UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the Quarterly Period Ended March 28, 2004                
|or                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the Transition 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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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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

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 May 6, 2004, the number of outstanding shares of the Registrant's Common Stock, $.001 par value, was 35,124,794.

The
information in this report gives affect to a 10-for-1 stock split of the Registrant's Common Stock and Preferred Stock that occurred on July 24, 2003.



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POLAROID HOLDING COMPANY
FORM 10-Q
For the Quarter Ended March 28, 2004
INDEX

|          |  |                       |  |                                                                                                                  |  | PAGE
|--------- |  | --------------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----
|Part I.   |  | FINANCIAL INFORMATION |  |                                                                                                                 
|          |  | Item 1.               |  | Financial Statements                                                                                             |  |     
|          |  | a)                    |  | Consolidated Statement of Earnings for three month periods ended March 28, 2004 and March 30, 2003 (unaudited)   |  | 1   
|          |  | b)                    |  | Consolidated Balance Sheet as of March 28, 2004 and December 31, 2003 (unaudited)                                |  | 2   
|          |  | c)                    |  | Consolidated Statement of Cash Flows for three month periods ended March 28, 2004 and March 30, 2003 (unaudited) |  | 3   
|          |  | d)                    |  | Notes to Consolidated Financial Statements (unaudited)                                                           |  | 4   
|          |  | e)                    |  | Independent Accountants' Review Report                                                                           |  | 13  
|          |  | Item 2.               |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                            |  | 14  
|          |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 23  
|          |  | Item 4.               |  | Controls and Procedures                                                                                          |  | 24  
|Part II.  |  | OTHER INFORMATION     |  |                                                                                                                 
|          |  | Item 1.               |  | Legal Proceedings                                                                                                |  | 25  
|          |  | Item 2.               |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                                 |  | 25  
|          |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                  |  | 25  
|          |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                              |  | 25  
|          |  | Item 5.               |  | Other Information                                                                                                |  | 26  
|          |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                                                 |  | 26  
|Signature |  | 27                   

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statement of Earnings

Polaroid Holding Company and Subsidiary CompaniesThree month periods ended March 28, 2004 and March 30, 2003
(in millions, except per share and share amounts)
(unaudited)

|                                                                                                     |                                                              | First Quarter |       
|---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------------- | ------
|
|Net sales                                                                                            |                                                              | $             | 171.5 
|                                                                                                     | Cost of goods sold                                           |               |       
|                                                                                                     | Marketing, research, engineering and administrative expenses |               |       
|                                                                                                     | Restructuring charges                                        |               |       
|                                                                                                     |                                                              |               |       
|Total costs                                                                                          |                                                              |               | 155.8 
|                                                                                                     |                                                              |               |       
|Profit from operations                                                                               |                                                              |               | 15.7  
|                                                                                                     | Other income/(expense)                                       |               |       
|                                                                                                     | Interest expense                                             |               |       
|                                                                                                     |                                                              |               |       
|Earnings before income tax expense                                                                   |                                                              |               | 14.7  
|                                                                                                     | Federal, state and foreign income tax expense                |               |       
|                                                                                                     |                                                              |               |       
|Net earnings                                                                                         |                                                              | $             | 12.5  
|                                                                                                     |                                                              |               |       
|Basic earnings per common share                                                                      |                                                              | $             | 0.38  
|Diluted earnings per common share                                                                    |                                                              | $             | 0.34  
|Cash dividends per common share                                                                      |                                                              |               |      
|Weighted average common shares used for basic earnings per common share calculation (in thousands)   |                                                              |               | 30,769
|Weighted average common shares used for diluted earnings per common share calculation (in thousands) |                                                              |               | 34,444

See
accompanying notes to consolidated financial statements.

1

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Consolidated Balance Sheet

Polaroid Holding Company and Subsidiary Companies(in millions)
(unaudited)

|                                                  |                                                                                          | March 28,
2004  |       | December 31,
2003 |     
|------------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------- | ----- | ----------------- | ----
|Assets                                            |                                                                                          |                 |       |                   |     
|Current assets                                    |                                                                                          |                 |       |                   |     
|                                                  | Cash and cash equivalents                                                                |                 | $     | 120.8             |     
|                                                  | Receivables, net of allowances of $10.2 at March 28, 2004 and
$10.0 at December 31, 2003 |                 |       | 88.9              |     
|                                                  | Inventories:                                                                             |                 |       |                   |     
|                                                  |                                                                                          | Raw materials   |       |                   | 26.0
|                                                  |                                                                                          | Work-in-process |       |                   | 84.4
|                                                  |                                                                                          | Finished goods  |       |                   | 41.7
|                                                  |                                                                                          |                 |       |                   |     
|                                                  | Total inventories                                                                        |                 |       | 152.1             |     
|                                                  | Assets held for sale                                                                     |                 |       | 4.2               |     
|                                                  | Prepaid expenses and other current assets                                                |                 |       | 54.2              |     
|                                                  |                                                                                          |                 |       |                   |     
|Total current assets                              |                                                                                          |                 | 420.2 |                   |     
|Property, plant and equipment                     |                                                                                          |                 |       |                   |     
|                                                  | Total property, plant and equipment                                                      |                 |       | 38.7              |     
|                                                  | Less: Accumulated depreciation                                                           |                 |       | 3.7               |     
|                                                  |                                                                                          |                 |       |                   |     
|Net property, plant and equipment                 |                                                                                          |                 | 35.0  |                   |     
|Deferred tax assets                               |                                                                                          |                 | 1.9   |                   |     
|Other non-current assets                          |                                                                                          |                 | 33.3  |                   |     
|                                                  |                                                                                          |                 |       |                   |     
|Total assets                                      |                                                                                          | $               | 490.4 |                   | $   
|                                                  |                                                                                          |                 |       |                   |     
|Liabilities and stockholders' equity              |                                                                                          |                 |       |                   |     
|Current liabilities                               |                                                                                          |                 |       |                   |     
|                                                  | Payables and accruals                                                                    |                 | $     | 117.8             |     
|                                                  | Compensation and benefits                                                                |                 |       | 24.0              |     
|                                                  | Federal, state and foreign income taxes                                                  |                 |       | 26.2              |     
|                                                  |                                                                                          |                 |       |                   |     
|Total current liabilities                         |                                                                                          |                 | 168.0 |                   |     
|Non-current pension liability                     |                                                                                          |                 | 32.0  |                   |     
|Other non-current liabilities                     |                                                                                          |                 | 14.4  |                   |     
|Preferred Stock                                   |                                                                                          |                 | 44.6  |                   |     
|Common stockholders' equity                       |                                                                                          |                 |       |                   |     
|                                                  | Common Stock, $.001 par value                                                            |                 |       |                  |     
|                                                  | Additional paid-in capital                                                               |                 |       | 8.2               |     
|                                                  | Retained earnings                                                                        |                 |       | 211.9             |     
|                                                  | Accumulated other comprehensive income                                                   |                 |       | 15.6              |     
|                                                  | Less: Treasury stock                                                                     |                 |       | (1.0              | )   
|                                                  | Deferred compensation                                                                    |                 |       | (3.3              | )   
|                                                  |                                                                                          |                 |       |                   |     
|Total common stockholders' equity                 |                                                                                          |                 | 231.4 |                   |     
|                                                  |                                                                                          |                 |       |                   |     
|Total liabilities and common stockholders' equity |                                                                                          | $               | 490.4 |                   | $   
|                                                  |                                                                                          |                 |       |                   |     

See
accompanying notes to consolidated financial statements.

2

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Consolidated Statement of Cash Flows

Polaroid Holding Company and Subsidiary CompaniesThree month periods ended March 28, 2004 and March 30, 2003
(in millions)
(unaudited)

|                                                 |                                                             | First Quarter |      
|------------------------------------------------ | ----------------------------------------------------------- | ------------- | -----
|
|Cash flows from operating activities             |                                                             |               |      
|                                                 | Net earnings                                                |               | $    
|                                                 | Depreciation of property, plant and equipment               |               |      
|                                                 | Deferred taxes                                              |               |      
|                                                 | Other non-cash items                                        |               |      
|                                                 | Decrease/(increase) in receivables                          |               |      
|                                                 | Increase in inventories                                     |               |      
|                                                 | Decrease/(increase) in prepaids and other assets            |               |      
|                                                 | Decrease in payables and accruals                           |               |      
|                                                 | Decrease in compensation and benefits                       |               |      
|                                                 | Increase in federal, state and foreign income taxes payable |               |      
|                                                 |                                                             |               |      
|                                                 | Net cash provided/(used) by operating activities            |               |      
|Cash flows from investing activities             |                                                             |               |      
|                                                 | Decrease in other assets                                    |               |      
|                                                 | Additions to property, plant and equipment                  |               |      
|                                                 |                                                             |               |      
|                                                 | Net cash used by investing activities                       |               |      
|Cash flows from financing activities             |                                                             |               |      
|                                                 | Repayment of short-term debt                                |               |      
|                                                 | Repurchase of treasury stock                                |               |      
|                                                 |                                                             |               |      
|                                                 | Net cash used by financing activities                       |               |      
|Effect of exchange rate changes on cash          |                                                             |               | (0.4 
|                                                 |                                                             |               |      
|Net decrease in cash and cash equivalents        |                                                             |               | (46.0
|Cash and cash equivalents at beginning of period |                                                             |               | 166.8
|                                                 |                                                             |               |      
|Cash and cash equivalents at end of period       |                                                             | $             | 120.8
|                                                 |                                                             |               |      

See
accompanying notes to consolidated financial statements.

3

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Accounting Information

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Polaroid Holding Company and its domestic and foreign subsidiaries, all of which are
either wholly owned or majority owned (collectively, the "Company"). Intercompany transactions have been eliminated. The information furnished in this interim unaudited report reflects all normal
adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the interim periods.

The
Company's results of operations for the three month period ended March 28, 2004 are not necessarily indicative of the results to be expected for the full year. The information
included in this quarterly report on Form 10-Q should be read in conjunction with the information in "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Quantitative and Qualitative Disclosures About Market Risk" and the consolidated financial statements and notes thereto included in Items 7, 7A and 8, respectively, in the Company's
Form 10-K for the fiscal year ended December 31, 2003. As noted therein, the Company's Form 10-K for the fiscal year ended December 31, 2003 does
not contain all of the financial information that is required by the rules and regulations applicable to such report, and the absence of such information could be material to investors.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires the Company's management to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain prior period information has been reclassified to conform with the presentation for 2004.

Cash payments for Interest and Income Taxes

The Company's cash payments for interest and income taxes for the three month periods ended March 28, 2004 and March 30, 2003 were as follows (in
millions):

Three month
period ended
March 28,
2004

Three month
period ended
March 30,
2003Cash payments for:Interest

$
0.2

$
0.6Income taxes

$
1.0

$
8.3


4

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2.     Earnings per Share

The numerators and denominators of the basic and diluted earnings per common share computations for the Company's reported net earnings available to common
stockholders were as follows (in millions except share and per share amounts):

Three month
period ended
March 28,
2004

Three month
period ended
March 30,
2003Net earnings

$
12.5

$
16.2Less: preferred dividends


0.9


1.8Net earnings available to common stockholders

$
11.6

$
14.4Weighted average number of common shares outstanding used for basic earnings per common share (in thousands)


30,769


30,769Weighted average number of potentially dilutive restricted common shares outstanding (in thousands)


3,675


288Weighted average number of common shares outstanding used for diluted earnings per common share (in thousands)


34,444


31,057Basic earnings per common share

$
0.38

$
0.47Diluted earnings per common share

$
0.34

$
0.47


3.     Stock-based Compensation

The Company accounts for its 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,Accounting for Stock-Based Compensation("SFAS 123"), as amended by SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure.

In
the first quarter of 2004, the Company sold 843,900 restricted shares of its Common Stock for a nominal amount to certain executives and a director of the Company pursuant to the
Company's Restricted Stock Purchase Program. These sales were exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) thereof or
pursuant to Rule 701 promulgated thereunder. These shares are subject to restrictions, including those on voting rights, transfers, sales and other matters, and are subject to repurchase by the
Company under certain circumstances. The intrinsic value, based on the estimated fair value, of these shares at the time of sale of $4.7 million was recorded by the Company as deferred
compensation in common stockholders' equity.

Concurrent
with the sale of the restricted stock in the first quarter of 2004, the Company purchased 170,901 shares of the newly issued restricted stock for $1.0 million. The
Company did not pay the purchase price to the participants but instead will use the purchase price of these shares to pay a portion of the plan participants' income tax liability on these restricted
stock awards. In addition, the Company awarded a bonus of $1.1 million in the first quarter of 2004 to the plan participants that will be used to pay most of the participants' remaining income
tax liability associated with these restricted stock grants. The bonus was recorded in general and administrative expenses in the first quarter of 2004. The deferred compensation of

5

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$1.0 million
related to the shares repurchased was recognized as a non-cash expense in general and administrative expenses in the first quarter of 2004. The remainder of the
deferred compensation related to the new restricted stock awards will be recognized as a non-cash expense in general and administrative expenses on a straight line basis over the four year
vesting period for these shares beginning with an expense of $0.6 million in the first quarter of 2004.

In
the first quarter of 2003, the Company sold 2,855,390 shares of its Common Stock for a nominal amount to certain executives and directors pursuant to the Company's Restricted Stock
Purchase Program. These sales were exempt from registration under the Securities Act pursuant to Section 4(2) thereof or pursuant to Rule 701 promulgated thereunder. These shares are
subject to restrictions, including those on voting rights, transfers, sales and other matters, and are subject to repurchase by the Company under certain circumstances. The intrinsic value, based on
the estimated fair value, of these shares at the time of sale of $0.3 million was recorded by the Company as deferred compensation in common stockholders' equity and is being recognized in
general and administrative expense on a straight line basis over the four year vesting period for these shares.

In
the first quarter of 2004, the Company adopted the 2004 Stock Option Plan under which directors, executives and key employees may be granted options to purchase shares of the
Company's Common Stock. A total of 915,735 shares of the Company's Common Stock has been authorized for issuance under the 2004 Stock Option Plan. Once purchased, these shares of Common Stock would be
subject to restrictions, including those on voting rights, transfers, sales and other matters, and would be subject to repurchase by the Company under certain circumstances. In the first quarter of
2004, the Company granted a total of 452,901 stock options to certain executives and a director with an exercise price equal to the estimated fair value of the Company's Common Stock on the grant
date. These options have a term of ten years from the date of grant and 25% of the options vest one year after the date specified in the grant (which in some cases is prior to the grant date) and
12.5% vest every six months thereafter over the following three year period.

If
compensation cost for the Company's stock option awards had been determined based on the fair value at grant date for awards under the plans consistent with SFAS 123, the
Company's net earnings and

6

---



basic
and diluted earnings per common share, based on net earnings available to common stockholders, would have been changed to the pro forma amounts as follows (in millions except per share data):

Three month
period ended
March 28,
2004

Three month
period ended
March 30,
2003Net earnings, as reported

$
12.5

$
16.2Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effect


1.3


Less: Stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects


(1.4
)

Pro forma net earnings


12.4


16.2Less: Preferred dividends


0.9


1.8Pro forma net earnings available to common stockholders

$
11.5

$
14.4Basic earnings per share:As reported

$
0.38

$
0.47Pro forma

$
0.37

$
0.47Diluted earnings per share:As reported

$
0.34

$
0.47Pro forma

$
0.33

$
0.47


The
fair value of each of the Company's stock option grants was estimated on the grant date using the Minimum Value Method with the following weighted average assumptions:

Dividend yield

Risk free interest rate

4.4%Expected option life

10 years


A
summary of the Company's fixed stock option awards as of March 28, 2004 and the changes for the period from January 1 to March 28, 2004 is presented below:

Number of
Stock Options

Weighted-Average
Exercise Price(in thousands)Outstanding at January 1, 2004




Granted

453

$
5.59Exercised




Forfeited




Outstanding at March 28, 2004

453

$
5.59


None
of the Company's fixed stock option awards outstanding at March 28, 2004 were exercisable.

7

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4.     Short-term Debt

At March 28, 2004, the Company had no outstanding short-term debt under its $100 million credit facility (the "Credit Agreement"). In
the first quarter of 2003, the Company repaid $2.5 million of the outstanding balance under the term loan provision of its Credit Agreement.

5.     Comprehensive Income

The Company's total comprehensive income for the three month periods ended March 28, 2004 and March 30, 2003 were as follows (in millions):

Three month
period ended
March 28,
2004

Three month
period ended
March 30,
2003Net earnings

$
12.5

$
16.2Other comprehensive income/(loss):Change in unrealized gains and (losses) on available for sale securities


(0.1
)

Change in cumulative translation adjustment


(1.3
)

2.0Total comprehensive income

$
11.1

$
18.2


Accumulated
other comprehensive income as of March 28, 2004, consisted of foreign currency translation adjustments of $15.7 million offset by an unrealized loss on
available for sale securities of $0.1 million. Accumulated other comprehensive income as of December 31, 2003 consisted of unrealized foreign currency translation adjustments of
$17.0 million. There were no tax effects associated with the amounts recorded in accumulated other comprehensive income at March 28, 2004 or December 31, 2003.

6.     Business Segments

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 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.

8

---





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.

The
following is a summary of information related to the Company's business segments (in millions):

Three month
period ended
March 28,
2004

Three month
period ended
March 30,
2003Net sales to customers:Americas Region

$
85.7

$
101.1International Region


59.1


58.8Global Manufacturing





R&D





All Other


26.7


23.1Segment net sales to customers


171.5


183.0Corporate





Total net sales to customers

$
171.5

$
183.0


Three month
period ended
March 28,
2004

Three month
period ended
March 30,
2003Profit/(loss) from operations:Americas Region

$
30.6

$
32.5International Region


16.6


10.5Global Manufacturing


(7.4
)

0.2R&D


(9.5
)

(7.3
)All Other


9.2


5.8Segment profit from operations


39.5


41.7Corporate


(23.8
)

(18.8
)Total profit from operations

$
15.7

$
22.9


7.     Restructuring Charges

In the first three months of 2004, the Company recorded restructuring charges of $1.0 million. These charges were recorded in the non-segment
Corporate category and represented charges for involuntary severance programs intended to downsize and consolidate certain sales and marketing operations, primarily in the International Region,
certain operations in Global Manufacturing and certain non-segment Corporate operations. These reductions were intended to further reduce the Company's cost of manufacturing and its
overhead costs.

9

---



The
following table summarizes the Company's reserves established for restructuring severance programs and the related cash charges for the three month period ended March 28, 2004
(in millions):

Balance at December 31, 2003

$
2.5Restructuring charges


1.0Cash payments


(1.8
)Balance at March 28, 2004

$
1.7


In
the first three months of 2003, the Company recorded restructuring charges of $0.5 million. These charges were recorded in the non-segment Corporate category and
represented charges for involuntary severance programs intended to downsize and consolidate certain sales and marketing operations, primarily in the Americas Region, certain operations in Global
Manufacturing and certain non-segment Corporate operations. These reductions were intended to further reduce the Company's cost of manufacturing and its overhead costs.

The
following table summarizes the Company's reserves established for restructuring at December 31, 2003 and the related cash and non-cash charges for the three month
period ended March 30, 2003 (in millions):

Severance

Exit Costs

TotalBalance at December 31, 2002

$
8.6

$
0.2

$
8.8Restructuring charges


0.5





0.5Cash payments


(4.9
)

(0.1
)

(5.0
)Non-cash charges





(0.1
)

(0.1
)Balance at March 30, 2003

$
4.2




$
4.2


8.     Income Taxes

The Company's effective income tax rate was 15% for the three month period ended March 28, 2004 and 34% for the three month period ended March 30,
2003. The Company's effective tax rate in the first quarter of 2004 differed from the United States federal statutory rate of 35% primarily due to the use of income tax benefits from certain of the
Company's foreign operations.

9.     Pension Plans

The components of the Company's net periodic pension expense for its manufacturing subsidiaries in the United Kingdom and the Netherlands with trusteed,
contributory defined benefit pension plans for the three month periods ended March 28, 2004 and March 30, 2003 were as follows (in millions):

Three month
period ended
March 28,
2004

Three month
period ended
March 30,
2003Service cost

$
1.7

$
1.5Interest cost


4.1


3.7Expected return on assets


(4.8
)

(4.3
)Net periodic pension cost

$
1.0

$
0.9


10

---



The
Company expects to contribute a total of approximately $6.6 million to these pension plans in fiscal 2004. As of March 28, 2004, approximately $1.5 million of
cash contributions have been made to these pension plans. Therefore, the Company expects to make $5.1 million of additional cash contributions to fund these pension plans during the remainder of
fiscal 2004.

10.   New Accounting Standards

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.

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 impact on the Company's financial position or results of operations.

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 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 adopted the provisions of FIN 46R in the first quarter of 2004 and this adoption did not have a material impact on its financial position
or results of operations.

11

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11.   Common Stockholder's Equity

As of March 28, 2004, the Company had authorized 50,000,000 shares of Common Stock with a par value of $0.001 per share (the "Common Stock"), of which
35,124,794 shares were issued and outstanding. In the first quarter of 2004, the Company repurchased 170,901 shares of its restricted Common Stock (see Note 3) for $1.0 million and
recorded this repurchase as treasury stock.

12.   Legal Proceedings

On December 1, 2003, Primary PDC, Inc. ("Primary") filed a motion (the "Estate Costs Motion") in the U.S. Bankruptcy Court for the District of
Delaware (the "U.S. Bankruptcy Court") seeking to compel the Company to satisfy its purported obligation under the asset purchase agreement between the Company and Primary to pay $7.0 million
of estate costs to Primary. On December 9, 2003, the Company filed an objection to the relief requested in the Estate Costs Motion on the basis that the conditions giving rise to the Company's
alleged obligations under the asset purchase agreement to provide $7.0 million were not satisfied. By orders entered on December 29, 2003 and on December 31, 2003 (collectively
the "Estate Cost Orders"), the U.S. Bankruptcy Court granted the Estate Costs Motion, and directed the Company to fund the $7.0 million in estate costs.

The
Company filed a notice on February 6, 2004 appealing the U.S. Bankruptcy Court's approval of the Estate Costs Motion (the "Appeal"). In connection with the Appeal, the Company
was required to post a $7.5 million bond and provide cash collateral equal to that amount. The Company posted this bond in January 2004. The Company had accrued $7.0 million for
its potential liability for the estate costs as of December 31, 2003. The cash payment by the Company to collateralize the bond in January 2004 was recorded in other current assets.

After
the U.S. Bankruptcy Court granted (at the Company's request) a temporary stay of the Estate Cost Orders, the Company filed an emergency motion for a continued stay (the "Stay
Motion") in the U.S. District Court for the District of Delaware (the "U.S. District Court"). By order dated March 15, 2004, the U.S. District Court granted the Stay Motion, such that the
Estate Cost Orders have been stayed until a decision on the Appeal. The Appeal remains pending as of the date of this report on Form 10-Q.

13.   Subsequent Event

In April 2004, the Company paid a dividend of $1.4 million on its Series A 8% Cumulative Compounding Preferred Stock (the "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.

14.   Independent Accountants' Review Report

The consolidated financial statements of the Company for the three month periods ended March 28, 2004 and March 30, 2003 have been reviewed by KPMG
LLP, independent certified public accountants, in accordance with established professional standards and procedures for such review. The report by KPMG LLP commenting upon their review of the
consolidated financial statements for these periods appears on the following page.

12

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INDEPENDENT ACCOUNTANTS' REVIEW REPORT

The
Board of Directors and Shareholders
Polaroid Holding Company and Subsidiary Companies

We
have reviewed the accompanying consolidated balance sheet of Polaroid Holding Company and Subsidiary Companies as of March 28, 2004 and the related consolidated statements of
earnings and cash flows for the three month periods ended March 28, 2004 and March 30, 2003. These consolidated financial statements are the responsibility of the Company's management.

We
conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists
principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based
on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with
accounting principles generally accepted in the United States of America.

We
have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Polaroid Holding Company and
Subsidiary Companies as of December 31, 2003, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended (not presented herein); and in
our report dated February 4, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated
balance sheet as of
December 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

KPMG
LLP
Boston, Massachusetts
April 30, 2004

13

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 of the Company's Annual
Report for the fiscal year ended December 31, 2003 filed with the SEC on Form 10-K on April 14, 2004 (the "Form 10-K"). The Registrant assumes no
obligation to update forward-looking statements whether as a result of new information, future events or otherwise.

Background

The following information should be read in conjunction with the information on the Company in Part I Item 1.Financial
Statementsand in conjunction with the Form 10-K. As noted therein, the Company's Form 10-K for the fiscal year ended December 31,
2003 does not contain all of the financial information that is required by the rules and regulations applicable to such report, and the absence of such information could be material to investors. The
information on the Company's results of operations for any interim period, including the information presented below, is not necessarily indicative of the results of the Company's operations for the
entire year.

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 also
performs contract manufacturing for and licenses its brand and technology to third parties.

In
the second quarter of 2004, the Company made a decision to discontinue test marketing instant digital printing kiosks and does not plan to commercialize this product in the future.
The Company believes that this decision will not have a material adverse impact on its financial condition or results of operations. The Company continues to design and develop digital printing
applications that may be suitable for home, retail, commercial and mobile markets and to develop products and solutions that print digital images quickly, conveniently and affordably. The Company has
made and continues to make a significant investment in instant digital printing; however, there can be no assurance that any of these products will be commercialized.

Overview of First Quarter of 2004 Results

The Company's net sales in the first quarter of 2004 were $172 million, which includes a favorable impact from foreign exchange of approximately
$7 million. In the first quarter of 2004, the Company incurred $1 million of restructuring expenses and its non-standard manufacturing costs and its sales and marketing
expenses included a total of approximately $10 million from the unfavorable impact of foreign exchange. Profit from operations in the first quarter of 2004 was $16 million. The Company's
net earnings in the first quarter of 2004 were $13 million, or $0.34 per common share on a diluted basis for net earnings available to common stockholders.

14

---



During
the first quarter of 2004, the Company's net cash used by operating activities was $43 million, primarily related to the payment of incentive compensation liabilities
incurred in 2003 and other payables and accruals. At March 28, 2004, the Company had cash and cash equivalents of $121 million and no outstanding debt, compared to cash and cash
equivalents of approximately $167 million and no outstanding debt at December 31, 2003.

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. The Company's net
sales of instant film and camera products, excluding the favorable impact of foreign exchange, declined by approximately 13% in the first quarter of 2004 compared to the first quarter of 2003. 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. However, the rate of decline of the Company's net sales
of instant cameras and film 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.

Recent Development

In April 2004, the Company paid a dividend of $1.4 million on its outstanding 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.

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 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.

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.

15

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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 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

16

---



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.

Stock-Based Compensation

The Company has granted certain of its directors and executives shares of restricted Common Stock and options to purchase shares of the Company Common Stock. The
purchase price of the restricted Common Stock was nominal and the exercise price of the options was equal to the estimated fair value of the underlying stock on the date of grant. To record and
disclose the cost of these grants for financial reporting, the Company must make estimates and judgments to arrive at the estimated fair value of its Common Stock. In connection with determining the
estimated fair value of its Common Stock in the first quarter of 2004, the Company obtained a valuation of its Common Stock from a third party advisor, since there was no market for shares of its
Common Stock. This valuation was based on a number of factors including: assumptions made by the Company and its third party advisor; the Company's historical and forecasted operating results and cash
flows; comparisons to certain publicly-held companies; and the lack of marketability of the Common Stock. Such valuations are inherently highly uncertain and subjective. If the Company
were to make different assumptions, the amount of its deferred compensation, its stock-based compensation expense and net earnings could be significantly different. For its restricted stock awards in
the first quarter of 2003, the Company based its estimate of the fair value of those awards on the valuation of its Common Stock as of the date of the asset purchase from Primary PDC, Inc.
("Primary"). If a market for the Company's Common Stock is established, the cost of any new restricted stock awards may increase or decrease and this would have a negative or positive impact on the
Company's stock-based compensation expense and net earnings.

17

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Consolidated Worldwide Results for First Quarter of 2004 Compared to First Quarter of 2003

The following table presents selected financial information regarding the Company's results of operations for the three month periods ended March 28, 2004
and March 30, 2003. This table is presented for use in the discussion of operating results for the first quarter of 2004 compared to the first quarter of 2003 below. The results for these
periods are as follows (in millions, except for percentages):

Three month
period ended
March 28,
2004

Three month
period ended
March 30,
2003Net sales

$
172

$
183Cost of goods sold


88


92Gross margin


84


91% of Net sales


49
%

50
%Marketing, research, engineering and administrative expenses


67


67Restructuring charges


1


1Profit from operations


16


23Other income, net





3Interest expense


(1
)

(1
)Earnings before income tax expense


15


25Federal, state and foreign income tax expense


2


9Net earnings

$
13

$
16


The
Company's consolidated net sales and gross margin for the first quarter of 2004 compared to the first quarter of 2003 were as follows (dollars in millions):

Q1
2004

Q1
2003Net sales

$
172

$
183Gross margin


84


91% of Net sales


49
%

50
%


In
the first quarter of 2004 compared to the same period of 2003, the Company's consolidated net sales decreased by $11 million, or approximately 6%, primarily related to lower
net sales of instant film and, to a lesser degree, instant cameras. These decreases were offset, in part, by approximately $7 million from the favorable impact of foreign exchange and a
$3 million increase in the Company's licensing operations. Excluding the favorable impact of foreign exchange, the Company's net sales of instant film and cameras decreased by approximately 13%
in the first quarter of 2004 compared to the same period
of 2003. The net sales of instant film and cameras in the first quarter of 2004 were negatively impacted by competition from digital camera products and media formats.

The
Company had a gross margin of 49% in the first quarter of 2004 compared to a gross margin of 50% in the first quarter of 2003. The decrease was primarily the result of: higher
non-standard manufacturing costs, including the net impact of foreign exchange, in the first quarter of 2004 compared to the same period in 2003, which decreased the margin by
approximately two percentage points; offset, in part, by the impact of higher licensing revenues in the first quarter of 2004, which increased margin by approximately one percentage point.

The
Company's marketing, research, engineering and administrative expenses, excluding R&D segment expenses of $10 million in the first quarter of 2004 and $7 million in the
same period in 2003

18

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("SG&A
expenses"), were approximately $57 million and approximately $60 million for the first quarters of 2004 and 2003, respectively. The decrease of $3 million in SG&A expenses
in the first quarter of 2004 compared to the same period in 2003 reflects a reduction of approximately $9 million in regional sales and marketing expenses to approximately $28 million in
the first quarter of 2004 from approximately $37 million in the same period in 2003, due to the favorable impact of restructuring programs and lower advertising expenses. The decrease in SG&A
expenses also reflects approximately $4 million of lower costs in the non-segment Corporate category for employee incentive compensation in the first quarter of 2004 compared to the
same period in 2003. These reductions were offset, in part, by approximately $5 million of planned increases in certain non-segment Corporate category marketing expenses related to
new products as well as in certain infrastructure costs, the cost of approximately $3 million related to new stock incentive awards in the non-segment Corporate category and
approximately $2 million from the unfavorable impact of foreign exchange on sales and marketing expenses in the first quarter of 2004. 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 first quarter of both 2004 and 2003, the Company recognized restructuring and other charges of approximately $1 million, respectively. The charges in both the first
quarters of 2004 and 2003 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 7 of the consolidated financial statements contained in Part I Item 1. Financial Statementsfor more information on the
Company's restructuring programs.

The
gross margin and expenses discussed above resulted in profit from operations of $16 million in the first quarter of 2004 compared to a profit from operations of
$23 million in the first quarter of 2003. The net of other income and expense in the first quarter of 2004 was approximately zero compared to $3 million of net other income in the first
quarter of 2003. Other income in the first quarter of 2003 primarily consisted of a distribution from a real estate investment and recovery of an overfunded amount from a non-U.S. pension
plan of a subsidiary that ceased operations.

The
Company's income tax expense was $2 million, or 15%, on reported earnings before income taxes of $15 million in the first quarter of 2004 compared to an income tax
expense of $9 million, or 34%, on reported earnings before income taxes of $25 million in the first quarter of 2003. The decrease in the Company's effective tax rate in the first quarter
of 2004 was primarily related to the use of tax benefits from certain of the Company's foreign operations.

In
the first quarter of 2004 the Company's net earnings were $13 million compared to net earnings of $16 million in the first quarter of 2003. Basic and diluted earnings
per common share based on earnings available to common stockholders were $0.38 and $0.34, respectively, in the first quarter of 2004, and $0.47 for both basic and diluted earnings per common share
based on earnings available to common stockholders in the first quarter of 2003.

19

---





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

Three month
period ended
March 28,
2004

Three month
period ended
March 30,
2003Net sales to customers:Americas Region

$
86

$
101International Region


59


59Global Manufacturing





R&D





All Other


27


23Subtotal Segments


172


183Corporate





Total

$
172

$
183Profit/(loss) from operations:Americas Region

$
31

$
32International Region


17


11Global Manufacturing


(7
)

R&D


(10
)

(7
)All Other


9


6Subtotal Segments


40


42Corporate


(24
)

(19
)Total

$
16

$
23


Americas Region

The net sales and profit from operations for the Americas Region for the first quarter of 2004 and 2003 were as follows (in millions):

Q1
2004

Q1
2003Net sales

$
86

$
101Profit from operations


31


32


Net
sales in the Americas Region decreased by $15 million, or approximately 15%, in the first quarter of 2004 compared to the same period in 2003, primarily due to lower net sales
of instant film and, to a lesser degree, instant cameras. Competition from digital camera products and media formats negatively impacted the Company's net sales in the first quarter of 2004.

Profit
from operations in the Americas Region for the first quarter of 2004 was $31 million compared to a profit from operations of $32 million in the same period of 2003.
The decrease of $1 million was primarily related to the impact of the lower net sales in the first quarter of 2004, offset, in part, by lower selling and administrative expenses, primarily due
to lower advertising costs and savings from restructuring.

20

---



International Region

The net sales and profit from operations for the International Region for the first quarter of 2004 and 2003 were as follows (in millions):

Q1
2004

Q1
2003Net sales

$
59

$
59Profit from operations


17


11


Net
sales in the International Region were $59 million in the first quarter of both 2004 and 2003. The net sales in the International Region in the first quarter of 2004 included
approximately $6 million from the favorable impact of foreign exchange, offset by lower net sales of instant film and, to a lesser degree, instant cameras. Excluding the favorable impact of
foreign exchange, the net sales in the International Region decreased by approximately 10% in the first quarter of 2004 compared to the same period in 2003. The net sales in this Region in the first
quarter of 2004 were negatively impacted by competition from digital camera products and media formats.

Profit
from operations in the International Region was $17 million in the first quarter of 2004 compared to $11 million in the same period in 2003. The increase of
$6 million primarily reflected the impact of lower selling and administrative expenses in the first quarter of 2004, primarily due to savings from restructuring and lower advertising costs, and
the favorable impact of foreign exchange. These increases were offset, in part, by the impact of the lower net sales in the first quarter of 2004 compared to the same period 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 were $7 million in the first quarter of 2004 compared to
a net of zero in the first quarter of 2003. The net increase of $7 million in manufacturing non-standard costs in the first quarter of 2004 compared to the same period in 2003
primarily related to an unfavorable increase of approximately $4 million in foreign exchange variances in the first quarter of 2004 and certain favorable non-standard costs,
primarily related to inventory valuation adjustments, in the first quarter of 2003 that did not occur in the first quarter of 2004.

R&D

R&D segment expenses were $10 million in the first quarter of 2004 compared to $7 million in the same period in 2003. The increase of
$3 million primarily related to planned increases in the Company's instant digital printing activities in the first quarter of 2004. 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.

All Other

Net sales in the All Other segment increased by $4 million, or approximately 17%, to $27 million in the first quarter of 2004 compared to
$23 million in the same period in 2003. This increase was related to an increase in the net sales of the Company's licensing operations, primarily related to third party sales of licensed
products, as well as an increase in the net sales of the Company's eyewear business, including the favorable impact of approximately $1 million of foreign exchange. These increases were offset,
in part, by a reduction in revenues from the Company's third party contract manufacturing operations in the first quarter of 2004 compared to the same period in 2003.

21

---



Profit
from operations in the All Other segment increased by $3 million to $9 million in the first quarter of 2004 compared to $6 million in the same period in 2003.
The increase in profit from operations in the first quarter of 2004 primarily reflects the impact of the increase in licensing and eyewear net sales, including the favorable impact of approximately
$1 million of foreign exchange, offset, in part, by the impact of the decrease in the net sales related to 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 the first quarter of 2004 and 2003 follows (in millions):

Q1
2004Net cash used by operating activities

$
(43
)Net cash used by investing activities


(2
)Net cash used by financing activities


(1
)Effect of exchange rate changes on cash


Net decrease in cash and cash equivalents

$
(46
)


The
Company's cash and cash equivalents were $121 million at March 28, 2004, a decrease of $46 million from $167 million at December 31, 2003. In the
first quarter of 2004, net cash used by the Company's operating activities was $43 million. Net earnings in the first quarter of 2004, adjusted for non-cash items (such as
depreciation and other non-cash items) contributed approximately $14 million to cash flow from operating activities. An increase in receivables, inventories, and prepaids and other
assets in the first quarter of 2004 decreased cash flows from operating activities by $22 million. A decrease in payables and accruals, and compensation and benefits payable also decreased cash
flows from operating activities by approximately $35 million in the first quarter of 2004.

Net
cash used by the Company for investing activities in the first quarter of 2004 was $2 million, primarily related to capital spending of $5 million offset, in part, by a
decrease in other assets. In the first quarter of 2004, capital spending related to: facilities and equipment upgrades in Global Manufacturing; the acquisition of land adjacent to the Company's
headquarters in Waltham, Massachusetts; and spending in support of new products. The decrease in other assets in the first quarter of 2004 of approximately $3 million primarily related to the
use of deposits related to the pre-tax proceeds from the sale of certain of the Company's held for sale assets that were used to acquire land in Waltham, Massachusetts.

The
net cash used by the Company's financing activities in the first quarter of 2004 was $1 million. This use was related to the purchase of shares of the Company's restricted
Common Stock from certain executives and a director who were granted an award of restricted Common Stock in the first quarter of 2004. The Company will retain the amount of the purchase price of these
shares to pay a portion of
the plan participants' estimated income tax withholding liability on the restricted Common Stock they acquired in the first quarter of 2004.

The
Company's working capital was $252 million at March 28, 2004 compared to $242 million at December 31, 2003.

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.

22

---



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 tied to a percentage of eligible domestic and foreign inventory and accounts receivable.
Approximately $38 million was available to the Company under the revolving line of credit at March 28, 2004. There were no borrowings by the Company under the revolving line of credit in
the first quarter of 2004 or 2003.

The
Credit Agreement contains certain restrictive covenants. In 2003, the Credit Agreement was amended 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 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. In April 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 and the approval of the lenders under the Company's Credit Agreement. After giving effect to the redemption
of the Preferred Stock and the payment of dividends thereon in April 2004, approximately
$22 million remained in the discretionary basket. The Company was in compliance with all of its requirements under the Credit Agreement as of March 28, 2004.

Under
the Company's asset purchase agreement with Primary, the Company is required to reimburse Primary for certain costs incurred by Primary, if certain conditions are met. As of
December 31, 2003, the Company had recorded liabilities of $7 million for these costs and cash collateralized the $7 million of liabilities for these costs in the first quarter of
2004. Refer to Note 12 to the Company's consolidated financial statements contained in Part I Item 1.Financial Statementsand in
Part II Item 1.Legal Proceedingsfor more information on the Company's legal proceedings relative to its purported obligation for estate costs
under the asset purchase agreement with Primary.

Also,
under the provisions of the asset purchase agreement with Primary, if Primary incurs in excess of certain amounts for estate costs and does not have the funds necessary to pay for
them, it has the right to require the Company to purchase from it up to 4% of the total shares of Common and Preferred Stock of the Company outstanding at the date of the asset purchase from Primary
for up to $4.5 million.

The
Company believes it will have sufficient financial resources, primarily from its cash flow from operations as well as from other available sources of liquidity, to meet its business
requirements for the next twelve months.

New Accounting Standards

Refer to Note 10 to the Company's consolidated financial statements contained in Part I Item 1.Financial
Statementsfor 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk that affect the Company, see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk,"
in the Company's Annual Report on

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Form 10-K
for the fiscal year ended December 31, 2003, which is incorporated herein by reference. The Company's exposure to market risk has not changed materially since
December 31, 2003.

Item 4. 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 Financial Officer. Based on the Company's evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of
March 28, 2004, 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 period 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 three month period ended March 28, 2004 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

On December 1, 2003, Primary filed a motion (the "Estate Costs Motion") in the U.S. Bankruptcy Court for the District of Delaware (the "U.S. Bankruptcy
Court") seeking to compel the Company to satisfy its purported obligation under the asset purchase agreement between the Company and Primary to pay $7.0 million of estate costs to Primary. On
December 9, 2003, the Company filed an objection to the relief requested in the Estate Costs Motion on the basis that the conditions giving rise to the Company's alleged obligations under the
asset purchase agreement to provide $7.0 million were not satisfied. By orders entered on December 29, 2003 and on December 31, 2003 (collectively the "Estate Cost Orders"), the
U.S. Bankruptcy Court granted the Estate Costs Motion, and directed the Company to fund the $7.0 million in estate costs.

The
Company filed a notice on February 6, 2004 appealing the U.S. Bankruptcy Court's approval of the Estate Costs Motion (the "Appeal"). In connection with the Appeal, the Company
was required to post a $7.5 million bond and provide cash collateral equal to that amount. The Company posted this bond in January 2004. The Company had accrued $7.0 million for
its potential liability for the estate costs as of December 31, 2003. The cash payment by the Company to collateralize the bond in January 2004 was recorded in other current assets.

After
the U.S. Bankruptcy Court granted (at the Company's request) a temporary stay of the Estate Cost Orders, the Company filed an emergency motion for a continued stay (the "Stay
Motion") in the U.S. District Court for the District of Delaware (the "U.S. District Court"). By order dated March 15, 2004, the U.S. District Court granted the Stay Motion, such that the
Estate Cost Orders have been stayed until a decision on the Appeal. The Appeal remains pending as of the date of this report on Form 10-Q.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

In March 2004, the Company sold 843,900 shares of its Common Stock to seven executives and one director pursuant to the Company's Restricted Stock Purchase
Program for an aggregate price of $843.90. These sales were exempt from registration under the Securities Act pursuant to Section 4(2) thereof or pursuant to Rule 701 promulgated
thereunder. To cover a portion of the participants' withholding income tax obligation, the Company repurchased a portion of the participants' awards. A summary of the purchases is set forth below:

ISSUER PURCHASES OF EQUITY SECURITIES

Period

Type of Security

Total Number of
Shares Purchased

Aggregate
Purchase PriceMarch 2004

Common Stock

170,901

$
955,337


Item 3. Defaults Upon Senior Securities

None

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

The annual meeting of shareholders was held on March 30, 2004.

The
following proposals were adopted by the votes indicated:



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Name

TitleJacques A. Nasser

Director and Non-Executive ChairpersonJ. Michael Pocock

Director, Chief Executive Officer and PresidentJoseph E. Antonini

DirectorCharles F. Auster

DirectorPaolo Cantarella

DirectorWilliam J. Cosgrove

DirectorLee M. Gardner

DirectorJames W. Koven

DirectorRick A. Lazio

DirectorJoseph G. Michels

DirectorStanley P. Roth

Director




For

18,745,000Against

Abstain




Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K



|10.3(e | ) | Employment Agreement, dated April 9, 2004, between Polaroid (Italia) S.p.A. and Gianfranco Palma (filed as Exhibit 10.3(e) to the Polaroid Holding Company Annual Report on Form 10-K for the year
ended December 31, 2003, Commission File No. 000-50661, incorporated by reference herein) 
|------ | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3(g | ) | Employment Agreement, effective February 23, 2004, between Polaroid Corporation and Ira H. Parker (filed as Exhibit 10.3(g) to the Polaroid Holding Company Annual Report on Form 10-K for the year ended December 31, 2003,
Commission File No. 000-50661, incorporated by reference herein)
|31.1   |   | Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                          
|31.2   |   | Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                          
|32     |   | Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                              



No
reports on Form 8-K were filed during the period covered by this Report.

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SIGNATURE

Pursuant to the requirements of 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
|------------------ |  | ------------------------
|Date: May 11, 2004 |  | By:                     

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