.1 

.1 

Total

$526.7 

$39.7 

$566.4 

At December 31, 1996 and 1995, the Company had a committed line of credit (see Note 6), and a long-term ESOP loan. Borrowing costs under the related credit agreements are tied to the Company's long-term public debt ratings. The interest rates on the loans are based on various alternative interest indices at the Company's option and will fluctuate over time. The agreements contain various restrictions, including the ability of the Company to incur or guarantee debt. The Company is required to maintain a certain net worth and to meet certain leverage and interest coverage ratios.

Under the ESOP loan, which was used to finance the leveraged Polaroid ESOP (see Notes 9 and 11), the final scheduled principal payment of $37.7 million will be made on June 30, 1997. Interest expense on the ESOP loan was $3.2 million in 1996, $5.4 million in 1995 and $6.0 million in 1994. The weighted average interest rate on the loan was 4.8%, 5.2% and 4.4% during 1996, 1995 and 1994, respectively.

In 1991, the Company issued $140.0 million of 8% Subordinated Convertible Debentures due 2001 (the Debentures) as partial consideration for the repurchase of its convertible preferred stock and warrants originally issued in 1989. The Debentures carried an annual interest rate of 8% and were convertible to common stock at approximately $32.50 per share. The Debentures were also subordinated in right of payment to all existing debt of the Company. Subsequently, the holders of the Debentures created a trust under which they retained conversion rights to convert the Debentures into approximately 4.3 million shares of common stock of the Company, but sold to institutional investors the right to principal and interest payments on the Debentures. In June 1996, the Company purchased the conversion rights for $53.8 million and redeemed $.5 million of principal of the $140 million Debentures. As the holder of the conversion rights, the Company could have retired the Debentures at any time on or before September 30, 1998. If the Debentures had not been redeemed by the Company by September 30, 1998, the conversion rights would have reverted to the holders of the Debentures. The purchase of the conversion rights was determined to be a substantive modification of the terms of the Debentures and was accounted for as an extinguishment of debt and the issuance of new debt. The cost of the conversion rights and the amount of the fair value of the new debt over the carrying value of the extinguished debt was recorded as an extraordinary loss of $54.5 million (net of the tax benefit of $.4 million).

In December 1996, the Company gave irrevocable notice that it was repurchasing the remaining $139.5 million of principal of the Debentures. The closing date of this transaction was January 22, 1997. As a result of issuing the irrevocable notice, the Company recorded an extraordinary loss of $1.6 million (net of the tax benefit of $1.1 million) in the fourth quarter of 1996 due to the early extinguishment of debt.

The $150 million 7 1/4% Notes (the 7 1/4% Notes) due January 15, 1997 were issued with a discount, at a price of 99.30% of par with a yield of 7.42%, and may not be redeemed prior to maturity. The $200 million 8% Notes(the 8% Notes) due March 15, 1999 were issued with a discount, at a price of 99.054% of par with a yield of 8.18%, and may not be redeemed prior to maturity.

On January 14, 1997, the Company issued long-term debt securities (see Note 15) to refinance the 7 1/4% Notes and the Debentures and accordingly, these borrowings have been classified as long-term debt as of December 31, 1996.

The aggregate repayment schedule of the Company's long-term debt after giving effect to the above mentioned refinancing is as follows:


1997 $37.7 million
1998 $0
1999 $200.0 million
2000 $0
2001 and thereafter $300.0 million




Polaroid Corporation Annual Report 1996
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