Poloroid Files for Bankruptcy

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Polaroid, $1 Billion in Debt, Files for Bankruptcy (Update4) By Jeff St.Onge

Wilmington, Delaware, Oct. 12 (Bloomberg) -- Polaroid Corp., a name synonymous with instant photography for more than half a century, filed for bankruptcy protection with almost $1 billion in debt and a future eclipsed by new technologies.

The popularity of digital cameras has eroded sales of instant film, and Cambridge, Massachusetts-based Polaroid had pledged most of its assets to lenders as it explored selling all or parts of the company. Founded by college dropout Edwin Land in 1937, Polaroid stagnated as the 20th century drew to a close.

The company listed $1.81 billion in assets and $948.4 million in debts in Chapter 11 papers filed today in U.S. Bankruptcy Court in Delaware. Polaroid in August reported a second-quarter loss of $109.9 million, compared with net income of $26.6 million a year earlier. Sales fell 31 percent to $333.5 million.

``This is the first of a wave of American household names from the last century that won't see the end of this century,'' said Bill Brandt, president of Chicago-based turnaround consulting firm Development Specialists Inc.

``Land's breakthrough technology once dominated an aspect of the photography market, but there are now faster, cleaner technologies,'' Brandt said.

Polaroid has a commitment for a $50 million credit line from a group of banks led by J.P. Morgan Chase & Co., subject to court approval. Polaroid officials also said they plan more job cuts and will ``accelerate and intensify'' selling the company to help eliminate money-losing businesses.

Formal Process

``For Polaroid, bankruptcy isn't a terrible thing at this point in time,'' said Robert Renck, an analyst at R.L. Renck & Co. who owns Polaroid shares. ``I think they can be an effective smaller organization.''

The Chapter 11 filing ``allows us to initiate a formal process in which to intensify our exploration of strategic alternatives,'' said Gary T. DiCamillo, chairman and chief executive of Polaroid.

Chapter 11 would give Polaroid protection from creditors while it reshuffles its debts. The company faces a Nov. 15 deadline on a $360 million loan from a group led by J.P. Morgan Securities Inc. In addition, bondholders are owed around $575 million.

Polaroid's 7 1/4 percent notes due in 2007 were bid around 8 cents on the dollar, down from 84 cents in January, according to Bloomberg data.

State Street Bank and Trust Co., representing three separate groups of Polaroid bondholders, is listed in court papers as the company's largest unsecured creditor. Enron Corp.'s Energy Services unit is owed more than $3.3 million, court papers show.

Strapped for Cash

State Street Bank holds more than 5 percent of Polaroid's shares, according to court papers. Other top shareholders are Oppenheimer Funds Inc. and Mellon Financial Corp.

Polaroid shares have fallen 97 percent in the past year to 28 cents on Tuesday, giving the company a market value of less than $25 million compared with $2.78 billion in July 1997. Trading in the shares has been halted since Wednesday.

In May, DiCamillo said Polaroid would focus on digital printing and would manage its shrinking instant-film business for cash.

DiCamillo has acknowledged that demand for instant-imaging products would continue to fall and said digital printers, named Opal and Onyx, would drive sales. He said Polaroid would run a separate business for the printers and license the technology.

Last week, in a memo to employees, the company said it would only be able to pay about 90 percent of the benefits that have accrued under its pension plan should all beneficiaries suddenly retire.

More people than usual have taken lump-sum payments for retirement as part of the company's job restructuring, seriously reducing the pension fund's assets, Polaroid said.

Military Products

Land was among the most prolific U.S. patent holders and kept the company innovative with inventions such as antiglare goggles for aircraft gunners, 3-D film and the heat-seeking missile.

The company, which began by making specialized goggles, headlamps and binoculars for the military, sold its first instant camera in 1948. During the late 1970s, the Polaroid OneStep camera was the best-selling camera of any type.

Sales at Polaroid have changed little since Land died in 1991, a decade after he retired. He left Harvard University in 1932 just months before graduation to establish the company.

``The genius of Polaroid was in seeing the instant gratification that drives America,'' said Anthony Fruzzetti, director of the Center for Marketing Research in Providence, Rhode Island. ``They were too late in applying the same principal to digital photography.''

In recent years, growing demand for digital cameras and accessories has eroded sales of instant photography-products as well as traditional roll film. Rivals, including Eastman Kodak Co., have begun to focus more on higher-margin services, while Polaroid has introduced few products and services and has given little guidance this year about its growth strategy or sales and earnings expectations.

-- Guy Daley (guydaley1@netzero.net), October 12, 2001


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