Anyone who has been following Polaroid's fortunes over the last six months won't be surprised by the events of the last week or so. There's been plenty of talk of bankruptcy, sales and mergers. They've simply not moved quickly enough to embrace digital photography or digital photo finishing. "Pending the announcement, Polaroid shares were suspended near the end of trading Wednesday after falling 30 percent to $1.92 on the New York Stock Exchange (news - web sites) amid reports it was considering filing for bankruptcy."


Polaroid to Explore Merger, Sale

BOSTON (AP) - Polaroid Corp. (NYSE:PRD - news) said Wednesday it would explore a merger or sale and said it received a reprieve from lenders, as the the camera and film maker tries to dig out from beneath a mountain of debt.

The company announced a waiver, good through Oct. 12, on a $363 million line of credit that was set to expire Thursday, but said it would miss payments to bond holders next month. It now faces negotiations with bondholders to restructure that debt.

The company also has retained advisers to explore several options for the future of the company, including "a sale of assets, a merger or sale of the company, and/or a strategic partnership,'' said Polaroid spokesman Skip Colcord.

Pending the announcement, Polaroid shares were suspended near the end of trading Wednesday after falling 30 percent to $1.92 on the New York Stock Exchange (news - web sites) amid reports it was considering filing for bankruptcy.

The company must now negotiate with bondholders, who after 30 days could use the missed payments to force Polaroid into involuntary bankruptcy, said Buckman, Buckman & Reid analyst Ulysses Yannas.

"At this stage Polaroid has no intention of either declaring bankruptcy or going into a prepackaged bankruptcy,'' he said. "At least that's what the statement implies. It's a question of how successful they can be renegotiating these notes.''

Polaroid said it would miss an $11 million interest payment due Monday and $16 million due August 15, as well as a $19 million principal payment due in September.

The company said it had retained Dresdner Kleinwort Wasserstein and Zolfo Cooper LLC to help it negotiate with bondholders. It has retained that firm and Merrill Lynch & Co to explore "strategic alternatives.''

"The receipt of these waivers demonstrates both the company's continuing support from its bank group and the progress we are making in implementing our previously announced five-point plan to strengthen our financial position,'' said chairman and chief executive Gary T. DiCamillo in a statement.

Yannas said it was little surprise that the company would consider a sale.

"When you are examining alternatives, you look at every alternative possible,'' he said.

Previously, some analysts had indicated a waiver was likely because lenders had nothing to gain if Polaroid filed for protection. They said one clue was that lenders, who have tight controls over Polaroid's purse strings, have allowed the company to spend $120 million on severance packages related to recent layoffs. The banks couldn't recoup that money if the company declared bankruptcy.

Polaroid, founded in 1937, made its name producing instant cameras and film, but it was caught flat-footed by the recent shift to digital technology.

In May, Polaroid debuted a line of Opal and Onyx digital printers, and unveiled a plan to share the technology with other companies and build kiosks in high-traffic areas like shopping malls.

But while the technology impressed analysts, some said it came too late to make a dent in Polaroid's debts, which totaled $860 million last month. The company laid off 950 workers in February and another 2,000 last month.

Kevin Kuzio, a debt analyst at KDP Investment Advisors Inc. in Montpelier, Vt., said before the announcement that even with a waiver, Polaroid still faces a serious crisis.

"We don't think it's any longer a situation where Polaroid is independently going to be able to finesse the transition to a provider of digital photo printing,'' he said.


Polaroid gets waivers, mulls its sale

By Franklin Paul

NEW YORK, July 11 (Reuters) - Troubled camera and film maker Polaroid Corp.(NYSE:PRD - news) on Wednesday dodged a bullet by obtaining critical loan waivers with its U.S. bank lenders, but said it expected to miss other interest payments and was mulling the possible sale of the company.

The news came after Polaroid shares had tumbled as much as 46 percent on Wednesday to a low of $1.45 amid concerns the company might be on the brink of bankruptcy, amid a looming July 12 deadline to get back in compliance with two loans.

The stock was halted late in the session, and its last trade, at $1.86, was off 84 cents, or about 31 percent. Since the beginning of the year, Polaroid's stock has underperformed that of photography giant Eastman Kodak Co.(NYSE:EK - news) by more than 70 percent.

Experts had predicted that Polaroid would likely come to an agreement with the banks, but still harbor concerns about the company's ability to focus on its core operations while devoting so much energy to managing its debt obligations.

"Just because they get a waiver of 90 days does not mean that they are on Easy Street,'' said John Moore, analyst at Moody's. "They have to develop and prove that they can make the step technologically to what will continue to be Polaroid.''

Cambridge, Massachusetts-based Polaroid also said it expects to report second quarter financial results about in line with previously discussed expectations.

Following closely watched talks with its bank lenders, Polaroid said it obtained a waiver of some of its bank loan covenants through Oct. 12, as well as a waiver of a $19 million principal repayment that had been scheduled for September.

But Polaroid said it will not make interest payments on its bonds, totaling $11 million due on July 16, and a $16 million interest payment due Aug. 15. The company plans to start talks with bondholders toward a restructuring of its unsecured debt.

Polaroid said the waivers would maintain the company's near-term liquidity and operational stability.

"In light of these and other cash conservation measures, the company is comfortable that its current cash resources and bank facility provide sufficient funding for the company's business activities and its obligations to suppliers and vendors,'' Polaroid Chief Financial Officer William Flaherty said in a statement.

In the meantime, the company has hired financial advisers Dresdner Kleinwort Wasserstein and Merrill Lynch to assist in an exploration of strategic alternatives, which could include a sale of assets, a merger or sale of the company.

Polaroid plans to spell out the progress of its cost cutting and debt reduction efforts on July 18, when it reports its second quarter financial results.

In June it said second-quarter operating results are likely to be around the operating loss reported in the first quarter, excluding special items.

For the first quarter, Polaroid posted an operating loss of $38 million, or 85 cents a share, excluding an $80 million restructuring charge.

Wall Street analysts have estimated Polaroid's second quarter loss at 69 cents a share, according to Thomson Financial/First Call.

Polaroid said that if it had failed to get the extensions, the banks, led by J.P. Morgan Chase & Co. (NYSE:JPM - news), could call in the loans. The loans totaled at least $363 million.

Buckman Buckman & Reid analyst Ulysses Yannas, said the loan deal would give Polaroid time to raise cash, and could lead to the sale of small units that make sunglasses or produce pictures for identification. He predicted the company's shares will rebound on Thursday.

"We will see some fireworks tomorrow,'' he said.

Polaroid, which still boasts a huge installed base of instant camera users who continue to buy its film, has been working to trim expenses, raise cash, and reduce debt by cutting inventories, consolidating manufacturing, and selling assets.

To that end, in recent months it has suspended its dividend, set a restructuring, cut jobs, sold real estate, and realigned its executive ranks.

In recent weeks, Carl Lueders, vice president of finance and former acting chief financial officer and John Jenkins, senior vice president for global operations, have left the company.

Polaroid which ended 2000 with some 8,800 employees, had about 7,700 at the end of May. The company projects its ranks will shrink to 5,500 by the end of 2002.