Little hope for shareholders

Little hope for shareholders – Polaroid Update

IT WASN’T THE NEWS Polaroid Corp. shareholders were hoping for. A court-appointed examiner assigned to look into Polaroid’s financials has alleged that the now-bankrupt company manipulated its accounting to make it look more financially sound than it was. The findings give shareholders and pensioners of the Waltham, Mass., instant-photography company little hope of recouping any losses.

That’s because the report, compiled by Perry Mandarino, appointed as examiner by U.S. Bankruptcy Court judge Peter Walsh in February, also says the company did not undervalue assets, even though it incompletely listed them in its bankruptcy filings and failed to file timely financial reports. So while One Equity Partners (OEP), a private-equity arm of Bank One, paid a mere $60 million in new equity’ for an estimated $700 million in assets during the July 2002 sale, the assets were not unfairly liquidated in the sale, the report said. There was a fair and open sale process in which all bidders had access to documents, says Mandarino. “Most bidders in these types of sales don’t rely on filed financial statements anyway,” he argues.

The report also says Polaroid probably should have declared bankruptcy sooner–the reverse of what shareholders originally alleged. They had claimed that management forced the company into unnecessary and premature bankruptcy, and handpicked the eventual buyer. Mandarino found that even though stone shareholder accusations were true, the eventual sale price wasn’t materially affected. “I think [Mandarino] has a strange definition of what ‘material’ means,” says share-holder leader Stephen J. Morgan.

The findings might not have an effect on the sale of Polaroid’s assets to OEP. But two family trusts that bought stock at the time of the accounting misstatements now have filed suit against Polaroid’s auditor, KPMG, and three former Polaroid executives, alleging roles in the falsifying of financial statements. Securities and Exchange Commission investigations, and even criminal probes, could ensue.

The report says KPMG failed to warn investors of Polaroid’s deteriorating finances with a going-concern qualification in its 2000 annual report. “Based on all the facts and circumstances, it was entirely appropriate” not to qualify the report, says KPMG’s Greg Dvorken. K.F.

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