Polaroid felled by owners malfeasance; in bankruptcy protection
19 Dec 2008
Polaroid Corp, famous for making a camera that delivered pictures in seconds, has filed for voluntary bankruptcy protection under Chapter 11 in order to facilitate its restructuring amidst fraud allegations by its founder of its parent group, Petters Group Worldwide.
Polaroid, best known for inventing instant photography, owned by Tom Petters since 2005, said its bankruptcy was due to events at Petters Group Worldwide whose fraud compromised the financial condition of Polaroid.
Tom Petters along with two of his companies was indicted on 1t December on charges of wire fraud, mail fraud, conspiracy and money laundering.
The indictment alleges that, Petters, Petters Group Worldwide and Petters Company Inc. between 1995 and September of 2008 defrauded investors of billions of dollars by means of materially false, numerous false statements and fraudulent pretenses, representations, and promises.
Polaroid stopped making the instant cameras about two years ago due to increasing demand for digital cameras.
Polaroid said it has obtained a commitment for $50 million in debtor-in-possession financing from a bank group led by J P Morgan Chase & Co. Upon court approval, which is expected shortly, $40 million of these funds will be available immediately on an interim basis to supplement the company's existing cash flow and help Polaroid fulfill obligations associated with operating its business, including payment to suppliers, vendors and other business partners for goods and services provided on or after today's filing.
The full $50 million commitment is subject to final court approval and other conditions.
Polaroid intends to continue to manufacture, market and distribute its core instant imaging products and to provide customer service and support for these products. Employees are being paid in the usual manner and their medical, dental and life insurance benefits are expected to continue unchanged.
Gary T. DiCamillo, chairman and chief executive officer, said, "After a thorough analysis of Polaroid's financial condition and the rapidly changing outlook in our key markets, the board of directors and senior management concluded that today's court filings by our U.S. operations were both prudent and necessary. Despite our best efforts to stabilize revenue, reduce costs and maximize cash flow, the company's financial condition deteriorated further in recent weeks.
"Filing for Chapter 11 at this time allows Polaroid to enhance its liquidity by supplementing cash flow from operations with $50 million in new financing. It also allows us to initiate a formal process in which to intensify our exploration of strategic alternatives and work with our creditors to develop a plan to resolve their financial claims.
"From an operational standpoint," DiCamillo continued, "we intend to continue shipments of our core instant imaging products to customers as normal and meet our post-petition obligations to suppliers, vendors and other business partners. We will also continue to pursue opportunities to maximize the potential of our Opal and Onyx instant digital printing technologies."
Polaroid also announced that the company and its lenders have agreed to accelerate and intensify its exploration of a possible sale of all or parts of the company. Polaroid believes that such a sale would be in the best interests of all constituencies, including employees. As previously announced, Polaroid has retained financial advisors to assist with this process.
Additionally, because of its reduced revenue base and the uncertain economic outlook, the company has initiated a thorough evaluation of all aspects of its business operations with the objective of achieving significant cost savings beyond those already provided by the company's previously announced restructuring activities. This process will result in the disposition or elimination of non-core products and businesses, additional asset sales, facility closings, and a further reduction in personnel.
Polaroid now expects to file a variety of "first day motions" to support its employees, customers and suppliers. These include motions seeking court permission to: continue payments for employee payroll and health benefits; honour existing warranties; obtain interim financing authority and maintain cash management programmes; and retain legal, financial, and other professionals to support the company's reorganisation.
In accordance with applicable law and court orders, suppliers who provided goods or services to Polaroid or its US subsidiaries before today's filing may have pre-petition claims, which will be frozen pending court authorization of payment or consummation of a plan of reorganisation.
William L. Flaherty, executive vice president and chief financial officer, said, "Polaroid made significant progress over the last year toward reducing costs through restructuring, improving working capital, consolidating manufacturing, reducing capital spending and selling non-core assets. However, it is evident that with the company's substantially reduced revenue stream, additional steps must be taken during the reorganisation process to improve the viability of the core instant imaging business, optimise the sale process and maximise the value of the enterprise."
