Exh.

1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Selected Income Statement Information
Net Sales U.S. $1,019.0 $1,160.3 $1,178.8 $1,145.7 $1,113.6 $1,058.3 $1,091.8 $1,048.3 $1,009.3 $964.3
International 1,217.9 1,152.2 1,066.1 1,006.6 957.0 913.4 812.9 814.6 754.6 664.9
Total 2,236.9 2,312.5 2,244.9 2,152.3 2,070.6 1,971.7 1,904.7 1,862.9 1,763.9 1,629.2
Operating Expenses 2,147.7 2,112.2 2,059.5 1,938.5 1,824.0 1,687.4 1,600.5 1,689.1 1,610.1 1,493.5
Profit from Opns. Before Restructuring Exp. 89.2 200.3 185.4 213.8 246.6 284.3 304.2 173.8 153.8 135.7
Restructuring Expense 247.0 0.0 44.0 0.0 0.0 0.0 40.5 151.9 0.0 0.0
Interest Expense 52.1 46.6 47.9 58.5 58.4 81.3 86.2 29.0 15.0 18.6
Net Earnings -140.2 117.2 -51.3 99.0 683.7 151.0 145.0 -22.6 125.2 108.2

Common Shares, End of Year (000s) 45,533 45,998 46,806 46,668 48,919 50,070 52,110 71,635 61,918 61,918
Common Shares Repurchased (000s) 1,218 941 0 2,258 1,151 2,040 19,525 0 0 0
Repurchase Outlay ($ millions) $40.2 $30.6 $0.0 $63.4 $30.6 $55.6 $950.6 $0.0 $0.0 $0.0
Common Shares Issued (000s) 753 133 138 7 0 0 0 9,717 0 0

Earnings Per Share -$3.09 $2.49 -$1.10 $2.06 $12.54 $2.20 $1.96 -$0.34 $2.02 $1.75
Dividend Per Share $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.50

Selected Balance Sheet Information

Working Capital $738.5 $886.8 $833.6 $789.0 $695.3 $609.1 $642.0 $980.0 $652.6 $602.4
Net Property, Plant & Equipment 691.0 747.3 718.2 657.3 549.4 461.0 430.9 433.8 359.6 357.7
Total Assets 2,261.8 2,316.7 2,212.3 2,008.1 1,889.3 1,701.3 1,776.7 1,957.2 1,599.4 1,444.6
Long-Term Debt 526.7 566.0 602.3 637.4 471.8 513.8 602.2 402.3 0.0 0.0
Redeemable Preferred Stock 0.0 0.0 0.0 0.0 0.0 348.6 321.9 0.0 0.0 0.0
Common Stockholders' Equity 717.7 864.4 767.3 808.9 772.9 207.7 148.8 1,011.5 1,048.2 960.1

Addns. to Property Plant and Equip. 167.9 146.7 165.6 201.5 175.8 120.9 94.5 127.0 116.6 82.9
Depreciation $132.7 $118.2 $100.3 $89.1 $85.5 $87.2 $87.4 $81.9 $75.7 $71.2
Book Value LT Debt/Capital 42.3% 39.6% 44.0% 44.1% 37.9% 48.0% 56.1% 28.5% 0.0% 0.0%
Market Value LT Debt/Capital 19.6% 27.5% 27.8% 30.5% 26.6% 25.3% 28.5% 23.4% 0.0% 0.0%

Selected Valuation Information (at years' ends)

Polaroid Stock Price $47.38 $32.50 $33.50 $31.13 $26.63 $23.38 $22.88 $18.38 $11.88 $33.25
S&P 500 Index 615.93 459.27 466.25 435.71 417.09 330.22 353.40 277.72 247.08 242.17
Polaroid Average P/E (1) 12.1 13.3 15.6 14.2 12.2 15.6 21.8 NMF 14.7 16.6
S&P Industrials Average P/E (1) 15.2 15.5 18.4 19.8 19 14.4 12.6 10.8 15.3 17.5
Polaroid Market/Book Ratio 3.01 1.73 2.04 1.80 1.69 5.63 8.01 1.30 0.70 2.14
Polaroid Beta 1.05 1.05 1.15 1.15 1.20 1.25 1.25 1.25 1.20 1.10
Yield on 30-Year T-Bonds 6.88% 7.37% 6.59% 7.67% 8.14% 8.61% 8.45% 8.96% 8.59% 7.80%
Yield on 90-day T-Bills 5.49% 4.25% 3.00% 3.43% 5.38% 7.50% 8.11% 6.67% 5.78% 5.97%
Total Annual Return on Large Co. Stocks 33.00% 1.30% 9.90% 7.67% 30.55% -3.17% 31.49% 18.81% 5.23% 18.47%

Notes: 1. P/E ratios are computed on earnings before restructuring charges, litigation award, and other extraordinary items.

Page 1
 Exh. 3

Exhibit 3
Consolidated Statement of Earnings
(In $ millions)

Years ended December 31,

1995 1994
Net Sales
United States $1,019.0 $1,160.3 -12%
International 1,217.9 1,152.2 6%
Total Net Sales 2,236.9 2,312.5 -3%

Cost of Goods Sold 1,298.6 1,324.2 -2%

Marketing, Research, & Admin. 849.1 788.0 8%
Restructuring & Other. 247.0 0.0
Total Costs 2,394.7 2,122.2 13%
Profit/(Loss) from Operations -157.8 200.3 -179%

Interest Income 8.7 9.7 -10%

Other Income -0.2 -2.7 -93%
Interest Expense 52.1 46.6 12%
Earnings/(Loss) Before Taxes -201.4 160.7 -225%
Tax Expense -61.2 43.5 -241%
Net Earnings/(Loss) -140.2 117.2 -220%

Page 2
 Exh. 4

Exhibit 4
Consolidated Balance Sheet
(In $ millions)

1995 1994
Assets
Current Assets
Cash and Cash Equivalents $73.3 $143.3 -49%
Short-Term Investments 9.8 85.6 -89%
Receivables, less allowances 550.4 541.0 2%
Inventories 615.5 577.4 7%
Prepaid Expenses and Other 208.5 141.4 47%
Total Current Assets 1,457.5 1,488.7 -2%
Gross Property Plant and Equipment 2,164.4 2,043.4 6%
Less Accumulated Depreciation 1,473.4 1,296.1 14%
Net Property, Plant and Equipment 691.0 747.3 -8%
Prepaid Taxes -- non-current 113.3 80.7 40%
Total Assets $2,261.8 $2,316.7 -2%

Liabilities and Stockholders' Equity

Current Liabilities
Short-Term Debt $160.4 $117.1 37%
Current Portion of Long-Term Debt 39.7 35.9 11%
Payables and Acrruals 274.9 275.7 0%
Compensation & Benefits 197.4 121.4 63%
Taxes Payable 46.6 51.8 -10%
Total Current Liabilities 719.0 601.9 19%
Long-Term Debt 526.7 566.0 -7%
Accrued Postretirement Benefits 257.2 247.2 4%
Accrued Postemployment Benefits 41.2 37.2 11%
Total Liabilities 1,544.1 1,452.3 6%
Preferred Stock 0.0 0.0
Common Stockholders' Equity
Common Stock (1) 75.4 75.4 0%
Additional Paid-In Capital 401.9 387.2 4%
Retained Earnings 1,525.8 1,692.1 -10%
Less Treasury Stock, at Cost 1,205.4 1,174.5 3%
Less Deferred Compensation 80.0 115.8 -31%
Total Common Stockholders Equity 717.7 864.4 -17%
Total Liabilities and Stockholders' Equity $2,261.8 $2,316.7 -2%

Page 3
 Exh. 6

Exhibit 6
Polaroid Corporation, 1996
Financial Forecast, 1996-2000
(values in U.S. $ millions)

Actual Projected
1995 1996 1997 1998 1999
Annual Increase in Sales -3.2% 2.0% 5.0% 6.0% 6.0%
Opng. Profit/Sales 4.0% 8.0% 9.5% 10.0% 10.0%
Tax Rate 40.0%
Wkg. Capital/Sales 37.0%
Dividend Payout Ratio 25.0%
Income Statement
Net Sales $2,236.9 $2,281.6 $2,395.7 $2,539.5 $2,691.8
Operating Profit 89.2 182.5 227.6 253.9 269.2
Interest Income 8.5 5.0 5.0 5.0 5.0
Interest Expense -52.1 (52.1) (52.1) (52.1) (52.1)
Pre-Tax Income 45.6 135.4 180.5 206.8 222.1
Tax Expense -61.2 (54.2) (72.2) (82.7) (88.8)
Net Income -15.6 81.3 108.3 124.1 133.2
Dividends 27.3 27.3 27.3 27.3 27.3
Retentions to Earnings $ (42.9) $ 53.9 $ 81.0 $ 96.8 $ 105.9

Balance Sheet
Cash $ 83.1 $ 148.3 $ 187.1 $ 230.7 $ 280.3
Working Capital (without debt) 855.5 844.2 886.4 939.6 996.0
Prepaid Tax 113.3 113.3 113.3 113.3 113.3
Net Fixed Assets 691.0 691.0 691.0 691.0 691.0
Total Assets 1,742.9 1,796.8 1,877.8 1,974.6 2,080.5

Debt (long and short term) 726.8 726.8 726.8 726.8 726.8
Postretirement Benefits 298.4 298.4 298.4 298.4 298.4
Equity 717.7 771.6 852.6 949.4 1,055.3
Total Capital $1,742.9 $1,796.8 $1,877.8 $1,974.6 $2,080.5

Free Cash Flows

EBIT $ 182.5 $ 227.6 $ 253.9 $ 269.2
Less Taxes on EBIT (73.0) (91.0) (101.6) (107.7)
Plus Depreciation 140.0 140.0 140.0 140.0
Less Capital Expenditures (140.0) (140.0) (140.0) (140.0)
Less Additions to/plus Reductions in Wkg. Cap. 11.3 (42.2) (53.2) (56.4)
Free Cash Flow $ 120.8 $ 94.3 $ 99.2 $ 105.1

Page 4
 Exh. 6

2000
7.0%
10.0%

$2,880.3
288.0
5.0
(52.1)
240.9
(96.4)
144.6
27.3
$ 117.2

$ 327.8
1,065.7
113.3
691.0
2,197.8

726.8
298.4
1,172.6
$2,197.8

$ 288.0
(115.2)
140.0
(140.0)
(69.7)
$ 103.1

Page 5
 Exh. 9

Exhibit 9
Key Industrial Financial Ratios
Three-Year Medians (1993-1995)

AAA AA A BBB BB
Pretax interest coverage (x) 13.50 9.67 5.76 3.94 2.14
EBITDA Interest coverage (x) 17.08 12.80 8.18 6.00 3.49
Funds from operations/total debt (%) 98.20% 69.10% 45.50% 33.30% 17.70%
Free operating cash flow/total debt (%) 60.00% 26.80% 20.90% 7.20% 1.40%
Pretax return on permanent capital (%) 29.30% 21.40% 19.10% 13.90% 12.00%
Operating income/sales (%) 22.60% 17.80% 15.70% 13.50% 13.50%
Long-term debt/capital (%) 13.30% 21.10% 31.60% 42.70% 55.60%
Total debt/capitalization incl. short-term debt (%) 25.90% 33.60% 39.70% 47.80% 59.40%

Source: Standard & Poor's CreditWeek October 30, 1996, page 26.

Page 6
 Exh. 9

B
1.17
2.16
12.80%
-0.90%
9.00%
12.30%
65.50%
69.50%

Page 7
 Flexibility_mkt value

Analysis of Flexibility by Rating Category p/b enterprise value Bookvalue

3.005609 2,883.93 $ 1,445

AAA AA A BBB BB B
1 Pre-tax Cost of Debt (Exh. 11) 6.70% 6.90% 7.00% 7.40% 9.00% 10.60%

Required for rating category:

2 Book Value Debt/Capital (Book) (Exh. 9) 25.90% 33.60% 39.70% 47.80% 59.40% 69.50% short term loan is heavy, and needs to be cleared, hence short term only
3 Market/Book Value of Equity Ratio (Exh. 1) 3.01 3.01 3.01 3.01 3.01 3.01 this is more conservative (enterprise value ka 23%)<book value ka 47%
4 Market Value Debt/Capital 10.42% 14.41% 17.97% 23.35% 32.74% 43.12%
wacc overpowers tax shield, when you move from investable to non-investable
Estimate of Unused Debt Capacity
5 Polaroid Enterprise Value (1) $ 1,445 $ 1,445 $ 1,445 $ 1,445 $ 1,445 $ 1,445
6 Mkt Value of Polaroid's Existing Debt (1) $ 727 $ 727 $ 727 $ 727 $ 727 $ 727 Enterprise value - stockholders' equity
7 Maximum Debt Implied by Rating (2) $ 300 $ 416 $ 518 $ 673 $ 944 $ 1,244 polaroid enterprise value * book value debt/capital
8 Unused Debt Capacity at current rating $ (426) $ (311) $ (209) $ (53) $ 217 $ 517
9 Unused Debt Capacity until Investment-
Grade Rating is lost (at BB)

Estimate of Interest Coverage

10 Interest Expense (3) $ 20.13 $ 28.67 $ 36.27 $ 49.84 $ 84.98 $ 131.82
11 Normalized 5-Year EBIT (4) 244.3 244.3 244.3 244.3 244.3 244.3
12 Downside EBIT 150.0 150.0 150.0 150.0 150.0 150.0
13 Coverage Ratio, Normalized EBIT 12.1 8.5 6.7 4.9 2.9 1.9
14 Coverage Ratio, Downside EBIT 7.5 5.2 4.1 3.0 1.8 1.1

Notes:
(1) Enterprise value in 1995 equals book value of debt, $726.8 million, plus market value of equity, $2,157 million. Debt is
listed in case Exhibit 4, and is comprised of long-term debt ($526.7 million), short-term debt ($160.4 million) and current
maturities of long-term debt ($39.7 million). Market value of equity is estimated as the share price, $47.38 times the number
of shares outstanding, 45,533,000--these data are given in case Exhibit 1.
(2) Maximum debt equals market value debt/capital ratio times enterprise value.
(3) Interest expense equals pre-tax cost of debt [line 1] times maximum value of debt [7].
(4) Normalized five-year EBIT is the average of EBIT forecasted over 1996 to 2000 in Exhibit 6.

Page 8
 Flexibility_book_value

Analysis of Flexibility by Rating Category p/b enterprise value Bookvalue

3.005609 2,883.93 $ 1,445

AAA AA A BBB BB B
1 Pre-tax Cost of Debt (Exh. 11) 6.70% 6.90% 7.00% 7.40% 9.00% 10.60%

Required for rating category:

2 Book Value Debt/Capital (Book) (Exh. 9) 25.90% 33.60% 39.70% 47.80% 59.40% 69.50% short term loan is heavy, and needs to be cleared, hence short term only
3 Market/Book Value of Equity Ratio (Exh. 1) 3.01 3.01 3.01 3.01 3.01 3.01 this is more conservative (enterprise value ka 23%)<book value ka 47%
4 Market Value Debt/Capital 10.42% 14.41% 17.97% 23.35% 32.74% 43.12%
wacc overpowers tax shield, when you move from investable to non-investable
Estimate of Unused Debt Capacity
5 Polaroid Enterprise Value (1) $ 1,445 $ 1,445 $ 1,445 $ 1,445 $ 1,445 $ 1,445
6 Mkt Value of Polaroid's Existing Debt (1) $ 727 $ 727 $ 727 $ 727 $ 727 $ 727 Enterprise value - stockholders' equity
7 Maximum Debt Implied by Rating (2) $ 374 $ 485 $ 573 $ 690 $ 858 $ 1,004 polaroid enterprise value * book value debt/capital
8 Unused Debt Capacity at current rating $ (353) $ (241) $ (153) $ (36) $ 131 $ 277
9 Unused Debt Capacity until Investment-
Grade Rating is lost (at BB)

Estimate of Interest Coverage

10 Interest Expense (3) $ 25.07 $ 33.49 $ 40.14 $ 51.09 $ 77.22 $ 106.42
11 Normalized 5-Year EBIT (4) 244.3 244.3 244.3 244.3 244.3 244.3
12 Downside EBIT 150.0 150.0 150.0 150.0 150.0 150.0
13 Coverage Ratio, Normalized EBIT 9.7 7.3 6.1 4.8 3.2 2.3
14 Coverage Ratio, Downside EBIT 6.0 4.5 3.7 2.9 1.9 1.4

Notes:
(1) Enterprise value in 1995 equals book value of debt, $726.8 million, plus market value of equity, $2,157 million. Debt is
listed in case Exhibit 4, and is comprised of long-term debt ($526.7 million), short-term debt ($160.4 million) and current
maturities of long-term debt ($39.7 million). Market value of equity is estimated as the share price, $47.38 times the number
of shares outstanding, 45,533,000--these data are given in case Exhibit 1.
(2) Maximum debt equals market value debt/capital ratio times enterprise value.
(3) Interest expense equals pre-tax cost of debt [line 1] times maximum value of debt [7].
(4) Normalized five-year EBIT is the average of EBIT forecasted over 1996 to 2000 in Exhibit 6.

Page 9
 Flexibility

Analysis of Flexibility by Rating Category p/b enterprise value Bookvalue

3.005609 2,883.93 $ 1,445

AAA AA A BBB BB B
1 Pre-tax Cost of Debt (Exh. 11) 6.70% 6.90% 7.00% 7.40% 9.00% 10.60%

Required for rating category:

2 Book Value Debt/Capital (Book) (Exh. 9) 25.90% 33.60% 39.70% 47.80% 59.40% 69.50% short term loan is heavy, and needs to be cleared, hence short term only
3 Market/Book Value of Equity Ratio (Exh. 1) 3.01 3.01 3.01 3.01 3.01 3.01 this is more conservative (enterprise value ka 23%)<book value ka 47%
4 Market Value Debt/Capital 10.42% 14.41% 17.97% 23.35% 32.74% 43.12%
Book Value Debt/Capital 300.4 415.6 518.2 673.5 944.2 1243.6 wacc overpowers tax shield, when you move from investable to non-investable
374.1 485.4 573.5 690.5 858.0 1003.9
Estimate of Unused Debt Capacity
5 Polaroid Enterprise Value (1) $ 1,445 $ 1,445 $ 1,445 $ 1,445 $ 1,445 $ 1,445
6 Mkt Value of Polaroid's Existing Debt (1) $ 727 $ 727 $ 727 $ 727 $ 727 $ 727 Enterprise value - stockholders' equity
7 Maximum Debt Implied by Rating (2) $ 374 $ 485 $ 573 $ 690 $ 858 $ 1,004 polaroid enterprise value * book value debt/capital
8 Unused Debt Capacity at current rating $ (353) $ (241) $ (153) $ (36) $ 131 $ 277
9 Unused Debt Capacity until Investment-
Grade Rating is lost (at BB)

Estimate of Interest Coverage

10 Interest Expense (3) $ 25.07 $ 33.49 $ 40.14 $ 51.09 $ 77.22 $ 106.42
11 Normalized 5-Year EBIT (4) 244.3 244.3 244.3 244.3 244.3 244.3
12 Downside EBIT 150.0 150.0 150.0 150.0 150.0 150.0
13 Coverage Ratio, Normalized EBIT 9.7 7.3 6.1 4.8 3.2 2.3
14 Coverage Ratio, Downside EBIT 6.0 4.5 3.7 2.9 1.9 1.4

Notes:
(1) Enterprise value in 1995 equals book value of debt, $726.8 million, plus market value of equity, $2,157 million. Debt is
listed in case Exhibit 4, and is comprised of long-term debt ($526.7 million), short-term debt ($160.4 million) and current
maturities of long-term debt ($39.7 million). Market value of equity is estimated as the share price, $47.38 times the number
of shares outstanding, 45,533,000--these data are given in case Exhibit 1.
(2) Maximum debt equals market value debt/capital ratio times enterprise value.
(3) Interest expense equals pre-tax cost of debt [line 1] times maximum value of debt [7].
(4) Normalized five-year EBIT is the average of EBIT forecasted over 1996 to 2000 in Exhibit 6.

Page 10
 Valuation Analysis

Projected
1996 1997 1998 1999 2000
Valuation Analysis
Free Cash Flow (from case Exhibit 6)
Terminal Value (Note 1)
Total FCF

DCF at 10%
Less Debt
Equity
Shares outstanding
Intrinsic Value Per Share
Recent Share Price
Premium of Price vs. Value

Note:
1. The terminal value is estimated using the constant growth valuation model:
TV=(FCF(1+g))/(WACC-g). This estimate assumes WACC of 10 percent and growth rate, g, of 6
percent.
WACC = 10%
G= 6%
 Cost of Capital

Capital Costs by Rating Category

AAA AA A BBB BB
Cost of Debt (pre-tax) 6.70% 6.90% 7.00% 7.40% 9.00%
Cost of Equity 10.25% 10.30% 10.40% 10.50% 11.75%

Approach Based on Hudson Guaranty Estimates of Equity Costs

Cost of Debt (after 40% tax) 4.02% 4.14% 4.20% 4.44% 5.40%
Cost of Equity 10.25% 10.30% 10.40% 10.50% 11.75%
Market/Book Ratio (Exh. 1)
Debt/Capital (Book) (Exh. 9) 25.90% 33.60% 39.70% 47.80% 59.40%
Debt/Capital (Market) 10.42% 14.41% 17.97% 23.35% 32.74%
Weight of Debt 0.10 0.14 0.18 0.23 0.33
Weight of Equity 0.90 0.86 0.82 0.77 0.67

WACC (using Mkt. Wts.) 9.60% 9.41% 9.29% 9.08% 9.67%

WACC (using Book Wts.) 8.64% 8.23% 7.94% 7.60% 7.98%

Alternative Approach Based on CAPM and Levered Beta

AAA AA A BBB BB
Cost of Debt (pre-tax) 6.70% 6.90% 7.00% 7.40% 9.00%
Unlevered Beta 0.87 0.87 0.87 0.87 0.87
Debt/Equity (Market) 11.63% 16.84% 21.90% 30.47% 48.68%
Relevered Beta 0.93 0.96 0.99 1.03 1.13
Cost of Equity (Rf=.0624, EMRP=.054) 11.29% 11.43% 11.58% 11.82% 12.33%

Cost of Debt (after 40% tax) 4.02% 4.14% 4.20% 4.44% 5.40%
Cost of Equity 11.29% 11.43% 11.58% 11.82% 12.33%
Market/Book Ratio (Exh. 1)
Debt/Capital (Book) (Exh. 9) 25.90% 33.60% 39.70% 47.80% 59.40%
Debt/Capital (Market) 10.42% 14.41% 17.97% 23.35% 32.74%
Weight of Debt 10.42% 14.41% 17.97% 23.35% 32.74%
Weight of Equity 89.58% 85.59% 82.03% 76.65% 67.26%

WACC (using Mkt. Wts.) 10.53% 10.38% 10.25% 10.10% 10.06%

WACC (using Book Wts.) 9.40% 8.98% 8.65% 8.29% 8.22%

Note: Estimation of Polaroid's Unlevered Beta:

Long-term Debt Levered Beta 1.05
Short-term Debt Tax Rate 40%
Total Debt 726.8 Unlevered Beta 0.873 calculate it
Mkt. Value of Equity 2157
Debt/Capital (market) 0.10
Debt/ Equity (market) 0.34 For the current scenario

Page 13
 Cost of Capital

B
10.60%
13.00%

6.36% multiplied by 1-40%

13.00%

69.50%
43.12%
0.43
0.57

10.14%
8.39%

B
10.60%
0.87
75.81%
1.27
13.10%

6.36%
13.10%

69.50%
43.12%
43.12%
56.88%

10.19%
8.42%

Page 14