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U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|(Mark One)                                                                        |                                                                                         
|--------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                                                 | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934    
|For the Fiscal Year Ended December 31, 2003                                      
|or                                                                               
|o                                                                                 | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|For the Period
From                             to           
                  .

Commission File Number: 000-50661

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POLAROID HOLDING COMPANY(Exact name of Registrant as specified in its charter)

|Delaware(State or other jurisdiction of incorporation or organization)                             |  | 22-3856538(I.R.S. employer identification number)
|-------------------------------------------------------------------------------------------------- |  | -------------------------------------------------
|1265 Main Street
Waltham, Massachusetts 02451(Address of principal executive offices and zip code)
|(781) 386-2000(Registrant's telephone number, including area code)                                

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Securities
registered pursuant to Section 12(b) of the Act:None

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|Securities registered pursuant to Section 12(g) of the Act: |  | Common Stock, par value $.001 per share
Series A 8.0% Cumulative Compounding Preferred Stock, par value $.001 per share
|----------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------

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Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. YES o    NO ý

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ý

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act.) YES o    NO ý

As of April 9, 2004, the number of outstanding shares of the Registrant's Common Stock was 35,124,794. The information in this report gives effect to a
10-for-1 stock split that occurred on July 24, 2003.

In
reliance on Rule 12b-21 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), this Annual Report on Form 10-K does not include
financial information of Primary PDC, Inc. for periods prior to January 1, 2002 as required by Form 10-K.



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TABLE OF CONTENTS



|ITEM 1.  |  | BUSINESS                                                                                                     |  | 1 
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|ITEM 2.  |  | PROPERTIES                                                                                                   |  | 6 
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                                            |  | 8 
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                          |  | 9 
|ITEM 5.  |  | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 9 
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                                                      |  | 10
|ITEM 7.  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 12
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 35
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                                                                 |  | 35
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 84
|ITEM 9A. |  | CONTROLS AND PROCEDURES                                                                                      |  | 84
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                           |  | 84
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                                       |  | 88
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 91
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                               |  | 92
|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                       |  | 94
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                                              |  | 96

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Forward-Looking Statements

Some statements in this report may be forward looking in nature, or "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as "believe", "expect", "anticipate", "should", "plan", "seek", "goal", "outlook",
"target", "intend", "will", "estimate" and "potential" among others. Actual results may differ materially from those projected in or implied by any forward-looking statement as a result of a wide
variety of factors, which include, but are not limited to those set forth in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Registrant assumes no
obligation to update forward-looking statements whether as a result of new information, future events or otherwise.

Item 1. Business

Nature of Operations

Polaroid Holding Company ("Holding"), together with its consolidated subsidiaries (collectively, the "Company"), designs, develops, manufactures and markets
instant and digital imaging products and related products. The Company's principal products are instant cameras and instant film, which are marketed worldwide. In addition to its principal products,
the Company designs, develops, manufactures and/or markets photographic hardware accessories for the instant photography market. The Company's other products and services consist of eyewear,
principally sunglasses, and secure identification systems for commercial applications. The Company is currently developing and test marketing hardware and media with applications in the instant
digital printing market. The Company also performs contract manufacturing for and licenses its brand and technology to third parties.

The
Company sells its products directly to and through mass merchandisers; food, drug, discount and department stores; photo retail and specialty stores; wholesalers; original equipment
manufacturers ("OEMs"); independent agents; retail outlets; and distributors.

Background

Prior to August 2002, the business of the Company was operated by Primary PDC, Inc., formerly known as Polaroid Corporation, and its subsidiaries
(collectively "Primary"). In October 2001, Primary PDC, Inc. and twenty of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in
the U.S. Bankruptcy Court in the District of Delaware. The Company, through certain of its subsidiaries, acquired substantially all of the domestic assets and businesses of Primary and its domestic
subsidiaries and the capital stock of its foreign subsidiaries on July 31, 2002 in a sale transaction approved by an order of the U.S. Bankruptcy Court (the "Transaction"). Pursuant to the
Transaction, the Company also assumed certain of the liabilities and obligations of Primary. Holding was formed in 2002 as a Delaware corporation for the purpose of completing the Transaction.
Holding's principal office is located at 1265 Main Street, Waltham, Massachusetts 02451. The Company maintains a website located atwww.polaroid.com.Primary PDC, Inc. continues to exist as a distinct legal entity.

THE INFORMATION PRESENTED BELOW DOES NOT INCLUDE FINANCIAL INFORMATION ON PRIMARY FOR PERIODS PRIOR TO JANUARY 1, 2002 SINCE AUDITED INFORMATION ON THOSE PERIODS
IS NOT AVAILABLE TO THE COMPANY. AS A RESULT, THIS DOCUMENT DOES NOT CONTAIN ALL OF THE FINANCIAL INFORMATION THAT IS REQUIRED BY THE RULES AND REGULATIONS APPLICABLE TO THIS REPORT REGARDING THE
RESULTS OF OPERATIONS FOR THE BUSINESS OPERATIONS ACQUIRED BY THE COMPANY IN THE TRANSACTION. THE ABSENCE OF 2001 AUDITED FINANCIAL STATEMENTS AND PRIOR PERIOD FINANCIAL INFORMATION FOR PRIMARY COULD
BE MATERIAL TO INVESTORS. FURTHER, INVESTORS SHOULD NOT ASSUME THAT THE RESULTS OF OPERATIONS FOR THE PERIODS CONTAINED HEREIN BEAR ANY

1

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CORRELATION TO THE RESULTS OF OPERATIONS OF PRIMARY FOR PERIODS PRIOR TO 2002, NOR SHOULD THEY ASSUME THAT TRENDS DERIVED FROM COMPARING THE COMBINED RESULTS FOR 2002 OF PRIMARY AND THE COMPANY TO THE
RESULTS FOR 2003 OF THE COMPANY ARE INDICATIVE OF ANY SUCH TRENDS IN ANY OTHER PERIODS.

The Transaction

The total purchase price for the Transaction consisted of cash consideration of $255 million adjusted for approximately $58 million of cash payments
made by Primary prior to or at the closing. The Company also recorded liabilities of approximately $224 million related to the Transaction. In addition, at the closing of the Transaction,
Holding issued to Primary 10,769,230 shares of the 30,769,230 then outstanding shares of its Common Stock, par value $0.001 per share (the "Common Stock"), and 312,300 shares of the 892,300 then
outstanding shares of its Series A 8.0% Cumulative Compounding
Preferred Stock, par value $0.001 per share (the "Preferred Stock"). Refer to Note 1 of the consolidated financial statements contained in Item 8.Financial Statements
and Supplementary Datafor more information on the Transaction.

Business Strategy

The Company's continued financial success will largely be dependent on its generation of cash flow, primarily from its instant camera and film products, effective
management of working capital, as well as managing the decline in the Company's instant camera and film business. The Company also plans to enter the digital printing market.

The
market for instant photography cameras and film has been experiencing a significant and steady decline in demand due to competition from digital camera products and media formats.
This declining demand continues to have a negative impact on the net sales of the Company's instant camera and film products. The Company's strategy is to:



To
enhance and revitalize its instant photography business the Company plans to:



Additionally,
at the end of 2003, the Company established an e-commerce capability allowing consumers to purchase products online.

The
Company believes that there will be continued growth in the creation, printing and communication of digital images in the next few years and intends to focus selectively on this
trend. The Company is exploring digital printing applications that may be suitable for home, retail, commercial and mobile markets. The Company seeks to develop and commercialize digital imaging and
printing products and solutions that print digital images easily, quickly, conveniently and affordably.

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The
Company has made and continues to make a significant investment in instant digital printing, including the alignment of its research and development to focus on the changing needs of the
marketplace and the opportunities in instant digital printing.

The
Company seeks to identify and secure business partnerships and alliances to support its products and services, extend its markets, and build upon its research and development
initiatives. These efforts include the Company's brand and technology licensing activity.

Principal Products and Technology

Instant Photography

The Company's instant photography products consist of instant cameras and film in a variety of styles and formats. Instant cameras and film accounted for
approximately 87% of the Company's net sales for the twelve-month period ending December 31, 2003.

The
larger format instant camera and film products consist primarily of:



The
instant camera and film products in the smaller instant format are the Company's Polaroid i-Zone products. The larger format products have historically had higher margins
than the smaller formats. Sales of the smaller instant format products account for substantially less revenue and gross profit than the larger format products.

Instant Digital Printing

The Company believes that there will be continued growth in the creation, printing and communication of digital images in the next few years and intends to focus
selectively on this trend. The Company is exploring digital printing applications that may be suitable for home, retail, commercial and mobile markets. The Company has made and continues to make a
significant investment in instant digital printing. The Company is currently developing and test marketing hardware and media products in the instant digital printing market. There can be no
assurance, however, that the Company will commercialize any of these products.

Polaroid Brand Licensing

The Polaroid brand is recognized and respected worldwide, providing a strong foundation for the Company's licensing strategy based on both enhancing the
reputation of the brand and generating income. Brand licensing also offers opportunities to extend the Company's distribution in multiple business markets.

Technology Licensing

Technology licensing generates revenue from the Company's portfolio of patents. The Company has many proprietary technologies available for licensing.

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Other Products

The Company also designs, manufactures and sells eyewear, principally sunglasses, secure identification systems for commercial applications, and photographic
hardware accessories. In addition, the Company performs contract manufacturing for third parties.

Regional Sales and Marketing Operations

In each sales and marketing region, the Company has two principal markets for its traditional products: consumer photography and commercial photography. While the
products are similar worldwide, the mix between consumer and commercial photography varies by region and country. Because of this, the Company develops regional marketing strategies. This permits the
Company's management in each region the opportunity to develop advertising and promotional programs, organize its distribution structure, target its communications, and tailor its product portfolio to
meet the needs of the regional marketplace. Regional management of the sales and marketing functions enables the Company to deliver products to its customers in a cost-effective manner.

Competition

The Company operates in the worldwide photography market, which is highly competitive in design, product performance, quality, service and price. Instant silver
halide, conventional 35mm and digital imaging products manufactured by others compete with the Company's products. The Company has competitors worldwide, including large global corporations, most of
which have greater financial resources than the Company. The Company also faces competition from local and regional companies, which may be more specialized than the Company. In the instant
photography market, the Company faces direct competition from Fuji Photo Film Co., Ltd. ("Fuji"), which sells instant photography products in Asia, Europe, Canada and the United States. The
Company's instant cameras and film products also face competition from Eastman Kodak Company, Fuji, Hewlett-Packard Company, Canon U.S.A., Inc., Sony Corporation, Epson America, Inc. and
others.

Customers

In the United States, the Company sells its products to a variety of customers (refer to "Nature of Operations" section above). Internationally, products are sold
to a variety of customers and unaffiliated distributors primarily through a direct sales force.

Sales
to one customer, Wal-Mart Stores, Inc., accounted for approximately 14% of the Company's worldwide net sales in 2003. Substantially all of the sales to
Wal-Mart Stores, Inc. occurred in the Americas Region. No other customer accounted for more than 10% of the Company's total net sales in the year ended December 31, 2003.

Manufacturing

The Company manufactures its instant film and some of its cameras. For certain of its instant cameras, hardware and other products, it uses third-party
manufacturers. The Company's products, whether manufactured in-house or by third parties, are shipped primarily from facilities in the United States and The Netherlands. Product sourcing
decisions are made on a worldwide basis to optimize cost and customer service.

The
Company has manufacturing sites located in Waltham, Norwood, and New Bedford, Massachusetts; Dumbarton, Scotland; Enschede, The Netherlands; Queretaro, Mexico; and Shanghai, China.
The Company believes that the capacity of its manufacturing facilities is sufficient to meet the current demand for its products. The Company performs the final assembly of cameras at its facilities

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in
Scotland and China or contracts with third parties who manufacture cameras to the Company's design specifications. Refer to Item 2.Propertiesbelow
for more information.

The
manufacture of instant film is a vertically integrated process that has two major steps: the production of photographic materials, principally photographic negatives; and the
assembly of film packs. The Company makes photographic negatives by purchasing and producing custom chemicals and coating them on the film sheets using proprietary technology. In addition, most of the
Company's instant integral films use batteries that it manufactures. The non-assembly processes are located in the United States and are capital intensive. By contrast, the assembly of
film packs is highly mechanized and occurs in The Netherlands, Scotland and Mexico, as well as the United States. The Company continues to explore opportunities to outsource certain of its
manufacturing operations and to eliminate underutilized capacity by consolidating its manufacturing facilities.

Research and Development

The Company conducts research and development ("R&D") to create value through the development of proprietary technology platforms with broad product
applicability. Most of the Company's current research and development resources are dedicated to instant digital printing solutions and services. The balance is largely related to new instant camera
designs.

Raw Materials, Supplies and Contract Manufacturing

The Company uses a variety of raw materials and supplies in the manufacture of its products, including chemicals, polyester film base, specialty papers and
electronic components. It purchases these products from third-party suppliers, except for a few self-manufactured raw materials used in low volumes. The Company believes these raw
materials and supplies will continue to be available in sufficient quantities to meet the current demand for its products. The Company is dependent on some sole source suppliers for certain finished
goods and components, some of which are critical to the manufacture of instant film.

Employees

As of December 31, 2003, the Company had approximately 3,400 employees. Approximately two-thirds of the Company's employees are in
manufacturing operations.

Environmental Compliance

The Company's environmental compliance is primarily associated with its manufacturing and logistics, and research and development operations. The Company is
subject to various laws and governmental regulations concerning environmental matters. Some of the U.S. federal environmental legislation having an impact on the Company's manufacturing operations
includes the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Clean Air Act, and the Comprehensive Environmental Response, Compensation, and Liability Act. It is the
Company's policy to carry out its business activities in a manner consistent with sound health, safety and environmental management practices, and to comply with applicable health, safety and
environmental laws and regulations. The Company continues to engage in a program for environmental protection and control.

Business Segments

The Company's reportable business segments are: the Americas Region; the International Region; Global Manufacturing; and R&D. It also has an All Other segment
that includes: the eyewear business; the commercial secure identification systems business; brand and technology licensing operations; and contract manufacturing. The Americas Region consists of
sales, marketing and distribution operations in the United States of America and other countries in North and South America. The International

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Region
consists of sales, marketing and distribution operations outside the Americas Region. Global Manufacturing consists of worldwide activities associated with manufacturing, procurement,
developing manufacturing processes for new products, and inventory management. R&D consists of the Company's research and development activities.

The
Company has one category called Corporate, which is not classified as a segment. This category includes: central marketing; centralized information systems; general and
administrative functions; worldwide finished goods planning activities; and certain other corporate functions. The Corporate category also includes costs related to restructuring activities, certain
incentive compensation costs and certain other non-operating items. For more information regarding the net sales, profit/(loss) from operations and total assets of each of the business
segments and net sales and long-lived assets by geographic area, refer to Note 15 of the consolidated financial statements contained in Item 8.Financial
Statements and Supplementary Data.

Item 2. Properties

The Company's worldwide headquarters are located in Waltham, Massachusetts. The Company has manufacturing facilities and marketing and distribution centers
throughout the world. The following is a summary of real estate owned and leased by the Company and the business segments to which such real estate relates as of December 31, 2003:

Properties Occupied by the Company
at December 31, 2003Owned

Leased

Total(in thousands of square feet)Location:Americas Region

30

26

56International Region

96

204

300Global Manufacturing

2,271

599

2,870R&D

185



185All Other

8

20

28Subtotal Segments

2,590

849

3,439Corporate

326

409

735Total

2,916

1,258

4,174


The
Company currently maintains distribution centers located in Norton, Massachusetts and in Enschede, The Netherlands. The Company also has two regional sales offices in the United
States. The
International Region has marketing subsidiaries and sales offices located in the United Kingdom, France, Germany, Italy, Spain, Switzerland, and certain other European countries. It also has marketing
subsidiaries and sales offices located in China, Hong Kong, Japan, and certain other countries in Asia, as well as in Mexico and Canada.

At
December 31, 2003, based on square footage, approximately 99% of the properties owned or leased by the Company in the United States were located in Massachusetts. The following
table gives

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the
approximate size of each property located in Massachusetts and whether the space is owned or leased:

Massachusetts Properties
at December 31, 2003Owned

Leased

Total(in thousands of square feet)Location:Waltham

1,013

388

1,401New Bedford

739



739Norwood



139

139Norton



336

336Wayland



30

30Total

1,752

893

2,645


The
Company's United States manufacturing occurs in properties owned or leased by the Company in Waltham, Norwood and New Bedford, Massachusetts. Most of the Company's central or
corporate marketing, research and administrative offices are located in Waltham, Massachusetts. In addition to the properties owned by the Company in Waltham and New Bedford, the Company also has
leased properties in Waltham, Norwood, Wayland and Norton with leases that expire between 2004 and 2014. All of the Company's owned properties are subject to mortgages in favor of the lenders under
the Company's Credit Agreement.

The
Company's main properties located outside the United States house manufacturing facilities and regional marketing subsidiaries and sales offices. The principal non-U.S.
manufacturing facilities are located in Enschede, The Netherlands; Dumbarton, Scotland; Queretaro, Mexico; and Shanghai, China. These facilities also contain some administrative and regional marketing
activities. The following table gives the approximate size of each property located outside of the United States and whether the space is owned or leased:

Manufacturing Facilities Outside
of the United States
at December 31, 2003Owned

Leased

Total(in thousands of square feet)Location:The Netherlands

475



475Scotland

374



374Mexico

215



215China



119

119Total

1,064

119

1,183


Reducing
costs is a continuing objective of the Company in 2004. The Company has been and expects to continue consolidating underutilized facilities, selling certain facilities as market
conditions permit and replacing certain space through leasing rather than acquisitions, subject to the restrictions under the Company's Credit Agreement. For more information on the Company's Credit
Agreement, refer to "Financial Liquidity and Capital Resources" in Item 7.Management's Discussion and Analysis of Financial Condition and Results of
Operationsand Note 8 to the consolidated financial statement in Item 8Financial Statements and Supplementary Data.

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Item 3. Legal Proceedings

The Company owns facilities that are subject to certain federal, state and local laws and regulations relating to environmental protection, including those
governing the investigation and remediation of contamination resulting from releases of hazardous substances. Certain of these laws and regulations may impose joint and several liabilities on the
Company for the costs of investigation or remediation of such contamination, regardless of fault or the legality of the disposal.

The
Company is involved in legal proceedings and claims arising in the normal course of business. The Company was also a party-in-interest in the bankruptcy
proceedings of Primary and twenty of its domestic subsidiaries (the "Debtors"). On February 10, 2003, the U.S. Bankruptcy Court entered an Order appointing an independent examiner pursuant to
Sections 1104 and 1106 of the U.S. Bankruptcy Code "to investigate whether accounting methods, accounting practices and accounting irregularities alleged in certain letters to the U.S. Bankruptcy
Court materially undervalued the assets of the Debtors and/or resulted in an inappropriate liquidation of the Debtors' assets." The independent examiner issued his findings on August 22, 2003,
concluding that these matters
did not materially undervalue and/or result in an inappropriate liquidation of the Debtors' assets. Following the independent examiner's findings, the Third Amended Joint Plan of Reorganization of
Primary was confirmed by the U.S. Bankruptcy Court on November 18, 2003 and became effective on December 17, 2003. The confirmation has been appealed by a former shareholder of Primary.
While there can be no assurance of the outcome of this litigation, the Company does not believe that the disposition of these matters will have a material adverse effect on its results of operations
or financial condition.

On
July 7, 2003, five former employees of Primary filed a complaint against Primary, the Company and One Equity Partners LLC ("OEP") in the United States District Court for the
District of Massachusetts on behalf of a purported class of over 100 individuals. In November 2003, the plaintiffs filed an amended complaint dismissing OEP and Primary but continuing their
action against the Company and adding an individual plaintiff. The plaintiffs claim, among other things, that the Company conspired with Primary to wrongfully reduce Primary's obligations to its
employees who were receiving long-term disability payments, in violation of the Employee Retirement Income Security Act ("ERISA"). The plaintiffs seek an injunction ordering the defendants
to restore their purported benefits and to pay them damages stemming from the alleged ERISA violations. The amount of damages claimed is not specified in the amended complaint. In January 2004,
the Company filed (1) a motion in the United States District Court for the District of Massachusetts to dismiss the amended complaint and (2) an adversary proceeding in the U.S.
Bankruptcy Court seeking a declaratory judgment that the bankruptcy sale order enjoined the plaintiffs from bringing the amended complaint against the Company. While there can be no assurance of the
outcome of this litigation, the Company does not believe that the disposition of these matters will have a material adverse effect on its results of operations or financial condition.

Following
the issuance of the independent examiner's findings, former shareholders of Primary filed a lawsuit on August 26, 2003 in the United States District Court for the
Southern District of New York alleging securities fraud against KPMG LLP, auditors for both Primary and the Company, as well as certain other individuals who were former officers of Primary. The
lawsuit alleges that the financial statements of Primary contained material misstatements and omissions, and that the defendants knowingly and/or recklessly caused such financial statements to be
issued. Specifically, the examiner raised issues related to the timing of issuing "going concern" opinions on Primary's financial statements by KPMG LLP, the provision of valuation allowances on
deferred tax assets in 2000 and 2001, and the release of excess restructuring accruals in Primary's financial statements in 2000. Since August 26, 2003, there have been a number of additional
lawsuits filed that mirror the allegations raised in this lawsuit and other lawsuits (which also name the Chief Financial Officer of the Company as a defendant) making similar allegations as well as
lawsuits alleging ERISA violations. The Company is not a party to

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any
of these lawsuits and does not believe that the disposition of these matters will have a material adverse effect on its results of operations or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As of December 31, 2003, Holding's Common Stock was not publicly traded on any exchange or in any market, and Holding had forty-six
(46) holders of record of its Common Stock. Holding has never paid a cash dividend on its Common Stock. The Company's Credit Agreement prohibits the declaration and payment of dividends on the
Common Stock. As of December 31, 2003, Holding had twenty-four (24) holders of record of its Preferred Stock.

In
February 2003, Holding sold 1,987,700 shares of Common Stock to 10 executives, officers and directors pursuant to Holding's Restricted Stock Purchase Program for an aggregate
price of $1,987.70. These sales were exempt from registration under Section 4(2) of the Securities Act or pursuant to Rule 701 promulgated thereunder.

In
March 2003, Holding sold 867,690 shares of Common Stock to 6 executives, officers and directors pursuant to Holding's Restricted Stock Purchase Program for an aggregate price
of $867.69. These sales were exempt from registration under Section 4(2) of the Securities Act or pursuant to Rule 701 promulgated thereunder.

In
April 2003, Holding sold 61,540 shares of Common Stock to 1 officer pursuant to Holding's Restricted Stock Purchase Program for an aggregate price of $61.54. These sales were
exempt from registration under Section 4(2) of the Securities Act or pursuant to Rule 701 promulgated thereunder.

In
May 2003, Holding sold 828,420 shares of Common Stock to 18 executives, officers and directors pursuant to Holding's Restricted Stock Purchase Program for an aggregate price of
$828.42. These sales were exempt from registration under Section 4(2) of the Securities Act or pursuant to Rule 701 promulgated thereunder.

In
June 2003, Holding sold 141,460 shares of Common Stock to 1 executive, and 1 officer pursuant to Holding's Restricted Stock Purchase Program for an aggregate price of $141.46.
These sales were exempt from registration under Section 4(2) of the Securities Act or pursuant to Rule 701 promulgated thereunder.

In
July 2003, Holding sold 137,930 shares of Common Stock to 1 director pursuant to Holding's Restricted Stock Purchase Program for an aggregate price of $137.93. These sales were
exempt from registration under Section 4(2) of the Securities Act or pursuant to Rule 701 promulgated thereunder.

In
August 2003, Holding sold 42,440 shares of Common Stock to 1 director pursuant to Holding's Restricted Stock Purchase Program for an aggregate price of $42.44. These sales were
exempt from registration under Section 4(2) of the Securities Act or pursuant to Rule 701 promulgated thereunder.

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As set forth in the table below, Holding redeemed 50% of its Series A Preferred Stock in November 2003.

ISSUER PURCHASES OF EQUITY SECURITIES

|Period        |  | Type of Security                                   |  | Total Number of
Shares Purchased |  | Aggregate
Purchase Price
|------------- |  | -------------------------------------------------- |  | -------------------------------- |  | ------------------------
|November 2003 |  | Series A 8% Cumulative Compounding Preferred Stock |  | 446,150                          |  | $                       

On
April 14, 2004, Holding paid a dividend of $1.4 million on its Preferred Stock (representing all accrued and unpaid dividends on its Preferred Stock as of that date) and
redeemed 50% of the then outstanding Preferred Stock for $22.3 million. Holding plans to redeem the balance of the Preferred Stock during 2004, subject to Holding's cash requirements.

Item 6. Selected Financial Data

Except for the three-month periods ended December 31, 2003 and 2002 and certain of the other statistical data, the information below is derived from the
audited financial statements of the Company for 2003 and the period from Inception (refer to Note 1 of the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data) to December 31, 2002, and of Primary for the period from January 1 to July 31, 2002.

THE INFORMATION PRESENTED BELOW DOES NOT INCLUDE FINANCIAL INFORMATION ON PRIMARY FOR PERIODS PRIOR TO JANUARY 1, 2002 SINCE AUDITED INFORMATION ON THOSE PERIODS
IS NOT AVAILABLE TO THE COMPANY. AS A RESULT, THIS DOCUMENT DOES NOT CONTAIN ALL OF THE FINANCIAL INFORMATION THAT IS REQUIRED BY THE RULES AND REGULATIONS APPLICABLE TO THIS REPORT REGARDING THE
RESULTS OF OPERATIONS FOR THE BUSINESS OPERATIONS ACQUIRED BY THE COMPANY IN THE TRANSACTION. THE ABSENCE OF 2001 AUDITED FINANCIAL STATEMENTS AND PRIOR PERIOD FINANCIAL INFORMATION FOR PRIMARY COULD
BE MATERIAL TO INVESTORS. FURTHER, INVESTORS SHOULD NOT ASSUME THAT THE RESULTS OF OPERATIONS FOR THE PERIODS CONTAINED HEREIN BEAR ANY CORRELATION TO THE RESULTS OF OPERATIONS OF PRIMARY FOR PERIODS
PRIOR TO 2002, NOR SHOULD THEY ASSUME THAT TRENDS DERIVED FROM COMPARING THE COMBINED RESULTS FOR 2002 OF PRIMARY AND THE COMPANY TO THE RESULTS FOR 2003 OF THE COMPANY ARE INDICATIVE OF ANY SUCH
TRENDS IN ANY OTHER PERIODS.

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Selected Financial Data
(in millions, except share and per share data)

|                                                                                                          |                                                              | Company |        | I     |   | Primary |       | I |   | Company |       
|--------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------- | ------ | ----- | - | ------- | ----- | - | - | ------- | ------
|
|
|Consolidated Statement of Earnings                                                                        |                                                              |         |        |       |   |         |       | I |   |         |       
|Net sales                                                                                                 |                                                              | $       | 752.7  |       | $ | 363.9   |       | I |   | $       | 443.6 
|                                                                                                          |                                                              |         |        |       |   | I       |       |   |   | I       |       
|                                                                                                          | Cost of goods sold                                           |         |        | 378.4 |   |         | 213.3 |   | I |         |       
|                                                                                                          | Marketing, research, engineering and administrative expenses |         |        | 278.3 |   |         | 120.9 |   | I |         |       
|                                                                                                          | Restructuring and other charges                              |         |        | 4.7   |   |         | 5.1   |   | I |         |       
|                                                                                                          |                                                              |         |        |       |   | I       |       |   |   | I       |       
|Total costs                                                                                               |                                                              |         | 661.4  |       |   | 339.3   |       | I |   |         | 487.1 
|                                                                                                          |                                                              |         |        |       |   | I       |       |   |   | I       |       
|Profit/(loss) from operations                                                                             |                                                              |         | 91.3   |       |   | 24.6    |       | I |   |         | (43.5 
|                                                                                                          | Other income/(expense), net                                  |         |        | 3.7   |   |         | (0.6  | ) | I |         |       
|                                                                                                          | Interest expense                                             |         |        | (3.4  | ) |         | (1.9  | ) | I |         |       
|                                                                                                          | Reorganization loss                                          |         |        |      |   |         |      |   | I |         |       
|                                                                                                          |                                                              |         |        |       |   | I       |       |   |   | I       |       
|Earnings/(loss) before extraordinary gain /(loss) and income tax expense                                  |                                                              |         | 91.6   |       |   | 22.1    |       | I |   |         | (819.3
|                                                                                                          | Federal, state and foreign income tax expense                |         |        | 22.9  |   |         | 6.9   |   | I |         |       
|                                                                                                          |                                                              |         |        |       |   | I       |       |   |   | I       |       
|Earnings/(loss) before extraordinary
gain/(loss)                                                          |                                                              |         | 68.7   |       |   | 15.2    |       | I |   |         | (832.2
|                                                                                                          | Extraordinary gain/(loss)                                    |         |        | 2.6   |   |         | 122.6 |   | I |         |       
|                                                                                                          |                                                              |         |        |       |   | I       |       |   |   | I       |       
|Net earnings/(loss)                                                                                       |                                                              | $       | 71.3   |       | $ | 137.8   |       | I |   | $       | (832.2
|                                                                                                          |                                                              |         |        |       |   | I       |       |   |   | I       |       
|Net earnings/(loss) available to common stockholders                                                      |                                                              | $       | 64.3   |       | $ | 134.8   |       | I |   | $       | (832.2
|Basic earnings/(loss) per common share before extraordinary gain/(loss)                                   |                                                              | $       | 2.01   |       | $ | 0.40    |       | I |   | $       | (16.82
|Basic earnings/(loss) per common share                                                                    |                                                              | $       | 2.09   |       | $ | 4.38    |       | I |   | $       | (16.82
|Diluted earnings/(loss) per common share before extraordinary gain/(loss)                                 |                                                              | $       | 1.95   |       | $ | 0.40    |       | I |   | $       | (16.82
|Diluted earnings/(loss) per common share                                                                  |                                                              | $       | 2.03   |       | $ | 4.38    |       | I |   | $       | (16.82
|Cash dividends per common share                                                                           |                                                              |         |       |       |   |        |       | I |   |         |      
|Weighted average number of common shares used for basic earnings/(loss) per common share (in thousands)   |                                                              |         | 30,769 |       |   | 30,769  |       | I |   |         | 49,480
|Weighted average number of common shares used for diluted earnings/(loss) per common share (in thousands) |                                                              |         | 31,640 |       |   | 30,769  |       | I |   |         | 49,480
|Common shares outstanding at end of period (in thousands)                                                 |                                                              |         | 34,836 |       |   | 30,769  |       | I |   |         | 49,480
|Other Statistical Data:                                                                                   |                                                              |         |        |       |   |         |       |   |   |         |       
|Additions to property, plant and equipment                                                                |                                                              | $       | 22.6   |       | $ | 10.4    |       | I |   | $       | 9.1   
|Depreciation                                                                                              |                                                              | $       | 2.2    |       | $ | 0.1     |       | I |   | $       | 54.7  

11

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|                                   |                                   | Company
|---------------------------------- | --------------------------------- | -------
|
|
|Selected Balance Sheet Information |                                   |        
|                                   | Working capital                   |        
|                                   | Net property, plant and equipment |        
|                                   | Total assets                      |        
|                                   | Preferred Stock                   |        
|                                   | Common stockholders' equity       |        

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Business

The Company designs, develops, manufactures and markets instant and digital imaging products and related products. The Company's principal products are instant
cameras and instant film, which are marketed worldwide. In addition to its principal products, the Company designs, develops, manufactures and/or markets photographic hardware accessories for the
instant photography market. The Company's other products and services consist of eyewear, principally sunglasses, and secure identification systems for commercial applications. The Company is
currently developing and test
marketing hardware and media with applications in the instant digital printing market. The Company also performs contract manufacturing for and licenses its brand and technology to third parties.

Background

The following sections should be read in conjunction with the information on the Company in Item 1.Business; Item
6.Selected Financial Data; and the information on the Company and Primary in Item 8.Financial Statements and Supplementary
Data.

THE INFORMATION PRESENTED BELOW DOES NOT INCLUDE FINANCIAL INFORMATION ON PRIMARY FOR PERIODS PRIOR TO JANUARY 1, 2002 SINCE AUDITED INFORMATION ON THOSE PERIODS
IS NOT AVAILABLE TO THE COMPANY. AS A RESULT, THIS DOCUMENT DOES NOT CONTAIN ALL OF THE FINANCIAL INFORMATION THAT IS REQUIRED BY THE RULES AND REGULATIONS APPLICABLE TO THIS REPORT REGARDING THE
RESULTS OF OPERATIONS FOR THE BUSINESS OPERATIONS ACQUIRED BY THE COMPANY IN THE TRANSACTION. THE ABSENCE OF 2001 AUDITED FINANCIAL STATEMENTS AND PRIOR PERIOD FINANCIAL INFORMATION FOR PRIMARY COULD
BE MATERIAL TO INVESTORS. FURTHER, INVESTORS SHOULD NOT ASSUME THAT THE RESULTS OF OPERATIONS FOR THE PERIODS CONTAINED HEREIN BEAR ANY CORRELATION TO THE RESULTS OF OPERATIONS OF PRIMARY FOR PERIODS
PRIOR TO 2002, NOR SHOULD THEY ASSUME THAT TRENDS DERIVED FROM COMPARING THE COMBINED RESULTS FOR 2002 OF PRIMARY AND THE COMPANY TO THE RESULTS FOR 2003 OF THE COMPANY ARE INDICATIVE OF ANY SUCH
TRENDS IN ANY OTHER PERIODS.

Reorganization Proceedings Under Chapter 11 of the Bankruptcy Code Prior to the Asset Purchase Transaction

On October 12, 2001, Primary PDC, Inc. and twenty of its subsidiaries incorporated in the United States (collectively the "Debtors") filed voluntary
petitions for relief (the "Filing") under Chapter 11 of the Bankruptcy Code, in the U.S. Bankruptcy Court. The subsidiaries of Primary PDC, Inc. incorporated outside of the United States were
not included in the Filing. Prior to the Transaction, the Debtors continued to manage their properties and operate their business as "debtors-in-possession" under the
jurisdiction of the U.S. Bankruptcy Court and in accordance with applicable provisions of the

12

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Bankruptcy
Code. Under the rules of the SEC, Primary is deemed to be the predecessor of the Company for financial reporting purposes.

The
Company was formed in March 2002 for the purpose of acquiring substantially all of the assets of the Debtors, including the stock of the foreign subsidiaries of Primary
PDC, Inc. that were not part of the Filing. On July 31, 2002, the Company purchased substantially all of the assets of the Debtors and the capital stock of the foreign subsidiaries of
Primary PDC, Inc. in a Section 363 asset sale that was approved by the U.S. Bankruptcy Court. For more information regarding the Transaction, refer to Item 1. Businessand Note 1 of the
consolidated financial statements contained in Item 8.Financial Statements and Supplementary
Data. Following the Transaction, Primary remained a separate legal entity.

Comparability of Financial Results

The discussion of the results of operations below is significantly affected by the recent history of the Company and Primary. The Company commenced operations as
of the date of the Transaction. As a result of actions taken during the period following the Filing and leading up to and as a result of the Transaction, the financial results of the Company and
Primary are not comparable. The key events that affect the comparability of results are the following, in chronological order:



DepreciationProduction costs

$
34Operating expenses


21Total

$
55


13

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Overview of 2003 Results

The Company earns its revenues and profits primarily from the sale of instant film and cameras to consumers and businesses. The Company is currently developing
and test marketing hardware and related media with applications in the instant digital printing market. The Company also faces a variety of challenges in responding to the dynamics of the imaging
industry, particularly the digital imaging market, which is characterized by rapid change, evolving customer demands, and intense competition.

The
Company's continued financial success will largely be dependent on its generation of cash flow, primarily from its instant camera and film products, effective management of working
capital, as well as managing the decline in the Company's instant camera and film business. The Company plans to enter the digital printing market.

The
Company's net sales in 2003 were $753 million, which includes a favorable impact from foreign exchange of approximately $27 million. In 2003, the Company incurred
$5 million of restructuring expenses and its non-standard manufacturing costs and its sales and marketing expenses included a total of approximately $14 million from the
unfavorable impact of foreign exchange. Profit from operations in 2003 was $91 million.

The
Company's net earnings in 2003 were $71 million, or $2.03 per common share on a diluted basis. The net earnings in 2003 include an extraordinary gain of $2 million or
$0.08 per common share on a diluted basis.

During
2003, the Company's net cash provided by operating activities was $114 million. Also in 2003, it repaid $18 million of short-term debt, paid
$10 million of dividends on its outstanding Preferred Stock, and redeemed 50% of its Preferred Stock for $44 million. At December 31, 2003, the Company had cash and cash
equivalents of approximately $167 million and no outstanding debt, compared to cash and cash equivalents of approximately $140 million and $18 million of debt at
December 31, 2002.

The
market for instant photography has been experiencing a significant and steady decline in demand due to competition from digital camera products and media formats. Based on
information made available to the Company in connection with the Transaction, the Company estimates that the comparable net sales of Primary for instant film and camera products, excluding the impact
of foreign exchange, declined by approximately 30% in 2001 compared to 2000 and by approximately 24% in the combined 2002 for Primary and the Company compared to 2001. The Company's net sales of
instant film and camera products, excluding the favorable impact of foreign exchange, declined by approximately 13% in 2003 compared to 2002 on a combined basis for the net sales of the Company and
Primary. This declining demand is expected to continue and to have a negative impact on the Company's net sales of instant camera and film products in 2004, and while the rate of this decline has
gone down, it may go up or down in the future. The Company has been attempting to manage its costs to keep its costs in line with the decline in its instant camera and film sales and will be
challenged to continue to reduce these costs in the future.

General

The Company's reportable business segments are: the Americas Region; the International Region; Global Manufacturing; and R&D. The Company also has an All Other
segment that includes: the eyewear business; the commercial secure identification systems business; brand and technology licensing

14

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operations;
and contract manufacturing. The Americas Region consists of sales, marketing and distribution operations in the United States of America and other countries in North and South America. The
International Region consists of sales, marketing and distribution operations outside the Americas Region. Global Manufacturing consists of worldwide activities associated with manufacturing,
procurement, developing manufacturing processes for new products, and inventory management. R&D consists of the Company's research and development activities.

The
Company has one category called Corporate, which is not classified as a business segment. This category includes: central marketing; centralized information systems; general and
administrative functions; worldwide finished goods planning activities; and certain other corporate functions. The Corporate category also includes costs related to restructuring activities, certain
incentive compensation costs and certain other non-operating items. For more information regarding the Company's business segments, refer to Note 15 of the consolidated financial
statements contained in Item 8.Financial Statements and Supplementary Data.

The
Company's senior management evaluates the performance of the business segments based on the segment's impact on profit from operations and its asset management. In the regional sales
and marketing segments, profit from operations is based on standard product costs excluding intercompany margins and therefore reflects contribution to worldwide Company profits from third-party
sales. Non-standard manufacturing costs along with the costs of procurement, inventory management and developing manufacturing processes for new products are reported as costs in profit
from operations in the Global Manufacturing segment. For the R&D segment, research and development costs are expensed as incurred in profit from operations.

The
Americas and International Regions are responsible for managing accounts receivable and for charges associated with reserves for slow moving and obsolete finished goods inventory.
The Company manages and reports worldwide inventories, excluding the slow moving and obsolete finished goods inventories, centrally in Global Manufacturing.

Critical Accounting Estimates

The methods, estimates and judgments the Company uses in applying its accounting policies have a significant impact on the results it reports in its financial
statements. Some of the Company's accounting policies require it to make subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. The Company's
most critical accounting estimates include: revenue recognition, which impacts gross margin; allowance for doubtful accounts, which impacts profit from operations; valuation of inventory, which
impacts gross margin; and recognition and measurement of current and deferred income tax assets and liabilities, which impacts the Company's income tax provision. Below, the Company discusses these
policies further, as well as the estimates and judgments involved.

Revenue Recognition:

The Company recognizes net sales when all of the following criteria have been met: evidence exists that the customer is bound to the transaction; the product has
been shipped and title has passed to the customer; the sales price to the customer has been fixed or is determinable; and collectability of the sales price is reasonably assured. Provisions for
estimated sales returns and allowances are made at the time the products are sold. To arrive at net sales, the Company records reductions to net sales for the cost of programs offered to customers
that include cash and volume discounts, promotional, cooperative and other advertising allowances, and other fees and coupons. The Company recognizes the liability for these programs at the time the
related sales are recorded. The Company determines the cost of these programs based on the terms of the programs, estimates using its historical experience and internal and customer data. The Company
adjusts net sales for the cost of price protection

15

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programs
associated with customer inventories at the time it can reasonably estimate this cost. To the extent actual experience differs from the estimates, adjustments to net sales could be
recognized, which would have an impact on the Company's net earnings.

Allowance for Doubtful Accounts:

The Company's allowance for doubtful accounts is reviewed on a regular basis and is based on a variety of factors including: individual account risk profiles,
which consider customer credit ratings and financial condition reviews; a review of individual accounts receivable aging; and new information that becomes available on specific customers, economic
trends and changes in customer payment terms. If
circumstances related to specific customers were to change, the Company's estimates of the collectability of its accounts receivable could be adjusted, which would have an impact on the Company's net
earnings.

Inventory:

The Company's policy for valuation of inventory, including the determination of obsolete or excess inventory and lower of cost or market reserves, requires it to
estimate the future demand for its products within specific time horizons, generally one year or less. The estimates of future demand that the Company uses in the valuation of inventory are the basis
for the Company's short-term manufacturing and procurement plans. If the demand forecast for specific products is greater than actual demand and the Company fails to reduce its
manufacturing output and procurement accordingly, the Company could be required to record additional inventory reserves, which would have a negative impact on the Company's net earnings.

Income Taxes:

In determining its provision for income taxes for financial statement purposes, the Company must make certain estimates and judgments. These estimates and
judgments occur in the calculation of certain tax liabilities and in the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the
tax and financial statement recognition of its revenue and expense.

The
Company must assess the likelihood that it will be able to recover its deferred tax assets. Unless the recovery is more likely than not, the Company must increase its provision for
taxes by recording a reserve, in the form of a valuation allowance, for the deferred tax assets that it estimates may not ultimately be recoverable. Should there be a change in the Company's ability
to recover the remainder of its deferred tax assets, its tax provision would decrease or increase in the period of the change, which would have a positive or negative impact on the Company's net
earnings.

In
addition, the calculation of the Company's income tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes potential
liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on the Company's estimate of the amount of these additional taxes and when they will be due. If the payment
of these amounts ultimately proves to be unnecessary, the reversal of these liabilities would result in tax benefits being recognized in the period when the Company determined the liabilities are no
longer necessary. If the Company's estimate of these tax liabilities proves to be less than the ultimate assessment, a further charge to tax expense would result, which would have a negative impact on
the Company's net earnings.

Results of Operations

The following table presents selected financial information regarding the Company's results of operations for the year ended December 31, 2003 and the
five-month period ended December 31, 2002;

16

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Primary's
results of operations for the seven-month period ended July 31, 2002; and the combined results of operations for the year ended December 31, 2002 for the Company and Primary.
This table is presented for use in the discussion of operating results below. Due to the factors described in the "Comparability of Financial Results" section above, however, the Company does not
believe certain information of Primary is comparable to the Company's information nor does it believe that the combined results for 2002 are necessarily indicative of the Company's operating results
on an annual basis.

The
information on the results of operations is as follows (in millions, except for percentages):

|                                                                 |                                                              | Company |     | I   |   | Primary |     | I |   | Combined |     
|---------------------------------------------------------------- | ------------------------------------------------------------ | ------- | --- | --- | - | ------- | --- | - | - | -------- | ----
|
|Net sales                                                        |                                                              | $       | 753 |     | $ | 364     |     | I |   | $        | 444 
|                                                                 | Cost of goods sold                                           |         |     | 379 |   |         | 213 |   | I |          |     
|                                                                 |                                                              |         |     |     |   | I       |     |   |   | I        |     
|Gross margin                                                     |                                                              |         | 374 |     |   | 151     |     | I |   |          | 153 
|                                                                 | % of Net sales                                               |         |     | 50  | % |         | 41  | % | I |          |     
|                                                                 | Marketing, research, engineering and administrative expenses |         |     | 278 |   |         | 121 |   | I |          |     
|                                                                 | Restructuring and other charges                              |         |     | 5   |   |         | 5   |   | I |          |     
|                                                                 |                                                              |         |     |     |   | I       |     |   |   | I        |     
|Profit/(loss) from operations                                    |                                                              |         | 91  |     |   | 25      |     | I |   |          | (44 
|                                                                 | Other income/(expense), net                                  |         |     | 4   |   |         | (1  | ) | I |          |     
|                                                                 | Interest expense                                             |         |     | (3  | ) |         | (2  | ) | I |          |     
|                                                                 | Reorganization loss                                          |         |     |    |   |         |    |   | I |          |     
|                                                                 |                                                              |         |     |     |   | I       |     |   |   | I        |     
|Earnings/(loss) before extraordinary gain and income tax expense |                                                              |         | 92  |     |   | 22      |     | I |   |          | (819
|                                                                 | Federal, state and foreign income tax expense                |         |     | 23  |   |         | 7   |   | I |          |     
|                                                                 |                                                              |         |     |     |   | I       |     |   |   | I        |     
|Earnings/(loss) before extraordinary gain                        |                                                              |         | 69  |     |   | 15      |     | I |   |          | (832
|                                                                 | Extraordinary gain                                           |         |     | 2   |   |         | 123 |   | I |          |     
|                                                                 |                                                              |         |     |     |   | I       |     |   |   | I        |     
|Net earnings/(loss)                                              |                                                              | $       | 71  |     | $ | 138     |     | I |   | $        | (832
|                                                                 |                                                              |         |     |     |   | I       |     |   |   | I        |     

Consolidated Worldwide Results for years ended December 31, 2003 and 2002

The Company's consolidated net sales and gross margin for 2003 compared to the combined results of the Company and Primary for 2002 were as follows (dollars in
millions):

Company
2003

Combined
2002Net sales

$
753

$
808Gross margin


374


304% of Net sales


50
%

38
%


In
2003 compared to the combined 2002, the Company's consolidated net sales decreased by $55 million or approximately 7%, primarily as a result of lower net sales of instant film
and, to a lesser degree, instant cameras. These decreases were offset, in part, by approximately $27 million from the favorable impact of foreign exchange and increases of approximately
$14 million in net sales in the Company's contract manufacturing operations and, to a lesser degree, licensing. Excluding the favorable

17

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impact
of foreign exchange, the Company's net sales of instant film and cameras declined by approximately 13% in 2003 compared to the combined 2002. The net sales of instant film and cameras in 2003
were negatively impacted by competition from digital camera products and media formats. While the Company continues to pursue new contract manufacturing business, it does not expect to maintain the
higher levels of net sales of its contract manufacturing business in 2004.

The
gross margins for 2003 and the combined 2002 are not comparable due to certain factors as described in the "Comparability of Financial Results" section above. The Company had a gross
margin of 50% in 2003 compared to a gross margin of 38% in the combined 2002. The increase of approximately 12% was primarily the result of: lower manufacturing costs in 2003 due to the Company's
efforts to consolidate its underutilized manufacturing facilities which represented approximately 8 percentage points of this change; the favorable margin impact from the mix of higher margin
products sold in 2003 compared to the combined 2002, including the impact of depreciation related to the Transaction, which represented approximately 3 percentage points of this change; and the
favorable impact of foreign exchange, which represented approximately 1 percentage point of this change.

Marketing,
research, engineering and administrative expenses, excluding R&D segment expenses of $38 million in 2003 and $35 million in the combined 2002 ("SG&A expenses"),
were $240 million in 2003 and $271 million in the combined 2002. These SG&A expenses are not comparable due to certain of the factors as described in the "Comparability of Financial
Results" section above. The decrease of $31 million or approximately 11% in SG&A expenses in 2003 compared to the combined 2002 primarily reflects a reduction of approximately
$41 million in regional sales and marketing expenses to approximately $134 million in 2003 from approximately $175 million in the combined 2002 and a decrease of approximately
$7 million in the non-segment Corporate category expenses in 2003 compared to the combined 2002. These decreases were primarily due to the favorable impact of restructuring programs
described below and essentially no depreciation expense, primarily in the non-segment Corporate category. Due to the impact on the acquired assets of the Company's purchase accounting
related to the Transaction, essentially no depreciation expense was recorded in 2003. These reductions were offset, in part, by approximately $9 million of unfavorable foreign exchange in 2003
and an increase of approximately $8 million in 2003 related to employee incentive compensation, which is considered a non-segment Corporate category administrative expense. The
majority of the SG&A expenses were recorded in the Americas and International Region segments with the remainder recorded primarily in the non-segment Corporate category.

In
2003, restructuring and other charges decreased to $5 million from $17 million in the combined 2002. The charges in 2003 were recorded in the non-segment
Corporate category and primarily related to involuntary severance programs intended to downsize and consolidate certain of the Company's sales and marketing, non-U.S. manufacturing and
Corporate administrative operations. Under these programs, approximately 135 employees are expected to leave the Company by early 2004. The cash payments under this program are expected to be
substantially completed by early 2004.

In
the combined 2002, restructuring and other charges were $17 million consisting of $12 million recorded by Primary and $5 million recorded by the Company. These
charges were recorded in the non-segment Corporate category. The $5 million charge recorded by the Company in the five-month period ended December 31, 2002, primarily related
to involuntary severance programs intended to downsize and consolidate certain of the Company's sales and marketing and non-U.S. manufacturing operations. Approximately 120 employees left
the Company under these programs. In the period from January 1 to July 31, 2002, Primary recorded a charge of approximately $8 million, primarily related to an involuntary
severance program designed to reduce overhead costs and realign its resources. Under this program, approximately 225 sales and marketing employees left Primary, mostly from the International Region.
This charge was offset, in part, by a reversal by Primary of approximately $4 million of previously recorded involuntary severance charges.

18

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In
addition, the restructuring and other charges recorded by Primary in the period from January 1 to July 31, 2002, included approximately $4 million for an
impairment charge related to certain marketing operations that were exited, approximately $3 million of costs related to internal use software that was no longer required to support certain
marketing activities, and approximately $1 million of fixed asset write-offs and exit costs primarily related to a number of non-U.S. activities that were exited. The
exit costs were substantially paid by Primary as of July 31, 2002.

The
restructuring programs implemented by the Company favorably affected the Company's cost and expense levels in 2003. The Company expects the pre-tax savings from the
restructuring charges to be approximately $19 million on an annualized basis, a portion of which has been realized in the five-month period of 2002 and in 2003. Refer to Note 4 of the
consolidated financial statements contained in Item 8.Financial Statements and Supplementary Datafor more information on the restructuring programs of
the Company and Primary.

In
the second quarter of 2002, based on the available information relative to the anticipated sale of substantially all of the assets and businesses of its domestic subsidiaries and the
capital stock of its foreign subsidiaries in the Transaction, Primary recorded an impairment charge of $330 million in its reorganization loss to write off the carrying value of its property,
plant and equipment. In July 2002, Primary recorded a loss on the Transaction of $213 million. This loss was recorded in Primary's reorganization loss. Effective July 31, 2002,
the Pension Benefit Guaranty Corporation ("PBGC") assumed the U.S. pension plan of Primary and as a result, Primary recorded a charge of $184 million related to a minimum pension liability cost
that had been previously recorded in accumulated other comprehensive income, a component of stockholders' equity. In the seven-month period ended July 31, 2002, Primary recorded a cost of
$42 million related to prepetition claims that were expected to be allowed by the U.S. Bankruptcy Court. Both the charge of $184 million related to the U.S. pension plan and the
$42 million related to prepetition claims costs were recorded in Primary's reorganization loss.

Profit
from operations in 2003 and the combined 2002 are not comparable due to certain factors described in the "Comparability of Financial Results" section above. The gross margin and
expenses
discussed above resulted in profit from operations of $91 million in 2003 compared to a loss from operations of $19 million in the combined 2002. The net of other income and expense in
2003 was income of approximately $4 million that consisted primarily of approximately $3 million of distributions from a real estate joint venture that had been developing property in
Cambridge, Massachusetts, and approximately $2 million of interest income offset, in part, by net foreign exchange losses of approximately $1 million. The foreign exchange net loss in
2003 was made up of net foreign exchange transaction losses of approximately $8 million and the recognition of a net foreign translation gain of approximately $7 million previously
recorded in stockholders' equity that resulted from the liquidation of certain non-U.S. subsidiaries. Other expense in the combined 2002 was $3 million and primarily related to
foreign exchange transaction losses offset, in part, by approximately $4 million of distributions from a real estate joint venture that had been developing property in Cambridge, Massachusetts
and approximately $2 million of interest income. In the combined 2002, Primary recorded a $771 million reorganization loss, primarily related to the asset impairment loss of
$330 million, the loss on the Transaction of $213 million, the charge of $184 million related to the assumption of Primary's U.S. pension plan by the PBGC,
pre-petition claims costs of $42 million, professional fees and expenses of $13 million incurred in connection with the Filing and the Chapter 11 process,
$10 million of gains on asset sales and $1 million of interest income.

Income
tax expense was $23 million or approximately 25% on reported earnings before income taxes of $92 million in 2003, compared to an income tax expense of
$20 million on a reported loss before income taxes of $797 million in the combined 2002. The Company's income tax expense in the five-month period ended December 31, 2002 was
approximately $7 million, or approximately 31% on reported earnings before income taxes of approximately $22 million. The Company's income tax

19

---

expense
in 2003 was lower as a percentage of pre-tax earnings primarily due to the use of tax benefits from certain of the Company's foreign operations. The income tax expense of
$13 million for Primary in the period from January 1 to July 31, 2002, primarily represented the income tax expense of certain of its foreign operations. Primary did not record
any income tax benefits associated with the significant losses it incurred during the period from January 1 to July 31, 2002 because it determined it was more likely than not that those
benefits would not be realized. In 2004, the Company expects its worldwide effective tax rate will be significantly lower than in 2003, primarily due to certain expected income tax benefits related to
its foreign operations.

In
2003, the Company's net earnings were $71 million and basic and diluted earnings per common share based on net earnings available to common stockholders were $2.09 and $2.03,
respectively. The Company's net earnings in 2003 include an extraordinary gain of approximately $2 million related to adjustments required under purchase accounting of the fair values of
certain held for sale assets and liabilities acquired in the Transaction. Excluding the extraordinary gain, the Company's basic and diluted earnings per common share in 2003 were $2.01 and $1.95,
respectively.

In
the five-month period ended December 31, 2002, the Company recorded an extraordinary gain of $123 million related to the Transaction. Refer to the section titled
"Transaction" in Item 1.Businessand in Note 1 of the consolidated financial statements contained in Item 8.Financial
Statements and Supplementary Datafor more information concerning the Company's asset purchase from Primary PDC, Inc. and its domestic subsidiaries. The Company's net
earnings in the five-month period ended December 31, 2002, including the impact of the extraordinary gain, were $138 million and its basic and diluted earnings per common share based on
net earnings available to common stockholders were $4.38. Excluding the extraordinary gain, the Company's basic and diluted earnings per common share in the five-month period ended December 31,
2002 were $0.40. The net loss of Primary was $832 million in the seven-month period ended July 31, 2002. The earnings per share information for the combined 2002 is not meaningful due to
the differences in capital structure between the Company and Primary, the factors described in the "Comparability of Financial Results" section above, and the reorganization loss recorded by Primary.

20

---

The
following is a summary of the net sales and profit from operations by business segment (in millions):

|                               |                      | Company           |     | I   |     | Primary |     | I   |   | Combined |    
|------------------------------ | -------------------- | ----------------- | --- | --- | --- | ------- | --- | --- | - | -------- | ---
|
|Net sales to customers:        |                      |                   |     |     |     |         |     |     |   |          |    
|                               | Americas Region      |                   | $   | 423 |     | $       | 203 |     | I |          | $  
|                               | International Region |                   |     | 250 |     |         | 135 |     | I |          |    
|                               | Global Manufacturing |                   |     |    |     |         |    |     | I |          |    
|                               | R&D                  |                   |     |    |     |         |    |     | I |          |    
|                               | All Other            |                   |     | 80  |     |         | 26  |     | I |          |    
|                               |                      |                   |     |     |     | I       |     |     |   | I        |    
|                               |                      | Subtotal Segments |     |     | 753 |         |     | 364 |   | I        |    
|                               | Corporate            |                   |     |    |     |         |    |     | I |          |    
|                               |                      |                   |     |     |     | I       |     |     |   | I        |    
|Total                          |                      | $                 | 753 |     | $   | 364     |     | I   |   | $        | 444
|                               |                      |                   |     |     |     | I       |     |     |   | I        |    
|Profit/(loss) from operations: |                      |                   |     |     |     |         |     |     |   |          |    
|                               | Americas Region      |                   | $   | 152 |     | $       | 69  |     | I |          | $  
|                               | International Region |                   |     | 62  |     |         | 26  |     | I |          |    
|                               | Global Manufacturing |                   |     | (16 | )   |         | (27 | )   | I |          |    
|                               | R&D                  |                   |     | (38 | )   |         | (13 | )   | I |          |    
|                               | All Other            |                   |     | 19  |     |         | 5   |     | I |          |    
|                               |                      |                   |     |     |     | I       |     |     |   | I        |    
|                               |                      | Subtotal Segments |     |     | 179 |         |     | 60  |   | I        |    
|                               | Corporate            |                   |     | (88 | )   |         | (35 | )   | I |          |    
|                               |                      |                   |     |     |     | I       |     |     |   | I        |    
|Total                          |                      | $                 | 91  |     | $   | 25      |     | I   |   | $        | (44
|                               |                      |                   |     |     |     | I       |     |     |   | I        |    

The
profit from operations information presented above for the Company and Primary are not comparable due to the factors as described in the "Comparability of Financial Results" section
above.

Americas Region

The net sales and profit from operations for the Americas Region in 2003 and the combined 2002, were as follows (in millions):

Company
2003

Combined
2002Net sales

$
423

$
454Profit from operations


152


137


Net
sales in the Americas Region decreased by $31 million or approximately 7% in 2003 compared to the combined 2002, primarily due to lower net sales of instant film offset, in
part, by increased sales of instant cameras. Competition from digital camera products and media formats negatively impacted the Company's net sales of instant film in the Americas Region in 2003.

Profit
from operations for the Americas Region in 2003 and the combined 2002 are not comparable due to certain of the factors as described in the "Comparability of Financial Results"
section above. Profit from operations in the Americas Region increased by $15 million or approximately 11% in 2003 compared to the combined 2002. The increase in profit from operations in 2003
related to lower selling and administrative expenses, primarily due to savings from restructuring and, to a lesser degree, lower advertising expenses and essentially no depreciation expense on the
acquired assets, due

21

---

to
impact of the Company's purchase accounting related to the Transaction. This decrease was offset, in part, by the impact of the lower net sales in 2003 compared to the combined 2002.

International Region

The net sales and profit from operations for the International Region for 2003 and the combined 2002 were as follows (in millions):

Company
2003

Combined
2002Net sales

$
250

$
290Profit from operations


62


42


Net
sales in the International Region decreased by $40 million or approximately 14% in 2003 compared to the combined 2002. The decrease primarily related to lower net sales of
instant film and, to a lesser degree, instant cameras offset, in part, by approximately $22 million from the favorable impact of foreign exchange. Excluding the favorable impact of foreign
exchange, net sales in the International Region decreased approximately $62 million or approximately 21% in 2003 compared to the combined
2002. The Company's net sales of instant film and cameras in the International Region in 2003 were negatively impacted by competition from digital camera products and media formats.

Profit
from operations for the International Region in 2003 and the combined 2002 are not comparable due to certain of the factors described in the "Comparability of Financial Results"
section above. Profit from operations in the International Region increased $20 million or approximately 48% in 2003 compared to the combined 2002. The increase in profit from operations in
2003 primarily reflects the favorable impact of foreign exchange, lower selling and administrative expenses in 2003, due to the impact of the Company's restructuring programs, and, to a lesser degree,
essentially no depreciation expense on the acquired assets, due to impact of the Company's purchase accounting related to the Transaction. These increases in operating profit in 2003 were offset, in
part, by the impact of the lower net sales in 2003 compared to the combined 2002 and higher advertising expenses in 2003.

Global Manufacturing

The manufacturing costs, which consist of non-standard costs, including variances from standard costs, procurement costs, inventory management costs,
and development costs for manufacturing processes ("manufacturing non-standard costs"), in the Global Manufacturing segment decreased by $56 million or approximately 78% to
$16 million in 2003 compared to $72 million in the combined 2002. The manufacturing non-standard costs in 2003 and the combined 2002 are not comparable due to certain factors
described in the "Comparability of Financial Results" section above. The decrease in these costs in 2003 primarily reflects the Company's efforts to reduce its underutilized manufacturing capacity
through the consolidation of certain facilities and, to a lesser degree, the impact of inventory write-offs of obsolete material and products in the combined 2002 that did not occur in
2003, and certain planned reductions in film manufacturing development costs in 2003. These decreases were offset, in part, by the unfavorable impact of approximately $5 million of foreign
exchange.

R&D

R&D segment expenses increased by $3 million or approximately 9% to $38 million in 2003 from $35 million in the combined 2002. R&D expenses
in 2003 and the combined 2002 are not comparable due to certain of the factors described in the "Comparability of Financial Results" section above. The increase in R&D expenses in 2003 primarily
related to planned increases in the Company's instant digital printing research and development activities. Approximately three-quarters of the total research and development expenses in 2003 and the
combined 2002 were related to instant digital printing

22

---

activities,
with the balance primarily related to core instant photographic activities, mainly for new instant camera designs in 2003.

All Other

Net sales in the All Other segment increased by $16 million or approximately 25% to $80 million in 2003 compared to $64 million in the
combined 2002. This increase was primarily related to an increase in revenues from certain third party contract manufacturing operations and, to a lesser degree, increased licensing revenues in 2003.
While the Company continues to pursue new contract manufacturing business, it does not expect to maintain the higher levels of net sales of its contract manufacturing business in 2004.

Profit
from operations in the All Other segment increased $9 million to $19 million in 2003 compared to $10 million in the combined 2002. Profit from operations in
the All Other segment in 2003 and the combined 2002 is not comparable due to certain of the factors described in the "Comparability of Financial Results" section above. The increase in profit from
operations in 2003 primarily reflects the margin impact of the increased revenues in the Company's third party contract manufacturing and licensing operations.

Consolidated Worldwide Results for Fourth Quarter of 2003 Compared to Fourth Quarter of 2002

The following table presents selected financial information regarding the Company's results of operations for the three-month periods ended December 2003
and 2002. This table is presented for use in the discussion of operating results below. The information on the results for these periods are as follows (in millions, except for percentages):

CompanyThree month
period ended
December 31,
2003

Three month
period ended
December 31,
2002Net sales

$
188

$
211Cost of goods sold


98


117Gross margin


90


94% of Net sales


48
%

45
%Marketing, research, engineering and administrative expenses


76


66Restructuring and other charges


3


5Profit from operations


11


23Other expense, net


(4
)

Interest expense


(1
)

(1
)Earnings before income tax expense


6


22Federal, state and foreign income tax expense


1


7Net earnings

$
5

$
15


23

---

The
Company's consolidated net sales and gross margin for the fourth quarter of 2003 compared to the fourth quarter of 2002 were as follows (dollars in millions):

Q4
2003

Q4
2002Net sales

$
188

$
211Gross margin


90


94% of Net sales


48
%

45
%


In
the fourth quarter of 2003 compared to the same period of 2002, the Company's consolidated net sales decreased by $23 million or approximately 11%, primarily related to lower
net sales of instant film and, to a lesser degree, instant cameras offset, in part, by approximately $8 million from the favorable impact of foreign exchange. Excluding the favorable impact of
foreign exchange, the Company's net sales of instant film and cameras decreased by approximately 17% in the fourth quarter of 2003 compared to the same period of 2002. The net sales of instant film
and cameras in the fourth quarter of 2003 were negatively impacted by competition from digital camera products and media formats.

The
Company had a gross margin of 48% in the fourth quarter of 2003 compared to a gross margin of 45% in the fourth quarter of 2002. The increase was primarily the result of the mix of
higher margin
products sold in the fourth quarter of 2003 compared to the same period in 2002 and the favorable impact of foreign exchange in 2003.

SG&A
expenses, excluding R&D segment expenses of $12 million in the fourth quarter of 2003 and $8 million in the same period in 2002, were approximately $64 million
and approximately $58 million, for the fourth quarters of 2003 and 2002, respectively. The increase in SG&A in the fourth quarter of 2003 compared to the same period in 2002 primarily reflects
higher incentive compensation expense, which is considered a non-segment Corporate category administrative expense. The SG&A expenses in the fourth quarter of 2003 compared to the fourth
quarter of 2002 also include a reduction of approximately $8 million in regional sales and marketing expenses to approximately $34 million in the fourth quarter of 2003 from
approximately $42 million in the same period in 2002, primarily due to the favorable impact of restructuring programs, as described below, and lower advertising expenses. These savings were
offset by planned increases in certain non-segment Corporate category infrastructure costs and marketing expenses related to new camera products, and approximately $2 million from
the unfavorable impact of foreign exchange. The majority of the Company's SG&A expenses were recorded in the Americas and International Region segments with the remainder recorded primarily in the
non-segment Corporate category.

In
the fourth quarter of 2003, the Company recognized restructuring and other charges of approximately $3 million compared to approximately $5 million in the fourth quarter
of 2002. The charges in both the fourth quarters of 2003 and 2002 primarily related to involuntary severance programs intended to downsize and consolidate certain of the Company's sales and marketing,
non-U.S. manufacturing and non-segment Corporate category administrative operations. Refer to Note 4 of the audited consolidated financial statements contained in Item
8.Financial Statements and Supplementary Datafor more information on the Company's restructuring programs.

The
gross margin and expenses discussed above resulted in profit from operations of $11 million in the fourth quarter of 2003 compared to a profit from operations of
$23 million in the fourth quarter of 2002. The net of other income and expense in the fourth quarter of 2003 was an expense of approximately $4 million primarily consisting of foreign
exchange transaction losses, offset, in part, by a distribution from a real estate joint venture that has been developing property located in Cambridge Massachusetts.

24

---



Income tax expense was $1 million, or approximately 25%, on reported earnings before income taxes of $6 million in the fourth quarter of 2003 compared to an income tax
expense of $7 million, or approximately 31%, on reported earnings before income taxes of $22 million in the fourth quarter of 2002. The decrease in the Company's effective tax rate in
the fourth quarter of 2003 was primarily due to the use of tax benefits from certain of the Company's foreign operations.

In
the fourth quarter of 2003, the Company's net earnings were $5 million and its basic and diluted earnings per common share based on earnings available to common stockholders
were $0.11 and $0.10, respectively. In the fourth quarter of 2002, the Company's net earnings were $15 million and its basic and diluted earnings per common share based on earnings available to
common stockholders were $0.43 and $0.41, respectively.

The
following is a summary of the Company's net sales and profit from operations by business segment (in millions):

CompanyThree month
period ended
December 31,
2003

Three month
period ended
December 31,
2002Net sales to customers:Americas Region

$
105

$
118International Region


64


76Global Manufacturing





R&D





All Other


19


17Subtotal Segments


188


211Corporate





Total

$
188

$
211Profit/(loss) from operations:Americas Region

$
37

$
39International Region


17


13Global Manufacturing


(7
)

(5
)R&D


(12
)

(8
)All Other


5


3Subtotal Segments


40


42Corporate


(29
)

(19
)Total

$
11

$
23


Americas Region

The net sales and profit from operations for the Americas Region for the fourth quarter of 2003 and 2002, were as follows (in millions):

Q4
2003

Q4
2002Net sales

$
105

$
118Profit from operations


37


39


Net
sales in the Americas Region decreased by $13 million or approximately 11% in the fourth quarter of 2003 compared to the same period in 2002, primarily due to lower net sales
of instant film

25

---

offset,
in part, by increased sales of instant cameras. Competition from digital camera products and media formats negatively impacted the Company's net sales in the fourth quarter of 2003.

Profit
from operations in the Americas Region for the fourth quarter of 2003 was $37 million compared to a profit from operations of $39 million in the same period of 2002.
The decrease of $2 million was primarily related to the impact of the lower net sales in the fourth quarter of 2003 offset, in part, by lower selling and administrative expenses, including
lower advertising costs, and, to a lesser degree, savings from restructuring.

International Region

The net sales and profit from operations for the International Region for the fourth quarter of 2003 and 2002 were as follows (in millions):

Q4
2003

Q4
2002Net sales

$
64

$
76Profit from operations


17


13


Net
sales in the International Region decreased by $12 million or approximately 16% in the fourth quarter of 2003 compared to the fourth quarter of 2002. The decrease primarily
related to lower net sales of instant film and, to a lesser degree, instant cameras, offset, in part, by approximately $8 million from the favorable impact of foreign exchange. Excluding the
favorable impact of foreign exchange, the net sales in the International Region decreased by approximately 24% in the fourth quarter of 2003 compared to the same period in 2002. The net sales in this
Region in 2003 were negatively impacted by competition from digital camera products and media formats.

Profit
from operations in the International Region was $17 million in the fourth quarter of 2003 compared to $13 million in the same period in 2002. The increase of
$4 million primarily reflected the favorable impact of foreign exchange and the impact of lower selling and administrative expenses in the fourth quarter of 2003, due to the impact of the
Company's restructuring programs. These increases were offset, in part, by the impact of the lower net sales in the fourth quarter of 2003 compared to the same period in 2002.

Global Manufacturing

Manufacturing non-standard costs were $7 million in the fourth quarter of 2003 compared to $5 million in the fourth quarter of 2002.
Manufacturing non-standard costs were $2 million higher in the fourth quarter of 2003, primarily due to a favorable impact of inventory adjustments in the fourth quarter of 2002
related to the Transaction offset, in part, by certain planned reductions in film manufacturing development costs in the fourth quarter of 2003.

R&D

R&D segment expenses were $12 million in the fourth quarter of 2003 compared to $8 million in the same period in 2002. The increase of
$4 million primarily related to planned increases in the Company's instant digital printing and its core instant photographic research and development activities, mainly in support of new
camera designs in the fourth quarter of 2003. Approximately three-quarters of the Company's total research and development expenses were related to the Company's instant digital printing activities
with the balance primarily related to the Company's core instant photographic activities, mainly in support of new camera designs.

26

---

All Other

Net sales in the All Other segment increased by $2 million or approximately 12% to $19 million in the fourth quarter of 2003 compared to
$17 million in the same period in 2002. This increase was primarily related to the favorable impact of approximately $1 million of foreign exchange and an increase in revenues from third
party contract manufacturing operations in 2003.

Profit
from operations in the All Other segment increased $2 million to $5 million in the fourth quarter of 2003 compared to $3 million in the same period in 2002.
The increase in profit from operations in 2003 primarily reflects the favorable impact of approximately $1 million of foreign exchange and the impact of the increased revenues in the Company's
third party contract manufacturing operations.

Financial Liquidity and Capital Resources

The Company's principal source of capital is provided by its cash flow from operating activities, which may be supplemented by borrowing under the Company's
revolving line of credit as discussed below. A summary of the Company's cash flows in 2003 is as follows (in millions):

Cash provided by operating activities

$
114Cash used by investing activities


(21
)Cash used by financing activities


(72
)Effect of exchange rate changes on cash


6Net increase in cash and cash equivalents

$
27


The
Company's cash and cash equivalents were $167 million at December 31, 2003, an increase of $27 million from $140 million at December 31, 2002. In
2003, net cash provided by the Company's operating activities was $114 million. Net earnings in 2003, adjusted for non-cash items (such as depreciation, deferred taxes and other
non-cash items) contributed approximately $84 million to cash flow from operating activities. A decrease in receivables, inventories, and prepaids and other assets, along with an
increase in compensation and benefits payable also increased cash flows from operating activities by approximately $67 million in 2003. The Company's worldwide days sales outstanding in
accounts receivable at December 31, 2003 decreased to 41 days from 46 days at December 31, 2002. A decrease in income taxes and payables and accruals decreased cash flows
from operating activities by approximately $37 million in 2003.

Net
cash used by the Company for investing activities in 2003 was $21 million, primarily related to capital spending. In 2003, capital spending related to: the Company's efforts
to consolidate operations and upgrade facilities and equipment in Global Manufacturing; spending in support of new products; and Corporate information technology infrastructure upgrades. Included in
the Company's cash flow from investing activities in 2003 were approximately $18 million of pre-tax proceeds from the sale of the Company's held for sale assets, primarily related
to the sale of the Company's manufacturing site located in Norwood, Massachusetts. In connection with this sale, the Company deposited approximately $14 million in accounts with third parties.
Approximately $12 million of these deposits related to possible like-kind property exchanges and approximately $2 million related to the Company's requirement to provide
shared services under a third party lease that was sold with the property. Since the agreements governing these deposits restrict the use of these funds during the six months subsequent to the sale of
the Norwood property, these deposits were recorded in other current assets at December 31, 2003. The Company expects to receive approximately $5 million of the funds in the
like-kind deposits in the second quarter of 2004 with the balance being invested in other property. The approximately $2 million of cash on deposit related to the Company's
requirement to provide shared

27

---

services
is expected to be released to the Company ratably as lease payments are made over an eighteen-month period ending in the first quarter of 2005.

Net
cash used by the Company's financing activities in 2003 was $72 million. This cash outflow related to the payment of a dividend of approximately $10 million on the
Company's Preferred Stock and approximately $44 million related to the redemption of 50% of the outstanding shares of the Preferred Stock in November 2003. The Company also repaid the
outstanding balance of approximately $18 million of the term loan under its Credit Agreement in April 2003.

The
Company's working capital was $242 million at December 31, 2003 compared to $217 million at December 31, 2002.

The
Company expects its capital spending in 2004 to be in the range of $30 to $35 million, primarily related to spending in support of new products, facilities and equipment
upgrades in Global Manufacturing, and Corporate property enhancements and information technology.

As
of July 29, 2002, the Company entered into a three year, $100 million credit facility and accompanying security documents with a group of lenders (the "Credit
Agreement"). The Credit Agreement is secured by, among other things, a first priority security interest in substantially all of the Company's assets in the United States and most of the assets of the
Company's non-U.S. subsidiaries that are designated as borrowers or guarantors under the Credit Agreement. Approximately $5 million of fees paid to the lenders under the Credit
Agreement were recorded as deferred financing fees as of July 31, 2002, and are being amortized over the three-year term of the Credit Agreement.

The
Credit Agreement provides for a term loan of up to $20 million and a three year $80 million revolving credit line, of which $50 million is available to be
borrowed by the Company's U.S. operations and $30 million is available to be borrowed by the Company's non-U.S. subsidiaries that are designated as borrowers under the Credit
Agreement. It also includes provisions for letters of credit in lieu of borrowings under the revolving credit line. In addition, the Credit Agreement contains provisions for borrowings between the
Company's subsidiaries that are designated as borrowers or guarantors.

Under
the revolving credit line in the Credit Agreement, the Company's borrowing availability is reported monthly, as long as certain conditions are met, and is tied to a percentage of
eligible domestic and foreign inventory and accounts receivable. This formula also includes limitations based on a percentage of the value of eligible assets and is subject to certain additional
reserves imposed by the agents for the lenders under the Credit Agreement. Approximately $24 million was available to the Company under the revolving line of credit at December 31, 2003.

The
Company had approximately $18 million classified as short-term debt as of December 31, 2002, which represented the outstanding borrowings under the term
loan provision of the Credit Agreement. The term loan was required to be repaid quarterly on a ratable basis over a two-year period that began on October 31, 2002 and could be
repaid at any time at the Company's option. The Credit Agreement contains provisions for the optional prepayment of all or part of the revolving credit and term loans upon the satisfaction of certain
conditions. However, once the term loan was repaid it could not be drawn on again. The term loan was repaid in full in April 2003. There were no borrowings by the Company under the revolving
line of credit in either 2003 or 2002.

The
Credit Agreement contains covenants requiring that the Company satisfy certain ongoing financial covenants relating to: maximum capital expenditures; maximum expenditures for instant
digital printing research and development expenditures; minimum earnings before interest, taxes, depreciation and amortization; maximum leverage ratio; and minimum tangible net worth. The Credit
Agreement also contains covenants restricting, among other things, the Company's ability to: borrow additional money; incur liens; pay dividends; sell assets; make additional corporate investments;
engage in transactions with the Company's international subsidiaries; enter sale and leaseback transactions;

28

---

purchase
margin stock; enter speculative transactions; cancel indebtedness owed to it; and make subsidiary distributions.

In
addition, the Credit Agreement prohibits: a change in control; fundamental changes; and changes in the nature of the Company's business. The Credit Agreement was amended in 2003 to
provide a $100 million discretionary basket for certain items otherwise restricted such as preferred stock redemptions and dividends, asset acquisitions and investments, as long as certain of
the Company's financial covenants are satisfied. In November 2003, the Company paid approximately $10 million of
Preferred Stock dividends and redeemed 50% of the outstanding shares of its Preferred Stock for approximately $44 million. As a result, approximately $46 million remained from the
$100 million discretionary basket at December 31, 2003. After giving effect to the April 14, 2004 redemption of the Preferred Stock and the payment of dividends thereon,
approximately $22 million remained in the discretionary basket. The Company was in compliance with all of its requirements under the Credit Agreement at of December 31, 2003 and 2002.

The
Company's obligations for non-cancelable operating leases and other purchase obligations as of December 31, 2003 were as follows (in millions):

Payments Due by PeriodTotal

Less than
1 Year

1 to 3
Years

4 to 5
Years

After 5
YearsNon-cancelable operating leases

$
51

$
12

$
15

$
11

$
13Purchase obligations


11


6


5





Total

$
62

$
18

$
20

$
11

$
13


The
Company's purchase obligations above include agreements to purchase goods and services that are legally binding and that include fixed or minimum quantities to be purchased; minimum
price
provisions; or a specific timing of the related transaction. These obligations exclude agreements that are cancelable without penalty and do not include normal purchase orders for raw materials or
other goods and services. In addition, these obligations exclude current liabilities already recorded on the Company's balance sheet at December 31, 2003. These obligations are point in time
estimates based on the information currently available and actual payments could differ. The Company does not have any significant off-balance sheet arrangements as defined in Item 303
(a) (4) (ii) of SEC Regulation S-K.

The
Company believes it will have sufficient financial resources, primarily from its cash flow from operations as well as from its other available sources of liquidity, to meet its
business requirements for the next twelve months. Under the asset purchase agreement for the Transaction, the Company is required to reimburse Primary for certain costs incurred by Primary, if certain
conditions are met. The Company has recorded liabilities of $7 million for these costs as of December 31, 2002. The Company cash collateralized the $7 million of liabilities for
these costs in the first quarter of 2004.

On
April 14, 2004, the Company paid a dividend of $1.4 million on its Preferred Stock (representing all accrued and unpaid dividends on its Preferred Stock as of that date)
and redeemed 50% of the then outstanding Preferred Stock for $22.3 million. The Company plans to redeem the balance of the Preferred Stock during 2004, subject to the Company's cash
requirements.

Under
the provisions of the asset purchase agreement related to the Transaction, if the Debtors incur in excess of certain amounts for estate costs and do not have the funds necessary to
pay for them, they have the right to require Holding to purchase from them up to 4% of the total shares of Common and Preferred Stock of Holding outstanding at the date of the Transaction for up to
$4.5 million.

29

---

Foreign Currency Exchange

The Company generates a substantial portion of its business, including revenues and local purchases, in international markets, which subjects its operations and
cash flows to currency exchange fluctuations. The impact of currency exchange rate movement can be positive or negative in any given period. The Company's ability to counteract currency exchange rate
movement is primarily dependent on pricing and the sourcing of products and services in local markets. However, the Company has limited flexibility to increase prices in local currency to offset the
adverse impact of foreign exchange rate fluctuations. The Company is exposed to currency fluctuations primarily in the Euro, the Japanese Yen and the Pound Sterling.

Impact of Inflation

Inflation continues to be a factor in many of the countries in which the Company does business. The Company's pricing strategy and continuing efficiency
improvements have offset inflation and normal cost increases to a considerable degree. The overall inflationary impact on the Company's earnings has not been material.

New Accounting Standards

Refer to Note 2 to the Company's consolidated financial statements contained in Item 8.Financial Statements and Supplementary
Datafor a full description of recent accounting pronouncements including the expected dates of adoption and effects on the Company's financial condition and results of
operations.

Factors That May Affect Future Results or the Value of Common and Preferred Stock

The Company's business involves a number of risks, some of which are beyond the Company's control. Investing in the Company's Common Stock or Preferred Stock
involves these and other risks. The following is a description of a number of these risks; however, these are not the only risks and uncertainties the Company or holders of its Common Stock or
Preferred Stock face. Additional risks and uncertainties that exist include risks of which the Company is not currently aware or does not currently believe to be material that may also adversely
affect the Company's business.

Sales of Instant Photography Cameras and Film Continue to Decline.

The demand for the Company's instant photography cameras and film continues to experience a significant and steady decline due to competition from digital camera
products and media formats. This declining demand continues to have a negative impact on the net sales of the Company's instant camera and film products. The Company expects the decline to continue,
and there can be no assurance that this trend can be reversed or slowed. This trend could accelerate as digital imaging continues to grow in demand.

In
addition, the Company is updating and refreshing existing products to deploy in the marketplace. The Company's failure to accurately predict the product development schedule as well
as volumes,
product mix, customer demand, sales channels, and configuration could have a negative impact on revenue.

There are Significant Pressures and Challenges in Implementing the Company's Strategy to Bring Instant Digital Printing Products to Market.

The Company has experienced significant pressure and challenges in implementing its strategy to bring instant digital printing products to market, and it expects
these challenges to continue. In addition, with the proliferation of similar products, competition in this area is intensifying.

30

---

Fundamental
to the success of its strategy is the successful development of effective partnerships and alliances and application of the Company's technology and expertise in instant
photography to the developing market for instant digital printing products. More specific factors in this competitive marketplace that could adversely affect operating results in any reporting period
include the Company's failure to:



The Company Competes with Major Competitors that are Larger and More Diversified.

The Company experiences intense competition for sales of its instant photography and digital imaging products. The Company's products compete with 35mm and
digital-imaging products that are widely advertised, well-known, branded products. In most of its markets, the Company has major competitors, most of which are larger and more diversified.
Aggressive competition within its markets to preserve, gain or regain market share can affect its results in any given period. More specific factors in this competitive marketplace that could
adversely affect operating results include the Company's failure to:



31

---



The Absence of 2001 Audited Financial Statements and Prior Period Financial Information for Primary Could Be Material to Investors.

The information presented herein does not include financial information on Primary for periods prior to January 1, 2002 since audited information on those
periods is not available to the Company. As a result, this document does not contain all of the financial information that is required by the rules and regulations applicable to this report regarding
the results of operations for the business operations acquired by the Company in the Transaction. The absence of 2001 audited financial statements and prior period financial information for Primary
could be material to investors. Further, investors should not assume that the results of operations for the periods contained herein bear any correlation to the results of operations of Primary for
periods prior to 2002, nor should they assume that trends derived from comparing the combined results for 2002 of Primary and the Company to the results for 2003 of the Company are indicative of any
such trends in any other periods.

The Company Has a Major Stockholder Whose Interests May Conflict with the Interests of the Company's Other Stockholders.

As of December 31, 2003, One Equity Partners LLC ("OEP") owned a majority of the Company's outstanding Common Stock and Preferred Stock. Accordingly, OEP
will be able to:



OEP
will also be able to prevent or cause a change in control of the Company and will be able to amend the Company's Certificate of Incorporation and Bylaws without the approval of any other of the
Company's stockholders. The interests of OEP may conflict with the interests of the Company's other stockholders.

There is no Established Market for its Common Stock or Preferred Stock.

No established market exists for the Company's Common Stock or Preferred Stock. The Company is not listing its Common Stock or Preferred Stock on any securities
exchange at this time; therefore, there can be no assurance that a market for such securities will develop. If a market does develop, there can be no assurance that the market will continue to exist.
If such a market does develop, the trading price of such securities could be highly volatile.

Some
of the Company's Common Stock and Preferred Stock is expected to be distributed pursuant to Primary's Plan of Reorganization to certain holders of pre-petition claims.
If a large number of such

32

---

holders
seek to sell the securities they receive immediately upon or shortly following this distribution, then the trading price of the securities could be adversely impacted.

The
market prices, if any, of the Common Stock and the Preferred Stock may also be subject to significant fluctuations in response to other factors, including:



Consolidation of the Company's Manufacturing Operations Creates Inherent Risks.

The Company's instant camera and film manufacturing is concentrated into sole source locations. Due to the specialized nature of certain assets located at these
facilities, any suspension of operations as a result of a natural disaster, work stoppage, crisis in the country or terrorism could have a material adverse effect.

Significant Sales and Operations Outside of the United States.

Sales outside of the United States represent a substantial portion of the Company's business. In addition, the majority of its film assembly facilities and many
suppliers are located outside of the United States. Therefore, factors that could adversely affect operating results include the Company's inability to:



The Inability of the Company to Consolidate its Manufacturing Operations Could Have a Material Adverse Effect.

The Company's instant camera and film manufacturing capacity is concentrated in facilities in the United States, Europe and the Far East. The Company is
consolidating and restructuring its manufacturing operations, including the consolidation of its film coating and assembly into sole source locations. Due to the specialized nature of certain assets
located at these facilities, any suspension of operations as a result of the consolidation and restructuring of these assets could have a material adverse effect on the Company's operating results.

The Inability of the Company to Negotiate Favorable Sole Source Agreements for Material and Supplies Could Have a Material Adverse Effect.

The Company has certain sole source suppliers for material used in the development of the Company's products and outsources the manufacture of certain products.
The Company is also exploring sole source suppliers for certain operations that have high fixed costs. The inability of the Company to negotiate favorable sole source agreements would have a material
adverse impact on the

33

---

Company.
In addition, in the event of a disruption in the Company's supply of these materials due to the financial or operational distress of the Company suppliers or otherwise, the Company's failure
to find alternatives for raw materials, supplies and finished goods necessary for the manufacture and sale of its product could have a material adverse impact on the Company.

The Company's Failure to Manage its Intellectual Property and Licensing Agreements Could Adversely Affect its Profitability.

The Company relies upon patent, copyright, trademark and trade secret laws in the United States and in other countries to establish and maintain its proprietary
rights in technology, products and its brands. The Company continues to develop and protect ownership of, and license as appropriate, valuable intellectual property rights. The Company's intellectual
property rights, however, could be challenged, invalidated or circumvented. The Company does not believe that its products infringe the intellectual property rights of others, but such claims, if
established, could result in material liabilities or loss of business.

The
Company's failure to properly manage the development of its intellectual property and enforce licensing agreements that provide a revenue stream in the form of royalties could
adversely affect the profitability of these operations.

The Company's Continued Restructuring Could Disrupt Business Operations.

The Company is continuing its worldwide program to improve operating efficiency. This includes, among other things, more efficient plant utilization and process
improvements, movement to a distributor model in select international markets and the continued reduction of its work force. There can be no assurance that such actions will be accomplished as rapidly
as anticipated or that the expected cost reductions will be achieved. There is also no assurance that the downsizing will not disrupt business operations and undermine the cost management efforts.

Managing Inventory Is Crucial; Excess Inventory Could Require the Company to Reduce its Prices and Write Down Inventory.

The Company must manage its inventory in order to meet the needs of its customers without creating excess capacity. Excess inventory could require the Company to
reduce its prices and write down inventory which could have a negative impact on revenue and earnings.

The Company's Different Distribution Methods Have Inherent Risks.

The Company uses a variety of different distribution methods to sell its products including direct sales and distributors and third-party resellers. Since each
distribution method has distinct risks, failure to implement the most advantageous distribution model could adversely affect the Company's revenue and gross margins and therefore profitability.

The
Company is also developing e-commerce strategies. If these strategies are not successful, the Company's business could be adversely affected. In addition, since direct
sales may compete with the sales made by third-party resellers and distributors, these third-party resellers and distributors may elect to use other suppliers that do not directly sell their own
products or to reduce the retail shelf space available for the Company's products.

The Effect of Terrorism, Military Action or War May Impact the Company's Results.

Terrorism, military action or war, as well as attendant political activity, may create an atmosphere of economic uncertainty throughout the world. The effects of
those events may impact the Company's results. A disruption in its supply chain as a result of such actions may significantly affect its business

34

---

and
its prospects. In addition, such events may also result in heightened domestic security and higher costs for importing and exporting shipments of components and finished goods. Any of these
occurrences may have a material adverse effect on the Company.

The Failure of the Company to Remain in Compliance with Environmental Laws Could Have a Material Adverse Effect on Operating Results.

The Company is subject to a large number of federal, state and local environmental laws and regulations that govern, among other things, the discharge of
hazardous materials into the air and water as well as the handling, storage and disposal of such material. The failure of the Company to remain in compliance with these laws could have a material
adverse effect on operating results.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from changes in interest rates and foreign currency exchange rates relative to its market risk sensitive instruments and
positions as described below.

Interest Rate Risks

The Company is exposed to interest rate risk related to its borrowing activities. In connection with the Transaction, the Company borrowed $20 million as
of August 1, 2002, under the term loan provision of its Credit Agreement as more fully explained in Note 1 "Transaction" and Note 8 "Short-term Debt" to the
consolidated financial statements contained in Item 8.Financial Statement and Supplemental Data.In April 2003, the amount outstanding under the
Company's
term loan was repaid in full. The Company had no outstanding short-term debt at December 31, 2003.

Foreign Currency Exchange Risk

As more fully explained in Item 7.Management's Discussion and Analysis of Financial Condition and Results of
Operationsunder "Foreign Currency Exchange" the Company's operations are exposed to the impact of foreign currency exchange rate movements. The Company is primarily dependent
on the pricing and sourcing of its products in local markets to offset the impact of foreign exchange rate fluctuations. However, the Company has limited flexibility to increase prices in local
currency to offset the adverse impact of foreign exchange rate fluctuations. At December 31, 2003 and 2002, the Company had no derivative instruments. The Company does not quantify foreign
currency exchange rate risk associated with its expected foreign currency denominated revenues or its net monetary assets denominated in nonfunctional currencies.

Item 8. Financial Statements and Supplementary Data

Table of Contents



|Independent Auditors' Report                                     |  | 36
|---------------------------------------------------------------- |  | --
|Consolidated Statement of Earnings                               |  | 37
|Consolidated Balance Sheet                                       |  | 38
|Consolidated Statement of Cash Flows                             |  | 39
|Consolidated Statement of Changes in Common Stockholders' Equity |  | 40
|Notes to Consolidated Financial Statements                       |  | 42
|Schedule IIValuation and Qualifying Accounts                    |  | 83

35

---



INDEPENDENT AUDITORS' REPORT

The
Board of Directors
Polaroid Holding Company and Subsidiary Companies

We
have audited the accompanying consolidated balance sheets of Polaroid Holding Company and Subsidiary Companies (the "Company") as of December 31, 2003 and 2002, and the related
consolidated statements of earnings, cash flows and changes in common stockholders' equity for the year ended December 31, 2003 and the period from Inception (see Note 1 to the
consolidated financial statements) to December 31, 2002. We have also audited the consolidated statement of earnings, cash flows and changes in common stockholders' equity for Primary
PDC, Inc. (formerly named Polaroid Corporation) and Subsidiary Companies (the "Predecessor") for the period from January 1 through July 31, 2002. In connection with our audits of
the consolidated financial statements, we also audited the accompanying financial statement schedule of Valuation and Qualifying Accounts. These consolidated financial statements and financial
statement schedule are the responsibility of the Companies' managements. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based
on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 Holding Company and Subsidiary
Companies as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the year ended December 31, 2003 and the period from Inception (see Note 1
to the consolidated financial statements) through December 31, 2002, and the results of operations and cash flows of Primary PDC, Inc. for the period from January 1 through
July 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As
discussed in Notes 1 and 2 to the consolidated financial statements, the Predecessor filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code
on October 12, 2001. In addition to the filing, the Predecessor's previous losses, its common stockholders' deficit and its default on certain debt obligations raised substantial doubts about
the Predecessor's ability to continue as a going concern. The consolidated financial statements of the Predecessor referred to above have been prepared assuming the Predecessor would continue as a
going concern. On July 31, 2002, the Company acquired substantially all of the domestic assets of the Predecessor and the capital stock of the Predecessor's foreign subsidiaries. This
transaction was accounted for as a purchase acquisition by the Company in accordance with Financial Accounting Standards Board Statement No. 141,Business
Combinations.As a result of the Transaction, the consolidated financial information for the periods after the Transaction is presented on a different cost basis than that for
the periods before the acquisition and, therefore, is not comparable.

KPMG
LLP
Boston, Massachusetts
February 4, 2004

36

---



Polaroid Holding Company and Subsidiary Companies        Consolidated Statement of Earnings        (in millions, except per share amounts)

|                                                                 |                                                                          | Company |       | I     |   | Predecessor |      
|---------------------------------------------------------------- | ------------------------------------------------------------------------ | ------- | ----- | ----- | - | ----------- | -----
|
|Net sales                                                        |                                                                          | $       | 752.7 |       | $ | 363.9       |      
|                                                                 |                                                                          |         |       |       |   | I           |      
|                                                                 | Cost of goods sold                                                       |         |       | 378.4 |   |             | 213.3
|                                                                 | Marketing, research, engineering and administrative expenses (Note 3)    |         |       | 278.3 |   |             | 120.9
|                                                                 | Restructuring and other charges (Note 4)                                 |         |       | 4.7   |   |             | 5.1  
|                                                                 |                                                                          |         |       |       |   | I           |      
|Total costs                                                      |                                                                          |         | 661.4 |       |   | 339.3       |      
|                                                                 |                                                                          |         |       |       |   | I           |      
|Profit/(loss) from operations                                    |                                                                          |         | 91.3  |       |   | 24.6        |      
|Other income and (expense):                                      |                                                                          |         |       |       |   |             |      
|                                                                 | Interest income                                                          |         |       | 1.5   |   |             | 1.2  
|                                                                 | Foreign currency transaction losses (Note 2)                             |         |       | (8.3  | ) |             | (3.3 
|                                                                 | Foreign currency translation gains from subsidiary liquidations (Note 2) |         |       | 7.1   |   |             |     
|                                                                 | Other income                                                             |         |       | 3.4   |   |             | 1.5  
|                                                                 | Interest expense                                                         |         |       | (3.4  | ) |             | (1.9 
|                                                                 | Reorganization loss (see Note 2)                                         |         |       |      |   |             |     
|                                                                 |                                                                          |         |       |       |   | I           |      
|Earnings/(loss) before extraordinary gain and income tax expense |                                                                          |         | 91.6  |       |   | 22.1        |      
|                                                                 | Federal, state and foreign income tax expense (Note 6)                   |         |       | 22.9  |   |             | 6.9  
|                                                                 |                                                                          |         |       |       |   | I           |      
|Earnings/(loss) before extraordinary gain                        |                                                                          |         | 68.7  |       |   | 15.2        |      
|                                                                 | Extraordinary gain (Note 1)                                              |         |       | 2.6   |   |             | 122.6
|                                                                 |                                                                          |         |       |       |   | I           |      
|Net earnings/ (loss)                                             |                                                                          | $       | 71.3  |       | $ | 137.8       |      
|                                                                 |                                                                          |         |       |       |   | I           |      
|Basic earnings/(loss) per common share(Note 2)                   |                                                                          |         |       |       |   |             |      
|                                                                 | Earnings before extraordinary gain                                       |         | $     | 2.01  |   | $           | 0.40 
|                                                                 | Extraordinary gain                                                       |         | $     | 0.08  |   | $           | 3.98 
|                                                                 | Net earnings                                                             |         | $     | 2.09  |   | $           | 4.38 
|Diluted earnings/(loss) per common share(Note 2)                 |                                                                          |         |       |       |   |             |      
|                                                                 | Earnings before extraordinary gain                                       |         | $     | 1.95  |   | $           | 0.40 
|                                                                 | Extraordinary gain                                                       |         | $     | 0.08  |   | $           | 3.98 
|                                                                 | Net earnings                                                             |         | $     | 2.03  |   | $           | 4.38 
|Cash dividends per common share                                  |                                                                          |         |      |       |   |            |      

See
accompanying notes to consolidated financial statements

37

---

Polaroid Holding Company and Subsidiary Companies        Consolidated Balance Sheet        (in millions, except share and per share amounts)

|                                           |                                                                                                                                                                                                                                                                   | Company
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|
|Assets                                     |                                                                                                                                                                                                                                                                   |        
|Current assets                             |                                                                                                                                                                                                                                                                   |        
|                                           | Cash and cash equivalents                                                                                                                                                                                                                                         |        
|                                           | Receivables, net of allowance of $10.0 in 2003 and $14.8 in 2002 (Note 8)                                                                                                                                                                                         |        
|                                           | Inventories (Notes 7 and 8)                                                                                                                                                                                                                                       |        
|                                           | Assets held for sale (Note 3)                                                                                                                                                                                                                                     |        
|                                           | Prepaid expenses and other assets (Notes 3, 6 and 8)                                                                                                                                                                                                              |        
|                                           |                                                                                                                                                                                                                                                                   |        
|Total current assets                       |                                                                                                                                                                                                                                                                   |        
|Property, plant and equipment(Note 1)      |                                                                                                                                                                                                                                                                   |        
|                                           | Land                                                                                                                                                                                                                                                              |        
|                                           | Buildings                                                                                                                                                                                                                                                         |        
|                                           | Machinery and equipment                                                                                                                                                                                                                                           |        
|                                           | Construction in progress                                                                                                                                                                                                                                          |        
|                                           |                                                                                                                                                                                                                                                                   |        
|                                           | Total property, plant and equipment                                                                                                                                                                                                                               |        
|                                           | Less accumulated depreciation                                                                                                                                                                                                                                     |        
|                                           |                                                                                                                                                                                                                                                                   |        
|Net property, plant and equipment          |                                                                                                                                                                                                                                                                   |        
|Deferred tax assets(Note 6)                |                                                                                                                                                                                                                                                                   |        
|Other non-current assets(Note 3)           |                                                                                                                                                                                                                                                                   |        
|                                           |                                                                                                                                                                                                                                                                   |        
|Total assets                               |                                                                                                                                                                                                                                                                   | $      
|                                           |                                                                                                                                                                                                                                                                   |        
|Liabilities and stockholders' equity       |                                                                                                                                                                                                                                                                   |        
|Current liabilities                        |                                                                                                                                                                                                                                                                   |        
|                                           | Short-term debt (Note 8)                                                                                                                                                                                                                                          |        
|                                           | Payables and accruals (Notes 1 and 9)                                                                                                                                                                                                                             |        
|                                           | Compensation and benefits (Notes 12 and 13)                                                                                                                                                                                                                       |        
|                                           | Federal, state and foreign income taxes (Note 6)                                                                                                                                                                                                                  |        
|                                           |                                                                                                                                                                                                                                                                   |        
|Total current liabilities                  |                                                                                                                                                                                                                                                                   |        
|Non-current pension liability(Note 13)     |                                                                                                                                                                                                                                                                   |        
|Other non-current liabilities(Note 6)      |                                                                                                                                                                                                                                                                   |        
|Preferred Stock(Note 10)                   |                                                                                                                                                                                                                                                                   |        
|                                           | Preferred Stock, authorized 2,000,000 shares of which 900,000 are designated as Series A, $.001 par value, liquidation preference value of $100 per share plus unpaid dividends, 446,150 and 892,300 shares issued and
outstanding in 2003 and 2002, respectively |        
|Common stockholders' equity(Note 11)       |                                                                                                                                                                                                                                                                   |        
|                                           | Common Stock, $.001 par value, authorized 50,000,000 shares of which 34,836,410 and 30,769,230 shares issued and outstanding in 2003 and 2002, respectively                                                                                                       |        
|                                           | Additional paid-in capital                                                                                                                                                                                                                                        |        
|                                           | Retained earnings (Notes 1 and 10)                                                                                                                                                                                                                                |        
|                                           | Accumulated other comprehensive income (Note 2)                                                                                                                                                                                                                   |        
|                                           | Deferred compensation (Note 12)                                                                                                                                                                                                                                   |        
|                                           |                                                                                                                                                                                                                                                                   |        
|Total common stockholders' equity          |                                                                                                                                                                                                                                                                   |        
|                                           |                                                                                                                                                                                                                                                                   |        
|Total liabilities and stockholders' equity |                                                                                                                                                                                                                                                                   | $      
|                                           |                                                                                                                                                                                                                                                                   |        

See accompanying notes to consolidated financial statements.

38

---



Polaroid Holding Company and Subsidiary Companies        Consolidated Statement of Cash Flows        (in millions)

|                                                     |                                                                  | Company  |       | I     |       | Predecessor |       
|---------------------------------------------------- | ---------------------------------------------------------------- | -------- | ----- | ----- | ----- | ----------- | ------
|
|Cash flows from operating activities                 |                                                                  |          |       |       |       |             |       
|                                                     | Net earnings/(loss)                                              |          | $     | 71.3  |       | $           | 137.8 
|                                                     | Extraordinary gain (Note 1)                                      |          |       | (2.6  | )     |             | (122.6
|                                                     | Depreciation of property, plant and equipment                    |          |       | 2.2   |       |             | 0.1   
|                                                     | Non-cash reorganization loss (Note 2)                            |          |       |      |       |             |      
|                                                     | Deferred taxes (Note 6)                                          |          |       | 9.3   |       |             | (3.8  
|                                                     | Gain on sale of real estate                                      |          |       |      |       |             |      
|                                                     | Other non-cash items (Note 3)                                    |          |       | 4.0   |       |             | 5.4   
|                                                     | (Increase)/decrease in receivables                               |          |       | 31.5  |       |             | (23.2 
|                                                     | Decrease in inventories                                          |          |       | 20.3  |       |             | 58.4  
|                                                     | (Increase)/decrease in prepaids and other assets                 |          |       | 7.3   |       |             | 6.2   
|                                                     | Decrease in Prepetition Liabilities                              |          |       |      |       |             |      
|                                                     | Increase/(decrease) in payables and accruals                     |          |       | (21.7 | )     |             | 20.6  
|                                                     | Increase/(decrease) in compensation and benefits                 |          |       | 7.7   |       |             | (2.7  
|                                                     | Increase/(decrease) in federal, state and foreign income taxes   |          |       | (15.6 | )     |             | 10.7  
|                                                     |                                                                  |          |       |       |       | I           |       
|                                                     | Net cash provided by operating activities                        |          |       | 113.7 |       |             | 86.9  
|                                                     |                                                                  |          |       |       |       | I           |       
|Cash flows from investing activities                 |                                                                  |          |       |       |       |             |       
|                                                     | (Increase)/decrease in other assets                              |          |       | (16.4 | )     |             | (1.2  
|                                                     | Asset purchase Transaction, net of cash acquired (Note 1)        |          |       |      |       |             | (4.3  
|                                                     | Proceeds from the sale of assets held for sale (Note 3)          |          |       | 18.3  |       |             | 1.4   
|                                                     | Proceeds from the sale of property, plant and equipment (Note 3) |          |       |      |       |             |      
|                                                     | Additions to property, plant and equipment                       |          |       | (22.6 | )     |             | (10.4 
|                                                     |                                                                  |          |       |       |       | I           |       
|                                                     | Net cash used by investing activities                            |          |       | (20.7 | )     |             | (14.5 
|Cash flows from financing activities                 |                                                                  |          |       |       |       |             |       
|                                                     | Net decrease in short-term debt (maturities 90 days or less)     |          |       |      |       |             | (1.1  
|                                                     | Short-term debt (maturities of more than 90 days)                |          |       |       |       |             |       
|                                                     |                                                                  | Proceeds |       |       |      |             |       
|                                                     |                                                                  | Payments |       |       | (17.5 | )           |       
|                                                     | Financing fees paid                                              |          |       |      |       |             | (5.0  
|                                                     | Proceeds from issuance of Preferred Stock (Note 1)               |          |       |      |       |             | 58.0  
|                                                     | Proceeds from issuance of Common Stock (Note 1)                  |          |       |      |       |             | 2.0   
|                                                     | Dividends paid on Preferred Stock (Note 10)                      |          |       | (9.7  | )     |             |      
|                                                     | Redemption of Preferred Stock (Note 10)                          |          |       | (44.6 | )     |             |      
|                                                     |                                                                  |          |       |       |       | I           |       
|                                                     | Net cash provided/(used) by financing activities                 |          |       | (71.8 | )     |             | 71.4  
|                                                     |                                                                  |          |       |       |       | I           |       
|Effect of exchange rate changes on cash              |                                                                  |          | 5.6   |       |       | (3.8        | )     
|                                                     |                                                                  |          |       |       |       | I           |       
|Net increase/(decrease) in cash and cash equivalents |                                                                  |          | 26.8  |       |       | 140.0       |       
|Cash and cash equivalents at beginning of period     |                                                                  |          | 140.0 |       |       |            |       
|                                                     |                                                                  |          |       |       |       | I           |       
|Cash and cash equivalents at end of period           |                                                                  | $        | 166.8 |       | $     | 140.0       |       
|                                                     |                                                                  |          |       |       |       | I           |       

See accompanying notes to consolidated financial statements.

39

---

Polaroid Holding Company and Subsidiary Companies        Consolidated Statement of Changes in Common Stockholders' Equity        (in millions, except number of shares)

Company:

Period from Inception (see Note 1) to December 31, 2002

|                                     |                                                   | Common
Shares |  | Common
Stock |   | Additional
Paid-In
Capital |   | Retained
Earnings |  | Accumulated
Other
Comprehensive
Income |       | Deferred
Compensation |   | Total
Common
Stockholders'
Equity |     
|------------------------------------ | ------------------------------------------------- | ------------- |  | ------------ | - | -------------------------- | - | ----------------- |  | -------------------------------------- | ----- | --------------------- | - | --------------------------------- | ----
|Balance as of Inception (see Note 1) |                                                   |              |  | $            |  |                            | $ |                  |  | $                                      |      |                       | $ |                                  |     
|Common Stock issued                  |                                                   | 30,769,230    |  |              |   |                            |   | 3.1               |  |                                        |       |                       |   |                                   |     
|Comprehensive income:                |                                                   |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     
|                                     | Net earnings                                      |               |  |              |   |                            |   |                   |  |                                        |       | 137.8                 |   |                                   |     
|                                     | Other comprehensive income:                       |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     
|                                     | Foreign currency translation adjustments (Note 2) |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   | 4.6 
|                                     | Minimum pension liability adjustment (Note 13)    |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   | (0.8
|                                     |                                                   |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     
|Total comprehensive income           |                                                   |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     
|                                     |                                                   |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     
|Balance at December 31, 2002         |                                                   | 30,769,230    |  | $            |  |                            | $ | 3.1               |  | $                                      | 137.8 |                       | $ | 3.8                               |     
|                                     |                                                   |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     

Year ended December 31, 2003

|                                      |                                                   | Common
Shares |  | Common
Stock |   | Additional
Paid-In
Capital |   | Retained
Earnings |  | Accumulated
Other
Comprehensive
Income |       | Deferred
Compensation |   | Total
Common
Stockholders'
Equity |     
|------------------------------------- | ------------------------------------------------- | ------------- |  | ------------ | - | -------------------------- | - | ----------------- |  | -------------------------------------- | ----- | --------------------- | - | --------------------------------- | ----
|Balance at January 1, 2003            |                                                   | 30,769,230    |  | $            |  |                            | $ | 3.1               |  | $                                      | 137.8 |                       | $ | 3.8                               |     
|Comprehensive income:                 |                                                   |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     
|                                      | Net earnings                                      |               |  |              |   |                            |   |                   |  |                                        |       | 71.3                  |   |                                   |     
|                                      | Other comprehensive income:                       |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     
|                                      | Foreign currency translation adjustments (Note 2) |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   | 12.4
|                                      | Minimum pension liability adjustment (Note 13)    |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   | 0.8 
|                                      |                                                   |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     
|Total comprehensive income            |                                                   |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     
|                                      |                                                   |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     
|Restricted stock issued               |                                                   | 4,067,180     |  |              |   |                            |   | 0.4               |  |                                        |       |                       |   |                                   |     
|Amortization of deferred compensation |                                                   |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     
|Dividends paid on Preferred Stock     |                                                   |               |  |              |   |                            |   |                   |  |                                        | (9.7  | )                     |   |                                   |     
|                                      |                                                   |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     
|Balance at December 31, 2003          |                                                   | 34,836,410    |  | $            |  |                            | $ | 3.5               |  | $                                      | 199.4 |                       | $ | 17.0                              |     
|                                      |                                                   |               |  |              |   |                            |   |                   |  |                                        |       |                       |   |                                   |     

40

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---

Predecessor:

Period from January 1 to July 31, 2002

|                                       |                                                                                                           | Common
Shares |  | Common
Stock |      | Additional
Paid-In
Capital |   | Retained
Earnings |  | Accumulated
Other
Comprehensive
Income |        | Treasury
Stock |   | Total
Common
Stockholders'
Equity |       
|-------------------------------------- | --------------------------------------------------------------------------------------------------------- | ------------- |  | ------------ | ---- | -------------------------- | - | ----------------- |  | -------------------------------------- | ------ | -------------- | - | --------------------------------- | ------
|Balance at January 1, 2002             |                                                                                                           | 49,479,894    |  | $            | 75.4 |                            | $ | 175.3             |  | $                                      | 602.1  |                | $ | (130.7                            | )     
|Comprehensive income:                  |                                                                                                           |               |  |              |      |                            |   |                   |  |                                        |        |                |   |                                   |       
|                                       | Net loss                                                                                                  |               |  |              |      |                            |   |                   |  |                                        |        | (832.2         | ) |                                   |       
|                                       | Other comprehensive income:                                                                               |               |  |              |      |                            |   |                   |  |                                        |        |                |   |                                   |       
|                                       | Foreign currency translation adjustments (Note 2)                                                         |               |  |              |      |                            |   |                   |  |                                        |        |                |   |                                   | 20.2  
|                                       | Minimum pension liability adjustment (Note 13)                                                            |               |  |              |      |                            |   |                   |  |                                        |        |                |   |                                   | (134.2
|                                       | Minimum pension liability adjustment related to Transaction                                               |               |  |              |      |                            |   |                   |  |                                        |        |                |   |                                   | 4.1   
|                                       | Assumption of pension plan by Pension Benefit Guaranty Corporation                                        |               |  |              |      |                            |   |                   |  |                                        |        |                |   |                                   | 183.7 
|                                       | Reclassification to net loss of cumulative translation loss related to sale of non-U.S. entities (Note 2) |               |  |              |      |                            |   |                   |  |                                        |        |                |   |                                   | 56.8  
|                                       |                                                                                                           |               |  |              |      |                            |   |                   |  |                                        |        |                |   |                                   |       
|Total comprehensive income             |                                                                                                           |               |  |              |      |                            |   |                   |  |                                        |        |                |   |                                   |       
|                                       |                                                                                                           |               |  |              |      |                            |   |                   |  |                                        |        |                |   |                                   |       
|Compensation and stock incentive plans |                                                                                                           |               |  |              |      |                            |   | 3.3               |  |                                        |        |                |   |                                   |       
|                                       |                                                                                                           |               |  |              |      |                            |   |                   |  |                                        |        |                |   |                                   |       
|Balance at July 31, 2002               |                                                                                                           | 49,479,894    |  | $            | 75.4 |                            | $ | 178.6             |  | $                                      | (230.1 | )              | $ | (0.1                              | )     
|                                       |                                                                                                           |               |  |              |      |                            |   |                   |  |                                        |        |                |   |                                   |       

See accompanying notes to consolidated financial statements.

41

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Transaction

Company:

On July 31, 2002, Polaroid Corporation, formerly known as OEP Imaging Operating Corporation ("Polaroid"), and certain of its subsidiaries, acquired
substantially all of the domestic assets and businesses of Primary PDC, Inc., formerly named Polaroid Corporation ("Primary"), and its domestic subsidiaries and the capital stock of the foreign
subsidiaries of Primary (the "Transaction"). On July 3, 2002, this purchase was approved by the United States Bankruptcy Court for the District of Delaware (the "U.S. Bankruptcy Court").

To
accomplish this transaction, One Equity Partners LLC ("OEP"), a private equity investment unit of Bank One Corporation, formed Polaroid Holding Company, formerly known as OEP Imaging
Corporation ("Holding"), on March 25, 2002 ("Inception"), and Holding formed Polaroid on June 6, 2002. Both of these companies remained inactive from the date they were formed until the
Transaction on July 31, 2002. As part of the Transaction, Holding assigned its rights to purchase the assets of Primary to Polaroid and certain of its subsidiaries.

On
July 31, 2002, to finance a portion of the asset purchase price, Holding issued OEP 580,000 shares of its Series A Preferred Stock (see Note 10) for
$58.0 million and 20,000,000 shares of its common stock ("Common Stock") (see Note 11) for $2.0 million. This stock represented a 65% interest in Holding. The $60.0 million
received by Holding from this stock issuance was contributed to Polaroid on July 31, 2002. Also, as of July 31, 2002, Holding and its consolidated subsidiaries (the "Company") borrowed
$20.0 million under the term loan provision of its Credit Agreement (see Note 8).

The
asset purchase price consisted of: cash consideration of $255.0 million adjusted for approximately $58.2 million of cash payments primarily made by Primary to its
creditors just prior to or at the closing; approximately $224.1 million of assumed liabilities; and stock of Holding valued at $32.3 million (see Notes 10 and 11) consisting of
10,769,230 shares of Common Stock and 312,300 shares of Series A Preferred Stock. The stock issued to Primary represented a 35% interest in Holding.

As
required under Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 141,Business
Combinations("SFAS 141") (see Note 2), the Company recorded the assets purchased and the liabilities assumed at fair value. As of July 31, 2002, the fair
value of the assets purchased exceeded the cost of the acquisition. As required by SFAS 141, the fair value of most of the acquired property, plant and equipment and other
non-current assets, except for financial assets, deferred tax assets or pension assets, was reduced by the amount of the excess, resulting in a zero carrying value for those assets.

42

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The
following is a summary of the asset purchase from Primary and its domestic subsidiaries as of the date of the Transaction (in millions):

Assets and liabilities at fair value:Cash

$
201.1Accounts receivable


81.4Inventory


212.8Other current assets


50.0Non-current assets


39.1Total assets purchased


584.4Payable and accruals


130.7Other current liabilities


45.4Other non-current liabilities


48.0Total liabilities assumed


224.1Net assets purchased at fair value


360.3Less extraordinary gain


122.6Cost of acquisition

$
237.7
(a)


---

After
the fair value adjustments noted above, the Company recognized the net excess of fair value of the assets purchased over the fair value of the liabilities assumed and stockholders'
equity as an extraordinary gain of $122.6 million. This gain was based on all information available to the Company and was subject to adjustment over the year following the date of the
Transaction, if additional information became available affecting the Transaction estimates.

In
2003, as required under purchase accounting, the Company adjusted the fair value of certain of the assets acquired and the liabilities assumed in the Transaction based on additional
information that became available within the year subsequent to the date of the Transaction. As a result, the Company decreased the estimated fair value of some of the assets held for sale by
approximately $3.6 million and decreased the estimated fair value of certain of the assumed liabilities by approximately $6.2 million. The net of these adjustments of approximately
$2.6 million was recorded as an extraordinary gain in 2003.

In
connection with the Transaction, the Company incurred approximately $8.6 million of professional fees and expenses, excluding financing fees, that were directly related to the
Transaction. These fees and expenses were recorded as a component of the purchase cost. The professional fees and expenses included approximately $5.3 million paid to OEP for financial advisory
services, and related expenses, performed in connection with the Transaction. In addition, the Company entered into a management agreement with OEP covering certain business and organizational
strategy, and financial and investment management services. Under the agreement, OEP received a retainer of $0.6 million in 2003 and has the option to provide any transaction-related services
for any acquisition, divestiture, financing or other transaction in which the Company may be involved for an additional fee.

43

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The
Company's other accrued liabilities at December 31, 2003 and 2002 include $7.0 million of liabilities related to certain estate costs of Primary that are required to be
paid by the Company to Primary under the asset purchase agreement, if certain conditions are met.

Following
the Transaction, Primary and its domestic subsidiaries continued to operate under the jurisdiction of the U.S. Bankruptcy Court. The financial information on those operations
are not included in the financial statements included herein.

Predecessor:

On October 12, 2001, as a result of declining cash flows from operations and other financing sources and the resulting inability to service its debt,
Primary and twenty of its subsidiaries incorporated in the United States (the "Debtors") filed voluntary petitions for relief (the "Filing") under Chapter 11 of the Bankruptcy Code, in the U.
S. Bankruptcy Court (jointly administered under case no. 01-10864) (see Note 2).

Prior
to the Filing, Primary and its consolidated subsidiaries, including its U.S. subsidiaries, (the "Predecessor") had conducted business operations worldwide. The subsidiaries of
Primary incorporated outside of the United States were not included in the Filing. The Debtors continued to manage their properties and operate their business as
"debtors-in-possession" under the jurisdiction of the U.S. Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy Code.

Each
of the Debtors continued to operate its business and manage its property as a debtor-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.
As a result of the Filing, the creditors of the Debtors were precluded from collecting
prepetition debts without the approval of the U.S. Bankruptcy Court. Certain prepetition liabilities were paid after obtaining the approval of the U.S. Bankruptcy Court, including certain wages and
benefits of employees, insurance costs and payments to governmental agencies.

As
a result of the Filing, the Debtors incurred significant costs, including professional fees. These costs were expensed as incurred and were included in reorganization items in the
consolidated statement of earnings (see Note 2). Under the asset purchase agreement for the Transaction, the Company is required to reimburse Primary for certain costs incurred by Primary, if
certain conditions are met. As noted above, the Company had recorded liabilities of $7.0 million for these costs as of December 31, 2002. Under the terms of the asset purchase agreement
related to the Transaction, the Company may also be required to purchase some of its stock that is held by Primary (see Note 11).

There
may be differences between the amounts at which liabilities were recorded in the Debtor's financial statements and the amount claimed by the creditors of the Debtors. Litigation,
including significant litigation, may be required for the Debtors to resolve any such disputes.

The
accompanying audited consolidated financial statements of the Predecessor for the period from January 1 to July 31, 2002, have been prepared on a going-concern basis
for comparative purposes.

Effective
for the second quarter of 2002, based on an evaluation of the available information on the expected proceeds and probability of the sale of substantially all of its domestic
assets and businesses and the capital stock of its foreign subsidiaries, the Predecessor determined that the carrying value of most of its long-lived assets would not be recoverable. As a
result, the Predecessor recognized a non-cash asset impairment charge of $329.9 million in its reorganization loss (see Note 2) in the second quarter of 2002. This charge
represented the excess of the carrying value over the estimated fair value of its property, plant and equipment based on a probability weighted estimate of the expected future discounted cash flows
relative to the net assets to be sold.

44

---

The
Predecessor recorded a loss on the Transaction of $213.5 million in its reorganization loss (see Note 2) in July 2002. Effective as of July 31, 2002, the
Pension Guaranty Benefit Corporation ("PBGC") assumed the U.S. pension plan of the Predecessor. As a result, the Predecessor recognized a charge of $183.7 million related to a minimum pension
liability cost that had been previously recorded in accumulated other comprehensive income in stockholders' equity (see Note 2). In the seven-month period ended July 31, 2002, the
Predecessor recorded a cost of $41.7 milllion related to prepetition claims expected to be allowed by the U.S. Bankruptcy Court (see Note 2).

2.     Description of Business and Significant Accounting Policies

Description of Business:

Non-Comparability of Information:

The terms Company and Predecessor as used in the accompanying consolidated financial statements and these notes have different meanings as described in
Note 1. As a result of the Transaction (see Note 1), the accompanying consolidated financial statements of the Company are presented on a different basis from those of the Predecessor.
Therefore, the consolidated financial statements of the Company and the Predecessor are not comparable.

Company:

The Company designs, develops, manufactures, and markets instant and digital imaging products and related products. The Company's principal products are instant
film and instant cameras, which are marketed worldwide. In addition to its principal products, the Company designs, develops, manufactures and/or markets photographic hardware accessories for the
instant photography market. The Company's other products and services consist of eyewear, principally sunglasses, and secure identification systems for commercial applications. The Company is
currently developing and test marketing hardware and media with applications in the instant digital printing market. The Company also licenses its brand and patents to third parties. The Company also
performs contract manufacturing for third parties.

The
Company sells its products directly to and through mass merchandisers; food, drug, discount and department stores; photo retail and specialty stores; wholesalers; original equipment
manufacturers; independent agents; retail outlets and distributors. The Company also markets brand licensing contracts to manufacturers of imaging, consumer electronics and other products and
technology licensing contracts to manufacturers in chemical, photographic, electronic and other industries.

Predecessor:

The Predecessor designed, developed, manufactured, and marketed instant and digital imaging products and related products. The Predecessor's principal products
were instant film, instant and digital cameras, digital peripherals and secure identification systems with software and system solutions, which were marketed worldwide. In addition to its principal
products, the Predecessor designed, developed, manufactured and/or marketed photographic hardware accessories for the instant photography market, conventional 35mm cameras and film and videotapes. The
Predecessor's core instant photography business consisted of instant cameras and film. Its other core products consisted of digital cameras and other digital products, unique ID products, conventional
35mm cameras and film, videotapes, medical imaging products and eyewear, principally sunglasses.

45

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The
Predecessor sold its products directly to and through mass merchandisers; food, drug, discount and department stores; photo retail and specialty stores; wholesalers; original
equipment manufacturers; independent agents; retail outlets and distributors.

Accounting Principles:

The Company's and the Predecessor's consolidated financial statements and accompanying notes have been prepared in conformity with accounting principles generally
accepted in the United States of America.

Principles of Consolidation:

The Company's consolidated financial statements include the accounts of Holding and its domestic and foreign subsidiaries, all of which are either wholly owned or
majority owned. The Predecessor's consolidated financial statements include the accounts of Primary and its domestic and foreign subsidiaries, all of which were either wholly owned or majority owned.

Basis of Presentation:

Company:

The accompanying consolidated statements of earnings, cash flows and changes in common stockholders' equity of the Company for 2002 reflect the period from
Inception (see Note 1) to December 31, 2002. The information in the Company's consolidated financial statements and related unaudited supplementary financial information (see
Note 17) has been restated to give effect to a ten (10) for one (1) stock split of the outstanding shares of Common Stock and Preferred Stock of Holding that took effect on
July 24, 2003.

Predecessor:

The financial statements of the Predecessor included herein are presented in accordance with American Institute of Certified Public Accountants Statement of
Position 90-7,Financial Reporting by Entities in Reorganization under the Bankruptcy Code("SOP 90-7") which does not change
the application of accounting principles generally accepted in the United States of America in the preparation of financial statements. However, it does require that the financial statements for
periods subsequent to the filing of a Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.

Under
SOP 90-7, revenues, expenses (including professional fees), realized gains and losses, and provisions for losses that could be directly associated with the
reorganization and restructuring of the business were reported by the Predecessor separately as reorganization items in the consolidated statements of earnings. During the reorganization period, the
Predecessor's balance sheet distinguishes prepetition liabilities subject to compromise from those that are postpetition liabilities. Liabilities that could be affected by a reorganization plan are
reported at the amounts expected to be allowed, even if

46

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they
might be settled for lesser amounts. For the period from January 1 to July 31, 2002, the reorganization loss was as follows (in millions):

PredecessorPeriod from
January 1 to
July 31,
2002Asset impairment loss (see Note 1)

$
329.9Loss on Transaction (see Note 1)


213.5Charge related to assumption of U.S. pension plan by PBGC


183.7Prepetition claims cost


41.7Professional fees and expenses


13.3Gains on asset sales


(9.5
)Interest income, postpetition


(1.3
)Total reorganization loss

$
771.3


Approximately
$7 million of professional fees in the reorganization loss of the Predecessor were paid out in cash in the period from January 1 to July 31, 2002.

As
a result of the Filing and pursuant to SOP 90-7, the Predecessor was required to segregate prepetition liabilities that were subject to compromise and report them
separately on its balance sheet. Liabilities that may be affected by a plan of reorganization were recorded at the amount of the expected allowed claims, even if they may be settled for lesser
amounts. The Debtors' prepetition debt, in default, was classified within liabilities subject to compromise.

As
a result of the Filing, all existing debts, liabilities and obligations (collectively, the "Prepetition Liabilities") of the Debtors matured and became due and payable and all acts to
collect Prepetition Liabilities and to enforce other prepetition contractual obligations of the Debtors were stayed except for certain employee related obligations, certain obligations to critical
vendors, and certain other obligations as determined by the U.S. Bankruptcy Court.

The
U.S. Bankruptcy Court established May 31, 2002 as the bar date for all claims against the Predecessor. A bar date is the date by which claims against the Predecessor must be
filed if the
claimants wish to participate in any distribution in the Chapter 11 case. Approximately 9,050 proofs of claim totaling approximately $6.0 billion alleging a right to payment from the
Predecessor have been filed with the U.S. Bankruptcy Court in response to the bar date, which are discussed below. The U.S. Bankruptcy Court will ultimately determine liability amounts that will be
allowed as part of the Chapter 11 process.

Of
the approximately 9,050 proofs of claim filed with the U.S. Bankruptcy Court, approximately 2,480 proofs of claim totaling approximately $1.0 billion have been allowed by the
U.S. Bankruptcy Court and have been recorded by the Predecessor as Prepetition Liabilities as of July 31, 2002 in accordance with SOP 90-7.

In
its ongoing review of the filed claims, the Predecessor has identified and successfully objected to approximately 6,420 claims totaling approximately $4.9 billion which have
been either withdrawn or expunged and will be disallowed, unless the U.S. Bankruptcy Court order that expunged the claims is later vacated in connection with a specific claim or unless a withdrawn
claim is reinstated. These claims were primarily duplicate filings, claims that were subsequently amended, or claims which could not be supported. However, because the U.S. Bankruptcy Court may still
vacate the prior ruling to expunge, or a claimant may reinstate a withdrawn claim, the Predecessor has not yet determined that the

47

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likelihood
of acceptance of each claim is remote. Further, the Predecessor is presently unable to estimate the value of claims which may ultimately be allowed, if any, from this category of claims.

There
are an additional approximately 150 claims totaling approximately $139 million which are outstanding or pending resolution. Such claims are presently being reviewed by the
Predecessor and either reconciliation or negotiation of a settlement is ongoing. These claims are considered to be reasonably possible of allowance. Based on its assessment of the range of allowed
amounts of these claims, the Predecessor estimated the allowed amount of these claims to be approximately $8.0 million, which has been recorded by the Predecessor as Prepetition Liabilities as
of July 31, 2002 in accordance with SOP 90-7.

The
Predecessor continues to evaluate claims filed in the Chapter 11 case, and has recorded liability amounts for claims whose value can be reasonably estimated and which it
believes are probable of being allowed by the U.S. Bankruptcy Court. During the period from January 1 to July 31, 2002, the Predecessor recorded a net charge of $41.7 million to
increase its reserve in connection with the estimated value of allowed claims. At this time, it is not possible to reasonably estimate the value of all the claims that will ultimately be allowed by
the U.S. Bankruptcy Court. However, it is likely that the value of claims ultimately allowed by the U.S. Bankruptcy Court will be different from the amounts recorded by the Predecessor as of
July 31, 2002 and the amounts of any additional claims allowed by the U.S. Bankruptcy Court could be material to the Predecessor's financial position and results of operations.

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the management of the
Company and required the management of the Predecessor 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 and Cash Equivalents:

The Company considers and the Predecessor considered all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Derivatives:

The Company did not have any derivative instruments at December 31, 2003 or 2002. As of January 1, 2002 the Predecessor had currency option
contracts which were not designated as hedges and were marked to market monthly until the contracts expired in the period from January 1 to July 31, 2002. The amounts recorded by the
Predecessor related to these contracts in the period from January 1 to July 31, 2002 were not material to its results of operations.

Inventories:

Inventories of the Company are valued and those of the Predecessor were valued on a first-in, first-out basis at the lower of cost or
market value, not in excess of net realizable value.

48

---

Income Taxes:

The Company's provision for income taxes includes and the provision for income taxes of the Predecessor included amounts currently payable or recoverable and
deferred taxes. 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 considered more likely than not that some portion or all of the deferred tax assets will not be realized.

Provision
for U.S. income taxes on the undistributed earnings of foreign subsidiaries is made by the Company and was made by the Predecessor only on those amounts in excess of the funds
considered to be permanently reinvested. No provision for U.S. income taxes has been made on the undistributed earnings of foreign subsidiaries of the Company or the Predecessor as those amounts are
for the Company and were for the Predecessor considered to be permanently reinvested.

Property, Plant and Equipment:

Property, plant and equipment of the Company purchased since the Transaction are and the property, plant and equipment of the Predecessor were stated at cost less
accumulated depreciation. (See Note 1 for information on the valuation of the property, plant and equipment purchased by the Company on July 31, 2002.) The estimated useful lives for
financial reporting of the Company assets are and the Predecessor's assets were 20-40 years for buildings and 3-15 years for machinery and equipment.

Long-Lived Assets:

The Company evaluates and the Predecessor evaluated long-lived assets and certain identifiable intangible assets for impairment as events or changes
in circumstances indicate that the carrying value of those assets may not be fully recoverable in accordance with SFAS No. 144,Accounting for the Impairment or Disposal
of Long-Lived Assets("SFAS 144"). The Company evaluates and the Predecessor evaluated the recoverability of long-lived assets to be held and
used by estimating the undiscounted future cash flows associated with the expected use and eventual disposition of those assets and compares that amount to the carrying value of those assets. When
these comparisons indicate that the carrying values of those assets are greater than the respective undiscounted future cash flows, the Company recognizes and the Predecessor recognized an impairment
loss for the amount by which the carrying value exceeds the fair value.

The
Company evaluates and the Predecessor evaluated the recoverability of long-lived assets to be disposed of, whether by sale or abandonment, by comparing the carrying value
of those assets to their estimated fair value less costs to sell them. If the carrying value of assets to be disposed of exceeds the respective fair value less expected costs to sell, the Company
recognizes and the Predecessor recognized an impairment loss for the amount of that excess. The provisions of SFAS 144 were effective as of January 1, 2002. Effective for the second
quarter of 2002, the Predecessor recognized a non-cash asset impairment charge of $329.9 million in its reorganization loss in connection with the sale anticipated in the
Transaction (see Note 1).

Patents and Trademarks:

The costs of patents and trademarks developed by the Company are expensed as incurred. Those acquired by the Company in the Transaction were not valued in the
Company's consolidated balance

49

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sheet
(see Note 1). Patents and trademarks of the Predecessor were valued in its consolidated balance sheet at $1.

Foreign Currency Translation:

Most of the Company's subsidiaries outside the United States use and most of the Predecessor's subsidiaries outside the United States used the local currency as
the functional currency. Amounts recognized by the Company and the Predecessor in the financial statements related to foreign currency translation were determined using the principles of SFAS
No. 52,Foreign Currency Translation. Assets and liabilities denominated in foreign functional currencies are translated by the Company and were
translated by the Predecessor at the exchange rate as of the balance sheet date. Translation adjustments for the Company are and those for the Predecessor were recorded in accumulated other
comprehensive income, a separate component of stockholders' equity. Revenues, costs and expenses denominated in foreign functional currencies for the Company are and those for the Predecessor were
translated at the weighted average exchange rate for the period. The U.S. dollar is the functional currency for subsidiaries in highly inflationary economies for the Company and was the functional
currency for subsidiaries in highly inflationary economies for the Predecessor.

Foreign
exchange transaction losses of approximately $8.3 million in 2003 and approximately $3.3 million for the period from Inception (see Note 1) to
December 31, 2002 for the Company, and approximately $8.1 million for the period from January 1 to July 31, 2002 for the Predecessor, resulting from the remeasurement to
the functional currency from the currency in which the transaction was denominated, were reported in other income and expense. In addition, the Company liquidated certain of its
non-U.S. subsidiaries during 2003. As a result, it recognized in other income a net of approximately $7.1 million related to foreign currency translation gains that had been
previously recorded in accumulated other comprehensive income. In July 2002, the Predecessor recognized in its net loss on the Transaction (see Note 1) approximately $56.8 million
of foreign currency translation losses related to its foreign subsidiaries that were sold. These losses had been previously reported in accumulated other comprehensive income.

Accumulated Other Comprehensive Income:

Company:

The Company reports comprehensive income in its consolidated statement of changes in common stockholders' equity. Accumulated other comprehensive income as of
December 31, 2003 consisted of unrealized foreign currency translation adjustments of $17.0 million. Accumulated other comprehensive income as of December 31, 2002 consisted of
foreign currency translation adjustments of $4.6 million offset by an additional minimum pension liability cost of $0.8 million. There were no tax effects associated with the amounts
recorded in accumulated other comprehensive income at December 31, 2003 and 2002. For 2003, the $12.4 million foreign currency translation adjustment recognized in comprehensive income
was net of reclassification adjustments of $7.1 million for foreign currency translation gains recognized in other income related to the liquidation of certain non-U.S. subsidiaries
during 2003.

Predecessor:

The Predecessor reported comprehensive income in its consolidated statement of changes in common stockholders' equity. Accumulated other comprehensive income as
of July 31, 2002 consisted of $0.1 million of unrealized losses on investments. There was no tax effect associated with this amount at July 31, 2002. In connection with the
Transaction, the Predecessor sold the capital stock of its foreign

50

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subsidiaries.
As a result, it recognized a non-cash charge of $4.1 million in its reorganization loss for a minimum pension liability cost related to a non-U.S. pension
plan that was previously recorded in accumulated other comprehensive income. Effective July 31, 2002, the Predecessor's U.S. pension plan was assumed by the PBGC. As a result, the Predecessor
recognized a charge of $183.7 million in its reorganization loss for a minimum pension liability cost related to its U.S. pension plan that was previously recorded in accumulated other
comprehensive income in stockholders' equity. As a result of the Transaction, the Predecessor recognized $56.8 million of foreign currency translation losses in its reorganization loss (see
Note 1) in July 2002. These losses were previously recorded in accumulated other comprehensive income in stockholders' equity and related to its foreign subsidiaries that were sold.

Revenue Recognition:

The Company recognizes and the Predecessor recognized net sales when all of the following criteria have been met: evidence exists that the customer is bound to
the transaction; the product has been shipped and title has passed to the customer; the sales price to the customer has been fixed or is determinable; and collectability of the sales price is
reasonably assured. Provisions for estimated sales returns and allowances are made at the time the products are recognized as net sales. To arrive at net sales, the Company records and the Predecessor
recorded reductions to net sales for the cost of programs offered to customers that include cash and volume discounts, promotional, cooperative and other advertising allowances, and other fees and
coupons. The Company recognizes and the Predecessor recognized the liability for these programs at the time the related net sales are or were recorded. The Company determines and the Predecessor
determined the cost of these programs based on the terms of the programs, estimated using historical experience, and internal and customer data. The Company adjusts and the Predecessor adjusted net
sales for the cost of price protection programs associated with customer inventories at the time it can reasonably estimate this cost.

Allowance for Doubtful Accounts:

Company:

The Company reviews the allowance for doubtful accounts on a regular basis and this allowance is based on a variety of factors including: individual account risk
profiles which consider customer credit ratings and financial condition reviews; a review of individual accounts receivable aging; and new information that becomes available on specific customers,
economic trends and changes in customer payment terms.

Predecessor:

The Predecessor's allowance for doubtful accounts was reviewed on a regular basis and was based on a variety of factors including an analysis of the aging of its
accounts receivable, a review of individual accounts receivable, historical bad debts and allowances, concentration of accounts receivable by customer, customer credit ratings and financial condition
reviews, and new information that became available on specific customers, economic trends and changes in customer payment terms.

Shipping and Handling Costs:

The Company's shipping and handling costs are and those of the Predecessor were recorded in marketing expenses. These costs were approximately
$14.9 million in 2003 and approximately $11.9 million in the period from Inception (see Note 1) to December 31, 2002 for the Company, and approximately $11.3 million
in the period from January 1 to July 31, 2002 for the Predecessor.

51

---

Advertising Costs:

The Company expenses and the Predecessor expensed the cost of advertising in the year incurred in accordance with American Institute of Certified Public
Accountants' Statement of Position 93-7,Reporting on Advertising Costs.

Stock-based Compensation:

The Company accounts and the Predecessor accounted for stock-based compensation under the intrinsic value method of accounting as defined by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations and provides disclosure related to its stock-based
compensation under the provisions of SFAS 123, and for the Company, as amended by SFAS No. 148,Accounting for Stock-Based Compensation-Transition and
Disclosure("SFAS 148"). The Company recognizes and the Predecessor recognized the cost of fixed stock award plans on a straight-line basis over the vesting
period.

Predecessor:

If compensation cost for the Predecessor's fixed stock option awards (see Note 12) had been determined based on fair value at grant date for awards under
the plans consistent with FAS 123, the Predecessor's net loss and basic and diluted loss per common share would have been changed to the pro forma amounts as follows (in millions except per
share amounts):

Period from
January 1 to
July 31,
2002Net loss:As reported

$
(832.2
)Pro forma


(832.3
)Basic loss per share:As reported


(16.82
)Pro forma


(16.82
)Diluted loss per share:As reported


(16.82
)Pro forma


(16.82
)


Earnings Per Common Share:

The Company's basic earnings per common share is and the basic loss per common share of the Predecessor was computed by dividing net earnings or loss by the
weighted average number of common shares outstanding for each company for the respective periods. Diluted earnings per common share for the Company is and diluted loss per common share for the
Predecessor was calculated by adjusting the weighted average number of common shares outstanding for the respective periods to assume that all potentially dilutive shares were issued.

52

---

The
numerators and denominators of the basic and diluted earnings/(loss) per common share computations for the reported net earnings of the Company and the reported net loss of the
Predecessor were as follows (in millions, except per share and share amounts):

|                                                                                                       |  | Company |            | I |   | Predecessor | 
|------------------------------------------------------------------------------------------------------ |  | ------- | ---------- | - | - | ----------- | 
|
|Earnings/(loss) before extraordinary gain                                                              |  | $       | 68.7       |   | $ | 15.2        | 
|Less: dividends on Preferred Stock                                                                     |  |         | 7.0        |   |   | 3.0         | 
|                                                                                                       |  |         |            |   |   | I           | 
|Earnings/(loss) before extraordinary gain available to common stockholders                             |  |         | 61.7       |   |   | 12.2        | 
|Extraordinary gain                                                                                     |  |         | 2.6        |   |   | 122.6       | 
|                                                                                                       |  |         |            |   |   | I           | 
|Net earnings/(loss) available to common stockholders                                                   |  | $       | 64.3       |   | $ | 134.8       | 
|Weighted average number of common shares outstanding used for basic earnings/(loss) per common share   |  |         | 30,769,230 |   |   | 30,769,230  | 
|Weighted average number of potentially dilutive restricted common shares outstanding                   |  |         | 870,566    |   |   |            | 
|                                                                                                       |  |         |            |   |   | I           | 
|Weighted average number of common shares outstanding used for diluted earnings/(loss) per common share |  |         | 31,639,796 |   |   | 30,769,230  | 
|Basic earnings/(loss) per common share:                                                                |  |         |            |   |   |             | 
|Earnings/(loss) before extraordinary gain                                                              |  | $       | 2.01       |   | $ | 0.40        | 
|Extraordinary gain                                                                                     |  | $       | 0.08       |   | $ | 3.98        | 
|Net earnings/(loss)                                                                                    |  | $       | 2.09       |   | $ | 4.38        | 
|Diluted earnings/(loss) per common share:                                                              |  |         |            |   |   |             | 
|Earnings/(loss) before extraordinary gain                                                              |  | $       | 1.95       |   | $ | 0.40        | 
|Extraordinary gain                                                                                     |  | $       | 0.08       |   | $ | 3.98        | 
|Net earnings/(loss)                                                                                    |  | $       | 2.03       |   | $ | 4.38        | 

The
calculation of diluted loss per share of the Predecessor in the period from January 1 to July 31, 2002 did not include the effects of outstanding options for shares of
Common Stock totaling 0.3 million because the effect was anti-dilutive.

New Accounting Standards:

Company:

In June 2001, the FASB issued SFAS No. 143,Accounting for Asset Retirement Obligations("SFAS 143"), which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS 143 applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. As used in this statement, a legal obligation is an obligation that a party is required to settle as a result of
an existing or enacted law, statute, ordinance, or written or oral contract or by legal construction of a contract under the doctrine of promissory estoppel. The Company adopted SFAS 143
effective January 1, 2003 and this adoption did not have a material effect on its financial condition or results of operations.

53

---



In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections ("SFAS 145") which, among other things, rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, which required all gains and losses from the
extinguishment of debt to be classified as extraordinary items, and amends SFAS No. 13, Accounting for Leases, to require that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS 145 also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company adopted SFAS 145 effective January 1, 2003, and this adoption did
not have a material impact on the Company's financial position or results of operations.

In
July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS 146"). SFAS 146 nullifies Emerging Issues
Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. SFAS 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred, that is when it meets the definition of a liability in the FASB's conceptual framework, rather than at the date of a commitment to
an exit or disposal plan. SFAS 146 establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. Examples of costs covered by the
standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity.
SFAS 146 is effective for exit and disposal activities initiated after December 31, 2002. The Company adopted SFAS 146 effective January 1, 2003, and this adoption did not
have a material impact on its financial condition or results of operations.

In
December 2002, the FASB issued SFAS 148, which amends FASB Statement No. 123,Accounting for Stock-Based
Compensation("SFAS 123"). SFAS 148 provides alternative methods of transition for a voluntary change by an entity to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more prominent and more frequent disclosures in financial
statements about the effects of stock-based compensation. The disclosures under SFAS 148 are intended to improve the clarity and prominence of disclosures about the pro forma effects of using
the fair value based method of accounting for stock-based compensation for all companies, regardless of the accounting method used, by requiring that the data be presented more prominently and in a
more user-friendly format in the footnotes to the financial statements. In addition, SFAS 148 improves the timeliness of those disclosures by requiring that this information be
included in interim as well as annual financial statements. Under SFAS 123, the Company is required to make pro forma disclosures only in annual financial statements.

In
November 2002, the FASB issued Interpretation No. 45,Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees and Indebtedness of Others("FIN 45"). FIN 45 requires the initial recognition and initial measurement, on a prospective basis only, to guarantees
issued or modified after December 31, 2002. The Company adopted FIN 45 effective January 1, 2003, and this adoption did not have a material impact on its financial statements.

In
January 2003, the FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities("FIN 46"), which
clarifies the application of Accounting Research Bulletin No. 51,Consolidated Financial Statements,relating to consolidation of certain
entities. FIN 46 requires the identification of the Company's participation in variable interest entities (VIE). FIN 46 was effective for all new variable interest entities created or
acquired after January 31, 2003. For VIE created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning
after June 15, 2003. FIN 46 also requires certain disclosures regarding interests in VIE that

54

---

are
deemed significant, even if consolidation is not required. In December 2003, the FASB issued a revision to FIN 46 ("FIN 46R"). Under this new guidance, special effective date
provisions apply to enterprises that have fully or partially applied FIN 46 prior to issuance of this revised Interpretation. Otherwise, application of FIN 46R (or FIN 46) is
required in financial statements of public entities that have interests in structures that are commonly referred to as special-purpose entities for periods ending after December 15, 2003.
Application by public entities, other than small business issuers, for all other types of variable interest entities is required in financial statements for periods ending after March 15, 2004.
The Company is currently evaluating the effect, if any, the provisions of Fin 46 will have on its financial position and results of operations.

In
April 2003, the FASB issued SFAS No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities("SFAS 149"). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No.133,Accounting for Derivative Instruments and Hedging Activities("SFAS 133"). SFAS 149 has multiple
effective date provisions depending on the nature of the amendments to SFAS 133, including one for contracts entered into or modified after June 30, 2003. The Company adopted
SFAS 149 in 2003 and this adoption did not have a material effect on its financial position or results of operations.

In
May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity("SFAS 150") which establishes standards for how
an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.
SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003. For unmodified financial instruments existing at May 31, 2003, SFAS 150 is
effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. For nonpublic entities,
mandatorily redeemable financial instruments are subject to the provisions of this Statement for the first fiscal period beginning after December 15, 2003. The Company adopted SFAS 150
in 2003 and this adoption did not have a material effect on its financial position or results of operations.

In
December 2003, the FASB issued SFAS No. 132 (revised),Employers' Disclosures about Pensions and Other Postretirement Benefits("SFAS 132 Revised") which revises employers' disclosures
about pension plans and other postretirement benefit plans. SFAS 132 Revised does not change the
measurement or recognition of those plans. SFAS 132 Revised retains and revises the disclosure requirements contained in the original SFAS No. 132. It also requires additional
disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. SFAS 132 Revised is effective for
fiscal years ending after December 15, 2003, and for interim periods beginning after December 15, 2003. The Company adopted SFAS 132 Revised in 2003 and this adoption did not have
a material effect on its financial position or results of operations.

Predecessor:

In April 2001, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-25,Vendor Income
Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products("EITF 00-25"), which addresses the statement of earnings classification of
slotting fees, cooperative advertising arrangements and buydowns. The consensus requires that certain payments made to customers related to promotions that were previously classified as marketing
expenses be classified as reductions to net sales. The adoption of EITF 00-25 had no impact on the Predecessor's profit from operations or net earnings. The Predecessor adopted EITF
00-25 effective January 1, 2002.

55

---

In
November 2001, the EITF reached a consensus on Issue No. 01-09,Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products)("EITF 01-09"). EITF 01-09 codifies and reconciles the issues in
EITF 00-14, EITF 00-22, "Accounting for "Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or
Services to be Delivered in the Future" and EITF 00-25 provides guidance with respect to the statement of earnings classification of and the accounting for recognition and
measurement of consideration given by a vendor to a customer, which includes sales incentive offers labeled as discounts, coupons, rebates and free products or services as well as arrangements labeled
as slotting fees, cooperative advertising and buydowns. Effective January 1, 2002, the Predecessor adopted the provisions of EITF 01-09. The adoption of EITF Issue
No. 01-09 did not have a material impact on the Predecessor's financial condition or results of operations.

In
October 2001, the FASB issued SFAS 144, which addresses the accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144
supersedes SFAS 121, but retains many of the fundamental provisions of SFAS 121. SFAS 144 also supercedes the accounting and reporting provisions of Accounting Principles Board
Opinion No. 30,Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions("APB 30")
for the disposal of a segment of a business. However, SFAS 144 retains the requirements of APB 30 to report discontinued operations separately and extends that reporting requirement to
components of an entity that have either been disposed of or are classified as held for sale. SFAS 144 excludes goodwill and other intangibles from its scope.

For
assets to be held and used, SFAS 144 addresses how cash flows should be estimated to test the recoverability of an asset or group of assets, clarifies how an impairment loss
should be allocated, and creates a requirement to use an expected present value technique to estimate fair value if market prices are not available and uncertainties exist about the timing and amount
of future cash flows. For long-lived assets to be disposed of by sale, SFAS 144 establishes the criteria to be met to qualify for this classification, defines the timing of when the
related sale must be consummated, eliminates the net realizable value measurement approach for segments of a business and certain acquired assets in a business combination, and defines costs to sell
the asset. The provisions of SFAS 144 were effective as of January 1, 2002, and were generally to be applied prospectively. The adoption of SFAS 144 did not have a material impact
on the Predecessor's financial position or results of operations. Effective for the second quarter of 2002, the Predecessor recognized a non-cash asset impairment charge of
$329.9 million in its loss from operations (see Note 1).

Reclassifications:

Certain prior year information of the Company and the Predecessor has been reclassified to conform with current year presentations.

56

---

3.     Supplemental Information

Company

I

PredecessorYear
ended
December 31,
2003

Period from
Inception
(see Note 1) to
December 31,
2002

I
I
I
I

Period from
January 1 to
July 31,
2002(in millions):





IResearch, engineering and development costs

$
37.8

$
13.2

I

$
21.4Advertising costs

$
47.6

$
25.7

I

$
24.1Cash payments for interest and income taxes:







IInterest

$
1.6

$
1.1

I

$
2.4Income taxes

$
24.8

$
2.3

I

$
1.8


Company:

In
2003, the Company recorded non-cash items of approximately $4.0 million in cash flow from operating activities, which primarily related to foreign exchange
adjustments. In the period from Inception (see Note 1) to December 31, 2002, the Company recorded non-cash items of approximately $5.4 million in cash flow from
operating activities, which primarily related to exchange adjustments. In addition, the Company's non-cash financing activities in the period from Inception (see Note 1) to
December 31, 2002, consisted of the issuance of shares of the Company's preferred and common stock valued at approximately $31.2 million and approximately $1.1 million,
respectively, as part of the Transaction.

Predecessor:

In the period from January 1 to July 31, 2002, the Predecessor recorded a non-cash reorganization loss of $759.3 million that
consisted of an asset impairment loss of $329.9 million (see Note 1), a non-cash loss on the Transaction of $213.5 million, a charge of $183.7 million related
to the assumption of its U.S. pension plan by the PBGC, prepetition claims costs of $41.7 million and gains on asset sales of $9.5 million (see Note 2). Other non-cash
items in this period were $19.4 million and consisted primarily of a pension curtailment cost of $12.1 million, a pension settlement loss of $11.1 million (see Note 13),
partially offset by a curtailment credit of $12.1 million that was based on the termination of participants under the Predecessor's postemployment benefits coverage (see Note 13) as a
result of the Transaction.

Other Non-current Assets:

As of December 31, 2003, the Company had approximately $34.4 million of other non-current assets, which included approximately
$11.2 million to fully collateralize letters of credit and performance bonds. Approximately $8.2 million of those assets represented cash deposits that fully collateralize letters of
credit related to performance clauses in a lease for manufacturing facilities located in Waltham, Massachusetts that was assumed by the Company as part of the Transaction (see Note 1). In
addition, other non-current assets included approximately $16.6 million in prepaid expenses related to certain non-U.S. pension plans (see Note 13) and
approximately $3.4 million of restricted cash of certain non-U.S. subsidiaries, primarily for required deposits related to import duties.

57

---

As
of December 31, 2002, the Company had approximately $36.9 million of other non-current assets, which included approximately $15.2 million for cash
deposits that fully collateralize letters of credit and a note that were related to performance clauses in a lease for manufacturing facilities located in Waltham, Massachusetts that was assumed by
the Company as part of the Transaction (see Note 1). In addition, other non-current assets included approximately $15.1 million in prepaid expenses related to certain
non-U.S. pension plans (see Note 13) and approximately $3.2 million of restricted cash of certain non-U.S. subsidiaries, primarily for required deposits related
to import duties.

Real Estate Joint Venture Distribution:

Company:

In 2003, and the period from Inception (see Note 1) to December 31, 2002, the Company received distributions of approximately $2.8 million
and approximately $1.0 million, respectively, from an interest in a real estate joint venture for the development of certain real estate in Cambridge, Massachusetts, which had been acquired by
the Company in the Transaction. These distributions were recorded in other income.

Predecessor:

In the period from January 1 to July 31, 2002, the Predecessor received a distribution of approximately $3.0 million from a real estate joint
venture that was developing real estate in Cambridge, Massachusetts. This distribution was recorded in other income.

Assets Held for Sale:

In connection with the Transaction, the Company made the decision to sell approximately $26.8 million of property, plant and equipment representing the
estimated fair value, less cost to sell, of certain underutilized real estate, primarily in the Global Manufacturing and International Region segments, and therefore, these assets were designated as
held for sale (see Note 1). This amount was recorded as a current asset as of July 31, 2002, since the Company expected to recover these carrying values within the twelve months
following the Transaction. In November 2002, the Company sold certain of its assets classified as held for sale for the carrying value of those assets of approximately $1.4 million.

In
2003, the Company decreased the estimated fair value of certain of the assets held for sale by approximately $3.6 million (see Note 1) and sold certain of its assets
classified as held for sale, including its manufacturing facility located in Norwood Massachusetts, for cash proceeds of approximately $18.3 million. The carrying value of the assets sold was
approximately $17.6 million. Because the Company leased back more than a minor portion of the Norwood property, it was required to defer the net gain on the sale of approximately
$0.5 million which it will recognize ratably over the seven year term of the lease as a reduction of lease expense. Approximately $12.0 million of the proceeds from the sale of the
Norwood property was recorded in other current assets at December 31, 2003 and deposited with a third party to be used for qualified like-kind property exchanges that are required
to be completed within 180 days of the sale of this property. Any remaining funds in this deposit at the end of the 180 day period will be returned to the Company. Under the terms of the
sale agreement, the Company was also required to deposit approximately $2.1 million of the proceeds in escrow as security for the Company's performance related to a third party lease that was
assumed by the buyer. This deposit was recorded in other current assets. Portions of this escrow will be released to the Company as lease payments are made by the third party.

58

---

The
carrying value of the Company's held for sale assets was approximately $4.2 million at December 31, 2003. During 2003, the Company reduced the carrying value of these
assets by approximately $1.0 million to reflect lower market values. At December 31, 2003, the Company was still actively marketing these properties.

Asset Sales:

In the first quarter of 2002, with the approval of the U.S. Bankruptcy Court, the Predecessor sold its Polaroid Digital Solutions, Inc. assets for
$4.5 million and recognized a gain on this sale of approximately $4.7 million that was recorded as a reduction of its reorganization loss. Also in this period, with the approval of the
U.S. Bankruptcy Court, the Predecessor sold assets and recorded the gain on these sales of approximately $0.8 million as a reduction of its reorganization loss. In July 2002, the
Predecessor sold certain property in the U.K., previously used for administrative space, for net proceeds of approximately $6.4 million and recorded a gain on this sale of approximately $3.9 as
a reduction of its reorganization loss.

Other Business Risks:

The Company's instant film and camera manufacturing capacity is concentrated in facilities in Europe and the Far East, respectively. It is considered at least
reasonably possible that the use of a facility located outside of the Company's home country could be disrupted in the near term. Due to the specialized nature of certain assets located at these
facilities, it would not be possible to find replacement capacity quickly. Accordingly, the loss of either of these facilities would have a materially adverse impact on the Company.

4.     Restructuring and Other Charges

Company:

The following table summarizes the Company's reserves established for restructuring and other charges (in millions):

Severance

Exit Costs

TotalAssumed liabilities in Transaction

$
4.3

$


$
4.3New liabilities of Company as of date of Transaction


4.0





4.0Restructuring and other charges


4.9


0.2


5.1Cash payments


(4.6
)




(4.6
)Balance at December 31, 2002

$
8.6

$
..2

$
8.8Restructuring and other charges


4.7





4.7Cash payments


(10.8
)

(0.2
)

(11.0
)Balance at December 31, 2003

$
2.5




$
2.5


In
2003, as part of the Company's plan to reduce costs and streamline operations, it recorded restructuring and other charges of approximately $4.7 million. These charges were
allocated to the non-segment Corporate category and represented a charge for involuntary severance programs intended to downsize and consolidate certain sales and marketing operations,
non-U.S. operations in Global Manufacturing and certain non-segment Corporate operations (see Note 15 for more information on the Company's business segments). These
reductions were the result of management's continuing assessment of the Company's operations and are intended to further streamline operations and improve

59

---

profitability
by consolidating marketing and manufacturing facilities. The strategic objective of these reductions was to reduce the cost of selling and manufacturing the Company's products; to
improve business processes; to improve financial performance; and to improve the Company's global business operations. The cash payments under these programs, some of which are paid as a stream of
payments, are expected to be substantially completed by the end of 2004.

In
connection with the Transaction, the Company recorded a liability for compensation and benefits of approximately $8.3 million, which included approximately $4.3 million
for severance payments under assumed liabilities of Primary and its foreign subsidiaries. This liability also included approximately $4.0 million for severance payments to approximately 350
employees terminated under several non-U.S. severance programs, primarily in Global Manufacturing, as part of the Company's plan to downsize or exit certain activities that were begun as
of the date of the Transaction (see Note 1). These programs were completed within the twelve-month period following the date of the Transaction. As of December 31, 2002, approximately
$4.6 million of cash payments had been made against this liability with the remaining payments substantially completed by the end of the third quarter of 2003.

In
December 2002, as part of its continuing plan to reduce costs and streamline operations, the Company recorded a restructuring and other charge of $5.1 million. This
charge was allocated to the non-segment Corporate category and consisted of a charge of approximately $4.9 million for involuntary severance programs intended to downsize and
consolidate certain sales and marketing and non-U.S. operations in Global Manufacturing. These reductions were the result of management's assessment of the Company's operations and were
intended to streamline operations and to improve profitability by consolidating marketing and manufacturing facilities. The strategic objective of these reductions was to reduce the cost of selling
and manufacturing the Company's products; to improve business processes; to improve financial performance; and to improve the Company's global business operations. In addition, the restructuring and
other charges in December 2002 included a charge of approximately $0.2 million primarily for exit costs related to marketing subsidiaries that were closed.

The
restructuring charges recognized in December 2002 related to approximately 120 employees (approximately 35% from the International Region and approximately 65% from Global
Manufacturing) who were expected to leave the Company over the twelve months following December 2002. No cash payments were made as of December 31, 2002, related to the charges
recognized in December 2002. The cash payments under these programs were substantially completed by the end of 2003.

Predecessor:

The following table summarizes the Predecessor's reserves established for restructuring and other charges (in millions):

Severance

Asset
Impairments/
Exit Costs

TotalBalance at January 1, 2002

$
25.2

$


$
25.2Restructuring and other charges


8.5


8.1


16.6Reversal of restructuring charges


(4.0
)




(4.0
)Non-cash charges and reclassifications


(10.9
)

(8.1
)

(19.0
)Cash payments


(14.5
)




(14.5
)Balance at July 31, 2002

$
4.3

$


$
4.3


60

---



In the period from January 1 to July 31, 2002, the Predecessor recorded a net of approximately $12.6 million of restructuring and other
charges of which approximately $8.5 million was recorded primarily to adjust certain existing reserves and to further reduce overhead costs and realign its resources. Under this program,
approximately 225 sales and marketing employees left the Predecessor, primarily from the International Region. In addition, the Predecessor made approximately $14.5 million of cash payments
under the program during this period and reversed approximately $4.0 of severance reserves that the Predecessor determined were no longer required. The Predecessor's severance reserve included
approximately $10.9 million of severance liabilities that were classified as prepetition liabilities. As part of the Transaction, the Company assumed $4.3 million of the remaining
reserve for the Predecessor's severance program.

In
addition, the restructuring and other charges recorded by the Predecessor in the period from January 1 to July 31, 2002 included approximately $3.8 million
related to an impairment charge related to the Predecessor's marketing operations that were exited, approximately $2.9 million of costs related to internal use software that was no longer
required to support certain marketing activities, approximately $0.6 million for exit costs and approximately $0.8 million of fixed asset write-offs primarily related to a
number of non-U.S. activities that were exited. The exit costs were substantially paid by the Predecessor as of July 31, 2002.

5.     Financial Instruments

The Company generates and the Predecessor generated a substantial portion of their revenues in international markets, which subjects the Company's and subjected
the Predecessor's operations and cash flows to currency exchange rate fluctuations. The ability to counteract currency exchange rate movement of the Company is and of the Predecessor was primarily
dependent on pricing and sourcing of products and services in local markets. The Company has and the Predecessor had limited flexibility to increase prices in local currency to offset the adverse
impact of foreign exchange rate fluctuations. The Company did not purchase any derivative instruments in 2003 or in the period from Inception (see Note 1) to December 31, 2002. The
Predecessor did not purchase any derivative instruments in the period from January 1 to July 31, 2002.

Fair Value:

The carrying amounts of cash, cash equivalents, trade accounts receivable, short-term debt and trade accounts payable of the Company approximate and
of the Predecessor approximated fair value because of the short maturity of these financial instruments. The Company's other assets include investments in financial assets, which were recorded at fair
value as of the date of the Transaction.

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 and the Predecessor placed temporary cash investments in highly rated financial instruments. The Company primarily places these investments in
the financial institutions of its lenders as required under its Credit Agreement (see Note 8).

The
Company markets and the Predecessor marketed a substantial portion of their products to customers in the retail industry, a market in which a number of companies are highly
leveraged. The Company evaluates and the Predecessor evaluated the credit risk of these customers regularly and the

61

---

Company
believes and the Predecessor believed that their allowances for doubtful accounts relative to trade accounts receivable are and were adequate, respectively.

6.     Income Taxes

An analysis of income tax expense/(benefit) follows (in millions):

Company:

Current

Deferred

TotalYear ended December 31, 2003:Federal

$
8.0

$
7.3

$
15.3State


0.9





0.9Foreign


4.7


2.0


6.7Total

$
13.6

$
9.3

$
22.9Period from Inception (see Note 1) to December 31, 2002:Federal

$
10.4

$
(10.0
)
$
0.4State


0.7





0.7Foreign


(0.4
)

6.2


5.8Total

$
10.7

$
(3.8
)
$
6.9


---

Predecessor:

Current

Deferred

TotalPeriod from January 1 to July 31, 2002:Federal

$


$


$
State


(0.6
)




(0.6
)Foreign


2.1


11.4


13.5Total

$
1.5

$
11.4

$
12.9


---

Deferred
tax assets and deferred tax liabilities 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. The netting of deferred tax assets, deferred tax liabilities, and valuation allowances reflected on the consolidated balance sheet of the Company resulted in a
net deferred tax asset of $3.1 million and $12.4 million at December 31, 2003 and 2002, respectively. All domestic tax assets and tax liabilities of the Predecessor as of the date
of the Transaction remained with the Predecessor. The

62

---

significant
components of the amounts shown on the Company's consolidated balance sheet as of December 31 are as follows (in millions):

Company2003

2002Deferred tax assets:Property, plant and equipment and trademarks

$
18.0

$
28.5Inventory


10.1


7.9Compensation and benefits


3.9


6.2Loss and credit carryforwards


30.8


34.1All other


3.0


7.265.8


83.9Valuation allowance


(49.5
)

(64.9
)Total deferred tax assets


16.3


19.0Deferred tax liabilities:Property, plant and equipment and trademarks


9.7


3.9Compensation and benefits


2.7


2.0All other


0.8


0.7Total deferred tax liability


13.2


6.6Net deferred tax asset

$
3.1

$
12.4


As
of December 31, 2003, the Company's net deferred tax asset of $3.1 million included approximately $14.4 million of deferred taxes in other current assets and
approximately $1.9 million of non-current deferred tax assets. These amounts were offset by approximately $13.2 million of deferred tax liabilities in other
non-current liabilities.

As
of December 31, 2002, the Company's net deferred tax asset of $12.4 million included approximately $13.2 million of deferred taxes in other current assets and
approximately $5.8 million of non-current deferred tax assets. These amounts were offset by approximately $0.4 million deferred tax liabilities in other current liabilities
and approximately $6.2 million of deferred tax liabilities in other non-current liabilities.

The
Company had a valuation allowance of approximately $64.9 million at December 31, 2002 primarily associated with foreign deferred taxes. In 2003, the Company decreased
its valuation allowance by approximately $15.4 million for the deferred taxes associated with its foreign deferred tax assets. The valuation allowances were recorded since the Company
determined that it was considered more likely than not that the majority of these deferred tax assets will not be realized over a reasonable period of time.

The
Company does not have an alternative minimum tax carryover.

63

---

The
domestic and foreign components of the Company's and the Predecessor's earnings/ (loss) before extraordinary gain and income tax expense follows (in millions):

Company

I

PredecessorYear
ended
December 31,
2003

Period from
Inception
(see Note 1) to
December 31,
2002

I
I
I
I

Period from
January 1 to
July 31,
2002Domestic

$
45.9

$
(1.8
)
I

$
(490.9
)Foreign


45.7


23.9

I


(328.4
)ITotal

$
91.6

$
22.1

I

$
(819.3
)I


A
reconciliation of differences between income tax expense/(benefit) computed at the statutory U.S. federal income tax rate (35% for 2003 and 2002) and the reported income tax expense
follows (in millions):

Company

I

PredecessorYear
ended
December 31,
2003

Period from
Inception
(see Note 1) to
December 31,
2002

I
I
I
I

Period from
January 1 to
July, 31,
2002Income tax expense/(benefit) at U.S. statutory rate

$
32.1

$
7.7

I

$
(206.2
)State taxes


0.6


0.4

I


(0.4
)Nondeductible expenses/(nontaxable income)


(5.2
)

0.1

I


0.2Tax benefit not expected to be realized







I


205.8Tax (benefit)/ expense resulting from foreign activities


(7.7
)

(1.1
)
I


13.5Other


3.1


(0.2
)
I


IReported income tax expense

$
22.9

$
6.9

I

$
12.9I


Undistributed
earnings of the Company's foreign subsidiaries are held for reinvestment in overseas operations. These undistributed earnings amounted to approximately
$404.4 million as of December 31, 2003. U.S. income taxes may be due upon remittance of these earnings. However, the Company intends to indefinitely reinvest these earnings in its
foreign subsidiaries.

7.     Inventories

The classification of the Company's inventories at December 31 follows (in millions):

Company2003

2002Raw materials

$
27.2

$
29.0Work-in-process


83.2


88.8Finished goods


36.5


41.6Total

$
146.9

$
159.4


64

---



8.     Short-term Debt

Company:

As of July 29, 2002, Holding, Polaroid and most of the major foreign subsidiaries of Polaroid entered into a three year, $100.0 million credit
facility and accompanying security documents with a group of lenders led by Citicorp USA, Inc. as Domestic Administrative Agent, Domestic Collateral Agent and Foreign Syndication Agent and Bank
of America, N.A. as Foreign Administrative Agent, Foreign Collateral Agent and Domestic Syndication Agent, (the "Credit Agreement"). The Credit Agreement is secured by, among other things, a first
priority security interest on substantially all of the Company's assets in the United States and most of the assets of the Company's non-U.S. subsidiaries that are designated as borrowers
or guarantors under the Credit Agreement. Approximately $5.0 million of fees paid to the lenders under the Credit Agreement were recorded as deferred financing fees as of July 31, 2002,
and are being amortized on a straight-line basis over the three-year term of the Credit Agreement.

The
Credit Agreement provides for a term loan of up to $20.0 million and a three year $80.0 million revolving credit line, of which $50.0 million is available to be
borrowed by Polaroid and $30.0 million is available to be borrowed by non-U.S. subsidiaries that are designated as borrowers under the Credit Agreement. It also includes provisions
for letters of credit in lieu of borrowings under the revolving credit line. In addition the Credit Agreement contains provisions for borrowings between Company subsidiaries that are designated as
borrowers or guarantors. As of December 31, 2003, the revolving credit line under the Credit Agreement had not been drawn.

The
Company had $17.5 million classified as short-term debt as of December 31, 2002, which represented the outstanding borrowings under the term loan provision
of the Credit Agreement. The term loan was required to be repaid quarterly on a ratable basis over a two-year period that began on October 31, 2002 and could be repaid at any time
at the Company's option. The Credit Agreement contains provisions for the optional prepayment of all or part of the revolving credit
and term loans upon the satisfaction of certain conditions. However, once the term loan was repaid it could not be drawn on again.

The
Credit Agreement also contains provisions for the mandatory prepayment of the revolving credit and term loans upon the occurrence of certain defined events and with the net cash
proceeds from certain asset sales, including those classified as assets held for sale (see Note 3) and from the excess cash flow of the Company, which is required to be computed annually. Based
on the excess cash flow computation as of December 31, 2002, the outstanding amount under the term loan was repaid in full in April 2003 as required.

Term
loan borrowings under the Credit Agreement bore interest at specified amounts. The weighted average interest rate on the amount outstanding under the term loan as of
December 31, 2002 was approximately 6.7%.

Revolving
credit line borrowings under the Credit Agreement bear interest based on (i) a rate which is referenced to fluctuating market interest rates and (ii) an
applicable margin of 2.5% to 3.5% for the first year and thereafter 1.25% to 3.5%, depending on the Company's leverage ratio required under the Credit Agreement. The Company also pays the lenders an
unused line of credit fee, a fee on any letters of credit issued, and is obligated to pay the agents certain other customary administrative fees.

Interest
expense for 2003 included approximately $0.3 million of interest on the term loan borrowings. Interest expense for the period from Inception (see Note 1) to
December 31, 2002, included approximately $0.6 million of interest on the term loan borrowings. The weighted average

65

---

interest
rate for 2003 and the period from Inception (see Note 1) to December 31, 2002 on the term loan borrowings was approximately 6.5% and approximately 7.1%, respectively. Interest
expense for 2003 and the period from Inception (see Note 1) to December 31, 2002 also included approximately $1.8 million and approximately $0.8 million, respectively, from
the amortization of fees paid in connection with the Transaction (see Note 1) and other fees primarily related to borrowings under the Credit Agreement.

Under
the revolving credit line, the Company's borrowing availability is reported monthly and is tied to a percentage of eligible domestic and foreign inventories and accounts
receivable. Monthly reporting will continue as long as the Company maintains $25.0 million in excess availability, which is defined to include a significant portion of the Company's cash and
cash equivalents. If the excess availability falls below this threshold, weekly reporting will be required. The formula for computing the Company's borrowing availability also includes limitations
based on a percentage of the value of eligible assets and is subject to certain additional reserves imposed by the agents for the lenders under the Credit Agreement.

The
Credit Agreement contains covenants requiring that the Company satisfy certain ongoing financial covenants relating to: maximum capital expenditures; maximum expenditures for instant
digital printing research and development expenditures; minimum earnings before interest, taxes, depreciation and amortization; maximum leverage ratio; and minimum tangible net worth. The Credit
Agreement also contains covenants restricting, among other things, the Company's ability to: borrow additional money; incur liens; pay dividends; sell assets; make additional corporate investments;
engage in transactions with the Company's international subsidiaries; enter sale and leaseback transactions; purchase margin stock; enter speculative transactions; cancel indebtedness owed to it; and
make subsidiary distributions.

In
addition, the Credit Agreement prohibits: a change in control; fundamental changes; and changes in the nature of the Company's business. Notwithstanding these covenants and
restrictions the Credit Agreement was amended in 2003 to provide a $100.0 million discretionary basket for items otherwise restricted such as preferred stock redemptions, asset acquisitions and
investments as long as certain of the Company's financial covenants are satisfied. In November 2003, the Company paid approximately $9.7 million of Preferred Stock dividends and redeemed
50% of the outstanding shares of its Preferred Stock for approximately $44.6 million (see Note 10.) As a result, approximately $45.7 million remained from the
$100.0 million discretionary basket at December 31, 2003. The Company was in compliance with all of its requirements under the Credit Agreement at of December 31, 2003 and 2002.

Predecessor:

As of January 1, 2002, the Predecessor had approximately $926.6 million outstanding in short-term debt, of which $851.0 million
was classified as liabilities subject to compromise. The amounts outstanding were comprised of $277.1 million under the Amended Credit Agreement (defined below), $44.5 million under a
credit agreement in the U.K. (the "U.K. Credit Agreement") and $573.9 million of bonds, which had been reclassified from long-term debt to short-term debt prior to the
Filing. Since principal and interest payments could not be made on the bonds without the U.S. Bankruptcy Court's approval or until a reorganization plan or plans defining the repayment terms had been
confirmed by the U.S. Bankruptcy Court, interest on the bonds was not accrued by the Predecessor because it was not probable that it would be treated as an allowed claim. In addition, the Predecessor
had $31.1 million outstanding as of January 1, 2002 in bank overdraft borrowings which were required to be offset by a similar amount of cash deposits at the bank where the overdraft
amounts were located.

66

---

The
Predecessor had a credit agreement which, as amended, initially provided for a maximum commitment of $350.0 million on a revolving basis, (the "Predecessor Credit Agreement").
As of January 1, 2002, the Debtors were liable to the lenders under the Predecessor Credit Agreement in the amount of approximately $277.1 million in respect of loans made and letters of
credit issued under the Predecessor Credit Agreement. In connection with the Predecessor Credit Agreement and the
amendments and waivers to it, the Predecessor granted the lenders a first priority security interest in substantially all of its domestic personal property and mortgages on certain real estate. As a
result of the Filing, principal and interest payments could not be made with respect to the Predecessor Credit Agreement without approval or until a reorganization plan or plans defining the repayment
terms was confirmed.

In
the period from January 1 to July 31, 2002, with the approval of the U.S. Bankruptcy Court, the Predecessor repaid approximately $259.2 of the amount outstanding under
the Predecessor Credit Agreement from cash on hand and from the proceeds of certain asset sales including the proceeds from the Transaction.

As
of the Filing, Primary and Polaroid U.K. entered into a Standstill Agreement (the "Standstill Agreement") with the agents and lenders under the U.K. Credit Agreement whereby such
agents and lenders agreed to forbear from exercising any of their rights and remedies under the U.K. Credit Agreement until the earlier of certain events.

The
Standstill Agreement prohibited Polaroid U.K. from further committed borrowings under the U.K. Credit Agreement over the outstanding amount as of the date of the Standstill Agreement
of approximately 51.2 million Euros less any required repayments; contained certain financial covenants; and contained certain cross-default provisions upon receipt of formal notice from the
lenders under the Standstill Agreement. In April 2002, the outstanding amount under the U.K. Credit Agreement was repaid in full.

Interest
expense on the Predecessor's short-term borrowings was $0.8 million in the period from January 1 to July 31, 2002. The weighted average interest
rates on these borrowings was 5.6% in the period from January 1 to July 31, 2002. Interest expense that was not recorded on the Predecessor's outstanding U.S. short-term
debt, including the long-term debt that it reclassified to short-term, was approximately $36.9 million in the period from January 1 to July 31, 2002.
Interest expense in the period from January 1 to July 31, 2002 also includes approximately $1.6 million primarily related to fees paid on the Predecessor's credit facilities.

9.     Payables and Accruals

The following items are included in the Company's payables and accruals at December 31 (in millions):

Company2003

2002Trade accounts payable

$
44.0

$
52.2Reserve for marketing programs


40.5


39.6Other accrued expenses and current liabilities


53.0


64.7Total

$
137.5

$
156.5


67

---

10.   Preferred Stock

Holding has authorized 2,000,000 shares of Preferred Stock with a par value of $0.001 per share, of which 900,000 shares had been designated as Series A 8%
Cumulative Compounding Preferred Stock (the "Preferred Stock"). This stock has a liquidation preference value of $100 per share plus all accrued and unpaid dividends. Holders of the Preferred Stock
are not entitled to vote but are entitled to receive cash dividends that accrue on a daily basis. These dividends will only be paid if declared by the board of directors. These dividends are subject
to the restrictions in the Credit Agreement (see Note 8). The Preferred Stock is not convertible by either the holder or Holding into any other shares of Holding's stock but may be redeemed in
whole or in part at any time at the option of Holding and are required to be redeemed upon the occurrence of a change of control or initial public offering of Holding's stock. Accrued but unpaid
dividends on the Preferred Stock are compounded annually.

As
of December 31, 2003, Holding had issued and outstanding 446,150 shares of Preferred Stock. As of December 31, 2002, Holding had issued and outstanding 892,300 shares of
Preferred Stock, consisting of 580,000 shares issued to OEP for a cash payment of $58.0 million and 312,300 shares issued to Primary in connection with the Transaction, which were valued at a
total of $31.2 million (see Note 1).

In
November 2003, the Company paid from its retained earnings approximately $9.7 million of cash dividends in arrears on the Preferred Stock and redeemed 446,150 shares of
this Preferred Stock for approximately $44.6 million.

As
of December 31, 2003 and 2002, approximately $0.3 million and $3.0 million, respectively, or approximately $0.01 and $0.10 per diluted common share, respectively,
of dividends on the Preferred Stock had accumulated in arrears and were undeclared and unpaid.

11.   Common Stockholders' Equity

As of December 31, 2003, Holding had authorized 50,000,000 shares of Common Stock with a par value of $0.001 per share, of which 34,836,410 shares were
issued and outstanding. In connection with the Transaction (see Note 1), 20,000,000 shares of Holding's Common Stock were issued to OEP in exchange for a cash payment of $2.0 million and
10,769,230 shares of Common Stock were issued to Primary, which were valued at a total of $1.1 million. The excess of approximately $3.1 million of the cash payments and valuation over
the par value of the Common Stock as of July 31, 2002, was recorded in additional paid in capital.

In
2003, Holding sold 4,067,180 shares of restricted Common Stock to directors and certain key employees (see Note 12.) These shares were included in the Company's outstanding
Common Stock at December 31, 2003.

Under
the provisions of the asset purchase agreement related to the Transaction, if the Debtors incur in excess of certain amounts for estate costs and do not have the funds necessary to
pay for them, they have the right to require Holding to purchase from them up to 4% of the total shares of Common and Preferred Stock of Holding outstanding at the date of the Transaction for up to
$4.5 million.

12.   Incentive Compensation and Stock Incentive Plans

Company:

The Company has annual incentive compensation programs covering substantially all domestic employees, employees of its manufacturing subsidiary in the United
Kingdom and certain key employees of its non-U.S. subsidiaries. Payments under these programs are based on a comparison of

68

---

the
performance of the Company and local operating units against established financial and operational goals. The amount charged to operations in 2003 and the period from Inception (see Note 1)
to December 31, 2002 for these incentive programs was approximately $21.0 million and approximately $8.0 million, respectively. Cash payments of approximately $7.3 million
under the 2002 program were made in 2003. Approximately $0.7 million of the amount recorded for the 2002 program was not awarded to participants and was recognized as a reduction to incentive
compensation costs in 2003. The cash payments under the 2003 program are expected to be made in the first quarter of 2004.

In
2003, Holding sold 4,067,180 shares of its Common Stock to certain executives, officers and directors of the Company pursuant to Holding's Restricted Stock Purchase Program. These
sales were exempt from registration under the Securities Act pursuant to Section 4(2) and pursuant to Rule 701 promulgated under the Securities Act. These shares contain certain rights
and restrictions with respect to voting rights, transfers, sales and other matters. The estimated fair value of these shares in excess of the proceeds received of $0.4 million was recorded by
the Company as deferred compensation in common stockholders' equity in 2003 and will be recognized in incentive compensation expense on a straight line basis over the four year vesting period for
these shares. In 2003, approximately $0.1 million of incentive compensation cost was recognized in net earnings under this program.

Predecessor:

In the period from January 1 to July 31, 2002, the Predecessor sought and obtained the approval of the U.S. Bankruptcy Court to pay approximately
$2.4 million of retention bonuses to certain key U.S. employees. The Predecessor also recorded an incentive compensation expense of approximately $0.6 million in the period from
January 1 to July 31, 2002 for retention bonuses for certain non-U.S. employees. These bonuses were charged to incentive compensation in the period from January 1 to
July 31, 2002, and were paid with the proceeds from the Transaction.

The
Predecessor had a stock incentive plan for executives and key employees. A summary of the Predecessor's fixed stock option awards as of January 1, 2002 and the changes for the
period from January 1 to July 31, 2002 is presented below:

Number of
Stock Options

Weighted-Average
Exercise Price(in thousands)Outstanding at January 1, 2002

3,544

$
13.32Granted




Exercised




Forfeited

(3,196
)
$
12.14Outstanding at July 31, 2002

348

$
24.19


69

---

Stock
options outstanding as of July 31, 2002:

Range of
Exercise Prices

Number of
Stock Options

Weighted-Average
Remaining
Contractual Life

Weighted-Average
Exercise Price(in thousands)

(years)$4

96

6.0

$
4.00$19 to $26

101

2.5

$
21.19$31 to $46

137

1.9

$
37.97$47 to $57

14

4.0

$
49.92$4 to $57

348

4.3

$
24.19


Stock
options exercisable as of July 31, 2002:

Range of
Exercise Prices

Number of
Stock Options

Weighted-Average
Exercise Price(in thousands)$4

96

$
4.00$19 to $26

100

$
21.20$31 to $46

137

$
37.97$47 to $57

14

$
49.92$4 to $57

347

$
24.20


As
of January 1, 2002, executives and key employees of the Predecessor had been granted shares of performance accelerated restricted stock (PARS) as a long-term
incentive. The PARS grants were subject to accelerated vesting of a portion of the award if the Predecessor achieved certain performance goals before 2003. If the acceleration terms were not
satisfied, the awards vested one third each year over the three year vesting period. One share of the Predecessor's Common Stock was to be issued for each share of PARS that vested. In the period from
January 1 to July 31, 2002, a total of 891,280 shares had been granted at prices of $19.06 and $18.06. A total of $0.6 million was charged to expense under this program. In the
period from January 1 to July 31, 2002, non-vested PARS grants were cancelled by the Predecessor and the vested grants were forfeited as participants left the employ of the
Predecessor.

As
of January 1, 2002, the Predecessor had made restricted stock grants to certain executives. These restricted stock awards vested over a two year period at a rate of
one-half each year. One share of the Predecessor's Common Stock was to be issued for each share of restricted stock that vested. No shares of stock were issued on the award date. A total
of 961,579 shares of restricted stock were granted prior to January 1, 2002 at a price of $7.63. The amount charged to expense related to
these restricted stock awards was $0.9 million in the period from January 1 to July 31, 2002. In the period from January 1 to July 31, 2002, non-vested
restricted stock grants were cancelled by the Predecessor and most of the vested grants were forfeited as participants left the employ of the Predecessor.

13.   Benefit Plans

Company:

The Company has adopted a defined contribution plan pursuant to the provisions of the Internal Revenue Code ("Code") for the benefit of substantially all of its
U.S. employees. This plan contains provisions for: rollovers from other qualified retirement plans; pre-tax employee contributions pursuant to Section 401(k) of the Code; a Company
match of up to 3% of eligible employee cash contributions

70

---

pursuant
to Section 401(k) of the Code beginning in 2003; after-tax employee contributions; and discretionary Company cash contributions. In December 2002, the Company made a
discretionary cash contribution to this plan of approximately $0.8 million, which represented 3% of the employees' base pay for the period from October to December 2002. In 2003, the
Company made a cash contribution to this plan of approximately $2.8 million which represented the Company's match of up to 3% of eligible employee cash contributions. The Company did not assume
the U.S. pension plan of the Predecessor in the Transaction. The Company does not have a defined benefit pension plan for its U.S. employees.

Employees
of the Company's manufacturing subsidiaries in the United Kingdom and The Netherlands are covered by trusteed, contributory defined benefit pension plans. In general, the
Company's policy is to fund these pension plans through agreement with local pension plan trustee boards in accordance with local statutory funding regulations and taking into consideration local
labor agreements and economic conditions. The assets in these trusts consist primarily of investments in bond and equity indexed funds.

Employees
of most of the Company's other non-U.S. subsidiaries are covered by insured plans. Related obligations and assets of these other plans are not material and
therefore are not included in the information below.

Predecessor:

The Predecessor maintained a qualified noncontributory trusteed pension plan covering substantially all domestic employees. In general, the Predecessor's policy
was to fund its U.S. pension trust to the extent such contributions would be deductible under the funding standards established under the Internal Revenue Code. Plan assets consisted primarily of high
quality corporate and U.S. government bonds, asset backed securities, publicly traded Common Stocks and investments in private equity, real estate and global asset funds. The Predecessor's U.S.
pension plans were not assumed by the Company in the Transaction. The Predecessor's U.S. pension plan was assumed by the PBGC effective as of July 31, 2002 (see Note 2).

Employees
of the Predecessor's manufacturing subsidiaries in the United Kingdom and The Netherlands were covered by trusteed, contributory pension plans. Amounts for these plans were
funded in accordance with local laws and economic conditions. Employees of most other foreign subsidiaries were covered by insured plans. Related expenses, obligations and assets of these other plans
were not material and therefore were not included in the information below.

71

---

Components
of the Company's and the Predecessor's net periodic pension cost are as follows (in millions):

Company

I

PredecessorYear
ended
December 31,
2003

Period from
Inception
(see Note 1) to
December 31,
2002

I
I
I
I

Period from
January 1 to
July 31,
2002Service cost

$
5.9

$
2.4

I

$
8.4Interest cost


14.8


5.4

I


41.2Expected return on assets


(17.1
)

(7.0
)
I


(53.8
)Amortization of:







IUnrecognized transition asset







I


(0.6
)Unrecognized prior service cost







I


1.4Unrecognized gain







I


(0.9
)Curtailment cost







I


12.1Settlement loss







I


11.1INet periodic pension cost

$
3.6

$
0.8

I

$
18.9I


The
following table sets forth the plans' reconciliations of projected benefit obligations, plan assets and funded status to the amounts recognized in the consolidated balance sheet for
the Company for

72

---

the
year ended December 31, 2003 and the period from Inception (see Note 1) to December 31 2002 and for the Predecessor for the period from January 1 to July 31,
2002 (in millions):

|                                                              |  | Company |       | I |   | Predecessor |  
|------------------------------------------------------------- |  | ------- | ----- | - | - | ----------- | -
|
|Projected benefit obligation at beginning of period           |  | $       | 253.4 |   | $ | 226.9       |  
|Service cost                                                  |  |         | 5.9   |   |   | 2.4         |  
|Interest cost                                                 |  |         | 14.8  |   |   | 5.4         |  
|Plan participants' contributions                              |  |         | 1.3   |   |   | 0.5         |  
|Special termination benefits                                  |  |         | 1.0   |   |   | 0.8         |  
|Actuarial (gain)/loss                                         |  |         | (7.9  | ) |   | 10.6        |  
|Curtailment cost                                              |  |         |      |   |   |            |  
|Benefits paid                                                 |  |         | (8.8  | ) |   | (3.3        | )
|Transaction related adjustment for Predecessor non-U.S. Plans |  |         |      |   |   |            |  
|Foreign currency exchange rate change                         |  |         | 39.6  |   |   | 10.1        |  
|                                                              |  |         |       |   |   | I           |  
|Projected benefit obligation at end of period                 |  | $       | 299.3 |   |   | 253.4       |  
|                                                              |  |         |       |   |   | I           |  
|Fair value of plan assets at beginning of period              |  | $       | 213.7 |   | $ | 208.1       |  
|Actual return on plan assets                                  |  |         | 16.5  |   |   | (3.8        | )
|Employer contributions                                        |  |         | 4.3   |   |   | 3.6         |  
|Plan participants' contributions                              |  |         | 1.3   |   |   | 0.5         |  
|Benefits paid                                                 |  |         | (8.8  | ) |   | (3.3        | )
|Transaction related adjustment for Predecessor non-U.S. Plans |  |         |      |   |   |            |  
|Foreign currency exchange rate change                         |  |         | 35.6  |   |   | 8.6         |  
|                                                              |  |         |       |   |   | I           |  
|Fair value of plan assets at end of period                    |  | $       | 262.6 |   | $ | 213.7       |  
|                                                              |  |         |       |   |   | I           |  
|Plan assets below projected benefit obligation                |  | $       | (36.7 | ) | $ | (39.7       | )
|Unrecognized net loss                                         |  |         | 17.4  |   |   | 22.2        |  
|                                                              |  |         |       |   |   | I           |  
|Net accrued liability recognized at end of period             |  | $       | (19.3 | ) | $ | (17.5       | )
|                                                              |  |         |       |   |   | I           |  

Amounts
recognized in the Company's consolidated balance sheet at December 31 were as follows (in millions):

Company2003

2002Accrued benefit liability

$
(33.6
)
$
(31.8
)Prepaid benefit cost


14.3


13.5Accumulated other comprehensive income





0.8Net accrued liability recognized at end of year

$
(19.3
)
$
(17.5
)


The
projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Company's non-U.S. pension plan with accumulated benefit obligations in
excess of plan assets were $125.8 million, $115.6 million and $83.8 million, respectively, as of December 31, 2002.

73

---



In the period from Inception (see Note 1) to December 31, 2002, the Company recorded a charge of $0.8 million in accumulated other
comprehensive income related to a non-U.S. pension plan with accumulated benefit obligations in excess of the fair value of plan assets. There was no tax effect associated with this charge
since realization was not considered to be more likely than not. In December 2003, the Company determined this amount was no longer required and removed it from accumulated other comprehensive
income.

In
the period from January 1 to July 31, 2002, the Predecessor recorded a pension curtailment cost of $12.1 million that was related to the number of employees who
terminated under the involuntary severance program and a pension settlement loss of $11.1 million related to the amount of lump sum payments made to plan participants in this period. In this
period, the Predecessor also recorded a charge of approximately $134.2 million in accumulated other comprehensive income in stockholders' equity to recognize an additional minimum pension
liability related to the underfunded position of its U.S. pension plan. This entry increased the amount of the Predecessor's liability to its U.S. pension plan.

The
assumptions used by the Company which have a significant effect on the amounts reported for pension accounting were as follows:

|                                                             |  | Company |   | I   |   | Predecessor | 
|------------------------------------------------------------ |  | ------- | - | --- | - | ----------- | 
|
|Weighted average discount rate                               |  | 5.5     | % | 5.6 | % | I           | 
|Weighted average rate of increase in compensation levels     |  | 3.3     | % | 3.4 | % | I           | 
|Weighted average expected long-term rate of return on assets |  | 7.1     | % | 8.2 | % | I           | 

As
a result of the Filing, the Predecessor was required to offer COBRA medical coverage to its U.S. retirees and their spouses who were under age 65 on the filing date. As part of the
Transaction (see Note 1), the remaining amount of this liability of the Predecessor on July 31, 2002 of approximately $3.8 million for COBRA medical coverage to retirees and their
spouses was assumed by the Company. In 2003 and the period from Inception (see Note 1) to December 31, 2002, the Company made approximately $0.9 million and approximately
$0.4 million of cash payments, respectively, against this liability.

In
July 2002, the Predecessor recognized a non-cash curtailment credit of $12.1 million related to certain postemployment medical benefits provided primarily to
individuals who terminated from the Predecessor on July 31, 2002.

74

---

14.   Rental Expense and Lease Commitments

The Company's minimum annual rental commitments at December 31, 2003, under noncancelable leases, principally for real estate, are payable as follows (in
millions):

2004

$
12.52005


7.62006


7.32007


6.92008


4.12009 and thereafter


12.9Total minimum lease payments

$
51.3


Minimum
payments have not been reduced by minimum sublease rentals of $2.8 million due in the future under noncancelable subleases. Many of the leases contain renewal options and
some contain escalation clauses that require payments of additional rent to the extent of increases in the related operating costs.

Rental
and lease expenses consisted of the following (in millions):

Company

I

PredecessorYear
ended
December 31,
2003

Period from
Inception
(see Note 1) to
December 31,
2002

I
I
I
I

Period from
January 1 to
July 31,
2002Minimum rentals

$
16.9

$
11.6

I

$
15.8


Sublease
income for the Company amounted to approximately $0.5 million for 2003 and approximately $0.8 million for the period from Inception (see Note 1) to
December 31, 2002. Sublease income for the Predecessor amounted to approximately $2.6 million for the period from January 1 to July 31, 2002.

15.   Business Segments

Company:

The Company's reportable segments are: the Americas Region; the International Region; Global Manufacturing; and Research and Development ("R&D"). The Company has
an All Other segment that includes: the eyewear business; the commercial secure identification systems business; brand and technology licensing operations; and contract manufacturing. The Americas
Region consists of sales, marketing and distribution operations in the United States of America and other countries in North and South America. The International Region consists of sales, marketing
and distribution operations outside the Americas Region. Global Manufacturing consists of worldwide activities associated with manufacturing, procurement, developing manufacturing processes for new
products, and inventory management. R&D consists of research and development activities. The Company's segments are managed by senior executives who are directly responsible for all activities in the
segment and report to the Company's chief operating decision-maker.

The
Company evaluates the performance of its segments based on profit from operations and asset management. In the regional sales and marketing segments, profit from operations is based
on standard product costs excluding intercompany margins and therefore reflects contribution to worldwide

75

---

Company
profits from third party sales. Non-standard manufacturing costs along with the cost of developing manufacturing processes for new products are reported in the Global Manufacturing
segment. For the R&D segment, research and development costs are expensed as incurred. The financial results of each segment are reviewed by the Company's chief operating decision-maker.

The
Company has one category called Corporate, which is not classified as a segment. This category includes: central marketing; centralized information systems; general and
administrative functions; worldwide finished goods planning activities; and certain other corporate functions. The non-segment Corporate category also includes costs related to
restructuring activities, certain incentive compensation costs and certain other non-operating items. For the Predecessor it also included gains or losses on the sale of property, plant
and equipment and assets of small businesses.

Assets
in the regional sales and marketing segments consist primarily of trade accounts receivable and fixed assets related to sales and administrative activities. Global Manufacturing
segment assets consist primarily of worldwide inventories and fixed assets related to manufacturing facilities. The assets in the R&D segment consist of fixed assets related to the Company's research
and development activities. The assets in the Corporate category include cash and cash equivalents, prepaid expenses and other assets, assets held for sale, deferred tax assets, and other
non-current assets.

Predecessor:

The business segment information presented below for the Predecessor has been reformatted to conform with the business segment information for the Company.

76

---

The
following is a summary of information related to the Company's business segments for the year ended December 31, 2003 and the period from Inception (see Note 1) to
December 31, 2002 and the Predecessor's business segments for the period from January 1 to July 31, 2002 (in millions):

Company

I

PredecessorYear
ended
December 31,
2003

Period from
Inception
(see Note 1) to
December 31,
2002

I
I
I
I

Period from
January 1 to
July 31,
2002Net sales to customers:Americas Region

$
422.7

$
203.0

I

$
250.9International Region


250.2


134.8

I


154.8Global Manufacturing







I


R&D







I


All Other


79.8


26.1

I


37.9ISubtotal Segments


752.7


363.9

I


443.6Corporate







I


ITotal

$
752.7

$
363.9

I

$
443.6IProfit/(loss) from operations:Americas Region

$
152.4

$
69.3

I

$
67.9International Region


62.5


25.5

I


16.2Global Manufacturing


(16.4
)

(26.5
)
I


(45.6
)R&D


(37.8
)

(13.2
)
I


(21.4
)All Other


18.8


4.8

I


4.6ISubtotal Segments


179.5


59.9

I


21.7Corporate(1)


(88.2
)

(35.3
)
I


(65.2
)ITotal

$
91.3

$
24.6

I

$
(43.5
)I


---

CompanyAt
December 31,
2003

At
December 31,
2002Assets:Americas Region

$
28.7

$
49.3International Region


39.9


47.3Global Manufacturing


168.4


164.7R&D


0.2


All Other


10.0


9.4Subtotal Segments


247.2


270.7Corporate


266.5


247.4Total

$
513.7

$
518.1


77

---

Company

I

PredecessorYear
ended
December 31,
2003

Period from
Inception
(See Note 1) to
December 31,
2002

I
I
I
I

Period from
January 1 to
July 31,
2002Depreciation and amortizationAmericas Region

$


$


I

$
1.3International Region







I


6.0Global Manufacturing


1.6


0.1

I


33.6R&D







I


3.0All Other







I


ISubtotal Segments


1.6


0.1

I


43.9Corporate


0.6




I


10.8ITotal

$
2.2

$
0.1

I

$
54.7IExpenditures for long-lived assets:Americas Region

$
0.3

$


I

$
International Region


0.3


0.3

I


0.6Global Manufacturing


14.1


5.4

I


6.2R&D


0.2




I


All Other


0.2




I


0.1ISubtotal Segments


15.1


5.7

I


6.9Corporate


7.5


4.7

I


2.2ITotal

$
22.6

$
10.4

I

$
9.1I


Company

I

PredecessorYear
ended
December 31,
2003

Period from
Inception
(See Note 1) to
December 31,
2002

I
I
I
I

Period from
January 1 to
July 31,
2002Geographic Information:Net sales to customers(1)United States

$
417.2

$
192.5

I

$
232.8Foreign countries


335.5


171.4

I


210.8ITotal

$
752.7

$
363.9

I

$
443.6I


---

78

---



CompanyAt
December 31,
2003

At
December 31,
2002Long-lived assets:United States

$
27.4

$
9.4Foreign countries


3.3


0.9Total

$
30.7

$
10.3


The
Company's principal products (see Note 2) represented approximately 87% and approximately 90% of its net sales in 2003 and the period from Inception (see
Note 1) to December 31, 2002, respectively. The Predecessor's principal products (see Note 2) represented approximately 91% of its net sales in the period from January 1 to
July 31, 2002. Sales of instant cameras and film represented approximately 88% of the Predecessor's net sales in the period from January 1 to July 31, 2002.

Sales
by the Company to one customer, Wal-Mart Stores, Inc., amounted to approximately 14% and approximately 13% of the Company's total net sales in 2003 and the
period from Inception (see Note 1) to December 31, 2002, respectively. Sales to one customer, Wal-Mart Stores, Inc., amounted to approximately 11% of the Predecessor's
total net
sales in the period from January 1 to July 31, 2002. The sales to this customer by the Company and the Predecessor were recorded primarily in the Americas Region.

16.   Contingencies

Company:

The Company owns facilities that are subject to certain federal, state and local laws and regulations relating to environmental protection, including those
governing the investigation and remediation of contamination resulting from releases of hazardous substances. Certain of these laws and regulations may impose joint and several liabilities on the
Company for the costs of investigation or remediation of such contamination, regardless of fault or the legality of the disposal. There were no liabilities recorded by the Company for environmental
liabilities as of December 31, 2003 or December 31, 2002.

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 material adverse effect on its financial condition
or results of operations.

The
Company is involved in legal proceedings and claims arising in the normal course of business. The Company is also a party-in-interest in the bankruptcy
proceedings of the Debtors pending in the U.S. Bankruptcy Court. On February 10, 2003, the U.S. Bankruptcy Court entered an Order appointing an independent examiner pursuant to
Sections 1104 and 1106 of the U.S. Bankruptcy Code "to investigate whether accounting methods, accounting practices and accounting irregularities alleged in certain letters to the U.S.
Bankruptcy Court materially undervalued the assets of the Debtors and/or resulted in an inappropriate liquidation of the Debtors' assets." The independent examiner issued his findings on
August 22, 2003 concluding that these matters did not materially undervalue and/or result in an inappropriate liquidation of the Debtors' assets. Following the independent examiner's findings,
the Third Amended Joint Plan of Reorganization of the Debtors was confirmed by the U.S. Bankruptcy Court on November 18, 2003 and became effective on December 17, 2003. The confirmation
has been appealed by a former shareholder of the Predecessor. While there can be no assurance of the outcome

79

---

of
this litigation, the Company does not believe that the disposition of these matters will have a material adverse effect on its results of operations or financial conditions.

On
July 7, 2003, five former employees of the Predecessor filed a complaint against the Predecessor, the Company and OEP in the United States District Court for the District of
Massachusetts on behalf of a purported class of over 100 individuals. In November 2003, the plaintiffs filed an amended complaint dismissing OEP and the Predecessor but continuing their action
against the Company and adding an individual plaintiff. The plaintiffs claim, among other things, that the Company conspired with the Predecessor to wrongfully reduce the Predecessor's obligations to
its employees who were receiving long-term disability payments, in violation of the Employee Retirement Income Security Act ("ERISA"). The plaintiffs seek an injunction ordering the
defendants to restore their purported benefits and to pay them damages stemming from the alleged ERISA violations. The amount of damages claimed is not specified in the amended complaint. In
January 2004, the Company filed (1) a motion in the United States District Court for the District of Massachusetts to dismiss the amended complaint and (2) an adversary proceeding
in the U.S. Bankruptcy Court seeking a declaratory judgment that the bankruptcy sale order enjoined the plaintiffs from bringing the amended complaint against the Company. While there can be no
assurance of the outcome of this litigation, the Company does not believe that the disposition of these matters will have a material adverse effect on its results of operations or financial
conditions.

Following
the issuance of the independent examiner's findings, former shareholders of the Predecessor filed a lawsuit on August 26, 2003 in the United States District Court for
the Southern District of New York alleging securities fraud against KPMG LLP, auditors for both the Predecessor and the Company, as well as certain other individuals who were former officers of the
Predecessor. The lawsuit alleges that the financial statements of the Predecessor contained material misstatements and omitted to state material facts necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading, and that the defendants knowingly and/or recklessly caused such financial statements to be issued. Specifically, the examiner
raised issues related to the timing of issuing "going concern" opinions on the Predecessor's financial statements by KPMG LLP, the provision of valuation allowances on deferred tax assets in 2000 and
2001, and the release of excess restructuring accruals in the Predecessor's financial statements in 2000. Since August 26, 2003, there have been a number of additional lawsuits filed that
mirror the allegations raised in this lawsuit and other lawsuits
(which also name the Chief Financial Officer of the Company as a defendant) making similar allegations as well as lawsuits alleging ERISA violations. The Company is not a party to any of these
lawsuits and does not believe that the disposition of these matters will have a material adverse effect on its results of operations or financial condition.

Predecessor:

On October 12, 2001, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court. The
Predecessor's subsidiaries incorporated outside of the United States were not included in the Filing. The Debtors continued to manage their properties and operate their business as
"debtors-in-possession" under the jurisdiction of the U.S. Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy Code (see Note 1 for
additional information).

The
Predecessor owned and operated facilities that were subject to certain federal, state and local laws and regulations relating to environmental protection, including those governing
the investigation and remediation of contamination resulting from past or present releases of hazardous substances. Certain of these laws and regulations may impose joint and several liability on the
Predecessor for the costs of investigation or remediation of such contamination, regardless of fault or the legality of original disposal.

80

---

The
Predecessor, together with other parties, was 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 Predecessor believed that its potential liability with respect to any site and with respect to all sites in the
aggregate would not have a materially adverse effect on its financial condition or results of operations.

Due
to a wide range of estimates with regard to response costs at those sites and various other uncertainties, the Predecessor was not able to firmly establish its ultimate liability
concerning those sites. In each case in which the Predecessor was able to determine the likely exposure, such amount was included in the Predecessor's reserve for environmental liabilities. Where a
range of comparably likely exposures exists, the Predecessor included in its reserve at least the minimum amount of the range. The Predecessor reviewed the analysis of the data that supported the
adequacy of this reserve on a quarterly basis. The reserve for such liability did not provide for associated litigation costs, which, if any, were expected to be inconsequential in comparison with the
amount of the reserve. This reserve did not take into account potential recoveries from third parties. These liabilities were not assumed by the Company in the Transaction and they remained
prepetition liabilities of the Predecessor.

Federal
law provides that PRPs may be held jointly and severally liable for response costs. Based on 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 Predecessor did not believe its potential liability would be materially
enlarged by the fact that liability was joint and several.

The
Predecessor reviewed its recurring internal expenditures on environmental matters, as well as capital expenditures related to environmental compliance, on a monthly basis, and
reviewed its third-party expenditures on environmental matters on a quarterly basis. The Predecessor believed that these expenditures did not have a materially adverse effect on its financial
condition or results of operations.

Following
the issuance of the independent examiner's findings, former shareholders of the Predecessor filed a lawsuit on August 26, 2003 in the United States District Court for
the Southern District of New York alleging securities fraud against KPMG LLP, auditors for both the Predecessor and the Company, as well as certain other individuals who were former officers of the
Predecessor. The lawsuit alleges that the financial statements of the Predecessor contained material misstatements and omitted to state material facts necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading, and that the defendants knowingly and/or recklessly caused such financial statements to be issued. Specifically, the examiner
raised issues related to the timing of issuing "going concern" opinions on the Predecessor's financial statements by KPMG LLP, the provision of valuation allowances on deferred tax assets in 2000 and
2001, and the release of excess restructuring accruals in the Predecessor's financial statements in 2000. Since August 26, 2003, there have been a number of additional lawsuits filed that
mirror the allegations raised in this lawsuit and other lawsuits (which also name the Chief Financial Officer of the Company as a defendant) making similar allegations as well as lawsuits alleging
ERISA violations.

17.   Supplementary Financial Information

This section entitled Supplementary Financial Information has not been audited by the Company's or the Predecessor's independent auditors. The auditors of the
Company and the Predecessor have, however, made a limited review of the quarterly data in accordance with standards established by the American Institute of Certified Public Accountants and that
information is incorporated herein by reference. Because the Company's and the Predecessor's independent auditors did not audit the quarterly data, they express no opinion on such data.

81

---

Quarterly Financial Data
(in millions, except per share data) (unaudited)

Company:

|Year ended December 31, 2003                                |  | First |       | Second |   | Third |  | Fourth |       | Year
|----------------------------------------------------------- |  | ----- | ----- | ------ | - | ----- |  | ------ | ----- | ----
|Net sales                                                   |  | $     | 183.0 |        | $ | 195.8 |  | $      | 185.5 |     
|Profit from operations                                      |  |       | 22.9  |        |   | 29.7  |  |        | 27.9  |     
|Net earnings before extraordinary item                      |  |       | 16.2  |        |   | 16.5  |  |        | 31.2  |     
|Net earnings                                                |  |       | 16.2  |        |   | 16.5  |  |        | 33.8  |     
|Basic earnings before extraordinary item per common share   |  |       | 0.47  |        |   | 0.47  |  |        | 0.95  |     
|Basic earnings per common share                             |  |       | 0.47  |        |   | 0.47  |  |        | 1.03  |     
|Diluted earnings before extraordinary item per common share |  |       | 0.47  |        |   | 0.46  |  |        | 0.92  |     
|Diluted earnings per common share                           |  |       | 0.47  |        |   | 0.46  |  |        | 1.00  |     
|Cash dividends per common share                             |  |       |      |        |   |      |  |        |      |     

|Period from Inception (see Note 1) to December 31, 2002            |  | First |   | Second |   | Third(1) |  | Fourth |       | Year
|------------------------------------------------------------------ |  | ----- | - | ------ | - | -------- |  | ------ | ----- | ----
|Net sales                                                          |  | $     |  |        | $ |         |  | $      | 152.6 |     
|Profit from operations                                             |  |       |  |        |   |         |  |        | 1.8   |     
|Net earnings before extraordinary item                             |  |       |  |        |   |         |  |        | 0.2   |     
|Net earnings                                                       |  |       |  |        |   |         |  |        | 123.3 |     
|Basic earnings/(loss) before extraordinary item per common share   |  |       |  |        |   |         |  |        | (0.03 | )   
|Basic earnings per common share                                    |  |       |  |        |   |         |  |        | 3.97  |     
|Diluted earnings/(loss) before extraordinary item per common share |  |       |  |        |   |         |  |        | (0.03 | )   
|Diluted earnings per common share                                  |  |       |  |        |   |         |  |        | 3.97  |     
|Cash dividends per common share                                    |  |       |  |        |   |         |  |        |      |     

---

---

Predecessor:

|Period from January 1 to July 31, 2002 |  | First |       | Second |   | Third(1) |   | Fourth |        | Year |  
|-------------------------------------- |  | ----- | ----- | ------ | - | -------- | - | ------ | ------ | ---- | -
|Net sales                              |  | $     | 182.1 |        | $ | 210.0    |   | $      | 51.5   |      | $
|Loss from operations                   |  |       | (19.7 | )      |   | (22.6    | ) |        | (1.2   | )    |  
|Net loss                               |  |       | (66.3 | )      |   | (367.0   | ) |        | (398.9 | )    |  
|Basic loss per common share            |  |       | (1.34 | )      |   | (7.42    | ) |        | (8.06  | )    |  
|Diluted loss per common share          |  |       | (1.34 | )      |   | (7.42    | ) |        | (8.06  | )    |  
|Cash dividends per common share        |  |       |      |        |   |         |   |        |       |      |  

---

---

Note:
The sum of quarterly earnings per share amounts may not equal annual earnings per share amounts due to changes in number of weighted average shares outstanding.

18.   Subsequent Event (unaudited)

On April 14, 2004, the Company paid a dividend of $1.4 million on its Preferred Stock (representing all accrued and unpaid dividends on its Preferred Stock
as of that date) and redeemed 50% of the then outstanding Preferred Stock for $22.3 million.

82

---



Schedule IIValuation and Qualifying Accounts        Polaroid Holding Company and Subsidiary Companies        (in millions)

Company:

Year ended December 31, 2003

|                                                   |  |   |      | Additions |   |      |  |  
|-------------------------------------------------- |  | - | ---- | --------- | - | ---- |  | -
|
|Allowance for doubtful accounts and cash discounts |  | $ | 14.8 |           | $ | 14.7 |  | 

Period from Inception (see Note 1 to consolidated financial statements) to December 31, 2002

|                                                   |  |   |      | Additions |   |     |  |  
|-------------------------------------------------- |  | - | ---- | --------- | - | --- |  | -
|
|Allowance for doubtful accounts and cash discounts |  | $ | 21.3 |           | $ | 7.2 |  | $

---

Primary PDC, Inc. and Subsidiary Companies

(in millions)

Predecessor:

Period from January 1 to July 31, 2002

|                                                   |  |   |      | Additions |   |     |  |  
|-------------------------------------------------- |  | - | ---- | --------- | - | --- |  | -
|
|Allowance for doubtful accounts and cash discounts |  | $ | 24.0 |           | $ | 3.7 |  | $

---

83

---



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

The Company's management conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures under the
supervision of the Chief Executive Officer and the Chief Finance Officer. Based on the Company's evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of
December 31, 2003, the Company's disclosure controls and procedures provided reasonable assurance that the material information that will be required to be included in the Company's SEC reports
is recorded, processed, summarized and reported within the time periods specified in the relevant SEC rules and forms. There are inherent limitations to the effectiveness of any system of disclosure
controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can
only provide reasonable assurance of achieving their control objectives.

There
has been no change in the Company's internal control over financial reporting during the Company's fiscal year ended December 31, 2003 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over financial reporting. However, this evaluation did not address 2001 audited financial statements and prior financial
information of Primary which was not available to the Company. The absence of this information could be material to investors.

Item 10. Directors and Executive Officers of the Registrant

The following table lists the names, ages and positions held by the Company's directors and executive officers as of April 1, 2004. Officers are elected
annually by the Board of Directors. No family
relationships exist between any of the directors or officers. Refer to Item 13.Certain Relationships and Related Transactionsfor additional
information with regard to voting arrangements for the election of members to the Company's Board of Directors.

|Name                |  | Age |  | Position                                                  
|------------------- |  | --- |  | ----------------------------------------------------------
|Jacques A. Nasser   |  | 56  |  | Director and Non-Executive Chairperson                    
|Joseph E. Antonini  |  | 62  |  | Director                                                  
|Charles F. Auster   |  | 52  |  | Director                                                  
|Paolo Cantarella    |  | 59  |  | Director                                                  
|William J. Cosgrove |  | 58  |  | Director                                                  
|Lee M. Gardner      |  | 57  |  | Director                                                  
|James W. Koven      |  | 30  |  | Director                                                  
|Rick A. Lazio       |  | 46  |  | Director                                                  
|Joseph G. Michels   |  | 39  |  | Director                                                  
|Stanley P. Roth     |  | 67  |  | Director                                                  
|J. Michael Pocock   |  | 53  |  | Director, President and Chief Executive Officer           
|William L. Flaherty |  | 56  |  | Executive Vice President and Chief Financial Officer      
|Robert B. Gregerson |  | 44  |  | Vice President and General Manager Americas and E-Commerce
|Gianfranco Palma    |  | 47  |  | Vice President, International and Eyewear                 
|Ira H. Parker       |  | 47  |  | Vice President and Chief Legal Officer                    
|Mark H. Payne       |  | 36  |  | Vice President, Operations                                

Jacques A. Nasserwas elected director and non-executive Chairman of the Board in November 2002. Since
November 2002, Mr. Nasser has been a Senior Partner of OEP. From 1998 to 2001 he served as a member of the Board of Directors and as President and Chief Executive Officer of Ford Motor
Company. He also serves as a Director of News Corporation's British Sky Broadcasting

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Group
and on the International Advisory Board of Allianz A.G., Quintiles Transnational, Brambles Industries Limited, and Brambles Industries plc.

Joseph E. Antoniniwas elected director in March 2003. Since retiring as President, Chief Executive Officer, and Chairman of the
Board of K-Mart Corporation in 1995, Mr. Antonini has been investing in and advising various small businesses on the subjects of operations, sales and marketing. He also served on the Board of
Directors and Audit Committee of Shell Oil Company from 1990 to 2001.

Charles F. Austerwas elected director in June 2002. Since 2002, Mr. Auster has been a Partner of OEP. From 2000 to 2001,
Mr. Auster was the Director, President and Chief Executive Officer of Infocrossing, Inc. (an information technology infrastructure outsourcing company). From 1998 to 2000,
Mr. Auster was an Executive Vice President, Chief Operating Officer and a director of IXNET, Inc., (a telecommunications company). From 1995 to 1998, he was the President and Chief
Executive Officer and a Director of Voyager Networks (a server hosting and data networking company). He is also a Director of Video Network Communications, Inc. (a company that designs,
develops and markets video distribution systems).

Paolo Cantarellawas elected director in July 2003. Mr. Cantarella was Chief Executive Officer of Fiat S.p.A. from 1996 to
2002. He has served on the Board of Directors of Alcatel, CNH N.V., and several other European companies and was president of the European Automobile Manufacturers Association
in 2000 and 2001. Mr. Cantarella currently serves on the Board of Directors of the Organizing Committee of the XX Olympic 2006 Winter Games in Torino (TOROC).

William J. Cosgrovewas elected director in October 2003. He worked for Ford Motor Company from 1972 until he retired in
February 2003. He was the Corporate Controller of Ford from 1996 until 1998. In December 1998, he was elected a vice-president of Ford for Corporate Strategy. In
August 1999, he was appointed CFO and Chief of Staff, Premier Automotive Group, Ford Motor Company. Mr. Cosgrove was on Ford's Policy and Strategy Committee, Product Committee and
Operating Committee. He has done consulting for Jaguar Racing and is also on the board of Jaguar Racing (ultimate owner, Ford Motor Company). He is on the Advisory Board of Hartwell, Plc, a privately
owned company headquartered in England.

Lee M. Gardnerwas elected director in October 2003. Since July 2001 Mr. Gardner has been Senior Partner of OEP. From 1987
to 2001, Mr. Gardner was President and Chief Operating Officer of MascoTech, Inc. (a manufacturer of metalworked components for the automotive and transportation industry). MascoTech had
revenues of $1.8 billion and was publicly traded prior to being taken private in November 2000. Before joining MascoTech in 1987, Mr. Gardner spent 14 years with
Borg-Warner Corporation. Mr. Gardner served on the board of directors of Metaldyne Corporation (manufacturer of automotive components) and MSX International, Inc. (provider
of technology-driven business services to clients primarily from the auto industry). He is a director of Mauser-Werke GmbH (a Germany based OEP portfolio company that is a supplier of industrial
packaging services).

James W. Kovenwas elected director in July 2002. Since 2001, Mr. Koven has been a vice president of OEP. During 2001,
Mr. Koven was an Associate, Investment Banking, at Wm Sword & Company. From 1993 through 2000, Mr. Koven was a member of the U.S. National Rowing Team and the U.S. Olympic Rowing
Team. In 1999, he was an Investment Banking Analyst at State Street Capital Corporation. He is also a director of Rotable Asset Management (a company providing long-lived spare parts
management services to airlines).

Rick A. Laziowas elected director in July 2002. Mr. Lazio has been President and Chief Executive Officer of the Financial
Services Forum, an organization formed in 2000 by the chief executive officers of twenty large financial institutions to shape the financial future of the nation. From 1992 to 2000, Mr. Lazio
served as a member of the U. S. House of Representatives. He is a director of TB Woods Corporation (an electronic and mechanical industrial power transmission products company) as well as

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the
World Rehabilitation Fund and Audubon New York. He also serves on Advisory Committees of The Ad Council.

Joseph G. Michelswas elected director in December 2002. Since 2000, Mr. Michels has been Director for Research Initiatives
at Princeton Materials Institute, Princeton University. From 1998 to 2000 he was Science Policy Advisor to U.S. Senator Richard Lugar; from 1998 to 1999 he was Instrument Operations Scientist at
Smithsonian Astrophysical Observatory; and from 1997 to 1998 he was Congressional Science Fellow to U.S. Senator Joseph Lieberman. Since January 2004, Mr. Michels has been Director and
President of The Society for Environmental and Energy Research (SEER), a charitable, scientific and educational not-for-profit corporation founded to promote the exploration
and development of new technologies which utilize renewable energy resources.

Stanley P. Rothwas elected director in July 2002. Since 1976, Mr. Roth controls and has been the Chairman of North American
Capital Corp. (a private merchant banking firm). Mr. Roth is the Chairman of Royal-Pioneer Industries, Inc.; Director and non-executive Vice Chairman of Delta & Pine
Land Company (a cotton seed company); and Chairman of its Audit Committee and a Director of both Hollis Corp. (a cotton warehousing and packaging company) and GPC International, Inc. (an art
materials and supplies and fine writing instruments company). He is also a certified public accountant.

J. Michael Pocockwas elected director, President and Chief Executive Officer of the Company effective March 1, 2003. Previously,
Mr. Pocock held various senior leadership positions at Compaq Computer Corporation including: from 2001 to 2002 he was Vice President of Corporate Strategy; Vice President and General Manager
of the Commercial Products Group from 1999 to 2001; and from 1996 to 1999 he was Vice President and General Manager of North America Sales. Earlier in his career, Mr. Pocock served in a variety
of management positions with increasing responsibility during 10 years at General Electric Company. He was also a member of a leadership team that founded Epson America.

William L. Flahertyjoined the Company as Executive Vice President and Chief Financial Officer in August 2002. Prior to joining the
Company, from June 2001 until July 2002, Mr. Flaherty served as Executive Vice President and Chief Financial Officer of Primary. Prior to that, from 1996 to 2000,
Mr. Flaherty served as Chief Financial Officer at Avid Technology, Inc. (a digital imaging systems company).

Robert B. Gregersonjoined the Company as Vice President and General Manager Americas and E-Commerce in May 2003. Prior
to joining the Company, from January 2001 to May 2003, Mr. Gregerson was President of PC Connection Sales Corporation, a wholly owned subsidiary of PC Connection, Inc. (a
direct marketer of computers). From November 1997 to December 2000, he held various positions including his last position as Vice President, North America Partner Sales and Marketing at
Compaq Computer Corporation.

Gianfranco Palmajoined the Company as Vice President in August 2002. Mr. Palma is currently Vice President, International
and Eyewear. Prior to joining the Company, he was employed by Primary in various management positions at Polaroid (Italia) S.p.A.: from January 2001 to August 2002 he served as Vice
President, Europe, European Distributor Markets and Eyewear; from January 2000 to January 2001 he was Vice President, Europe; from 1999 to 2000 he was Vice President Southern and Mid
European
Clusters; from 1997 to 1998 he was Lead General Manager, Southern European Cluster and European Photo Retail.

Ira H. Parkerjoined the Company as Vice President and Chief Legal Officer in February 2004. Prior to joining the Company he was
employed by Genuity, Inc. (an Internet infrastructure services provider), as President and Chief Executive Officer from February 2003 to December 2003, and Executive Vice
President, General Counsel and Corporate Secretary from June 2000 to February 2003. He was Vice President and Deputy General Counsel at GTE Corporation and General Counsel of

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GTE
Internetworking from November 1997 to June 2000. From July 1993 to November 1997, he was a Partner in the Washington DC office of the law firm of Alston & Bird.

Mark H. Paynejoined the Company as Vice President, Operations Planning in May 2003 and became Vice President Operations in March
2004. Prior to joining the Company, from September 2002 to May 2003, Mr. Payne was Director of Product Development and Strategic Sales at SymphonyRPM (a performance management
solutions company). From June 1998 to September 2002, Mr. Payne held various positions at Compaq Computer Corporation: from October 2001 to September 2002 he was
Executive Director, Order Management Integration for the Hewlett Packard merger; from April 2001 to October 2001 he was Executive Director, North America Operations; from
March 2000 to April 2001 he was Executive Director, Commercial Direct Initiative; and from June 1998 to March 2000 he was Director, North America Distributor Sales
Operations.

Meetings and Committees of the Board of Directors

TheAudit Committeewas established in December 2003 to assist the Board in monitoring the adequacy and
effectiveness of the internal and external audit functions, the Company's system of internal accounting controls, the Company's financial accounting and reporting, and the adequacy and effectiveness
of systems for ensuring the Company's compliance with federal, state and local laws and regulation. The Audit Committee meets at least quarterly with management and the Company's independent auditors
to review the Company's quarterly financial statements. It also reviews and approves fees paid to auditors. The Audit Committee operates under a written charter adopted by the Board of Directors. The
members of the Audit Committee are: William J. Cosgrove, Chairman; Joseph E. Antonini, Lee M. Gardner, James W. Koven, and Stanley P. Roth. The Board of Directors has determined that William J.
Cosgrove is an "audit committee financial expert" as defined by Securities and Exchange Commission regulations and is "independent" as defined by the listing standards of the New York Stock Exchange.

TheCompensation Committeewas established in December 2003 to assist the Board in determining the remuneration of the Company's
officers and other senior personnel, including base salary and incentive
compensation for the Chief Executive Officer and other Company officers. The Compensation Committee administers the Company's stock compensation plans and proposes the adoption of various employee
benefit plans. The Compensation Committee operates under a written charter adopted by the Board of Directors. The members of the Compensation Committee are: Joseph E. Antonini, Chairman; Charles F.
Auster, Paolo Cantarella and Lee M. Gardner.

TheGovernance/Nominating Committeewas established in December 2003 to assist the Board in formulating, reviewing and recommending
governance standards to the Board and reviews director nominees. The Governance/Nominating Committee operates under a written charter adopted by the Board of Directors. The Committee will consider
director nominations brought by stockholders if properly submitted in compliance with the Company's bylaws and Delaware General Corporation Law. Stockholder recommendations must be in writing,
addressed to the Corporate Secretary at Polaroid Holding Company, 1265 Main Street, Waltham, Massachusetts 02451, and should include a statement describing the qualifications and experience of the
proposed candidate and the basis for nomination. The members of the Governance/Nominating Committee are: Rick A. Lazio, Chairman; Charles F. Auster, William J. Cosgrove, Joseph G. Michels and J.
Michael Pocock.

During
2003, the average attendance of directors at meetings of the Board of Directors was 98%. All current directors attended 75% or more of the meetings of the Board. There were no
Committee meetings of the Board of Directors in 2003.

The
Company has a code of ethics which is filed as an exhibit to this report.

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Item 11. Executive Compensation

Summary Compensation Table

The following table sets forth the compensation paid to the Company's executive officers in 2003.

|                                                                                |  |      |  | Annual Compensation |  |         |  |        
|------------------------------------------------------------------------------- |  | ---- |  | ------------------- |  | ------- |  | -------
|
|
|J. Michael Pocock
President and Chief Executive Officer                         |  | 2003 |  | 484,630             |  | 711,621 |  | 124,896
|William L. Flaherty
Executive Vice President and Chief Financial Officer        |  | 2003 |  | 391,800             |  | 317,750 |  |       
|Robert B. Gregerson
Vice President and General Manager, Americas and E-Commerce |  | 2003 |  | 189,111             |  | 127,461 |  |       
|Gianfranco Palma
Vice President, International and Eyewear(2)                   |  | 2003 |  | 234,555             |  | 158,088 |  |       

---

Retirement Plans

All named executive officers, other than Mr. Palma, are employees of Polaroid living in the United States and participants in the Polaroid Savings Plan.
This plan contains provisions for rollovers from

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other
qualified retirement plans; pre-tax employee contributions pursuant to Section 401(k) of the Code; a Company match of up to 3% of eligible employee cash contributions pursuant
to Section 401(k) of the Code beginning in 2003, after-tax employee contributions; and discretionary Company cash contributions.

Mr. Gianfranco
Palma is a participant in the Italian compulsory contractual pension plan that operates in addition to the national/government social security pension plan
(collectively, the "Plan"). Upon retirement, Mr. Palma is guaranteed a lump sum or a monthly payment under the Plan, in addition to his social security pension. The contribution to the Plan is
a fixed percentage paid by Polaroid (Italia) S.p.A. and a fixed percentage withheld from Mr. Palma's gross salary. The fixed contribution percentage is 3.7% of Mr. Palma's gross salary.
Mr. Palma's contribution percentage is 0.7% of his gross salary.

Board of Directors Compensation

Directors not affiliated with One Equity Partners LLC or the Company ("Outside Directors") receive $3,500 per board meeting attended in person; $1,000 per board
committee meeting attended in person as a regular member; $2,000 per board committee meeting attended in person as a chairman; and a $5,000 additional annual stipend is paid to the Audit Committee
Chairman. Also, Outside Directors who are members of the Technology Investments Committee, an operating committee of the Company, receive $1,000 per meeting attended in person. In 2003,
Mr. Nasser received $350,000 from the Company as compensation for his services as Non-executive Chair. In addition Mr. Nasser purchased 1,061,010 shares of restricted stock
pursuant to the Restricted Stock Purchase Program.

Starting
in January 2004, the Board authorized the Company to make the payment of $350,000 to Mr. Nasser through OEP in compensation for his services to the Company as
Non-executive Chair. Such payments shall be made monthly in advance through calendar 2004, unless prior thereto, Mr. Nasser resigns as member of the Board, in which case such
payments shall cease as of the date of resignation.

Employment Agreements

Effective March 1, 2003, the Company entered into a three-year employment contract with Mr. Pocock, as the Company's President and Chief
Executive Officer. This contract is automatically renewed unless either party gives the other 180 days prior written notice of its or his intention not to renew this Agreement. In addition to
the normal benefits provided to any executive, Mr. Pocock's contract provides: (i) a base salary of $600,000; (ii) a sign-on bonus of $100,000; (iii) $20,000
for legal fees associated with negotiating his employment contract; (iv) the opportunity to purchase 707,340 shares of restricted stock pursuant to the Restricted Stock Purchase Program;
(v) temporary living and travel expenses until August 31, 2004; (vi) if his employment is terminated without "Cause" or for "Good Reason" (as each such terms are defined), and if
after 30 days notice period the breach is not cured, Mr. Pocock is entitled to receive severance benefits for a twenty-four month period. If such termination is after
Mr. Pocock's first year anniversary, he shall be entitled to a severance cash amount equal to 200% of Mr. Pocock's base pay payable in two installments half on termination and the second
payment one year following Mr. Pocock's termination. In addition to the cash severance payment, Mr. Pocock shall be entitled to a pro rata annual bonus, medical, dental, disability and
life insurance for the severance period and outplacement services up to $35,000.

On
July 31, 2002, Polaroid entered into a three-year employment contract with William L. Flaherty as the Company's Executive Vice President and Chief Financial
Officer. In addition to the normal benefits provided to any executives at this level, his contract provides: (i) a base salary of $390,000; (ii) if employment is terminated without
"Cause" or for "Good Reason" (as each such terms are defined), and if after 30 days notice period the breach is not cured, Mr. Flaherty is entitled to receive

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severance
benefits for an eighteen-month severance period. These benefits include base salary continuation and medical, dental, disability and life insurance for the severance period. In addition,
Mr. Flaherty is entitled to a pro rata annual bonus in the year of termination and outplacement services up to $35,000.

On
May 1, 2003, the Company entered into an employment agreement with Robert B. Gregerson, as the Company's Vice President, General Manager, Americas. In addition to the normal
benefits provided to any executives at this level, Mr. Gregerson's agreement provides a base salary of $330,000, and if employment is terminated without "Cause" (as such term is defined) on or
before July 31, 2005, Mr. Gregerson is entitled to receive severance benefits for a twelve month severance period. These benefits include base salary continuation and medical, dental,
and life insurance for the severance period. In addition, Mr. Gregerson is entitled to a pro rata annual bonus in the year of termination and outplacement services up to $15,000.

On
January 27, 2004, the Company entered into an employment agreement with Ira H. Parker as the Company's Vice President and Chief Legal Officer. In addition to the normal
benefits provided to any executives at this level, Mr. Parker's agreement provides a base salary of $325,000, and if employment is terminated without "Cause" (as such term is defined), on or
before one year from date of hire, Mr. Parker is entitled to receive severance benefits for a twelve month severance period. These benefits include base salary continuation and medical, dental,
and life insurance for the severance period. In addition, Mr. Parker is entitled to a pro rata annual bonus in the year of termination.

On
May 7, 2003, the Company entered into an employment agreement with Mark H. Payne as Vice President, Operations Planning. In addition to the normal benefits provided to any
executives at this level, Mr. Payne's agreement provides a base salary of $235,000, and if employment is terminated without "Cause" (as such term is defined) on or before July 31, 2004,
or his duties and responsibilities are materially diminished, or he is relocated to a principal place of employment more than 50 miles from Waltham, Massachusetts, Mr. Payne is entitled to
receive severance benefits for a six month severance period. These benefits include: base salary continuation and medical, dental and life insurance for the severance period. In addition,
Mr. Payne is entitled to a pro rata annual bonus in the year of termination.

On
April 9, 2004, Polaroid (Italia) S.p.A., one of the consolidated subsidiaries of Holding, entered into an employment agreement with Gianfranco Palma, Vice President,
International and Eyewear. In
addition to the normal benefits provided to any executives at this level, Mr. Palma's agreement provides a base salary of 310,565 euros and the use of a Company car.

Executive Programs

Restricted Stock Purchase Program

Refer to "Stockholders Agreement" in Item 13.Certain Relationships and Related Transactions, below.

Annual Bonus Awards

All of the Company's officers, and other executives are eligible for annual cash bonuses pursuant to the Polaroid Incentive Plan for executives. The primary
factor that determines whether an award is paid is the Company's corporate performance based on its "Revenue," "EBITDA" and "Year-End Adjusted Net Cash" (as such terms are defined). For
executives who are responsible for regional performance the corporate and regional factors are considered. Factors that are considered in the region include the regional revenue and operating profit.
For 2004, individual performance will also play a significant role in the determination of an individual's award.

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Additional Information with Respect to Compensation Committee

The Company did not have a compensation committee prior to December 2003. During 2003, decisions regarding compensation of officers were made by the entire
Board of Directors. No officer or employee participated in these decisions. In December 2003, the Company established a Compensation Committee.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table contains certain information regarding the beneficial ownership of the Company's outstanding Common Stock and Preferred Stock as of
April 9, 2004, by each person or entity who is known by the Company to own beneficially more than 5% of the Common Stock or Preferred Stock of the Company, each of the named executive officers
of the Company, executive officers and each director of the Company; and all Directors and Executive Officers as a group. Individuals have sole voting and investment power with regard to the stock
unless otherwise indicated in the footnotes.

|                                                                 |  | Common Stock |  | Series A 8.0% Cumulative Compounding
Preferred Stock |  
|---------------------------------------------------------------- |  | ------------ |  | ---------------------------------------------------- | -
|
|Directors and Named Executive Officers(1)                        |  |              |  |                                                      |  
|Jacques A. Nasser                                                |  | 1,061,010    |  | 3.0                                                  | %
|Joseph E. Antonini                                               |  | 42,440       |  | *                                                    |  
|Charles F. Auster                                                |  | 75,000       |  | *                                                    |  
|Paolo Cantarella                                                 |  | 42,440       |  | *                                                    |  
|Lee M. Gardner                                                   |  | 16,667       |  | *                                                    |  
|James W. Koven                                                   |  | 4,167        |  | *                                                    |  
|Rick A. Lazio                                                    |  | 42,440       |  | *                                                    |  
|Joseph G. Michels                                                |  | 42,440       |  | *                                                    |  
|Stanley P. Roth                                                  |  | 42,440       |  | *                                                    |  
|William J. Cosgrove                                              |  | 32,690       |  | *                                                    |  
|J. Michael Pocock                                                |  | 707,340      |  | 2.0                                                  | %
|William L. Flaherty                                              |  | 442,090      |  | 1.3                                                  | %
|Gianfranco Palma                                                 |  | 170,730      |  | *                                                    |  
|Robert B. Gregerson                                              |  | 353,670      |  | 1.0                                                  | %
|All Directors and Executive Officers as a Group (16 persons)     |  | 3,364,081    |  | 9.6                                                  | %
|Five Percent Owners                                              |  |              |  |                                                      |  
|One Equity Partners LLC(1)(2)
320 Park Avenue
New York, NY 10022 |  | 18,745,000   |  | 53.4                                                 | %
|Primary PDC, Inc.
1265 Main Street
Waltham, MA 02451             |  | 10,769,230   |  | 30.7                                                 | %

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Item 13. Certain Relationships and Related Transactions

The Company paid approximately $5.3 million to OEP for financial advisory services and expenses performed in connection with the Transaction. In addition,
at the time of the Transaction the Company entered into a ten-year management agreement with OEP covering certain business and organizational strategy, and financial and investment management
services. Under the agreement, OEP will receive an annual retainer of $0.6 million, which is payable quarterly and has the option to provide any transaction-related services for any
acquisition, divestiture, financing or other transaction in which the Company may be involved for an additional fee. Jacques Nasser, Lee Gardner, Charles Auster and James Koven, directors of the
Company, are a senior partner, a senior partner, a partner and a vice president, respectively, of OEP.

In
2003 Mr. Nasser recieved $350,000 from the Company as compensation for his services as Non-executive Chair. In addition, Mr. Nasser purchased 1,061,010 shares of restricted stock
pursuant to the Restricted Stock Purchase Program. Starting in January 2004, the Board authorized the Company to make the payment of $350,000 to Mr. Nasser through OEP in compensation
for his services to the Company as Non-executive Chair.

Stockholders Agreement

General

Holding and OEP have entered into an Amended and Restated Securities Holders Agreement (the "Securities Holders Agreement") among the Company, OEP and certain
members of management who have purchased stock pursuant to the Restricted Stock Purchase Program described below. Each party to the Securities Holders Agreement other than Holding is called an
"Investor." The Securities Holders Agreement contains provisions regarding the voting, sale or other transfer of the securities governed thereby and also contains provisions applicable to a sale of
Holding. These provisions are summarized below. The following description of the material terms of the Securities Holders Agreement is qualified in its entirety by the Securities Holders Agreement, a
copy of which is filed as an exhibit hereto. Individuals agreeing to be bound by its terms signed the initial document or a joinder.

Transfer Restrictions

Pursuant to the Securities Holders Agreement, an Investor (other than OEP) can only transfer Holding's securities to immediate family members and certain trusts
for estate planning purposes.

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Sale of the Company

If OEP approves a sale of Holding (whether by merger, consolidation, sale of outstanding capital stock, sale of all or substantially all of its assets or
otherwise) prior to Holding's first qualified public offering, all of the other Investors can be required to vote in favor of such sale of Holding and sell their shares on the same terms as OEP.
Additionally, all of the other Investors agree to take all necessary and desirable actions in connection with the consummation of the sale of Holding (including foregoing dissenters' and appraisal
rights). A "qualified public offering" is a public offering that results in proceeds to Holding of at least $50,000,000.

Sale of the Company Common Stock by OEP

Except in certain instances, OEP may not sell any of its Common Stock unless all other Investors are given the opportunity to sell their shares on a pro rata
basis and on the same terms as OEP. Instances where OEP can sell its Common Stock without triggering any of these rights held by other Investors include (i) sales of Common Stock that in the
aggregate do not exceed 15% of the outstanding Common Stock, (ii) sales in connection with a sale of Holding, (iii) sales in a public offering and (iv) sales to OEP affiliates and
permitted transferees of OEP.

Voting Agreements

So long as OEP and its affiliates and permitted transferees own 35% of the outstanding Common Stock, each Investor agrees to take all necessary actions to ensure
that the size and composition of the Board of Directors of the Company is consistent with OEP's designation (including resignations and replacements).

Termination

The rights of OEP in connection with a sale of Holding, the rights of Investors in connection with a sale of Common Stock by OEP, and the voting agreement
provisions in the Securities Holders Agreement terminate upon the first qualified public offering by the Company.

Management Investors

The Company implemented a Restricted Stock Program in 2003. Directors and Officers of the Company who purchase Common Stock pursuant to the Restricted Stock
Purchase Program are called "Management Investors." The purchase price of such shares is nominal. Pursuant to the Securities Holders Agreement, the Company has special rights with regards to the
Common Stock held by the Management Investors. For example, the Company has the right to repurchase the Common Stock held by Management Investor if such Management Investor leaves the Company. If such
Management Investor's employment or service on the Board of Directors is terminated for Cause, the purchase price for his or her Common Stock is the lower of fair market value as determined by the
Board of Directors or the original cost of such Common Stock to the Management Investor. If such Management Investor's employment or service on the Board of Directors is terminated for any other
reason, the purchase price for his or her vested shares of Common Stock will be the fair market value of such shares, and the purchase price for his or her unvested shares will be $0.04 per share (as
subsequently adjusted for any stock dividend upon, or subdivision or combination of, or like change). Twenty-five percent of the total number of shares granted to each Management Investor
vests on the anniversary of the Management Investor's Closing Date (as defined in the Securities Holders Agreement) and 12.5% of the total grant vests each six months thereafter.

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Registration Rights Agreement with OEP and Other Investors

General

Holding and OEP have entered into an Amended and Restated Registration Rights Agreement (the "Registration Rights Agreement") among the Company, OEP and certain
members of management who have purchased stock pursuant to the Restricted Stock Purchase Program described above. The following description of the material terms of the Registration Rights Agreement
is qualified in its entirety by the Registration Rights Agreement, a copy of which is filed as an exhibit hereto. Individuals agreeing to be bound by its terms signed the initial document or a
joinder.

Piggyback Registration Rights

The Registration Rights Agreement grants investors who are a party to the agreement the right to participate as a selling stockholder in any registered offerings
of Holding's securities, other than debt offerings and offerings related to employee stock and option plans. These rights are exercisable six months after the Company's first qualified public
offering. The Company shall have priority in any registered offering that was initiated for the Company's own account, and OEP and its affiliates and permitted transferees shall have priority in any
registered offering initiated for their own accounts. For any underwritten registration other than a demand registration described below, the Company shall have the right to select the underwriters.

Demand Registration Rights

Pursuant to the Registration Rights Agreement, OEP, its affiliates and permitted transferees have the right to demand an unlimited number of registrations for
their Common Stock and Preferred Stock. These demand rights are exercisable at any time, including prior to the Company's first qualified public offering, subject to any "blackout period." If a demand
registration is an underwritten offering, OEP has the right to select the underwriters, subject to the Company's approval.

Blackouts

The Company has the customary right to suspend, at any time (but not to exceed one time in any twelve-month period), the registration process, and/or suspend a
holder's ability to use a prospectus if certain significant corporate events are contemplated.

Expenses

The Company shall pay all customary costs and expenses associated with each registration, including for each registration statement prepared, the reasonable fees
and expenses of one firm of attorneys selected by the holders of a majority of the shares of registrable securities covered by such registration. Holders of registrable securities being covered by a
registration will pay underwriting discounts, commissions and applicable transfer taxes, if any, on shares sold by them.

Termination

The Registration Rights Agreement terminates on the tenth anniversary of the date of the agreement.

Item 14. Principal Accountant Fees and Services

KPMG LLP has been the Company's independent auditors since the Transaction. KPMG LLP was Primary's independent auditors prior to the Transaction. The Audit
Committee of the Board of Directors manages the Company's relationship with KPMG LLP as its independent auditors and has

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adopted
policies and procedures which require the Audit Committee to pre-approve all audit, audit-related, non-audit and tax services.

The
following table shows the fees paid, accrued or incurred by the Company and by the Predecessor for audit, audit related, tax and other services provided by KPMG LLP for the periods
presented below.

Fees
Paid to KPMG LLP were as follows:

Company

I

PredecessorYear ended
December 31,
2003

Period from
Inception
(see Note 1) to
December 31,
2002

I
I

Seven Month
Period ended
July 31,
2002Audit Fees(1)

$
1,636,550

$
1,509,998

I

$
345,683Audited Related Fees(2)


20,314


60,352

I


645Tax Fees(3)


502,408


573,862

I


27,418All Other Fees(4)


1,133




I


3,765ITotal

$
2,160,405

$
2,144,212

I

$
377,511I


---

All
of the services described above for the Company were approved by the Company's Board of Directors or Audit Committee.

95

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PART IV.

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K



|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Restated Certificate of Incorporation of Polaroid Holding Company, dated as of February 6, 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3.2         |  | Amended and Restated Bylaws of Polaroid Holding Company as of May 21, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.1         |  | Article Fourth, Section A(2), Series A 8% Cumulative Compounding Preferred Stock in Restated Certificate of Incorporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4.2         |  | Amended and Restated Registration Rights Agreement by and among Polaroid Holding Company, One Equity Partners, LLC and "Other Investors" dated as of February 5, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.1(a)     |  | Second Amended and Restated Asset Purchase Agreement by and among OEP Imaging Corporation and Polaroid Corporation and The Polaroid Subsidiaries Identified Therein, dated as of July 3, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.1(b)     |  | Amendment No. 1 to Second Amended and Restated Asset Purchase Agreement dated as of July 31, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.1(c)     |  | Management Agreement between One Equity Partners LLC and OEP Imaging Operating Corporation, dated as of July 31, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.1(d)     |  | Transaction Fee Letter from One Equity Partners LLC to OEP Imaging Corporation and OEP Imaging Operating Corporation, dated July 31, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.1(e)     |  | Form of Restricted Stock Purchase Agreement by and among Polaroid Holding Company and The Management Investors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.1(f)     |  | Polaroid Holding Company 2004 Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.1(g)     |  | Form of Polaroid Holding Company Bonus Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.1(h)     |  | Amended and Restated Securities Holders Agreement dated as of February 5, 2003, by and among Polaroid Holding Company, One Equity Partners LLC and The Other Investors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.2        |  | $100,000,000 Credit Agreement dated as of July 29, 2002 among OEP Imaging Corporation (to be renamed Polaroid Holding Company) as the Company, and OEP Imaging Operating Corporation (to be renamed Polaroid Corporation), Polaroid Contracting C.V.,
Polaroid (Europa) B.V., Polaroid Trading B.V., Polaroid Canada Inc., Polaroid GmbH, Polaroid (U.K.) Limited, Polaroid Far East Limited and Nippon Polaroid K. K. as Borrowers, and The Lenders and Issuers Party Hereto, and Citicorp USA, Inc. as
Domestic Administrative Agent and Domestic Collateral Agent, and Bank of America, N.A. as Foreign Administrative Agent and Foreign Collateral Agent, and Citicorp USA, Inc. as Foreign Syndication Agent, and Bank of America, N.A. as Domestic
Syndication Agent
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

96

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|10.2(a) |  | Fifth Waiver and Amendment Letter to the Credit Agreement as of July 29, 2002, dated August 5, 2003                                                            
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2(b) |  | Sixth Waiver and Amendment Letter to the Credit Agreement as of July 29, 2002, dated November 14, 2003                                                         
|10.3(a) |  | Employment Agreement, effective May 30, 2003, between Polaroid Holding Company and Polaroid Corporation and John Michael Pocock                                
|10.3(b) |  | Amendment dated August 7, 2003, to Employment Agreement dated May 30, 2003, by and among Polaroid Holding Company, Polaroid Corporation and John Michael Pocock
|10.3(c) |  | Employment Agreement, effective July 31, 2002, between Polaroid Corporation and William L. Flaherty                                                            
|10.3(d) |  | Employment Agreement, effective May 27, 2003, between Polaroid Corporation and Robert B. Gregerson                                                             
|10.3(e) |  | Employment Agreement, dated April 9, 2004, between Polaroid (Italia) S.p.A. and Gianfranco Palma                                                               
|10.3(f) |  | Temporary Assignment Agreement, effective April 2, 2002, between Polaroid (Italia) S.p.A. and Gianfranco Palma                                                 
|10.3(g) |  | Employment Agreement, effective February 23, 2004, between Polaroid Corporation and Ira H. Parker                                                              
|10.3(h) |  | Employment Agreement, dated May 6, 2003, between Polaroid Corporation and Mark H. Payne                                                                        
|14      |  | Code of Ethics and Business Conduct, effective September 1, 2003                                                                                               
|21      |  | Subsidiaries of Registrant                                                                                                                                     
|31.1    |  | Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|31.2    |  | Certification of Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                
|32      |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                         





97

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

| |  | POLAROID HOLDING COMPANY
| |  | ------------------------
| |  | By:                     

Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant on the dates and in
the capacities indicated.

|Name                                      |  | Title                                                                                             |  | Date          
|----------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | --------------
|                                          |  |                                                                                                   |  |               
|/s/JACQUES A. NASSERJacques A. Nasser     |  | Director and Non-Executive
Chairperson                                                            |  | April 14, 2004
|/s/J. MICHAEL POCOCKJ. Michael Pocock     |  | Director, Chief Executive
Officer and President
(principal executive officer)                     |  | April 14, 2004
|/s/WILLIAM L. FLAHERTYWilliam L. Flaherty |  | Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer) |  | April 14, 2004
|/s/JOSEPH E. ANTONINIJoseph E. Antonini   |  | Director                                                                                          |  | April 14, 2004
|/s/CHARLES F. AUSTERCharles F. Auster     |  | Director                                                                                          |  | April 14, 2004
|/s/PAOLO CANTARELLAPaolo Cantarella       |  | Director                                                                                          |  | April 14, 2004
|/s/WILLIAM J. COSGROVEWilliam J. Cosgrove |  | Director                                                                                          |  | April 14, 2004
|/s/LEE M. GARDNERLee M. Gardner           |  | Director                                                                                          |  | April 14, 2004
|/s/JAMES W. KOVENJames W. Koven           |  | Director                                                                                          |  | April 14, 2004
|/s/RICK A. LAZIORick A. Lazio             |  | Director                                                                                          |  | April 14, 2004
|/s/JOSEPH G. MICHELSJoseph G. Michels     |  | Director                                                                                          |  | April 14, 2004
|/s/STANLEY P. ROTHStanley P. Roth         |  | Director                                                                                          |  | April 14, 2004

98

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