Polaroid Corp. filed for bankruptcy-court protection from creditors, staggering under a heavy debt load and unable to revive its instant-photography franchise in the face of the growing consumer shift to filmless digital cameras.

Polaroid, Cambridge, Mass., said it plans to use the voluntary Chapter 11 filing -- which often is used to help a company restructure its debt -- to instead accelerate the search for a buyer that would purchase all or part of the company.

Chief Executive Gary DiCamillo said in a statement that the filing, affecting U.S. operations, was both "prudent and necessary." He said that despite attempts to slash costs and stabilize revenue "the company's financial condition deteriorated further in recent weeks."

The filing Friday in U.S. Bankruptcy Court in Wilmington, Del., will enable Polaroid to continue to operate while buyers are sought. The company has received $50 million in debtor-in-possession financing from a bank group led by J.P. Morgan Chase & Co. to supplement its existing cash flow.

Polaroid has been seeking a buyer for months and initially hoped to attract strategic bidders such as Eastman Kodak Co. or Fuji Photo Film Co. But such a deal failed to materialize, and bankers' hopes for a strategic buyer have dimmed due to Polaroid's faltering finances and a broader industry downturn. Instead, bankers are hoping to attract financial bidders, such as leveraged-buyout funds, who might now perceive an opportunity to pick up part or all of the company at a bargain price.

With the company now in bankruptcy proceedings, "what might not have been interesting at $1 billion could look good at $500 million," said a person close to the situation. Polaroid's bankers, who are its largest secured creditors, also are pushing for a sale of the company as a whole or in pieces, according to one member of the bank group.

In the bankruptcy-court filing, Polaroid listed $1.81 billion in assets, and $948.4 million in debt.

The most recent crisis began last summer, when a waiver of certain covenants on the company's $360 million revolving credit line was due to run out. In exchange for a new waiver from its bank group until Oct. 12, Polaroid agreed to stop interest payments on its $575 million of high-yield bond debt, so as not to deplete cash reserves. The waiver later was extended to Nov. 15, in exchange for a pledge to lenders of an additional $100 million in property as security.

But the company ran out of time on its plan to restructure its debt, in part because of a collapse in revenue. Sales in this year's first half were $664.3 million, down 25% from a year earlier. The company posted a net loss of $200.8 million including charges for the first half of 2001, compared with a profit of $25.2 million in 2000.

Founded by Edwin H. Land, the company in 1947 launched the Land camera, which delivered finished photographs in a minute. In 1971, Mr. Land unveiled another startling innovation, the SX-70 camera, which let photographers watch color pictures develop before their eyes.

But the novelty of instant photography waned, and it was eclipsed first by one-hour photo shops and later by digital cameras. By late 1995, when Mr. DiCamillo was hired as the first outsider to run the company, Polaroid was in trouble, facing the grim reality that its most loyal customers were closer to the grave than the crib.

Mr. DiCamillo tried to revitalize the instant photography business with products aimed at teens and kids. But he failed to slash the company's bloated cost structure fast enough, and the development of two digital photographic printers, Opal and Onyx, that Mr. DiCamillo predicted would save Polaroid, came too late.

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Credit: Staff Reporters of The Wall Street Journal