Dec. 19 (Bloomberg) — Polaroid Corp., the pioneer of instant photography, sought bankruptcy protection for the second time in seven years, blaming an alleged $2 billion fraud at its parent company Petters Group Worldwide LLC.
Petters Group, which acquired the 71-year-old company in 2005, has unsecured claims against Polaroid totaling $213.5 million, according to papers filed yesterday in U.S. Bankruptcy Court in Minneapolis. Polaroid, which is disputing the claims, didn’t estimate its total assets or debt.
The company and nine subsidiaries “entered bankruptcy with ample cash reserves, sufficient to finance the company’s reorganization under Chapter 11,” it said yesterday in a statement. “The company has not sought, nor does it expect to seek, additional debtor-in-possession financing.”
Petters Group’s founder, Thomas Petters, was arrested Oct. 3 on charges of mail fraud, wire fraud and money laundering. Prosecutors accused him of siphoning money from business ventures since 1995 to support an extravagant lifestyle.
Polaroid’s owner, based in Minnetonka, Minnesota, filed for bankruptcy in October after its assets were frozen by a judge. Petters and his firm are accused of defrauding hedge funds using fake purchase orders to secure investments. He allegedly told investors their money would be used to buy merchandise that would be resold to retailers including Costco Wholesale Corp.
Polaroid was founded in 1937 by legendary inventor Edwin Land, a Harvard University dropout.
Goggles, Instant Cameras
The company made protective glasses and goggles for the U.S. military during World War II. It sold the first instant camera in 1948, making $5 million in sales in the first year, according to the company’s Web site.
Another Petters company, Sun Country Airlines Inc., sought bankruptcy Oct. 6 when it couldn’t secure a $7 million short-term loan from its owner. The St. Paul, Minnesota-based carrier, which also had an earlier bankruptcy in 2001, has debt of $108.2 million and assets of $55.2 million, court papers show.
Polaroid has an annual profit of about $400 million through sales at retailers including Best Buy Co., Wal-Mart Stores Inc., Target Corp. and Sears Holdings Corp., it said in court papers.
“Despite having one of the most recognized brand names in the world, Polaroid has seen a decline in net sales over the past several years, coupled with increasing operational and product development costs,” the company said in bankruptcy papers.
DVD Players, TVs
Polaroid makes DVD players, TVs and other electronics, bringing in about $1 billion in annual sales. It unveiled a line of Zink printers in January that can make wallet-sized photos from digital cameras in 60 seconds.
“We expect to continue our operations as normal during the reorganization and are planning for new product launches in 2009,” Chief Executive Officer Mary Jeffries said yesterday in the company statement.
Polaroid said in February it would exit the film business and close plants in the U.S., Mexico and the Netherlands to focus on digital photography and flat-panel televisions. The company stopped making instant cameras for commercial use in 2006 and halted production of consumer models last year.
Polaroid first sought bankruptcy protection from creditors in 2001 after digital cameras rendered obsolete the instant-film technology that made the company a household name.
The company plans to fire 16 workers the day after Christmas and another 31 during the first quarter of next year, court papers show.
Ownership Changes
JPMorgan Chase & Co.’s private-equity unit, One Equity Partners LLC, in 2002 purchased a 53 percent stake in Polaroid for $56 million, helping it come out of its earlier bankruptcy. Petters Group began licensing Polaroid’s brand name in 2002 and bought the company in 2005 for $426 million.
The maker of One Step, I-Zone and JoyCam cameras was among the U.S. stock market’s “Nifty Fifty” three decades ago. The Nifty Fifty, compiled in 1972 by Morgan Guaranty Trust, a predecessor of JPMorgan, consisted of stocks considered certain to reward investors, regardless of how much they cost or how well the market performed.
Petters resigned as Petters Group chief executive officer Sept. 29 after the FBI received information that at least 20 investors may have been victims of a lending scam and raided the company’s Minnetonka headquarters. Petters has been jailed since his arrest. Several hedge funds that invested with Petters have also sought bankruptcy protection.
A former Petters Group tax accountant linked to the alleged fraud pleaded guilty today to conspiring to evade taxes. James Carl Wehmhoff, 67, admitted one count of conspiracy and one count of assisting tax fraud in federal court in St. Paul, Minnesota.
Land’s Inventions
Land, who left Harvard just months before graduation in 1932 to establish the company, is named on 533 patents, including one for the first synthetic polarizer.
The inventor kept Polaroid innovative for decades with products including 3-D film. The Polaroid OneStep was the world’s best-selling camera in the 1970s.
Lorrie Parent, a Polaroid spokeswoman, didn’t return a call for comment. The company earlier said it isn’t a target of the federal investigation.
The case is In re Polaroid Corp., 08-46617, U.S. Bankruptcy Court, District of Minnesota (Minneapolis).
To contact the reporters on this story: Courtney Dentch in New York at cdentch1@bloomberg.net; Michael Bathon in Wilmington, Delaware, at mbathon@bloomberg.net.
Last Updated: December 19, 2008 15:45 EST
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