<PAGE>

Financial Review

Polaroid Corporation and Subsidiary Companies
   
   21     Management's Discussion and Analysis of Operations
   29     Independent Auditors' Report
   29     Management's Report

Financial Statements:
   30     Consolidated Statement of Earnings
   31     Consolidated Balance Sheet
   32     Consolidated Statement of Cash Flow
   33     Consolidated Statement of Changes in
          Common Stockholders' Equity

Notes to Consolidated Financial Statements:
   34     1.  Summary of Significant Accounting Policies
   35     2.  Supplemental Information
   36     3.  Financial Instruments
   37     4.  Income Taxes
   39     5.  Inventories
   39     6.  Short-term Debt
   39     7.  Payables and Accruals
   39     8.  Long-term Debt
   40     9.  Common Stockholders' Equity
   40    10.  Incentive Compensation and Stock Incentive Plans
   42    11.  Benefit Plans
   44    12.  Rental Expense and Lease Commitments
   44    13.  Business
   46    14.  Contingencies
   46    15.  Supplementary Financial Information

Supplementary Financial Information:
   47    Quarterly Financial Data
   48    Ten-Year Financial Summary
   
   
20

<PAGE>  
  
Management's Discussion and Analysis of Operations  
  
The following table summarizes the relation to net sales of income and  
expense items included in the Consolidated Statement of Earnings for 1995,  
1994 and 1993 and the changes in those items from the respective prior years.  
  
<TABLE>  
<CAPTION>  
  
Income and Expense Items  
as a Percent of Net Sales                             PercentIncrease/(Decrease) 
_________________________                             __________________________
                                                            1994  1993    1992  
                                                            to    to      to   
1995 1994 1993   Income and Expense Items                   1995  1994    1993  
________________________________________________________________________________  
<C>  <C>  <C>    <S>                                        <C>   <C>     <C>                                            
                  Net Sales:     
 46%  50%  53%    United States                             (12)%   (2)%    3%  
 54   50   47     International                               6      8      6  
________________________________________________________________________________  
100  100  100    Total net sales                             (3)     3      4  
 58   57   58    Cost of goods sold                          (2)     2     10  
                 Marketing, research, engineering     
 38   34   34     and administrative expenses                 8      3     --  
 11   --    2    Restructuring and other expenses           100   (100)   100  
________________________________________________________________________________  
(7)   9    6    Profit/(loss) from operations               NM     42     (34)  
________________________________________________________________________________
 --   --    1    Other income                                21    (15)     5  
  2    2    2    Interest expense                            12     (3)   (18)  
________________________________________________________________________________  
                 Earnings/(loss) before income tax     
                  expense/(benefit) and cumulative   
 (9)   7    5     effect of changes in accounting principle  NM     58    (38)     
                 Federal, state and foreign income     
 (3)   2    2     tax expense/(benefit)                      NM     29    (47)  
________________________________________________________________________________  
                 Earnings/(loss) before cumulative effect      
 (6)%  5%   3%    of changes in accounting principle         NM     73%   (31)%      
________________________________________________________________________________  
 </TABLE>  
  
NM--not meaningful because of fluctuation from a positive amount to a negative
    amount  
  
  
  
21

<PAGE>

The Company often uses the following qualitative descriptors to explain its 
results of operations: "flat" indicates fluctuations of zero-to-one percent; 
"slight" is in the two-to-three percent range; "moderate" means four-to-ten 
percent; "significant" is in the eleven-to-twenty percent range; and
"substantial" represents fluctuations greater than twenty percent.

1995 Worldwide Results Compared with 1994
Worldwide sales of Polaroid Corporation and its subsidiaries decreased 3% to 
$2.24 billion in 1995 compared with $2.31 billion in 1994. In 1995, the 
Company sold 5.4 million cameras compared with 6.4 million cameras in 1994, 
a decline of 16%, in part due to lower sales of Captiva. In 1995, the Company 
decided to limit its production of Captiva cameras to the completion of work-in-
progress. The Company will continue to market Captiva  cameras and film for 
the forseeable future, as well as provide service. Instant film shipments 
decreased slightly for the full year 1995 compared to 1994. Over the past few 
years, growth in instant camera and film shipments has shifted from mature 
markets in the United States, Western Europe and Japan to new markets such as 
Russia and China.

Sales in the United States were $1.02 billion in 1995, a decrease of 12% 
compared with $1.16 billion in 1994. In 1995, U.S. shipments of instant 
cameras and film decreased significantly compared to 1994, primarily reflecting 
the impact of the dealer inventory adjustment program. In addition,  instant 
cameras and film were transshipped by U.S. dealers to Russia in 1994. U.S. 
sales in 1995 were also impacted by consumer promotional pricing on instant 
film and lower sales of videotapes and conventional film. 

International sales increased 6% from $1.15 billion in 1994 to $1.22 billion in 
1995. In 1995, as a result of increased sales in Russia, sales in the European 
region increased 5% to $739 million compared with $705 million in 1994. The 
Company's sales in Russia were $196 million in 1995, a 27% increase 
compared with $154 million in 1994. Sales in 1995 in Western Europe were flat 
compared to 1994, in part reflecting the dealer inventory adjustment program. 
In 1995, sales in the Asia Pacific, Canada, Latin and South America regions 
increased 7% to $479 million compared with $448 million in 1994. The 
increase is primarily a result of higher sales in China and other emerging 
markets.  While the Company believes that emerging markets present 
particularly attractive opportunities, such markets tend to be considerably
less stable than more established markets. There can be no assurance that
emerging markets will continue to produce favorable results. 

Gross margins as a percent of sales were 42% for 1995 and 43% for 1994. The 
decline in gross margin in 1995 is primarily attributable to lower instant film 
sales, more instant film price promotions for consumers and unfavorable 
production costs associated with lower production levels.

Marketing, research, engineering and administrative expenses in 1995 were 
$849 million compared with $788 million in 1994. Included in these expenses 
were research and engineering expenses of $166 million in both 1995 and 1994.  
The 8% increase in marketing, research, engineering and administrative 
expenses in 1995 reflects an increase in international marketing expenses for 
emerging markets, an increase in worldwide consumer promotional expenses 
and infrastructure costs associated with the Company's switch in 1995 from 
third-party distribution to direct distribution to dealers in Japan. In 1995, 
pre-tax special charges for restructuring and other expenses totaled $247 
million of which $77 million was recorded in the first quarter and $170 million 
was recorded in the fourth quarter, as more fully described below.

22

<PAGE>

In the first quarter of 1995, the Company implemented a restructuring plan 
which resulted in a pre-tax charge of $77 million. The Company offered an 
early retirement program to certain qualified employees and a voluntary 
severance program to all employees, both of which were open from February 
13, 1995 to March 31, 1995. As a result of these programs, approximately 930 
employees (approximately 560 from manufacturing and 370 from marketing, 
research, engineering and administrative functions) terminated their 
employment in 1995. The pre-tax costs related to the voluntary severance 
program were $56 million, of which $47 million of cash severance payments 
were made in 1995. The remaining cash severance payments of approximately 
$9 million are expected to be paid in the first quarter of 1996. Additionally, 
$18 million represents enhanced retirement benefits provided under the early 
retirement program that will be funded from the Company's pension plans, and 
therefore has been reflected as a non-cash item on the Company's statement of 
cash flows. The savings from this severance and early retirement program are 
expected to be approximately $46 million on an annualized basis, with $25 
million expected to be realized in 1996. The remainder of the charge consisted 
of a pre-tax charge of approximately $3 million for exit costs related to the 
shutdown of certain facilities. 

In December 1995, the Company announced a plan to make fundamental 
changes in its operating structure. The restructuring plan features three 
principal components -- program reductions in certain product, research and 
manufacturing areas; strategic refocusing of the Company's digital imaging 
businesses for the medical diagnostic and graphic arts markets; and a reduction 
in corporate overhead expenses. The special charge for this program is expected 
to total approximately $260 to $270 million. Of that amount, $170 million was 
recorded in the fourth quarter of 1995 and an estimated $90 million to $100 
million will be charged in the first quarter of 1996. Annualized savings are 
expected to be more than $110 million from this program, with $75 million 
expected to be realized in 1996. The December 1995 early retirement and 
severance programs are expected to result in the elimination of a total of 
approximately 1,600 positions worldwide. 

The 1995 fourth quarter pre-tax special charge of $170 million included $85 
million to write off certain assembly equipment and fixed assets and $30 million
to write-off inventory and accrue other costs, all of which were primarily
related to the Captiva product line. The remaining $55 million of the special 
charge was related to the estimated cost of involuntary severance benefits for 
approximately 1,300 domestic employees (approximately 570 from 
manufacturing and 730 from marketing, research, engineering and 
administrative functions) who were expected to terminate in 1996. This amount 
does not include any incremental voluntary severance benefits and pension 
enhancement benefits. The cost of these benefits, along with severence costs
for approximately 300 international employees (approximately $90 million to
$100 million) will be recognized in the first quarter of 1996 when more
precise information becomes available regarding the individuals accepting
voluntary termination under this program. No cash severance payments were
made in 1995 under this program.

The loss from operations for the full year 1995 was $158 million, compared to 
an operating profit of $200 million in 1994. Excluding the special charge for 
restructuring and other expenses of $247 million, operating profit for 1995 
would have been $89 million, a reduction of $111 million compared to 1994. 
This reduction is attributable to a combination of factors, primarily to a 
decline in domestic instant film sales, an increase in worldwide promotional 
expenses, an increase in international marketing expenses for emerging markets
and higher losses for the Company's digital imaging businesses.

23

<PAGE>

The Company's new digital imaging businesses which are in the early stages of 
revenue generation incurred total losses of approximately $190 million in 1995 
compared to approximately $180 million in 1994. The 1995 losses were 
principally attributable to medical imaging and to graphics imaging with a
lesser proportion attributable to electronic imaging. The 1994 losses were 
principally attributable to medical imaging with a smaller proportion
attributable to each of graphics imaging and electronic imaging. Included in the
losses attributable to medical imaging and graphics imaging in both 1995 and 
1994, are significant costs associated with the Company's new coating facility 
which was brought on line in 1994 and is operating at low levels of production 
capacity. Shipments of the new graphics imaging product, Dry Tech Imagesetting 
Film, began in October 1995, and the Company plans to ship a number of new 
products for the graphic arts market in 1996. Shipments of Helios medical 
imaging systems doubled in 1995 compared to the low base amount in 1994.

Other income was $9 million in 1995 compared with $7 million in 1994. 
Included in other income were foreign currency losses resulting from balance 
sheet translation amounting to $3 million in 1995 and $8 million in 1994. 
Interest expense increased to $52 million in 1995 from $47 million in 1994 
primarily as a result of lower amounts of interest capitalized on qualifying 
assets and increased short-term borrowings. 

For the full year 1995, the effective tax rate was 30%, compared with 27% for 
1994. For purposes of determining the after-tax special charges, the Company 
assumed a statutory tax rate of 35% to calculate the tax benefit. The net after-
tax foreign currency exchange loss from balance sheet translation for the full 
year 1995 amounted to $.03 per common share, compared with a $.02 loss for 
1994.

The net loss for the full year 1995 was $140 million, or $3.09 primary loss per 
common share, compared with earnings of $117 million for the full year 1994, 
or $2.49 primary earnings per common share. The full year 1995 results include 
special pre-tax charges totaling $247 million for the two early retirement and 
severance programs and other expenses. Excluding the pre-tax special charges 
and the related tax effect, the full year 1995 primary earnings per common 
share would have been approximately $.45 per share.

1995 Fourth Quarter Results
Worldwide sales for the fourth quarter of 1995 were $675 million, a 2% percent 
decrease compared with sales of $686 million in the fourth quarter of 1994. 
U.S. sales decreased 5% in the fourth quarter of 1995 to $329 million compared 
with $347 million in the same period last year, due primarily to the consumer 
price promotions offered on instant integral film. Consumer price promotions 
were also offered in Europe. International sales were $346 million in the fourth
quarter of 1995, a 2% increase compared with $339 million for the fourth 
quarter of 1994. 

Gross margins as a percent of sales were 41% for the fourth quarter of 1995 and 
43% for the fourth quarter of 1994. The gross margin in the fourth quarter of 
1995 was  impacted primarily by consumer price promotions offered on instant 
integral film in the United States and Europe. Marketing, research, engineering 
and administrative expenses were $245 million in the 1995 fourth quarter 
compared with $214 million in the 1994 fourth quarter. The increase reflects  
primarily increased marketing expenses in international markets. As discussed 
in the section "1995 Worldwide Results Compared with 1994" above, the 
Company recorded a special charge of $170 million for restructuring and other 
expenses in the fourth quarter of 1995.

Operating profit for the fourth quarter of 1995, excluding the special charge, 
was $29 million, compared to $84 million for the fourth quarter of 1994. This 
decrease was due to less-than-expected revenues, particularly in the United 
States, and higher overhead expenses, including significant instant film 
consumer marketing promotions and increased spending in the Company's new 
digital imaging businesses. Including the special charge, the loss from 
operations for the fourth quarter of 1995 was $141 million.

The 1995 fourth quarter included other expenses of $1 million compared to 
other income of $2 million in the 1994 fourth quarter. Included in other income 
and expenses are foreign currency losses of $2 million and $5 million in the 
fourth quarters of 1995 and 1994, respectively, resulting from balance sheet 
translations. The 1994 fourth quarter also reflects more interest income earned 
on higher cash balances. Interest expense was $13 million in the fourth quarter 
of both 1995 and 1994.

The worldwide effective tax rate for the fourth quarter was 28% in 1995 and 
21% in 1994. The lower effective tax rate in 1994 was primarily a result of the 
beneficial effect of the weakening dollar on the international tax rate. For 
purposes of determining the after-tax special charges, the Company assumed a 
statutory tax rate of 35% to calculate the tax benefit. The net after-tax
foreign currency exchange loss from balance sheet translation for the 1995 
fourth quarter amounted to $.04 per common share, compared with a $.09 loss for 
the same period last year.

24

<PAGE>

The net loss for the fourth quarter of 1995 was $111 million, or $2.44 primary 
loss per common share, compared to net earnings of $57 million, or $1.23 
primary earnings per common share, in the fourth quarter of 1994. Excluding 
the pre-tax special charge for restructuring and other expenses of $170 million 
and the related tax effect, the primary loss per common share for the fourth 
quarter of 1995 would have been approximately $.01.

1994 Worldwide Results Compared with 1993
Worldwide sales of Polaroid Corporation and its subsidiaries increased 3% to 
$2.31 billion in 1994 compared with $2.24 billion in 1993. In 1994, sales in
the United States were $1.16 billion, a decrease of 2% compared with 1993 and 
international sales were $1.15 billion, an increase of 8% compared with 1993.

In 1994, the Company sold 6.4 million cameras compared with 4.9 million 
cameras in 1993, a 31% increase. Instant film shipments rose modestly for the 
full year 1994 compared to 1993. This increase reflects healthy growth in 
integral film sales, partly offset by an expected decline in peel-apart
products primarily as a result of the completion of the Mexican voter
registration program which had contributed to 1993 sales. The growth in
instant film shipments was largely due to the substantial growth in the
Russian market, offset by a decline in Western European markets and a
relatively flat U.S. market. Worldwide shipments of conventional film and
video cassettes in 1994 were significantly lower than in 1993. Helios
Medical Imaging System shipments in 1994 were substantially higher than
shipments in 1993.

In 1994, sales in the European region increased 18% to $705 million compared 
with $598 million in 1993 as a result of increased sales in Russia. Sales in 
Russia accounted for 13% of total international sales in 1994 compared to 2% 
in 1993. While the Company believes that emerging markets present 
particularly attractive opportunities, as evidenced by the remarkable growth in 
the market for instant photographic products in Russia, such markets tend to be 
significantly less stable than more established markets. There can be no 
assurance that emerging markets will continue to produce favorable results. In 
1994, sales in the Asia Pacific, Canada, Latin and South America regions 
decreased 4% to $448 million compared with $468 million in 1993. Increased 
sales in the Asia Pacific region were more than offset by a decrease in sales
in the Canada, Latin and South America regions, resulting from the completion
of the Mexican voter registration program in 1993. 

Gross margins as a percent of sales were 43% for 1994 and 42% for 1993. The 
increase in gross margin in 1994 was attributable to a reduction in 
manufacturing costs for new products, substantial growth in sales of high 
margin instant film in Russia, and the positive effects of foreign currency 
translation. In addition, 1994 gross margin was negatively impacted by costs 
associated with ramping up the capacity of the Company's new coating facility.

Marketing, research, engineering and administrative expenses in 1994 were 
$788 million compared with $763 million in 1993. Included in these expenses 
were research and engineering expenses of $166 million in 1994 and $161 
million in 1993. In 1994, approximately two-thirds of the $166 million spent by 
the Company on research and engineering was allocated to digital imaging 
products. Digital imaging products primarily include digital dry-process laser 
imaging products for medical, graphic arts and other business applications. 
Digital imaging products also include products for consumer digital imaging 
and desktop publishing. Marketing and administrative expenses related to 
digital imaging products increased substantially in 1994 compared with 1993.

Profit from operations for 1994 was $200 million, an increase of 8% compared 
with $185 million in 1993, which excludes the special charge for the early 
retirement and severance program and the write down of certain non-strategic 
assets. Operating profit for 1993 including these special items was $141
million.

Other income was $7 million in 1994 compared with $8 million in 1993. 
Included in other income were foreign currency exchange losses resulting from 
balance sheet translation amounting to $8 million in 1994 and $3 million in 
1993. Interest expense decreased to $47 million in 1994 from $48 million in 
1993. This decrease reflected lower overall interest costs offset by lower 
amounts of interest capitalized on certain qualifying assets. Lower interest
costs in 1994 were primarily attributable to lower interest rates on short-term 
borrowings and a reduction in short-term borrowings.

Income tax expense in 1994 was $44 million compared with $34 million in 
1993. The worldwide effective tax rate was 27% in 1994 and 33% in 1993. The 
decrease in the effective tax rate was primarily a result of the beneficial
effect of the weakening U.S. dollar on the international tax rate. The net 
after-tax foreign currency exchange loss from balance sheet translation in both 
1994 and 1993 amounted to $1 million.

25

<PAGE>

Net earnings for 1994 were $117 million, or $2.49 primary earnings per 
common share compared with a loss of $51 million for 1993, or $1.10 primary 
loss per common share. The 1993 full year results included a special charge for 
an early retirement and severance program, the write down of certain non-
strategic assets, and the cumulative effect of changes in accounting principle 
required by the Financial Accounting Standards Board. Excluding these items, 
1993 primary earnings per common share would have been approximately $2.00 
per share. Fully diluted earnings per common share were $2.42 for the full year 
1994, and were not reported for the full year 1993 because they were greater 
than primary earnings per common share.

Financial Liquidity and Capital Resources
At December 31, 1995, the Company's cash and cash equivalents and short-
term investments amounted to $83 million, compared to $229 million at 
December 31, 1994. In addition, working capital decreased to $739 million at 
December 31, 1995 from $887 million at December 31, 1994. The primary 
source for cash in 1995 was a decrease in short-term investments, net cash 
provided by operating activities and an increase in short-term debt. The
primary source of cash for 1994 was profitable operations, which more than
offset cash used in investing and financing activities. Capital spending
during 1995 was $168 million and depreciation expense was $133 million.
Capital spending during 1994 was $147 million and depreciation expense was
$118 million.  Capital expenditures in both 1995 and 1994 were primarily
related to ongoing capital programs, environmental improvements and the
Company's new coating facility. In 1995, capital expenditures were also
incurred to increase the capacity for manufacturing batteries for instant
films. Capital expenditures in 1996 are expected to be approximately $120
million. The Company intends to sell approximately $50 million of real
estate in the next twelve to eighteen months. During 1995, the Company
expended cash to reduce borrowings, to make cash payments of $47
million under the 1995 first quarter severance program, to purchase
$40 million of the Company's common stock, and to pay $27 million of
dividends to common stockholders. During 1994, the Company expended cash
to reduce borrowings, to purchase $31 million of the Company's 
common stock, and to pay $28 million of dividends to common stockholders.

The Company maintains a five year $150 million working capital line of credit 
for general corporate purposes which expires in 1999. As of December 31, 1995 
and 1994, there were no borrowings under this facility. The Company also has a 
long-term loan related to the Polaroid Stock Equity Plan (the ESOP loan). The 
outstanding balance of the ESOP loan at December 31, 1995 was $77 million. 
As a result of the plan announced in December 1995 to make fundamental 
changes in the Company's operating structure, the Company's $150 million 
working capital line of credit and the ESOP loan were amended as of December 
29, 1995 to provide a waiver with respect to financial covenants as to which
the Company was not in compliance by reason of its 1995 results. The Company 
and the banks who are parties to these bank financing agreements amended the 
terms of the agreements effective December 31, 1995 to provide greater leeway 
with respect to the financial covenants. 

As of December 31, 1995, gross borrowings from the Company's international 
uncommitted lines of credit were $160 million. There were no borrowings from 
the Company's U.S. uncommitted lines of credit at December 31, 1995. 
Additional available, uncommitted lines of credit for U.S. and international 
operations were $160 million and $135 million, respectively, at December 31, 
1995. As of December 31, 1994, gross borrowings from international 
uncommitted lines of credit were $117 million. Additional available, 
uncommitted lines of credit for international operations were $161 million at 
December 31, 1994. There were no additional available, uncommitted lines of 
credit for U.S. operation and no such borrowings at December 31, 1994. The 
Company is reviewing its plan for payment of $150 million of 7-1/4% Notes 
due January 15, 1997, which may not be redeemed prior to maturity. The 
Company's total borrowing capacity is limited by certain debt covenants. 

26

<PAGE>

During 1995, the Company repurchased 1.2 million shares for $40 million. The 
Company did not repurchase any shares in the fourth quarter of 1995. In 1994, 
 .9 million shares were repurchased for $31 million. As of December 31, 1995, 
the unexpended balance under the Company's $100 million common stock 
repurchase program, which was approved by the Board of Directors in January 
1995, was $85 million. In December 1995, the Company suspended its stock 
repurchase program. The timing and amounts of any future purchases under this 
program depend upon many factors, including market conditions as well as the 
Company's business and financial condition.

The Company believes that its borrowing capacity and other existing corporate 
resources are adequate for at least the next twelve months to meet working 
capital needs, to fund planned capital expenditures, to pursue future growth 
opportunities, and to fund other corporate requirements, including cash 
severance payments for the 1995 restructuring programs. 

Foreign Currency Exchange
The Company generates a substantial portion of its revenues in international 
markets, which subjects its operations to the exposure of foreign currency 
fluctuations. The impact of currency fluctuations can be positive or negative
in any given period. The Company's ability to counteract foreign currency 
exchange movement is primarily dependent on pricing.

To minimize the adverse impact of foreign currency fluctuations on its foreign 
currency-denominated net assets, the Company may engage in foreign currency-
denominated borrowings. The Company determines the aggregate amount of 
such borrowings based on its forecast of the Company's net asset position and 
the relative strength of the U.S. dollar as compared to foreign currencies. 
These borrowings create foreign currency-denominated liabilities that hedge the 
Company's foreign currency-denominated net assets. Upon receipt of the 
borrowed foreign currency-denominated funds, the Company converts those 
funds to U.S. dollars at the spot exchange rate. Exchange gains and losses on 
the foreign currency-denominated borrowings are recognized in earnings as 
incurred. At Dec-ember 31, 1995 and 1994, the amount of the Company's 
outstanding short-term foreign currency-denominated borrowings were $140 
million and $117 million, respectively.

From time to time, the Company may use over-the-counter foreign exchange 
swaps to reduce the interest expense incurred through the borrowings described 
above and to replace the hedge created by those borrowings. When a foreign 
exchange swap is used to replace a hedge, the currency received by the 
Company in the spot market component of the foreign exchange swap is used to 
close out the borrowings and, simultaneously, the hedge is reinstituted through 
a forward contract (not exceeding six months). The net interest value of the 
foreign exchange swap contract is amortized to earnings over the life of the 
contract. Exchange gains or losses on the foreign currency obligation 
component of the forward contract are recognized in earnings as incurred in 
each accounting period. The Company does not enter into foreign exchange 
swaps for trading purposes. The aggregate notional value of these short-term 
foreign exchange swap contracts outstanding at December 31, 1995 and 1994 
was $16 million and $22 million, respectively.

When the Company may not have sufficient flexibility to change prices, the 
Company may, from time to time, also purchase U.S. dollar call options. The 
term of these call options typically does not exceed one year. The Company's
purchase of call options allows it to protect a portion of its expected foreign 
currency-denominated revenues from adverse foreign currency exchange 
movement. The Company does not buy call options which can be exercised 
prior to the expiration date, nor does it write options or purchase call
options for trading purposes. The Company defers premiums and any gains
for its call options activity until the option exercise date.
No option contracts were outstanding at December 31, 1995.
At December 31, 1994, option contracts with a notional value of
$177 million were outstanding.

27

<PAGE>

The Company maintains a Monetary Control Center (the MCC), which operates 
under written policies and procedures defining day-to-day operating guidelines, 
including exposure limits, to contract for the foreign currency-denominated 
borrowings, foreign exchange swaps and call options described above. The 
MCC is subject to random independent audits and reports to a supervisory 
committee comprised of members of the Company's management. The MCC 
publishes monthly reports to the Company's management detailing the foreign 
currency activities it has engaged in for the prior month.

Impact of Inflation
Inflation continues to be a factor in many countries in which the Company does 
business. The Company's pricing strategy has offset to a considerable degree 
inflation and normal cost increases. The overall inflationary impact
on earnings has been immaterial.

Other Matters
The Company, together with other parties, is currently designated a Potentially 
Responsible Party by the United States Environmental Protection Agency 
("EPA") and certain state agencies with respect to the costs of investigation 
and remediation of pollution at several sites. In each case in which
the Company is able to determine its likely exposure, such amount has
been included in the Company's reserve. Where a range of comparably
likely exposures exists, the Company has included in its reserve the
minimum amount of the range. The Company's aggregate reserve for
these liabilities was $5 million and $6 million as of December 31,
1995 and 1994, respectively. The Company currently 
estimates that the majority of the $5 million amount reserved for environmental 
liabilities at December 31, 1995 will be payable over the next two to three 
years.
 
On December 4, 1994, the Company entered into a consent agreement with the 
EPA to resolve alleged violations of the Toxic Substances Control Act 
("TSCA"). Under this agreement, the Company paid a civil penalty of $80,000 
and agreed to conduct an internal audit of certain TSCA practices. This audit 
was recently completed and revealed an additional potential liability, although 
not yet confirmed by the EPA, estimated to be in the range between $64,000 
and $89,000. 

The Company reviews its recurring internal expenditures on environmental 
matters, as well as capital expenditures related to
environmental compliance, on a monthly basis, and 
reviews its third-party expenditures on environmental 
matters on a quarterly basis. The Company believes that these expenditures 
have not had and will not have a materially adverse effect on the financial 
condition or operating results of the Company.

In March 1995, the Financial Accounting Standards Board issued Statement No. 
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived 
Assets to be Disposed Of" (FAS 121), which becomes effective for fiscal years 
beginning after December 15, 1995. This standard establishes accounting 
standards for the impairment of long-lived assets, certain identifiable 
intangibles, and goodwill related to those assets to be held and used and for 
long-lived assets and certain identifiable intangibles to be disposed of. The 
Company will adopt FAS 121 for fiscal 1996 and believes that adoption of this 
standard will not have a material impact on the financial 
condition or operating results of the Company.

In October 1995, the Financial Accounting Standards Board issued Statement 
No. 123, "Accounting for Stock-Based Compensation" (FAS 123), which 
becomes effective for fiscal years beginning after December 15, 1995. Under 
FAS 123, companies can elect to adopt the new accounting method, which 
accounts for stock-based compensation based on the fair value at the date of 
grant. Companies that choose not to adopt FAS 123 would continue to follow 
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for 
Stock Issued to Employees". In addition, those companies who choose not to 
adopt the new accounting method prescribed by FAS 123 would be required to 
provide proforma disclosures of net income and earnings per share, assuming 
FAS 123 had been adopted. The Company currently does not expect to adopt 
the new accounting method prescribed by FAS 123. 


28

<PAGE>

Independent Auditors' Report 
 
The Board of Directors and Stockholders  
Polaroid Corporation: 
 
We have audited the accompanying consolidated balance sheet of Polaroid 
Corporation and subsidiary companies as of December 31, 1995 and 1994, and 
the related consolidated statements of earnings, cash flows and changes in 
common stockholders' equity for each of the years in the three-year period 
ended December 31, 1995. These consolidated financial statements are the 
responsibility of the Company's management. Our responsibility is to express an 
opinion on these consolidated financial statements based on our audits. 
 
We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are 
free of material misstatement. An audit includes examining, 
on a test basis, evidence supporting the amounts and 
disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by 
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion. 
 
In our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the financial position of Polaroid 
Corporation and subsidiary companies at December 31, 1995 
and 1994, and the results of their operations and cash
flows for each of the years in the three-year period ended 
December 31, 1995, in conformity with generally accepted accounting 
principles. 
 
As discussed in Notes 4 and 11 to the consolidated financial
statements, in 1993 the Company changed its method of
accounting for income taxes and for certain postretirement
and postemployment benefits. 
 

/s/ KPMG Peat Marwick LLP
 
KPMG Peat Marwick LLP 
Boston, Massachusetts 
January 30, 1996 


 
 
 
Management's Report 
 
Financial Reporting and Controls 
 
The financial statements presented in this report were prepared in accordance 
with generally accepted accounting principles. The Company maintains a 
number of measures to assure the accuracy of its financial information. To that 
end, a system of internal accounting controls and procedures has been 
developed to provide reasonable assurance that assets are safeguarded and that 
transactions are recorded and reported properly. The Company also maintains 
financial policies and procedures, and a program of internal audits, management 
reviews and careful selection and training of qualified personnel. 
 
The Audit Committee is composed entirely of outside directors. 
As such, it is in a position to provide additional, 
independent reviews of the adequacy of internal controls 
and the quality of financial reporting. 
 
/s/ Gary T. DiCamillo
 
Gary T. DiCamillo 
Chairman and 
Chief Executive Officer 

 
/s/ William J. O'Neill, Jr.
 
William J. O'Neill, Jr. 
Executive Vice President and 
Chief Financial Officer


29

<PAGE>

Financial Statements
Consolidated Statement of Earnings
Polaroid Corporation and Subsidiary Companies

<TABLE>
<CAPTION>

                                                            Years ended December 31,
(In millions, except per share data)                    1995        1994        1993
__________________________________________________________________________________________

<S>                                                    <C>          <C>         <C>
Net sales
 United States                                         $1,019.0     $1,160.3    $1,178.8
 International                                          1,217.9      1,152.2     1,066.1
                                                        _______      _______    _________
 
Total net sales                                         2,236.9      2,312.5     2,244.9
                                                        _______      _______    _________
                  
 Cost of goods sold                                     1,298.6      1,324.2     1,296.5
 Marketing, research, engineering and
  administrative expenses (Note 2 )                       849.1        788.0       763.0
 Restructuring and other (Note 2)                         247.0         --          44.0
                                                        _______      _______    _________ 
                
Total costs                                             2,394.7      2,112.2     2,103.5
                                                        _______      _______    _________ 
                
Profit/(loss) from operations                            (157.8)       200.3       141.4
                  
 Other income/(expense):   
  Interest income                                           8.7          9.7         7.7
  Other                                                     (.2)        (2.7)         .5
                                                        _______      _______    _________ 
             
 Total other income                                         8.5          7.0         8.2
 Interest expense                                          52.1         46.6        47.9
                                                        _______      _______    _________            
Earnings/(loss) before income tax
expense/(benefit) and cumulative effect
of changes in accounting principle                       (201.4)       160.7       101.7
    Federal, state and foreign income tax
    expense/(benefit) (Note 4)                            (61.2)        43.5        33.8
                                                       _______      _______    _________ 
Earnings/(loss) before cumulative effect
of changes in accounting principle                       (140.2)       117.2        67.9

Cumulative effect to January 1, 1993 of changes
in accounting principle for:   
    Postretirement benefits other than pensions,
    net of taxes of $85.0 (Note 11)                          --          --       (132.9)
    Income taxes (Note 4)                                    --          --         33.6
    Postemployment benefits, net of taxes of
    $12.7 (Note 11)                                          --          --        (19.9)
                                                     __________    _________   __________ 
               
Net earnings/(loss)                                  $   (140.2)   $   117.2   $   (51.3)
                                                     ===========   =========   ==========        
                                                        
Primary earnings/(loss) per common share: (Note 1)   
    Earnings/(loss) before cumulative effect
    of changes in accounting principle               $    (3.09)   $    2.49   $    1.45
    Cumulative effect to January 1, 1993
    of changes in accounting principle for:   
       Postretirement benefits other than pensions           --          --        (2.84)
       Income taxes                                          --          --         0.72
       Postemployment benefits                               --          --        (0.43)
                                                     __________    _________   __________ 
               
Net earnings/(loss)                                  $    (3.09)   $    2.49   $   (1.10)
                   
Fully diluted earnings per common share (Note 1)     $       --    $    2.42   $     --

Cash dividends per common share                      $      .60    $     .60   $     .60

</TABLE>

See accompanying notes to consolidated financial statements.

30

<PAGE>

Consolidated Balance Sheet
Polaroid Corporation and Subsidiary Companies 

<TABLE>
<CAPTION>

                                                                         December 31,
(In millions)                                                         1995     1994
________________________________________________________________________________________

<S>                                                                  <C>        <C> 
Assets
Current assets
  Cash and cash equivalents                                          $   73.3   $  143.3
  Short-term investments (Note 1)                                         9.8       85.6
  Receivables, less allowances of $28.0 in 1995
    and $24.5 in 1994                                                   550.4      541.0
  Inventories (Note 5)                                                  615.5      577.4
  Prepaid expenses and other assets (Note 4)                            208.5      141.4
                                                                     ________   ________ 

Total current assets                                                  1,457.5    1,488.7
                                                                     ________   ________ 
Property, plant and equipment
   Land                                                                  35.9       34.7
   Buildings                                                            355.1      332.3
   Machinery and equipment                                            1,649.3    1,561.7
   Construction in process                                              124.1      114.7
                                                                     ________   ________ 

   Total property, plant and equipment                                2,164.4    2,043.4
   Less accumulated depreciation                                      1,473.4    1,296.1
                                                                     ________   ________
 
   Net property, plant and equipment                                    691.0      747.3
Prepaid taxes -- non-current (Note 4)                                   113.3       80.7
                                                                     ________   ________ 

Total assets                                                         $2,261.8    2,316.7
                                                                     ========   ========   
                                                              
________________________________________________________________________________________            
Liabilities and stockholders' equity
Current liabilities
   Short-term debt (Note 6)                                            $160.4     $117.1
   Current portion of long-term debt (Note 8)                            39.7       35.9
   Payables and accruals (Note 7)                                       274.9      275.7
   Compensation and benefits (Notes 10 and 11)                          197.4      121.4
   Federal, state and foreign income taxes (Note 4)                      46.6       51.8
                                                                     ________   ________ 

Total current liabilities                                               719.0      601.9
                                                                     ________   ________ 

Long-term debt (Note 8)                                                 526.7      566.0

Accrued postretirement benefits (Note 11)                               257.2      247.2

Accrued postemployment benefits (Note 11)                                41.2       37.2
                                                                     ________   ________ 

Total liabilities                                                     1,544.1    1,452.3
                                                                     ________   ________ 

Preferred stock, Series A and Series D, $1 par value, 
   authorized 20,000,000 shares; all shares unissued                     --        --
                                                                     ________   ________ 
Common stockholders' equity (Note 9)
   Common stock, $1 par value,
     authorized 150,000,000 shares                                       75.4       75.4
   Additional paid-in capital                                           401.9      387.2
   Retained earnings                                                  1,525.8    1,692.1
   Less: Treasury stock, at cost                                      1,205.4    1,174.5
         Deferred compensation                                           80.0      115.8
                                                                     ________   ________ 

   Total common stockholders' equity                                    717.7      864.4
                                                                     ________   ________ 

Total liabilities and stockholders' equity                           $2,261.8    2,316.7
                                                                     ========   ========
                           
</TABLE>

See accompanying notes to consolidated financial statements.


31

<PAGE>

Consolidated Statement of Cash Flows
Polaroid Corporation and Subsidiary Companies

<TABLE>
<CAPTION>

         Years ended December 31,
(In millions)   1995   1994   1993
________________________________________________________________________________________

Cash flows from operating activities    
   <S>                                                   <C>         <C>         <C>
   Net earnings/(loss)                                   $(140.2)    $117.2       $(51.3)
   Cumulative effect of changes in accounting principle     --         --          119.2
   Depreciation of property, plant and equipment           132.7      118.2        100.3
   (Increase)/decrease in receivables                        (.1)      30.5        (83.6)
   (Increase)/decrease in inventories                      (68.1)        .8          8.0
   Increase in prepaids and other assets                   (67.7)      (1.5)        (2.8)
   Increase/(decrease) in payables and accruals             (6.3)      22.4         15.3
   Increase/(decrease)in compensation and benefits          44.2       (8.2)         2.1
   Increase/(decrease)in federal, state and
     foreign income taxes payable                           (1.6)     (28.2)        27.4
   Other non-cash items                                    168.8       71.4         46.0
                                                         _______     ______      _______

   Net cash provided by operating activities                61.7      322.6        180.6
                                                         _______     ______      _______

Cash flows from investing activities    
   (Increase)/decrease in short-term investments            75.7      (60.5)        55.3
   Additions to property, plant and equipment             (167.9)    (146.7)      (165.6)
   Proceeds from sale of fixed assets                        4.8         .2          1.4
                                                         _______     ______      _______

   Net cash used by investing activities                   (87.4)    (207.0)      (108.9)
                                                         _______     ______      _______

Cash flows from financing activities
   Net increase/(decrease) in short-term debt
     (maturities 90 days or less)                           42.5        1.4        (8.7)
   Short-term debt (maturities over 90 days):   
      Proceeds                                               --         8.9        --
      Payments                                               --        (8.9)       --
   Repayments of long-term debt                            (34.3)     (31.2)      (26.8)
   Cash dividends paid                                     (27.3)     (27.9)      (28.0)
   Purchases of treasury stock                             (40.2)     (30.6)       --
   Proceeds from issuance of shares in connection
      with stock incentive plan                             19.5        3.2         3.3
                                                         _______     ______      _______

   Net cash used by financing activities                   (39.8)     (85.1)      (60.2)
                                                         _______     ______      _______

Effect of exchange rate changes on cash                     (4.5)      (1.6)       (6.2)
                                                         _______     ______      _______

Net increase/(decrease) in cash and cash equivalents       (70.0)      28.9         5.3

Cash and cash equivalents at beginning of year             143.3      114.4       109.1
                                                         _______     ______      _______

Cash and cash equivalents at end of year                $   73.3   $  143.3   $   114.4
                                                         =======     =======     =======


</TABLE>

See accompanying notes to consolidated financial statements.


32

<PAGE>

Consolidated Statement of Changes in Common Stockholders' Equity
Polaroid Corporation and Subsidiary Companies

<TABLE>
<CAPTION>

                                                           Years ended December 31,
(In millions, except number of shares)                   1995       1994        1993
________________________________________________________________________________________

<S>                                                      <C>        <C>         <C>
Common stock  
  Balance at January 1 (75,427,550 shares 
  in 1995, 1994 and 1993)                                $  75.4    $  75.4     $  75.4
                                                         _______     ______     _______

  Balance at December 31                                    75.4       75.4        75.4
                                                         _______     ______     _______

Additional paid-in capital  
  Balance at January 1                                     387.2      385.6       379.5
    Stock options - 1993 (Note 10)                           --         --          4.1
    Issuance of shares in connection
    with stock incentive plan (Note 10)                     11.3        1.6         1.7
    Stock options exercised-tax benefit                      3.4        --           .3
                                                         _______     ______     _______

  Balance at December 31                                   401.9      387.2       385.6
                                                         _______     ______     _______

Retained earnings  
  Balance at January 1                                   1,692.1    1,602.0     1,680.3
    Net earnings/(loss)                                   (140.2)     117.2       (51.3)
    Dividends declared-common stock                        (27.3)     (27.9)      (28.0)
    ESOP dividend tax benefit received 
    on unallocated shares                                    1.2         .8         1.0
                                                         _______     ______     _______

  Balance at December 31                                 1,525.8    1,692.1    1,602.0
                                                         _______     ______     _______

Less:
Treasury stock  
  Balance at January 1 (29,429,928 shares in 1995,
    28,621,405 shares in 1994,
    and 28,759,335 shares in 1993)                       1,174.5    1,145.5     1,147.1
  Repurchase of shares (1,217,561 shares in 1995
  and 941,300 shares in 1994)                               40.2       30.6        --
  Issuance of shares in connection with
  stock incentive plan (752,765 shares in 1995, 
  132,777 shares in 1994, and 137,930 shares in 1993)       (9.3)      (1.6)       (1.6)
                                                         _______     ______     _______

  Balance at December 31 (29,894,724 shares in 1995, 
    29,429,928 shares in 1994, 
    and 28,621,405 shares in 1993)                       1,205.4    1,174.5     1,145.5
                                                         _______     ______     _______

Deferred compensation   
  Balance at January 1                                     115.8      150.2       179.2
    Stock options - 1993 (Note 10)                          (1.0)      (1.0)        3.5
    Loan repayments from ESOP Trust                        (35.9)     (33.4)      (32.5)
    Restricted stock (Note 10)                               1.1         --        --
                                                         _______     ______     _______

  Balance at December 31                                    80.0      115.8       150.2
                                                         _______     ______     _______

Total common stockholders' equity                       $  717.7   $  864.4    $  767.3
                                                         =======     ======     =======
                                                    

</TABLE>
See accompanying notes to consolidated financial statements.


33

<PAGE>

Notes to Consolidated Financial Statements 
Polaroid Corporation and Subsidiary Companies 
 
1. Summary of Significant Accounting Policies 
Principles of Consolidation:  
The consolidated financial statements include the accounts of the 
Company's domestic and foreign subsidiaries, all of which are either 
wholly owned or majority owned. Intercompany accounts and 
transactions are eliminated. 
 
Use of Estimates: 
The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make 
estimates and assumptions that affect the reported amounts of assets 
and liabilities and disclosure of contingent assets and liabilities at the 
date of the financial statements and the reported amounts of revenues 
and expenses during the reporting period. Actual results could differ 
from those estimates. 
 
Cash Equivalents: 
The Company considers all highly liquid debt instruments with 
maturities of three months or less when purchased to be cash 
equivalents. 
 
Short-term Investments: 
Short-term investments consist primarily of commercial paper and 
some bank time deposits. The Company adopted Financial 
Accounting Standards Board Statement No. 115, "Accounting for 
Certain Investments in Debt and Equity Securities" (FAS 115) as of 
January 1, 1994 and it had no impact on the Company's financial 
position or results of operations. Under FAS 115, the Company 
classifies its securities as held-to-maturity. Held-to-maturity 
securities are those investments which the Company has the ability 
and intent to hold until maturity. Held-to-maturity securities are 
recorded at amortized cost, adjusted for the amortization of 
premiums and discounts which approximates market value. As of 
December 31, 1995, the average remaining maturity dates of the 
Company's short-term investments in bank time deposits were less 
than six months. As of December 31, 1994, the average remaining 
maturity dates of the Company's short-term investments in 
commercial paper and bank time deposits were less than two months 
and less than eight months, respectively.  
 
Derivatives: 
Gains on the Company's purchase of call options related to qualifying 
hedges of anticipated transactions are deferred and are recognized in 
income when the hedged transaction occurs. 
 
Inventories: 
Inventories are valued on a first-in, first-out basis at the lower of cost 
or market value. Market value is determined by replacement cost or 
net realizable value. 
 
Income Taxes: 
Amounts in the financial statements related to income taxes are 
calculated using the principles of Financial Accounting Standards 
Board Statement No. 109, "Accounting for Income Taxes" (FAS 
109). Under FAS 109, prepaid and deferred taxes reflect the impact 
of temporary differences between the amounts of assets and 
liabilities recognized for financial reporting purposes and the 
amounts recognized for tax purposes as well as tax credit 
carryforwards and loss carryforwards. These deferred taxes are 
measured by applying currently enacted tax rates. A valuation 
allowance reduces deferred tax assets when it is "more likely than 
not" that some portion or all of the deferred tax assets will not be 
recognized. 
 
Provision for U.S. income taxes on the undistributed earnings of 
foreign subsidiaries is made only on those amounts in excess of the 
funds considered to be permanently reinvested. 
 
Property, Plant and Equipment: 
The cost of buildings, machinery and equipment is depreciated, 
primarily by accelerated depreciation methods, over the estimated 
useful lives of such assets as follows: buildings, 20-40 years; 
machinery and equipment, 3-15 years. 
 
Foreign Currency Translation: 
The Company's foreign operations are measured by reflecting 
financial results of these operations as if they had taken place within 
a U.S. dollar based economic environment. Inventory, property, plant 
and equipment, cost of goods sold and depreciation are remeasured 
from foreign currencies to U.S. dollars at historical exchange rates. 
All other accounts are translated at current exchange rates. Gains and 
losses resulting from remeasurement are included in income. 
 
Patents and Trademarks: 
Patents and trademarks are valued at $1. 
 
Product Warranty: 
Estimated product warranty costs are accrued at the time the 
products are sold. 
 
Advertising Costs: 
The Company expenses the cost of advertising as incurred or the first 
time the advertising takes place. 
 
Earnings Per Common Share: 
Primary earnings/(loss) per common share are computed by dividing 
net earnings/(loss) available to common stockholders by the weighted 
average number of common shares and, as appropriate, dilutive 
common stock equivalents outstanding for the period. All shares held 
in the Polaroid Stock Equity Plan (ESOP) Trust (see Note 9) are 
considered outstanding for both primary and fully diluted earnings 
per share calculations. Stock options are considered to be common 
stock equivalents. The number of shares used to compute primary 
earnings/(loss) per common share were (in thousands) 45,404 in 
1995, 46,992 in 1994, and 46,737 in 1993. 
 
34

<PAGE>

Fully diluted earnings per common share reflect the maximum 
dilution that would have resulted from the exercise of stock options 
and the convertible debentures (see Note 8). Fully diluted earnings 
per common share are computed by dividing net income, after adding 
back the after-tax interest on the convertible debentures, by the 
weighted average number of common shares and all dilutive 
securities. The number of shares used to compute fully diluted 
earnings per common share were (in thousands) 51,299 in 1994. 
Fully diluted earnings per common share were not reported in 1995 
and 1993 because they were greater than primary earnings per 
common share. 
 
2. Supplemental Information 

<TABLE>

(In millions)                           1995     1994     1993 
_________________________________________________________________

<S>                                     <C>      <C>      <C>
Research, engineering and development   $165.5   $165.7   $160.8 

</TABLE>
 
Manufacturing Development Costs: 
In addition to the research, engineering and development costs 
included in marketing, research, engineering and administrative 
expenses, there were planned manufacturing development costs for 
major new products included in costs of sales of approximately $35 
million in 1995 and $30 million in both 1994 and 1993. 
 
Advertising Costs: 
Effective for fiscal 1995, the Company became subject to Statement 
of Position 93-7, "Reporting on Advertising Costs" (SOP 93-7), 
issued by the American Institute of Certified Public Accountants. 
SOP 93-7 had no impact on how the Company accounts for 
advertising costs. Prior to 1995, certain costs were considered to be 
promotional expenses and were included in marketing overhead. 
Under the provision of SOP 93-7, these promotional expenses are 
considered to be advertising costs and accordingly, amounts for 1994 
and 1993 have been restated to conform with current year 
presentation. Advertising costs were: 
 
<TABLE>

(In millions)                           1995     1994     1993 
_________________________________________________________________

<S>                                     <C>      <C>      <C>
Advertising costs                       $124.1   $121.2   $132.8 

</TABLE>
 
At December 31, 1995, 1994 and 1993, no advertising costs were 
reported as assets. 
 
Interest Capitalization: 
The Company has capitalized interest costs relating to certain 
qualifying assets. In 1995, 1994 and 1993, the amounts of interest 
costs capitalized were $4.8 million, $9.7 million and $12.6 million, 
respectively. 
 
Cash Flow Information: 

<TABLE>
Cash payments for interest and income taxes were: 
 
(In millions)                           1995     1994     1993 
_________________________________________________________________

<S>                                     <C>      <C>      <C>
Interest                                $55.6    $53.9   $58.0 
Income taxes                             29.0     78.0    52.0 

</TABLE>
 
In 1995, the Company recorded as other non-cash items $85.0 
million for certain assembly equipment and fixed asset write-offs and 
$30.0 million for inventory write-offs and other costs, all of which 
were related to the Company's plan to make fundamental changes in 
its operating structure announced in December 1995. Also included 
in other non-cash items for 1995 is $18.0 million related to enhanced 
pension benefits provided under the Company's early retirement 
program, offered in the first quarter of 1995, that will be funded from 
the Company's pension plans. 
 
Restructuring Charges and Other: 
In the first quarter of 1995, the Company implemented a 
restructuring plan which resulted in a pre-tax charge of $77.0 million. 
The Company offered an early retirement program to certain 
qualified employees and a voluntary severance program to all 
employees, both of which were open from February 13, 1995 to 
March 31, 1995. As a result of these programs, approximately 930 
employees (approximately 560 from manufacturing and 370 from 
marketing, research, engineering, and administrative functions) 
terminated their employment in 1995. The pre-tax costs related to the 
voluntary severance program were $56.0 million, of which $47.0 
million of cash severance payments were made in 1995. The 
remaining cash severance payments of approximately $9.0 million 
are expected to be paid in the first quarter of 1996. Additionally, 
$18.0 million represents enhanced retirement benefits provided under 
the early retirement program that will be funded from the Company's 
pension plans. The savings from this severance and early retirement 
program are expected to be approximately $46.0 million on an 
annualized basis, with $25.0 million expected to be realized in 1996. 
The remainder of the charge consisted of a pre-tax charge of 
approximately $3.0 million for exit costs related to the shutdown of 
certain facilities.  
 
In December 1995, the Company announced a plan to make 
fundamental changes in its operating structure. The restructuring 
plan features three principal components - program reductions in 
certain product, research and manufacturing areas; strategic 
refocusing of the Company's digital imaging businesses for the 
medical diagnostic and graphic arts markets; and a reduction in 
corporate overhead expenses. The special charge for this program is 
expected to total approximately $260.0 to $270.0 million. Of that 
amount, $170.0 million was recorded in the fourth quarter of 1995 
and an estimated $90.0 million to $100.0 million will be charged in 
the first quarter of 1996. Annualized savings are expected to be more 
than $110.0 million from this program, with $75.0 million expected 
to be realized in 1996. The December 1995 early retirement and 
severance programs are expected to result in the elimination of a 
total of approximately 1,600 positions worldwide.  

35

<PAGE>
 
The 1995 fourth quarter pre-tax special charge of $170.0 million 
included $85.0 million to write off certain assembly equipment and 
fixed assets and $30.0 million to write off inventory and accrue other 
costs, all of which were primarily related to the Captiva product line. 
The remaining $55.0 million of the special charge was related to the 
estimated cost of involuntary severance benefits for approximately 
1,300 domestic employees (approximately 570 from manufacturing 
and 730 from marketing, research, engineering and administrative 
functions) who were expected to terminate in 1996. This amount 
does not include any incremental voluntary severance benefits  and 
pension enhancement benefits. The cost of these benefits, along with 
severence costs for approximately 300 international employees 
(approximately $90.0 million to $100.0 million) will be recognized in 
the first quarter of 1996 when more precise information becomes 
available regarding the individuals accepting voluntary termination 
under this program. No cash severance payments were made in 1995 
under this program.  
 
In 1993, the Company offered an early retirement program and a 
severance program to employees. The programs resulted in the 
departure of approximately 450 employees at a cost to the Company 
of $40.0 million, which was recorded in 1993. In 1993, the Company 
also recorded a charge of $4.0 million for the write down of certain 
non-strategic assets. 
 
Certain prior year information has been reclassified to conform with 
current year presentation of data. 
 
3. Financial Instruments 
Foreign Exchange Risk Management: 
The Company generates a substantial portion of its revenues in 
international markets, which subjects its operations to the exposure 
of foreign currency fluctuations. The impact of currency fluctuations 
can be positive or negative in any given period. The Company's 
ability to counteract foreign currency exchange movement is 
primarily dependent on pricing. 
 
To minimize the adverse impact of foreign currency fluctuations on 
its foreign currency-denominated net assets, the Company may 
engage in foreign currency-denominated borrowings (see Note 6). 
The Company determines the aggregate amount of such borrowings 
based on its forecast of the Company's net asset position and the 
relative strength of the U.S. dollar as compared to foreign currencies. 
These borrowings create foreign currency-denominated liabilities 
that hedge the Company's foreign currency-denominated net assets. 
Upon receipt of the borrowed foreign currency-denominated funds, 
the Company converts those funds to U.S. dollars at the spot 
exchange rate. Exchange gains and losses on the foreign currency-
denominated borrowings are recognized in earnings as incurred. At 
December 31, 1995 and 1994, the amount of the Company's 
outstanding short-term foreign currency-denominated borrowings 
were $140.4 million and $117.1 million, respectively. 
 
From time to time, the Company may use over-the-counter foreign 
exchange swaps to reduce the interest expense incurred through the 
borrowings described above and to replace the hedge created by 
those borrowings. When a foreign exchange swap is used to replace a 
hedge, the currency received by the Company in the spot market 
component of the foreign exchange swap is used to close out the 
borrowings and, simultaneously, the hedge is reinstituted through a 
forward contract (not exceeding six months). The net interest value 
of the foreign exchange swap contract is amortized to earnings over 
the life of the contract. Exchange gains or losses on the foreign 
currency obligation component of the forward contract are 
recognized in earnings as incurred in each accounting period. The 
Company does not enter into foreign exchange swaps for trading 
purposes. The aggregate notional value of these short-term foreign 
exchange swap contracts outstanding at December 31, 1995 and 
1994 was $16.2 million and $21.8 million, respectively. 
 
When the Company may not have sufficient flexibility to change 
prices, the Company may, from time to time, also purchase U.S. 
dollar call options. The term of these call options typically does not 
exceed one year. The Company's purchase of call options allows it to 
protect a portion of its expected foreign currency-denominated 
revenues from adverse foreign currency exchange movement. The 
Company does not buy call options which can be exercised prior to 
the expiration date, nor does it write options or purchase call options 
for trading purposes. The Company defers premiums and any gains 
for its call options activity until the option exercise date. No option 
contracts were outstanding at December 31, 1995. At December 31, 
1994, option contracts with a notional value of $176.7 million were 
outstanding. 
 
The Company maintains a Monetary Control Center (the MCC), 
which operates under written policies and procedures defining day-
to-day operating guidelines, including exposure limits, to contract for 
the foreign currency-denominated borrowings, foreign exchange 
swaps and call options described above. The MCC is subject to 
random independent audits and reports to a supervisory committee 
comprised of members of the Company's management. The MCC 
publishes monthly reports to the Company's management detailing 
the foreign currency activities it has engaged in for the prior month. 

36

<PAGE>
 
Fair Value: 
The carrying amounts of cash, cash equivalents, short-term 
investments, trade receivables, short-term debt and trade payables 
approximate fair value because of the short maturity of these 
financial instruments and are, therefore, not included in the 
information presented below. The estimated carrying amounts 
included in the consolidated balance sheet and fair value of the 
Company's financial instruments as of December 31 were as follows:  

<TABLE>
 
(In millions)                      1995              1994 
__________________________________________________________________

                             Carrying  Fair    Carrying   Fair 
                             Amount    Value   Amount     Value  
                             _____________________________________

<S>                          <C>       <C>     <C>        <C>
Other assets: 
   Call options              $ --      $ --    $ --       $   .4 
   Foreign exchange swaps    $ --      $ --    $ --       $  -- 
Long-term debt               $566.4    $647.0  $ 601.9    $625.8 
 
</TABLE>

The estimated fair value of the Company's call options and foreign 
exchange swaps generally reflects the estimated amounts the 
Company would receive or pay to terminate the contracts at the 
reporting dates, thereby taking into account the current unrealized 
gains or losses on open contracts. Dealer quotes are available for the 
Company's call options and foreign exchange swaps. The fair value 
of the Company's long-term debt is estimated based on the quoted 
market prices for the same or similar issues or on the current rates 
offered to the Company for debt of the same remaining maturities. 
 
Fair value estimates are made at a specific point in time, based on 
relevant market information and information about the financial 
instrument. These estimates are subjective in nature and involve 
uncertainties and matters of significant judgment and, therefore, 
cannot be determined with precision. Changes in assumptions could 
significantly affect estimates. 
 
Concentration of Credit Risk: 
The Company places its temporary cash investments in highly rated 
financial instruments and financial institutions and by policy, limits 
the amount of credit exposure to any one financial institution. The 
Company's investment policy limits its exposure to concentrations of 
credit risk. 
 
The Company would be exposed to credit risk if a counterparty to a 
call option contract or the forward component of a foreign exchange 
swap contract were to fail to meet its contractual obligation, in which 
situation the Company would be required to replace the contract at 
market rate. The Company believes that the risk of financial loss due 
to the inability of counterparties to meet their obligation is remote 
and that any such loss would not be material to the results of 
operations of the Company. The Company minimizes its risk 
exposure from foreign exchange swaps and purchased call options by 
limiting counterparties to carefully selected major financial 
institutions. 
 
The Company markets a substantial portion of its products to 
customers in the retail industry, a market in which a number of 
companies are highly leveraged. The Company continually evaluates 
the credit risk of these customers and believes that its allowances for 
doubtful accounts relative to its customer receivables are adequate. 
 
4. Income Taxes 
As of January 1, 1993, the Company adopted Financial Accounting 
Standards Board Statement No. 109, "Accounting for Income Taxes" 
(FAS 109). The favorable cumulative adjustment of $33.6 million in 
1993 was the result of recognizing the tax benefit of future 
deductions based upon a "more likely than not criterion," instead of 
the more stringent criteria of Financial Accounting Standards Board 
Statement No. 96 "Accounting for Income Taxes", the Company's 
previous standard of accounting for income taxes.  

<TABLE>
 
An analysis of income tax expense/(benefit) follows: 
 
(In millions) 
<S>                                   <C>       <C>       <C>
1995                                  Current   Deferred  Total 
__________________________________________________________________

Federal                               $   .9    $(68.4)   $(67.5) 
State                                     .3      (7.5)     (7.2) 
Foreign                                 17.7      (4.2)     13.5 
                                      ______    ______    ______

Total                                  $18.9    $(80.1)   $(61.2) 
                                      ======    ======    =======


1994 
__________________________________________________________________

Federal                                $ 3.3    $  2.6    $  5.9 
State                                    1.7        .5       2.2 
Foreign                                 35.6       (.2)     35.4 
                                      ______    ______    ______

Total                                  $40.6    $  2.9    $ 43.5 
                                      ======    ======    ======


1993 
__________________________________________________________________

Federal                                $(6.0)    $(7.6)   $(13.6)
Statutory Rate Change                     --      (3.3)     (3.3) 
State                                     .9      (2.6)     (1.7) 
Foreign                                 58.2      (5.8)     52.4 
                                      ______    ______    ______

Total                                  $53.1    $(19.3)   $ 33.8 
                                      ======    ======    ======


</TABLE>
 
Prepaid income taxes and deferred income taxes result from future 
tax benefits and expenses related to the difference between the tax 
basis of assets and liabilities and the amounts reported in the 
financial statements. These differences predominately relate to U.S. 
operations. Carryforwards, tax overpayments and refunds due are 
also included in prepaid income taxes. The net of deferred income 
tax assets and deferred income tax liabilities reflected on the 
consolidated balance sheet was a net asset of $249.2 million and 
$156.6 million as of December 31, 1995 and 1994, respectively. 
Significant components of those amounts shown on the balance sheet 
as of December 31 were as follows: 

37

<PAGE>

<TABLE>
 
(In millions)                                      1995       1994 
____________________________________________________________________

<S>                                                <C>        <C>
Deferred tax assets: 
   Property, plant and equipment 
      and trademarks                              $(11.3)    $(35.1) 
   Inventory                                        53.1       43.0 
   Compensation and benefits                        52.7       23.2 
   Postretirement and  
      postemployment benefits                      125.4      119.8 
   Loss and credit carryforwards                    40.1        9.0 
   All other                                        21.5       10.1 
                                                  ______     ______

   Subtotal                                        281.5      170.0 
   Valuation allowance                             (23.2)      (7.5) 
                                                  ______     ______

   Total deferred tax assets                     $ 258.3    $ 162.5 
                                                  ======    =======


Deferred tax liabilities: 
   Property, plant and equipment 
      and trademarks                                $3.4       $2.7 
   Compensation and benefits                         4.7        1.4 
   All other                                         1.0        1.8 
                                                  ______     ______

   Total deferred tax liability                      9.1        5.9 
                                                  ______     ______


   Net deferred tax asset                        $ 249.2    $ 156.6 
                                                  ======     ======
           

</TABLE>
 
Valuation allowances of $23.2 million and $7.5 million as of 
December 31, 1995 and 1994, respectively, were established for the 
prepaid taxes related to foreign tax credits and to capital losses. 
Foreign tax credits may be used to offset the U.S. income taxes due 
on income earned from foreign sources. However, the credit is 
limited by the total income included on the U.S. income tax return as 
well as the ratio of foreign source income to total income. Excess 
foreign tax credits may be carried back two years and forward five 
years. As of December 31, 1995, the Company did not believe it was 
more likely than not that it would generate sufficient U.S. sourced 
income within the appropriate period to utilize all the foreign tax 
credits. 
 
Capital losses may be used only to offset capital gains. Capital losses 
may be carried back three years and forward five years. Historically, 
the Company has generated limited capital gains. Therefore, as of 
December 31, 1995, the Company did not believe it was more likely 
than not that it would generate sufficient capital gains within the 
appropriate time period to offset those capital losses. However, the 
Company intends  to sell approximately $50 million of real estate in 
the next twelve to eighteen months. Therefore, if sufficient gains are 
realized from those sales, a significant portion of the benefit related 
to the capital loss carryforward may be realized within the 
carryforward period. Those temporary differences which most likely 
will produce capital losses upon reversal also have been treated as 
capital losses. 
 
Management believes the Company will obtain the full benefit of 
other deferred tax assets on the basis of its evaluation of the 
Company's anticipated profitability over the period of years that the 
temporary differences are expected to become tax deductions. It 
believes that sufficient book and taxable income will be generated to 
realize the benefit of these tax assets. This assessment of profitability 
takes into account the Company's present and anticipated split of 
domestic and international earnings and the fact that the temporary 
differences related to postretirement and other postemployment 
benefits are deductible over a period of 30 to 40 years.  
 
Management considered that as of December 31, 1995, the Company 
elected to carry forward the current net operating loss of $35.2 
million in the U.S. The Company has a foreign tax credit 
carryforward of $16.4 million (against which, there is a full valuation 
allowance) and an alternative minimum tax credit carryforward of 
$3.2 million as of December 31, 1995. The net operating loss expires 
in 2010; the foreign tax credit expires in 2000. The alternative 
minimum tax credit does not expire. Management also considered 
that historically the Company has not had net operating losses in the 
U.S. Of course, there can be no assurance that the Company will 
generate any specific level of continuing earnings or where earnings 
will be generated. 
 
For alternative minimum tax purposes, the Company had a foreign 
tax credit carryforward as of December 31, 1995 of $53.4 million; 
$3.9 million expires in 1996, $6.6 million expires in 1997, $21.5 
million expires in 1998, $6.1 million expires in 1999, and $15.3 
million expires in 2000. 
 
An analysis of earnings/(loss) before income tax expense/ (benefit) 
and cumulative effect of changes in accounting principle follows: 
 
<TABLE>

(In millions)                            1995       1994       1993 
____________________________________________________________________

<S>                                      <C>        <C>        <C>
Domestic                                 $(236.8)   $44.6      $11.2 
Foreign                                     35.4    116.1       90.5 
                                         _______   ______     ______

Total                                    $(201.4)  $160.7     $101.7 
                                         =======   ======     ======


</TABLE>
 
A reconciliation of differences between the statutory U.S. federal 
income tax rate and the Company's effective tax rate follows: 

<TABLE>
 
                                         1995       1994       1993 
____________________________________________________________________

<S>                                      <C>        <C>        <C>
U.S. statutory rate                      35.0%      35.0%      35.0% 
State taxes                               2.3         .4         .5 
Impact of statutory rate change    
   on deferred taxes                       --        --        (3.3) 
Valuation allowance change               (7.8)       (.5)      (1.6) 
Tax effect resulting from     
   foreign activities                      .5       (4.8)       3.9 
Other                                      .4       (3.0)      (1.2) 
                                         _______   ______     ______

Effective tax rate                       30.4%      27.1%      33.3% 
                                         =======   ======     ======



</TABLE>
 
38

<PAGE>

The tax effect resulting from foreign activities includes the effect of 
remeasuring foreign currency. The impact on the tax rate for 1995 
was an increase of 2.1 percentage points, a decrease of 5.2 
percentage points for 1994, and an increase of 7.9 percentage points 
for 1993.  
 
Undistributed earnings of foreign subsidiaries held for reinvestment 
in overseas operations amounted to $436.3 million at December 31, 
1995. Additional U.S. income taxes may be due upon remittance of 
those earnings (net of foreign tax reductions because of the 
distribution), but it is impractical to determine the amount of any 
such additional taxes. If all those earnings were distributed as 
dividends, foreign withholding taxes of approximately $22.9 million 
would be payable. 
 
Federal income tax returns of the Company for all years through 
1988 have been closed and all matters have been resolved. The 
Federal income tax returns for 1989 through 1991 have been audited. 
Certain proposed adjustments have been appealed by the Company. 
Regardless of the outcome of the appeal, it will not have a material 
adverse impact upon the financial statements of the Company. 
 
5. Inventories 

<TABLE>

The classification of inventories at December 31 follows: 
 
(In millions)                                      1995       1994 
____________________________________________________________________

<S>                                                <C>        <C>
Raw materials                                      $137.2    $112.4 
Work-in-process                                     233.7     231.2 
Finished goods                                      244.6     233.8 
                                                   ______    ______

Total                                              $615.5    $577.4 
                                                   ======    ======
                                  
</TABLE>
 
6. Short-term Debt 
The Company maintains a five year $150 million working capital line 
of credit for general corporate purposes which expires in 1999. As of 
December 31, 1995 and 1994, there were no borrowings under this 
facility. 
 
As of December 31, 1995, gross borrowings from international 
uncommitted lines of credit were $160.4 million. There were no such 
borrowing from U.S. uncommitted lines of credit at December 31, 
1995. Additional available, uncommitted lines of credit for U.S. and 
international operations were $160.0 million and $135.0 million, 
respectively, at December 31, 1995. As of December 31, 1994, gross 
borrowings from international uncommitted lines of credit were 
$117.1 million. Additional available, uncommitted lines of credit for 
international operations were $161.1 million at December 31, 1994. 
There were no additional available, uncommitted lines of credit for 
U.S. operation and no such borrowings at December 31, 1994. 
Borrowings from international uncommitted lines of credit were 
incurred by the Company's foreign subsidiaries primarily to manage 
its foreign currency balance sheet exposure (see Note 3). The 
weighted average interest rate on international short-term debt 
outstanding as of December 31, 1995 and 1994 was 5.5% and 5.9%, 
respectively. The Company's total borrowing capacity is limited by 
certain debt covenants.  
 
Interest expense on international short-term borrowings was $10.9 
million in 1995, $8.5 million in 1994 and $12.0 million in 1993. The 
average interest rates ranged from 4.0% to 7.1% in 1995, 5.0% to 
6.6% in 1994, and from 7.5% to 10.3% in 1993. In 1995, interest 
expense on U.S. short-term borrowings was $.6 million at an average 
interest rate of 6.1%.  
 
7. Payables and Accruals 

<TABLE>

The following items are included in payables and accruals at 
December 31: 
 
(In millions)                                      1995       1994 
____________________________________________________________________

<S>                                                <C>        <C>
Trade accounts payable                             $150.4     $155.8 
Reserve for marketing programs                       43.7       50.8 
Other accrued expenses and 
   current liabilities                               80.8       69.1 
                                                   ______     ______

Total                                              $274.9     $275.7 
                                                   ======     ======
    

</TABLE>
 
8. Long-term Debt 

<TABLE>

Principal amounts of long-term debt outstanding as of December 31 
are as follows: 

(In millions) 
<S>                                   <C>         <C>       <C>
1995                                  Long-term   Current   Total 
____________________________________________________________________

ESOP loan                             $   37.7    $39.7     $   77.4 
7-1/4% Notes                             149.8      --         149.8 
8% Notes                                 199.1      --         199.1 
8% Subordinated Convertible     
   Debentures                            140.0      --         140.0    
Other                                       .1      --            .1 
                                      ________    _______   ________

Total                                   $526.7    $39.7       $566.4 
                                      ========    =======   ========


1994                                  Long-term   Current   Total 
____________________________________________________________________

ESOP loan                            $   77.4    $35.9     $   113.3 
7-1/4% Notes                            149.6      --          149.6 
8% Notes                                198.9      --          198.9 
8% Subordinated Convertible    
   Debentures                           140.0      --          140.0 
Other                                      .1      --             .1 
                                      ________   _______    ________

Total                                  $566.0    $35.9        $601.9 
                                      ========   ========   ========
                   

</TABLE>

39

<PAGE>
 
At December 31, 1995 and 1994, the Company had a working capital 
line of credit (see Note 6), and a long-term ESOP loan. Borrowing 
costs under the related credit agreements are tied to the Company's 
long-term public debt ratings. The interest rates on the loans are 
based on various alternative interest indices at the Company's option 
and will fluctuate over time. The agreements contain various 
restrictions, including the ability of the Company to incur or 
guarantee debt. The Company is required to maintain a certain net 
worth and to meet certain leverage and interest coverage ratios. As a 
result of the plan announced in December 1995 to make fundamental 
changes in the Company's operating structure, the $150 million 
working capital line of credit and the long-term ESOP loan were 
amended as of December 29, 1995 to provide a waiver with respect 
to financial covenants as to which the Company was not in 
compliance by reason of its 1995 results. The Company and the 
banks who are parties to these bank financing agreements amended 
the terms of the agreements effective December 31, 1995 to provide 
greater leeway with respect to the financial covenants. 
 
Under the ESOP loan, which was used to finance the leveraged 
Polaroid ESOP (see Note 9 and 11), scheduled principal payments 
will be made semi-annually in gradually increasing amounts through 
1997 when a final payment of $37.7 million is due. Interest expense 
on the ESOP loan was $5.4 million in 1995, $6.0 million in 1994 and 
$6.2 million in 1993. The weighted average interest rate on the loan 
was 5.2%, 4.4% and 3.6% during 1995, 1994 and 1993, respectively. 
 
The $140 million Subordinated Convertible Debentures (the 
Debentures) due in 2001 carry an annual interest rate of 8% and are 
convertible to common stock at approximately $32.50 per share. The 
Debentures are redeemable by the Company after September 30, 
1998, and sooner if the current market price per share of common 
stock is greater than or equal to $48.75 (appropriately adjusted for 
stock splits, combinations, dividends or similar events) for at least 20 
of 30 consecutive trading days, at which time the Company has the 
right to redeem the Debentures, in whole or part, at the end of the 30-
day period. The Debentures are redeemable by the Company and by 
the holder under certain circumstances. The Debentures are 
subordinated in right of payment to all existing debt of the Company. 
 
The $150 million 7-1/4% Notes (the 7-1/4% Notes) due January 15, 
1997 were issued with a discount, at a price of 99.30% of par with a 
yield of 7.42%, and may not be redeemed prior to maturity. The $200 
million 8% Notes (the 8% Notes) due March 15, 1999 were issued 
with a discount, at a price of 99.054% of par with a yield of 8.18%, 
and may not be redeemed prior to maturity. 
 
The aggregate scheduled repayments on the Company's long-term 
debt outstanding at December 31, 1995 are as follows: 

<TABLE>
____________________________________________________________________
<S>                                           <C> 
1996                                          $ 39.7 million 
1997                                          $187.8 million 
1998                                          $    0  
1999                                          $200.0 million 
2000                                          $    0  
2001 and thereafter                           $140.0 million 

</TABLE>
 
9. Common Stockholders' Equity 
During 1995, the Company repurchased 1.2 million shares for $40.2 
million and during 1994, .9 million shares were repurchased for 
$30.6 million. As of December 31, 1995, the unexpended balance 
under the Company's $100 million common stock repurchase 
program, which was approved by the Board of Directors in January 
1995, was $85.2 million. In December 1995, the Company suspended 
its stock repurchase program. The timing and amounts of any future 
purchases under these programs depend upon many factors, 
including market conditions as well as the Company's business and 
financial condition. 
 
Deferred Compensation was $80.0 million and $115.8 million at 
December 31, 1995 and 1994, respectively. Deferred compensation 
included $77.4 million in 1995 and $113.3 million in 1994 for the 
ESOP (see Notes 8 and 11) covering substantially all domestic 
employees. These amounts which were recorded as deductions from 
common stockholders' equity, represent amounts receivable in the 
future from the ESOP Trust. Shares held by the Company's ESOP 
Trust at December 31 were as follows: 

<TABLE>
 
(In thousands)                                     1995       1994 
____________________________________________________________________
<S>                                                <C>        <C>
Allocated                                          6,792      6,574 
Suspense (unallocated)                             1,993      2,994 
                                                   _____      _____

Total                                              8,785      9,568 
                                                   =====      =====

</TABLE>
 
Through 1993, common stock dividends paid to the plan trustee for 
ESOP-held shares were used to repay the principal amount 
outstanding. In 1993, dividends on shares held by the ESOP Trust 
used to repay the ESOP loan amounted to $5.7 million. In 1995 and 
1994, $1.6 million and $2.3 million, respectively, in dividends paid 
on unallocated ESOP shares were used to repay the ESOP loan. The 
remaining dividends for allocated shares held by the Trust were paid 
to ESOP participants. Deferred compensation also included $2.6 
million and $2.5 million at December 31, 1995 and 1994, 
respectively, related to the 1993 Polaroid Stock Incentive Plan (See 
Note 10).  
 
10. Incentive Compensation and Stock Incentive Plans 
The Company maintains annual cash incentive plans covering 
substantially all domestic employees (Employee Incentive 
Compensation Plan), employees of manufacturing subsidiaries in the 
United Kingdom and the Netherlands (International Manufacturing 
Plans) and substantially all executives (Executive Incentive 
Compensation Plan). 
 
40

<PAGE>

<TABLE>

Amounts charged to operations for incentive compensation plans 
were as follows: 
 
(In millions)                                   1995    1994    1993 
____________________________________________________________________
<S>                                             <C>     <C>     <C>
Employee Incentive Compensation Plan            $2.1    $6.9    $6.2 
International Manufacturing Plans                1.2     1.1      .9 
Executive Incentive Compensation Plan            1.5      .5      .3 

</TABLE>
 
In 1990, the Company adopted the Polaroid Stock Incentive Plan (the 
1990 Plan) under which officers and other key employees may be 
granted stock options, stock appreciation rights and restricted stock 
as incentives to increase revenues and profits. Stock options granted 
may be either non-qualified or incentive stock options. Up to 
3,000,000 shares of the Company's common stock have been 
authorized for use under the 1990 Plan. 
 
In May 1993, the Company adopted the 1993 Polaroid Stock 
Incentive Plan (the 1993 Plan) under which officers and other key 
employees may be granted awards in the form of stock options, stock 
appreciation rights, restricted stock, and any other form determined 
by the Board of Directors to be consistent with the 1993 Plan, as 
incentives to increase revenues and profits. Stock options granted 
may be either non-qualified or incentive stock options. A maximum 
of 3,000,000 shares of the Company's common stock have been 
authorized for use under the 1993 Plan, plus the unissued shares 
from the 1990 Plan.  
 
On June 15, 1993, the non-employee members of the Board approved 
the issuance of 848,122 options at an option price of $32.25 per 
share. This reflected the fair market value of the Company's common 
stock on April 26, 1993 which was the fifth business day after the 
first quarter earnings release. That date corresponds to the date on 
which options have been granted historically. Since the fair market 
value on June 15, 1993 was $37.00 per share, $4.1 million was 
recorded as deferred compensation, and is being amortized to 
compensation expense over the options' four year vesting period. 
During 1995, 1994 and 1993, compensation expense related to this 
stock option grant was $1.0 million, $1.0 million and $.6 million, 
respectively. 
 
A committee of non-employee members of the Board of Directors is 
the administrator for the 1990 Plan and the 1993 Plan and, as such, 
can at the time of the grant determine the vesting period, the period 
the option shall remain exercisable (or a stock shall remain 
restricted), and may designate if a dividend equivalent payment (or a 
dividend for restricted stock) will be paid on the grant equal to the 
dividend payment made on a share of the Company's common stock. 
The administrator for the 1990 Plan and the 1993 Plan may waive or 
amend conditions of the option grant, such as accelerating vesting 
terms during an early retirement and severance program. Data related 
to stock options issued under the 1990 Plan and the 1993 Plan is 
summarized below: 
 
<TABLE>

                                         Number of    Exercise Price 
                                         Options      per Option  
____________________________________________________________________
<S>                                      <C>          <C>
Outstanding at  
   December 31, 1992                     2,290,295    $24.375-$43.75  
 
1993 Activity:    
Granted                                    848,122            $32.25 
Canceled                                   (54,697)   $24.375-$43.75
Exercised                                 (137,930)   $24.375-$26.25 
                                         _________     

Outstanding at  
   December 31, 1993                     2,945,790    $24.375-$43.75  
 
1994 Activity:    
Granted                                    781,365   $31.125-$32.375 
Canceled                                   (47,041)   $24.375-$43.75 
Exercised                                 (132,777)   $24.375-$32.25 
                                         _________     

Outstanding at  
   December 31, 1994                     3,547,337    $24.375-$43.75 
 
1995 Activity:    
Granted                                  1,005,305    $33.875-$45.75 
Canceled                                   (27,835)   $24.375-$43.75 
Exercised                                 (727,765)   $24.375-$43.75 
                                         _________     

Outstanding at  
   December 31, 1995                     3,797,042    $24.375-$45.75 
                                         =========     
                                         
Exercisable at  
   December 31, 1995                     1,778,927    $24.375-$43.75 
                                         =========     
                                            

</TABLE>
 
Dividend equivalent payments on outstanding stock options of $2.1 
million, $1.9 million and $1.7 million were made in 1995, 1994 and 
1993, respectively. The number of common shares reserved for 
granting of future options was 1,152,591, 2,138,074 and 2,902,035 at 
December 31, 1995, 1994 and 1993, respectively. 
 
The options awarded under the 1990 Plan and the 1993 Plan vest 
ratably each year over approximately a four year period and are 
exercisable for approximately a ten year period from the date of 
grant, if the holder remains in the employ of the Company. If the 
option holder's employment terminates for reasons other than change 
of control or retirement, no further vesting can occur. When an 
option holder's employment terminates for any reason other than 
retirement, death or disability, all vested options must be exercised 
within three months from the termination date or approximately ten 
years from the date of the grant, whichever is earlier. 

41

<PAGE>
 
In December 1995, the Company awarded 25,000 shares of restricted 
stock at $46.50 per share under the 1993 Plan, which vest ratably 
each year over a five year period. The value of the restricted stock 
issuance was recorded as deferred compensation and is being 
amortized to compensation expense ratably over a five year period. 
 
In 1990, the Company adopted the Polaroid Board of Directors' 
Stock Option Plan (the Directors' Plan), which granted each non-
employee director an option to purchase 3,000 shares of the 
Company's common stock. For a new non-employee director, the 
date of the grant is the date the director joins the Board. 
 
Under the Directors' Plan, options vest ratably each year over a four 
year period from the date the director joins the Board and are 
exercisable for a ten year period from the date of grant. Vesting 
ceases when an individual terminates as a director, and a former 
director must exercise his or her vested options within three years 
from the date of termination or ten years from the date of grant, 
whichever is earlier. Up to 100,000 shares of the Company's 
authorized common stock may be issued under the Directors' Plan. 
 
As of December 31, 1995, a cumulative total of 48,000 options have 
been granted at prices ranging from $33.125 to $43.75 under the 
Directors' Plan. At December 31 of 1995, 1994 and 1993, 34,500, 
36,750, and 39,000 of the options granted were exercisable, 
respectively. Of the options granted to date, none have been 
exercised and 7,500 have been canceled.  
 
On July 25, 1995, the Company's Board of Directors approved an 
amendment to the Director's Plan, subject to shareholder approval at 
the Company's 1996 annual meeting, to award each non-employee 
director as of that date a one-time grant of an option to purchase 
2,000 shares of the Company's common stock at $42.625 per share. 
Vesting of this option grant will conform with the terms outlined in 
the Directors' Plan. Including this option grant, which is subject to 
shareholder approval, a cumulative total of 72,000 options have been 
granted at prices ranging from $33.125 to $43.75 under the Directors' 
Plan as of December 31, 1995. Assuming shareholder approval of the 
July 1995 grant, a total of 28,000 shares of the Company's authorized 
common stock, were reserved for possible future grants under the 
Directors' Plan as of December 31, 1995. 
 
11. Benefit Plans 
The Company maintains a qualified noncontributory trusteed pension 
plan covering substantially all domestic employees. The benefits are 
based on years of service and final average compensation at 
retirement. The Company's general policy is to fund the domestic 
pension trust to the extent such contributions would be deductible 
under the funding standards established under the Internal Revenue 
Code. Plan assets consist primarily of high quality corporate and U.S. 
government bonds, asset-backed securities and common stocks. 
 
Employees of Polaroid's manufacturing subsidiaries in the United 
Kingdom and the Netherlands are covered by trusteed, contributory 
pension plans. Amounts are funded in accordance with local laws and 
economic conditions. Employees of most other foreign subsidiaries 
are covered by insured plans. Related expenses, obligations and 
assets of these other plans are not material and therefore are not 
included in the information below. 
 
<TABLE>

Components of the Company's net periodic pension cost/ (credit) are 
as follows: 
 
(In millions)                              1995      1994     1993 
____________________________________________________________________
<S>                                        <C>       <C>      <C>
Service cost                               $ 26.5    $29.2    $ 25.4 
Interest cost                                65.9     62.5      56.1 
Actual return on assets                    (191.3)    (5.8)    (90.9) 
Net amortization and deferral                99.2    (84.6)      5.2 
                                           ______    _____    _______

Net periodic pension cost/(credit)          $  .3    $ 1.3    $ (4.2) 
                                           ======    =====    =======


</TABLE>
 
<TABLE>

The following table sets forth the plans' funded status and amounts 
recognized in the Company's consolidated balance sheet at December 
31: 
 
(In millions)                                   1995          1994 
____________________________________________________________________
<S>                                             <C>           <C>
Actuarial present value  
   of benefit obligations:    
   Vested benefit obligation                    $   851.1     $647.4 
   Nonvested benefit obligation                      51.6       42.5 
                                                _________     ______
 
   Accumulated benefit obligation                   902.7      689.9 
   Effect of projected pay increases                125.6      114.1 
                                                 _________     ______

Projected benefit obligation                    $ 1,028.3      804.0 
Plan assets at fair market value                  1,066.2      907.4 
                                                 _________     ______

Plan assets in excess of  
   projected obligations                             37.9      103.4 
Unrecognized prior service cost                      21.0       25.7 
Unrecognized net gain                                (7.6)     (50.8) 
Unrecognized net assets at transition,  
   net of amortization                              (72.0)     (82.4) 
                                                 _________     ______

Net pension liability                            $  (20.7)    $ (4.1) 
                                                 =========     ======

</TABLE>

42

<PAGE>
 
<TABLE>

The assumptions used by the Company which have a significant 
effect on the amounts reported for pension accounting as of 
December 31 were as follows: 
    
                                           1995      1994     1993 
____________________________________________________________________
<S>                                        <C>       <C>      <C>

Weighted average discount rate             7.1%      8.4%     7.5% 
Weighted average rate of increase    
   in compensation levels                  5.0%      5.4%     5.4% 
Expected long-term rate of  
   return on assets                        8.8%      9.3%     9.3% 
 
</TABLE>

In 1988, the Company's Board of Directors approved the Polaroid 
ESOP primarily for the benefit of its domestic employees (see Notes 
8 and 9). The number of shares available for allocation to individual 
accounts in any period is based on principal and interest payments 
made on the ESOP loan. Amounts charged to expense represent the 
amount of principal repayment on the ESOP loan less dividends paid 
for the period on all ESOP held shares through 1993 and less 
dividends on unallocated shares beginning in 1994. Amounts charged 
to expense for this plan were $34.3 million, $31.2 million and $26.9 
million in 1995, 1994, and 1993, respectively. 
 
The Company currently provides certain health and life insurance 
benefits to eligible retired employees. Substantially all domestic 
employees who retire from the Company, and meet the minimum age 
and service requirements of 55 and 10 years, respectively, become 
eligible for these benefits. The plans are currently unfunded and may 
be modified in accordance with the terms of the plan documents. The 
Company funds these benefits on a pay-as-you-go basis. Eligible 
retirees under age 65 are required to contribute to the cost of their 
health care benefits. Upon reaching age 65, eligible retirees' health 
care benefit coverage is coordinated with Medicare. In 1995, the 
Company established an amount it would contribute toward the cost 
of the retirees' selected medical plan coverage. The Company intends 
to annually review the amount it contributes toward this coverage 
and will, at its option, make adjustments to this amount based on 
several considerations including financial factors, inflation of 
medical costs and other relevant factors. Eligible retirees are not 
required to contribute to the cost of their life insurance benefits. 
Employees of most of the Company's subsidiaries outside of the 
United States are covered by government programs. 
 
As of January 1, 1993, the Company adopted Financial Accounting 
Standards Board Statement No. 106, "Employers' Accounting for 
Postretirement Benefits Other Than Pensions" (FAS 106). This 
standard requires the expensing, on an accrual basis, of all medical 
and life insurance benefits the Company provides to its retirees and 
their dependents. The Company elected immediate recognition of the 
accumulated liability at adoption. This resulted in a one-time, after-
tax charge of $132.9 million (net of income taxes of $85.0 million). 
There was no cash flow impact associated with the adoption of FAS 
106. After recognition of the cumulative liability at adoption, the 
effect of FAS 106 on 1993 operating results was a pre-tax expense of 
$28.8 million, approximately $20 million more than the previous 
pay-as-you-go method of accounting. Prior to 1993, the cost of 
retiree health care and life insurance benefits was recognized as an 
expense as claims were paid. 
 
<TABLE>

Components of the Company's net periodic postretirement benefit 
cost are as follows: 
 
(In millions)                           1995       1994       1993 
____________________________________________________________________
<S>                                     <C>        <C>        <C>
Service cost                            $   8.7    $ 13.1     $ 11.2 
Interest cost                              17.6      18.3       17.6 
Amortization                               (6.1)      (.6)       - 
                                        _______    ______     ______

Net periodic postretirement  
   benefit cost                         $  20.2    $ 30.8     $ 28.8 
                                        =======    ======     ======


</TABLE>
 
<TABLE>

The following table sets forth the status of the plan and amounts 
recognized in the Company's consolidated balance sheet at December 
31: 
 
(In millions)                                1995          1994 
____________________________________________________________________
<S>                                          <C>           <C>
Accumulated postretirement  
   benefit obligation:    
   Retirees                                  $   90.4      $   104.6 
   Fully eligible active plan participants       68.9           69.7 
   Other active plan participants                47.0           61.7 
                                             ________      _________

Total accumulated postretirement  
   benefit obligation                           206.3          236.0 
Plan assets at fair market value                 --             -- 
                                             ________      _________

Accumulated obligation in excess  
   of plan assets                              (206.3)        (236.0) 
Unrecognized net gain                           (11.6)         (18.0) 
Unrecognized prior service cost                 (50.8)          (5.2) 
                                             ________      _________

Net postretirement benefit liability          $(268.7)       $(259.2) 
                                             ========      =========

</TABLE>

The Accumulated Postretirement Benefit Obligation (APBO) at 
December 31, 1995 and 1994 was determined using a discount rate 
of 7.0% and 8.5 %, respectively. The assumed health care cost trend 
rate used in measuring the APBO at December 31, 1995 and 1994 
was 11% and 12%, respectively, declining gradually to an ultimate 
rate of 6% in 2003. These trend rates reflect the Company's current 
experience and expectation that future rates will decline. The 
assumptions used above have a significant effect on the amounts 
reported. If the health care cost trend rate assumptions were 
increased by 1% each year, the APBO as of December 31, 1995 and 
1994 would increase by approximately $4.1 million and $34.7 
million, respectively. The effect of a 1% increase on the aggregate of 
service and interest cost for 1995 and 1994 would have been an 
increase of approximately $4.5 million and $5.5 million, respectively. 

43

<PAGE>
 
The Company maintains the Polaroid Board of Directors' Retirement 
Plan (the Directors' Retirement Plan) which is a non-qualified 
deferred compensation plan under which fully vested (at least five 
complete years of service on the Board) non-employee members of 
the Board who retire receive annual lump sum payments equal to the 
retainer amount they were paid in the last full year prior to 
retirement. A participant or surviving spouse may receive payments 
under the Directors' Retirement Plan for the lesser of twenty-five 
years or the number of years that the person served as a non-
employee member of the Board prior to his or her seventy-third 
birthday. 
 
The estimated present value of future benefits under the Directors' 
Retirement Plan is accrued annually based on credited service up to 
the participants' actual retirement dates and is charged to expense. 
For the years 1995, 1994 and 1993, $.2 million, $.3 million and $.1 
million, respectively, was charged to expense for current years' 
service. 
 
In the fourth quarter of 1993, the Company adopted Financial 
Accounting Standards Board Statement No. 112, "Employer's 
Accounting for Postemployment Benefits" (FAS 112) retroactive to 
January 1, 1993. This standard requires the expensing, on an accrual 
basis, of all benefits provided to former or inactive employees, their 
beneficiaries and covered dependents after employment but before 
retirement. Before 1993, the Company recognized these disability 
and survivor-related benefits on a pay-as-you-go basis. The 
cumulative effect of this change in accounting for postemployment 
benefits resulted in a one-time after-tax charge of $19.9 million (net 
of income taxes of $12.7 million). The effect of FAS 112 on 1993 
operating results was a pre-tax charge of $6.3 million, approximately 
$3.8 million more than the previous pay-as-you-go method of 
accounting. There was no cash flow impact associated with the 
adoption of FAS 112. The pre-tax charge for FAS 112 was $7.4 
million and $6.8 million in 1995 and 1994, respectively. 
 
12. Rental Expense and Lease Commitments 

<TABLE>

Minimum annual rental commitments at December 31, 1995, under 
noncancelable leases, principally for real estate, are payable as 
follows: 
 
(In millions)    
____________________________________________________________________
<S>                                                       <C>
1996                                                      $15.0 
1997                                                       11.8 
1998                                                        8.6 
1999                                                        5.9 
2000                                                        2.5 
2001 and thereafter                                         3.9 
                                                          _____
 
Total minimum lease payments                              $47.7    
                                                          =====

</TABLE>
 
Minimum payments have not been reduced by minimum sublease 
rentals of $2.3 million due in the future under noncancelable 
subleases. 
 
Many of the leases contain renewal options and some contain 
escalation clauses which require payments of additional rent to the 
extent of increases in the related operating costs. 
 
<TABLE>

Rental and lease expenses consisted of the following: 
 
(In millions)                           1995       1994      1993 
____________________________________________________________________
<S>                                     <C>        <C>       <C>
Minimum rentals                         $   26.4    $25.6    $23.8 
Contingent rentals                           8.8      5.3      7.4 
                                        ________    _____    _____

Total                                      $35.2    $30.9    $31.2 
                                        ========    =====    =====


</TABLE>
 
Sublease income amounted to $1.4 million in 1995, $1.8  
million in 1994 and $1.5 million in 1993. 
 
13. Business 
Nature of Operations: 
The Company is engaged primarily in one line of business, the 
design, manufacture and sale of instant photographic imaging 
products worldwide. Photographic products, which represent over 90 
percent of the Company's total revenues, are marketed worldwide 
through distributors and dealers for amateur and professional 
photography, business, industry, science, medicine, government and 
education. In addition, the Company is expanding its role in the 
market for digital imaging products. The Company's digital imaging 
products are marketed worldwide through distributors and directly to 
customers primarily for medical, graphic art and other business 
applications. Digital imaging products also include products for 
consumer digital imaging and desktop publishing. 
 
Segments of Business: 
During 1995, 1994 and 1993 sales to one customer, Wal-Mart Stores, 
Inc., amounted to 10.9%, 13.7%, and 11.6%, respectively, of the 
Company's total sales. Sales in Russia accounted for 8.8%, 6.7% and 
1.1% of total sales in the 1995, 1994, and 1993, respectively. While 
the Company believes that emerging markets present particularly 
attractive opportunities, such markets tend to be considerably less 
stable than more established markets. There can be no assurance that 
emerging markets will continue to produce favorable results. 
 
Intercompany sales between geographic areas are accounted for at 
prices representative of unaffiliated party transactions. 
 
The following table shows certain financial information relating to 
the Company's operations in various geographic areas: 

44

<PAGE>

<TABLE>
<CAPTION>
 
Geographic Areas     
            Years ended December 31, 

(In millions)                                    1995         1994       1993 
_________________________________________________________________________________
<S>                                              <C>          <C>        <C>
Sales 
United States 
 Customers                                       $1,019.0    $1,160.3    $1,178.8 
 Intercompany                                       479.4       496.3      511.28 
                                                 ________    ________    ________

                                                  1,498.4     1,656.6     1,690.6 
                                                 ________    ________    ________
Europe    
 Customers                                          738.8       704.6       597.9 
 Intercompany                                       368.1       347.1       347.3 
                                                 ________    ________    ________

                                                  1,106.9     1,051.7       945.2 
                                                 ________    ________    ________
 
Asia Pacific, Canada, Latin and South America    
 Customers                                          479.1       447.6       468.2 
 Intercompany                                       123.3        83.5        56.5 
                                                 ________    ________    ________

                                                    602.4       531.1       524.7 
                                                 ________    ________    ________

 Eliminations                                      (970.8)     (926.9)     (915.6) 
                                                 ________    ________    ________

Net sales                                        $2,236.9    $2,312.5    $2,244.9 
                                                 ========    ========    ========
                         

_________________________________________________________________________________

Profits    
 United States                                   $ (179.4)   $  100.8    $   44.1 
 Europe                                              20.6        81.8        43.7 
 Asia Pacific, Canada, Latin and South America       24.4        45.2        56.8 
 General corporate expense                          (19.4)      (13.0)      (12.4) 
 Eliminations                                        (4.0)      (14.5)        9.2 
                                                 ________    ________    ________

Profit/(loss) from operations                      (157.8)      200.3       141.4 
 Other expense                                      (43.6)      (39.6)      (39.7) 
                                                 ________    ________    ________
Earnings/(loss) before income tax 
expense/(benefit)                                $ (201.4)   $  160.7    $  101.7 
                                                 ========    ========    ========

---------------------------------------------------------------------------------

Assets    
 United States                                   $1,526.1    $1,480.5    $1,532.7 
 Europe                                             669.9       613.8       556.0 
 Asia Pacific, Canada, Latin and South America      258.4       248.1       216.9 
 Corporate assets (cash, cash equivalents
  and short-term investments)                        83.1       228.9       138.9 
 Eliminations                                      (275.7)     (254.6)     (232.2) 
                                                 ________    ________    ________

Total assets                                     $2,261.8    $2,316.7    $2,212.3 
                                                 ========    ========    ========

</TABLE>
 
45

<PAGE.

14.Contingencies 
The Company, together with other parties, is currently designated a 
Potentially Responsible Party (PRP) by the United States 
Environmental Protection Agency and certain state agencies with 
respect to the response costs for environmental remediation at 
several sites. The Company believes that its potential liability with 
respect to any site and with respect to all sites in the aggregate will 
not have a materially adverse effect on the financial condition or 
operating results of the Company. 
 
Due to a wide range of estimates with regard to response costs at 
these sites and various other uncertainties, the Company cannot 
firmly establish its ultimate liability concerning these sites. In each 
case in which the Company is able to determine its likely exposure, 
such amount has been included in the Company's reserve for 
environmental liabilities. Where a range of comparably likely 
exposures exists, the Company has included in its reserve the 
minimum amount of the range. The Company's aggregate reserve for 
these liabilities as of December 31, 1995 and 1994 was $5.2 million 
and $5.5 million, respectively. The Company currently estimates that 
the majority of the $5.2 million amount reserved for environmental 
liabilities on December 31, 1995 will be payable over the next two to 
three years. The Company's analysis of data which underlies its 
establishment of this reserve is undertaken on a quarterly basis. The 
reserve for such liability does not provide for associated litigation 
costs, which, if any, are expected to be inconsequential in 
comparison with the amount of the reserve. The Company will 
continue to accrue in its reserve such amounts as management 
believes appropriate from time to time as circumstances warrant. 
This reserve does not take into account potential recoveries from 
third parties.  
 
The Company reviews its recurring internal expenditures on 
environmental matters, as well as capital expenditures related to 
environmental compliance, on a monthly basis, and reviews its third-
party expenditures on environmental matters on a quarterly basis. 
The Company believes that these expenditures have not had and will 
not have a materially adverse effect on the financial condition or 
operating results of the Company. 
 
Federal law provides that PRPs may be held jointly and severally 
liable for response costs. Based on current estimates of those costs 
and after consideration of the potential estimated liabilities of other 
PRPs with respect to those sites and their respective estimated levels 
of financial responsibility, the Company does not believe its potential 
liability will be materially enlarged by the fact that the liability is 
joint and several.  
 
In early 1994, the Company received a letter from Jerome H. 
Lemelson alleging that a broad range of the Company's 
manufacturing equipment and products infringe a number of patents. 
The letter proposes that the Company enter into licensing 
negotiations to pay substantial past and future royalties under those 
patents. The Company has responded to the allegations. 
 
The Company is involved in various other legal proceedings and 
claims arising in the ordinary course of business. Management 
believes that the disposition of these matters will not have a 
materially adverse effect on the financial condition or results of 
operations of the Company.  
 
15. Supplementary Financial Information 
The section on pages 47-49 entitled Supplementary Financial 
Information has not been audited by the Company's independent 
auditors. Those auditors have, however, made a limited review of the 
1995 and 1994 quarterly data on page 47 in accordance with 
standards established by the American Institute of Certified Public 
Accountants and that information is incorporated herein by 
reference. Since the Company's independent auditors did not audit 
the Company's quarterly data for either year, they express no opinion 
on such data.

46


<PAGE>

<TABLE>

Quarterly Financial Data (Unaudited)
Polaroid Corporation and Subsidiary Companies

(In millions, except per share and stock price data)

1995                                      First     Second   Third    Fourth    Year
________________________________________________________________________________________

<S>                                       <C>       <C>      <C>      <C>       <C>
Net sales                                 $409.6    $572.5   $580.0   $674.8    $2,236.9
Restructuring and other                     77.0      --       --      170.0       247.0
Profit/(loss) from operations             (108.6)     41.1     50.3   (140.6)     (157.8)
Net earnings/(loss)                        (75.8)     22.9     23.7   (111.0)     (140.2)
Primary earnings/(loss) per common share    (1.66)    .50       .51     (2.44)     (3.09)
Fully diluted earnings per common share       *       .49       .50      *        *
Cash dividends per common share               .15     .15       .15       .15        .60
Stock prices   
   High                                     35.25   43.88     44.88     49.25      49.25
   Low                                      29.00   33.00     38.88     38.75      29.00

1994                                      First    Second     Third   Fourth    Year
________________________________________________________________________________________

Net sales                                 $462.6   $587.3     $576.7  $685.9    $2,312.5
Profit from operations                       6.9     56.8       52.7    83.9       200.3
Net earnings                                 1.4     29.2       29.3    57.3       117.2
Primary earnings per common share            .03      .62        .62     1.23       2.49
Fully diluted earnings per common share      *        .60        .60     1.16       2.42
Cash dividends per common share              .15      .15        .15      .15        .60
Stock prices**   
   High                                    35.75    34.38      35.13    36.38      36.38
   Low                                     30.50    29.63      32.13    30.25      29.63

Stockholders of record as of February 2, 1996.......11,406

</TABLE>

*   Fully diluted earnings per common share are not disclosed because they 
    are greater than primary earnings per common share.
**  Recorded on the New York Stock Exchange Composite.

47

<PAGE>

<TABLE>

Ten Year Financial Summary (Unaudited)
Polaroid Corporation and Subsidiary Companies

Years ended December 31
(Dollars amounts in millions, 
 except per share data)                              1995         1994          1993
________________________________________________________________________________________

Consolidated Statement of Earnings
<S>                                                  <C>           <C>          <C>
Net sales
 United States                                       $1,019.0      $1,160.3     $1,178.8   
 International                                        1,217.9       1,152.2      1,066.1    
                                                     ________      ________     ________
                                                      
Total net sales                                       2,236.9       2,312.5      2,244.9    
                                                     ________      ________     ________
               
 Cost of goods sold                                   1,298.6       1,324.2      1,296.5    
 Marketing, research,engineering and 
  administrative expenses                               849.1         788.0        763.0     
 Restructuring and other                                247.0         --            44.0    
                                                     ________      ________     ________

Total costs                                           2,394.7       2,112.2      2,103.5    
                                                     ________      ________     ________

Profit/(loss) from operations                          (157.8)        200.3        141.4     
                                                     ________      ________     ________

 Litigation settlement, net of 
  employee incentives                                    --           --           --    
 Other income                                             8.5          7.0           8.2     
 Interest expense                                        52.1         46.6          47.9     
                                                     ________      ________     ________

Earnings/(loss) before income tax 
  expense/(benefit)                                    (201.4)       160.7         101.7     
 Federal, state and foreign income tax 
   expense/(benefit)                                    (61.2)        43.5          33.8     
                                                     ________      ________     ________

Earnings/(loss) before cumulative effect 
 of changes in accounting principle                  $ (140.2)     $  117.2     $   67.9   
                                                     ========      ========     ========                              
                  
Net earnings/(loss)                                  $ (140.2)     $  117.2     $  (51.3)   
                                                     ========      ========     ========

                  
 Primary earning/(loss) per common share before 
  cumulative effect of changes 
   in accounting principle**                         $   (3.09)    $    2.49    $   1.45   
 Primary earnings/(loss)per common share**           $   (3.09)    $    2.49    $  (1.10)
 Fully diluted earnings per common share ***         $    --       $    2.42       --   
 Cash dividends per common share **                  $     .60     $     .60    $    .60   
 Common shares outstanding at end 
  of year (in thousands)**                              45,533        45,998      46,806    

Selected Balance Sheet Information   
 Working capital                                     $  738.5      $   886.8    $  833.6
 Net property, plant and equipment                      691.0          747.3       718.2   
 Total assets                                         2,261.8        2,316.7     2,212.3   
 Long-term debt                                         526.7          566.0       602.3   
 Redeemable preferred stock equity                       --             --          --   
 Common stockholders' equity                            717.7          864.4       767.3   
   
Other Statistical Data   
 Additions to property, plant and equipment          $  167.9      $   146.7    $ 165.6
 Depreciation                                        $  132.7      $   118.2    $ 100.3
 Payroll and benefits                                $  709.3      $   720.6    $ 699.2
 Number of employees, end of year                      11,662         12,104     12,048   
 Return on average common stockholder' equity****       (17.8)%        14.7%        9.3%   

</TABLE>
  
*     Restated for FAS 96.
**    Amounts for years prior to 1987 have been restated to reflect the
      1987 two-for-one stock split.
***   Fully diluted earnings per common share are not disclosed 
      for 1995, 1993 and years prior to 1991 because 
      they are either greater than primary earnings per 
      common share or they do not include dilutive securities.
****  1993 is shown prior to the cumulative effects of FAS 106, 109 and 112.

48

<TABLE>

  1992         1991         1990         1989         1988         1987*        1986*   
_____________________________________________________________________________________________

  <C>          <C>          <C>          <C>          <C>          <C>          <C>          
  $1,145.7     $1,113.6     $1,058.3     $1,091.8     $1,048.3     $1,009.3     $ 964.3   
   1,006.6        957.0        913.4        812.9        814.6        754.6       664.9     
  ________     ________     ________     ________     ________     ________     _______
   
   2,152.3      2,070.6      1,971.7      1,904.7      1.862.9      1,763.9     1,629.2    
  ________     ________     ________     ________     ________     ________     _______

   1,178.0      1,082.5      1,011.8        966.0      1,003.1        956.2       921.7        
     760.5        741.5        675.6        634.5        686.0        653.9       571.8        
     --            --           --           40.5        151.9         --          --      
  ________     ________     ________     ________     ________     ________     _______

   1,938.5      1,824.0      1,687.4      1,641.0      1,841.0      1,610.1     1,493.5      
  ________     ________     ________     ________     ________     ________     _______

     213.8        246.6        284.3        263.7         21.9        153.8       135.7       
                                          
     --           871.6         --           --           --            --        --   
       7.8         23.4         15.0         35.1         28.0         16.7        18.1        
      58.5         58.4         81.3         86.2         29.0         15.0        18.6       
  ________     ________     ________     ________     ________     ________     _______

     163.1      1,083.2        218.0        212.6         20.9        155.5       135.2       
      64.1        399.5         67.0         67.6         43.5         30.3        27.0        
  ________     ________     ________     ________     ________     ________     _______

  $   99.0     $  683.7      $ 151.0      $ 145.0      $ (22.6)     $ 125.2   $   108.2      
  ========     ========     ========     ========     ========     ========     =======        

                                          
  $   99.0     $  683.7      $ 151.0      $ 145.0      $ (22.6)     $ 125.2   $   108.2      
  ========     ========     ========     ========     ========      ========    =======

                                          
   
  $   2.06     $  12.54      $  2.20      $  1.96      $  (.34)     $  2.02   $    1.75      
  $   2.06     $  12.54      $  2.20      $  1.96      $  (.34)     $  2.02   $    1.75      
  $   2.02     $  10.88         --           --          --           --         --
  $    .60     $    .60      $   .60      $   .60      $   .60      $   .60   $     .50      
    46,668       48,919       50,070       52,110       71,635       61,918      61,918      

   
  $  789.0     $  695.3      $ 609.1      $ 642.0      $ 980.0      $ 652.6   $   602.4
     657.3        549.4        461.0        430.9        433.8        395.6       357.7
   2,008.1      1,889.3      1,701.3      1,776.7      1,957.2      1.599.4     1,444.6
     637.4        471.8        513.8        602.2        402.3         --         --
      --           --          348.6        321.9         --           --         --
     808.9        772.9        207.7        148.8      1,011.5      1,048.2       960.1
   
   
  $  201.5     $  175.8      $ 120.9      $  94.5      $ 127.0      $ 116.6   $    82.9
  $   89.1     $   85.5      $  87.2      $  87.4      $  81.9      $  75.7   $    71.2
  $  670.2     $  690.6      $ 587.6      $ 546.7      $ 725.9      $ 585.0   $   548.2
    12,359       12,003       11,768       11,441       11,613       13,662      14,765
      12.7%       148.6%        63.3%        33.5%        (2.2)%       12.5%       11.7%
   
</TABLE>

49

<PAGE>

Directors
(as of March 19, 1996)

Gary T. DiCamillo 1
Chairman and 
Chief Executive Officer

I. MacAllister Booth 6
Retired Chairman, 
President and 
Chief Executive Officer, Polaroid Corporation

Yen-Tsai Feng 2,5,6
Roy E. Larsen Librarian of Harvard College, Retired

Ralph E. Gomory 1,2,5
President, Alfred P. Sloan Foundation

Frank S. Jones 2,3,5
Ford Professor Urban Affairs, Emeritus,
Massachusetts Institute 
of Technology

John W. Loose 3,5
Executive Vice President, Corning Inc. and
President and Chief Executive Officer,
Corning Consumer 
Products Company

James D. Mahoney 6
Former Plant 
Engineering Manager, Polaroid Corporation
 
Albin F. Moschner 2,5
President and Chief Operating Officer,
Zenith Electronics Corporation

Henry Necarsulmer 1,2,5
Consultant, Lehman Brothers Inc.

Kenneth H. Olsen 1,4,5
President Emeritus, Digital Equipment Corporation

Lester Pollack 3,4,5
Senior Managing Director, Corporate Advisors, L.P.

Charles P. Slichter 1,4,5
Center for Advanced 
Study Professor of Physics and Chemistry,
University of Illinois

Ralph Z. Sorenson 2,3,5
Professor Emeritus and Former Dean,
College of Business and Administration,University 
of Colorado at Boulder

Delbert C. Staley 2,3,5
Retired Chairman and 
Chief Executive Officer,
Nynex Corporation

Alfred M. Zeien 3,4,5
Chairman and 
Chief Executive Officer,
The Gillette Company

1 Member, Executive Committee
  (Gary T. DiCamillo, Chairman)
2 Member, Audit Committee 
  (Henry Necarsulmer, Chairman)
3 Member, Human 
  Resources Committee 
  (Delbert C. Staley, Chairman)
4 Member, Committee 
  on Directors 
  (Alfred M. Zeien, Chairman)
5 Member, Committee of 
  Outside Directors
6 Will not be standing for 
  re-election to the Board of
  Directors at the Company's 
  1996 annual meeting



Officers
(as of March 19, 1996)

Gary T. DiCamillo
Chairman and 
Chief Executive Officer

Henry Ancona
Executive Vice President

Joseph R. Oldfield*
Executive Vice President

William J. O'Neill, Jr.
Executive Vice President and Chief Financial Officer

Carole J. Uhrich
Executive Vice President

Robert M. Delahunt
Senior Vice President

Peter O. Kliem
Senior Vice President

Satish C. Agrawal
Group Vice President

James R. Barron
Vice President

Graham M. Brown, Jr.*
Vice President and Treasurer

Roger C. Clapp*
Vice President and 
Program Fellow

F. Richard Cottrell
Vice President and 
Senior Engineering and Research Fellow

Richard F. deLima*
Vice President, Secretary
 and General Counsel

Gerald R. Dicker*
Vice President and 
Assistant Secretary

Fawwaz N. Habbal
Vice President and 
Senior Engineering and 
Research Fellow

Paul E. Lambert
Vice President 
and Program Fellow

Michael J. LeBlanc
Vice President

Samuel H. Liggero
Vice President 
and Program Fellow

Carl L. Lueders
Vice President and Controller

Ralph M. Norwood
Vice President

Joseph G. Parham, Jr.
Vice President

Marian J. Stanley
Vice President

*Intends to retire in 1996.

50

Stockholder Information

Annual Meeting
The Annual Meeting of Polaroid Corporation
stockholders will be held on Tuesday, May 14, 1996 
at 3 p.m. at the Museum of Science, Cahners Theater, 
Boston, Massachusetts.

Executive Office
549 Technology Square
Cambridge, Massachusetts 02139
(617) 386-2000

Investor Relations
575 Technology Square
Cambridge, Massachusetts 02139
(617) 386-6589

Independent Auditors
KPMG Peat Marwick LLP
99 High Street
Boston, Massachusetts 02110

Transfer Agent and Registrar for Common Stock
Bank of Boston
C/O Boston EquiServe
Shareholder Services
Mail Stop: 45-02-64
Post Office Box 644
Boston, MA 02102-0644
(617) 575-3170 or 1-800-730-4001

Stock Exchange Listings for Common Stock
New York Stock Exchange
Pacific Stock Exchange

Annual Report on Form 10-K
A copy of Polaroid's Annual Report on Form 10-K to the Securities and Exchange 
Commission may be obtained without charge by calling the Investor Relations 
Department of Boston EquiServe, at 
(617) 575-3170 or 1-800-730-4001.

Dividend Reinvestment Plan
A Dividend Reinvestment Plan is available to stockholders of Polaroid 
Corporation. For information or an authorization card write to: Bank of Boston, 
c/o Boston EquiServe, Polaroid Dividend Reinvestment Plan, Mail Stop: 45-02-64, 
P.O. Box 644, Boston, MA 02102-0644. All correspondence should refer to 
Polaroid Corporation.

Internet Address
http://www.polaroid.com

Captiva, Dry Tech, DryJet, Dry Tech ExPRESS, Helios, Imagix, Macro 5, OneStep, 
636, Phantagrams, PhotoPad, Polaroid, ProPalette, Polaview, Spectra, 
SprintScan, Studio Express and XOOR are trademarks of Polaroid Corporation.

This Annual Report is printed on paper made from 50 percent recycled materials, 
minimum 10 percent post-consumer waste content. Recycling efforts of Polaroid 
Corporation employees produced a portion of the post-consumer material.

inside back cover