Polaroid files Chapter 11, seeks buyer!
By
Mike Tomkins
(Thursday, October 18, 2001 - 01:17 EDT)
Well-known name in imaging begins reorganisation whilst searching for a company to buy out part or all of its operation...
Polaroid Corp., a company we've mentioned frequently in the past on this news page, and one which has been showing signs of financial trouble for some time, has officially announced that it has filed for reorganisation at the U.S. Bankruptcy Court in Wilmington, Delaware under Chapter 11 of the U.S Bankruptcy Code. The petitions cover the company and its U.S. subsidiaries - but not those in other countries - and allow Polaroid to delay payment of debts from before the filing, giving the company extra room to restructure and reorganise to minimize costs.
The company remains open for business, and will continue to produce and support its core of 'instant imaging' products, whilst employees will continue to receive pay and medical / dental / life insurance benefits unaffected. $50 million of debtor-in-possession financing backed by a group including J.P. Morgan Chase & Co. has been lined up and granted court approval. $40 million of these funds are available to allow the company to continue operations and pay suppliers for products and services it requires after the October 12th filing.
The company continues in its search for potential buyers interested in part or all of the company, and following the announcement of its bankruptcy filing, has stated that it will 'accelerate and intensify' these efforts. It also continues to search for ways to cut operating costs, such as shutting down or selling non-core product lines and businesses, selling assets, closing facilities and laying off further employees.
On October 15th, Polaroid successfully filed additional motions with the Bankruptcy Court giving it permission to continue wages, salaries, business expenses and benefits (medical, dental and life insurance) both pre- and post-filing for employees, honor existing product warranties and customer programs such as rebates, promotions, incentives and returns. Further motions the Court granted allow Polaroid to continue to purchase goods and services from suppliers, and pay certain pre-petition commitments which it feels necessary to continue conducting business.
Former Polaroid employees are not so fortunate, however. The company has terminated its medical, dental and life insurance plans for former US employees, and suspended severance payments; the Polaroid Retiree Association is working to provide access to a new plan through Americana Financial, and retirees may also have the option to continue their medical coverage under the 1985 Consolidated Omnibus Budget Reconciliation Act.
According to information provided by Polaroid, it seems that the main reason for the bankruptcy filing is a sharp decline in revenues - hardly surprising since digital imaging is rapidly removing the need for 'instant' film products, which don't offer users the ability to see their images before they're printed, and don't allow for reprints. If Polaroid is a household name in any sector, it is instant film - and without this market and the associated revenues from instant film sales, the company has found itself in deep waters.
Whilst the company has successfully carved out a large segment of the digital camera marketplace which is replacing instant film, the cameras it sells are almost exclusively high-volume, low-spec units which may be seen as a risk themselves. If a low-cost product successfully sells in high numbers, economies of scale allow a profit to be made - but if you produce a large quantity of cameras only to find they don't sell well, you have a potentially major loss on your hands. There are also Polaroid's Opal and Onyx Instant Digital Printing technologies, launched last May in New York. The company says it is "in serious discussions with a number of interested parties regarding strategic alliances" on the technologies, and will continue to pursue potential partnerships.
At the moment, Polaroid has not announced how long it expects the Chapter 11 process to take. First, it must come up with a restructuring plan, and figure out how to pay its debtors from before the filing; when the Bankruptcy Court believes a viable plan has been laid out, it will then announce an effective date at which the company will come out of bankruptcy. The task ahead is not small - compared to its outstanding $960 million in long-term debt, including $575 million in bonds and $380 million in bank facilities, the $50 million debtor-in-possession funds it has lined up to continue operations almost seem a drop in the bucket.
In the meantime, Polaroid's stock on the New York Stock Exchange has been suspended, and may be delisted if the company does not meet the Exchange's criteria. Interest payments on company bonds have also been suspended, and holders of Polaroid stocks and bonds have been advised to consult financial advisors for advice.
As mentioned, customer service for Polaroid products should continue to be available, however the company has advised that customers experiencing problems can call 1-800-343-5000, or contact the restructuring information hotline at 1-800-386-0145.
Source:
Polaroid Corp.
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Original Source Press Release:
| Polaroid Files Voluntary Chapter 11 Petition, Receives $50 Million in New Financing -- Non-U.S. Subsidiaries Not Part Of Filing; Facilities In U.S. and Abroad Open And Conducting Business --
-- Accelerates And Intensifies Efforts To Sell Company –-
Cambridge, MA -- October 12, 2001 -- Polaroid Corporation (NYSE: PRD) today announced that, following this year’s steep decline in its revenues and the resulting impact on its liquidity, the company and its U.S. subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The filings were made in the U.S. Bankruptcy Court in Wilmington, Delaware. Polaroid intends to use the Chapter 11 process to restructure its business operations and finances.
Polaroid is open and conducting business in the U.S. and elsewhere around the world. Polaroid’s non-U.S. subsidiaries, including those in Europe, Asia and Japan, are not part of the filing.
In order to address immediate liquidity concerns created by the dramatic shortfall in revenue, Polaroid 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.
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, in light 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.
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."
In conjunction with today’s court proceedings, Polaroid 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; honor existing warranties; obtain interim financing authority and maintain cash management programs; and retain legal, financial, and other professionals to support the company’s reorganization. In accordance with applicable law and court orders, suppliers who provided goods or services to Polaroid or its U.S. 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 reorganization.
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 reorganization process to improve the viability of the core instant imaging business, optimize the sale process and maximize the value of the enterprise."
Polaroid Corporation is the worldwide leader in instant imaging. Polaroid supplies instant photographic cameras and films; digital imaging hardware, software and media; secure identification systems; and sunglasses to markets worldwide. Additional information about Polaroid’s reorganization is available on the company’s web site at www.Polaroid.com or, in the U.S., by calling its new toll-free information hotline: 1-800-386-0145.
"Polaroid" is a registered trademark of Polaroid Corporation, Cambridge, Mass. 02139
Statements in this release may be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events will be dependent upon factors and risks including, but not limited to, the company's ability to successfully: conclude financial and operational reorganization of the Company in the Chapter 11 process; continue to operate in the ordinary course and manage its relationships with its creditors, including its lenders, noteholders, vendors and suppliers, employees and customers given the company's financial condition; sell all or parts of the Company; implement its business strategy of reducing costs and improving cash flow; compete in the instant imaging market against larger and stronger competitors; to retain its top customers and limit the company's vulnerability to general adverse economic conditions; sell and market its products worldwide; retain sole source and other limited source supplies; find suitable manufacturers to which the company can outsource certain of its products; continue to protect its intellectual property; and the company's ability to manage other uncertainties and risk factors, such as those described from time to time in the company's filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2001.
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