UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                    FORM 10-Q
(Mark One)
       |X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934
              For the quarterly period ended September 30, 1999
                                    or
       |_|   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: 33-93464

                             DICTAPHONE CORPORATION
             (Exact Name of Registrant as Specified in its Charter)


             Delaware                                  06-0992637
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                     Identification No.)



                             3191 Broadbridge Avenue
                               Stratford, CT 06614
                                 (203) 381-7000
          (Address of principal executive offices, including zip code,
                   and telephone number, including area code)

            ---------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

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     X              NO  ____

Number of shares of Common Stock,  par value $.01 per share,  outstanding  as of
November 9, 1999: 12,934,000

The Common Stock of the registrant is not publicly traded.

<PAGE>

                             DICTAPHONE CORPORATION

                                      INDEX



                                                                        PAGE NO.
PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

       Unaudited Condensed Consolidated Statements of Operations for the
        Three Months Ended September 30, 1998 and September 30, 1999         2

        Unaudited Condensed Consolidated Statements of Operations for the
          Nine Months Ended September 30, 1998 and September 30, 1999        3

        Condensed Consolidated Balance Sheets as of  December 31, 1998
          and September 30, 1999 (Unaudited)                                 4

        Unaudited Condensed Consolidated Statements of Cash Flow for the
          Nine Months Ended September 30, 1998 and September 30, 1999        5

        Notes to Unaudited Consolidated Financial Statements                 6

ITEM 2. Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                20

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk          28


PART II.  OTHER INFORMATION

ITEM 1.      Legal Proceedings                                              28

ITEM 6.      Exhibits and Reports on Form 8-K                               28



                                       1
<PAGE>


                         PART I - FINANCIAL INFORMATION


ITEM 1.      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                             DICTAPHONE CORPORATION

           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                   Three Months          Three Months
                                                       Ended                 Ended
                                                September 30, 1998    September 30, 1999
                                                ------------------    ------------------
<S>                                               <C>                    <C>
Revenues:
     Product sales and rentals                     $   52,200            $   60,066
     Contract manufacturing sales                      11,575                10,830
     Support services                                  22,101                24,965
                                                       ------                ------
         Total revenue                                 85,876                95,861
                                                       ------                ------

Costs and expenses:

     Cost of sales, rentals and support services       45,131                51,505

     Selling and administrative                        26,776                27,877

     Amortization of intangibles                        4,679                 2,681

     Research and development                           4,898                 2,099
                                                        -----                 -----

Operating profit                                        4,392                11,699

Interest expense                                        9,913                10,029

Other expense (income) - net                              450                   (45)

(Loss) income before income taxes                      (5,971)                1,715

Income tax benefit (expense)                              587                  (832)
                                                       ------                ------

     Net (loss) income                                 (5,384)                  883

     Stock dividends on PIK Preferred Stock               782                 1,527
                                                       ------                ------

     Net loss applicable to Common Stock             $ (6,166)              $  (644)
                                                     ========               =======

</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>


                             DICTAPHONE CORPORATION

           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                        Nine Months          Nine Months
                                                           Ended                Ended
                                                    September 30, 1998   September 30, 1999
                                                    ------------------   ------------------
<S>                                                     <C>                  <C>
Revenues:
     Product sales and rentals                          $  153,419            $ 156,833
     Contract manufacturing sales                           35,067               34,078
     Support services                                       66,200               73,221
                                                        ----------            ---------
         Total revenue                                     254,686              264,132
                                                        ----------            ---------

Costs and expenses:

     Cost of sales, rentals and support services           137,100              141,257

     Selling and administrative                             82,105               79,242

     Amortization of intangibles                            20,393                9,158

     Research and development                               12,854                6,979
                                                          --------             --------

Operating profit                                             2,234               27,496

Interest expense                                            29,632               30,092

Other (income) expense - net                                  (205)                 332
                                                          --------             --------

Loss before income taxes                                   (27,193)              (2,928)

Income tax benefit (expense)                                   253               (1,753)
                                                          --------             --------
     Net loss                                              (26,940)              (4,681)

     Stock dividends on PIK Preferred Stock                  2,266                4,237
                                                          --------             --------
     Net loss applicable to Common Stock                $  (29,206)          $   (8,918)
                                                        ==========           ==========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>

                             DICTAPHONE CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                  December 31,     September 30,
                                                                                     1998             1999
                                                                                  -----------      -------------
                                                                                                    (Unaudited)
<S>                                                                                <C>             <C>
ASSETS
Current assets:
    Cash and cash equivalents                                                      $   11,727      $    8,742
    Accounts receivable, less allowances of $968 and $2,346, respectively              77,432          93,105
    Inventories                                                                        53,362          45,216
    Other current assets                                                                7,259           6,310
                                                                                   ----------      ----------
         Total current assets                                                         149,780         153,373
Property, plant and equipment, net                                                     32,425          37,177
Deferred financing costs, net of accumulated amortization of $14,246
 and $15,705, respectively                                                              9,920           8,580
Intangibles, net of accumulated amortization of $122,595 and
 $131,753 respectively                                                                206,122         196,996
Deferred tax asset                                                                     39,765          39,294
Other assets                                                                           16,315          20,980
                                                                                   ----------      ----------
         Total assets                                                              $  454,327      $  456,400
                                                                                   ==========      ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                               $    8,778      $    9,820
    Interest payable                                                                   10,067           4,089
    Accrued pension liability                                                           8,352           9,284
    Accrued liabilities                                                                31,433          34,089
    Advance billings                                                                   39,586          45,268
    Current portion of long-term debt                                                     795             789
                                                                                   ----------      ----------
         Total current liabilities                                                     99,011         103,339

Long-term debt                                                                        369,737         353,106
Other liabilities                                                                      14,141          13,387
                                                                                   ----------      ----------
         Total liabilities                                                            482,889         469,832
                                                                                   ----------      ----------
Contingencies (Note 5)
Stockholders' equity:
    Preferred stock ($.01 par value; 7,500,000 shares authorized;  2,391,500
      and 2,649,500  shares  of  14%  PIK  perpetual   preferred  stock
      issued  and outstanding, liquidation values of $23,915 and $26,495
      at December 31, 1998 and September 30, 1999, respectively)                       23,915          26,495
    Preferred stock ($.01 par value; 10,000,000 shares authorized; none
      and 2,000,000 shares of 12% Convertible PIK preferred stock issued and
      outstanding, liquidation value of $21,657 at September 30, 1999)                    ---          21,657
    Common stock ($.01 par value; 30,000,000 shares authorized; 12,934,000
      shares outstanding at December 31, 1998 and September 30, 1999)                     130             130
    Notes receivable from stockholders                                                   (741)           (741)
    Additional paid-in capital                                                        120,955         116,718
    Treasury stock, at cost                                                              (660)           (660)
    Accumulated deficit                                                              (170,417)       (175,098)
    Accumulated other comprehensive loss                                               (1,744)         (1,933)
                                                                                   ----------      ----------
         Total stockholders' equity (deficit)                                         (28,562)        (13,432)
                                                                                   ----------      ----------
         Total liabilities and stockholders' equity                                $  454,327      $  456,400
                                                                                   ==========      ==========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       4
<PAGE>

                             DICTAPHONE CORPORATION
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                     Nine Months          Nine Months
                                                                        Ended                Ended
                                                                 September 30, 1998    September 30, 1999
                                                                 ------------------    ------------------
<S>                                                                 <C>                 <C>
Operating activities:
   Net loss                                                         $  (26,940)         $   (4,681)
   Adjustments to reconcile net loss to net cash
   (used in) provided by operating activities:
      Depreciation and amortization                                     31,308              18,225
      Provision for deferred income taxes                                 (393)                453
      Changes in assets and liabilities:
        Accounts receivable                                            (11,354)            (15,682)
        Inventories                                                     (5,759)              8,126
        Other current assets                                               874                 828
        Accounts payable and accrued liabilities                       (13,240)             (1,066)
        Advance billings                                                 5,024               5,664
        Other assets and other                                          (7,867)             (8,562)
                                                                    ----------          ----------
           Net cash (used in) provided by operating activities         (28,347)              3,305
                                                                    ----------          ----------

Investing activities:
   Net investment in fixed assets                                       (5,314)             (8,457)
   Sale of building                                                     14,000                 ---
                                                                    ----------          ----------
     Net cash provided by (used in) investing activities                 8,686              (8,457)
                                                                    ----------          ----------

Financing activities:
   Sale of preferred stock                                                 ---              20,000
   Repayment under term loan facility                                   (1,800)                ---
   Borrowings under revolving credit facility                           54,000              31,000
   Repayment under revolving credit facility                           (37,000)            (47,500)
   Other                                                                (1,536)             (1,293)
                                                                    ----------          ----------
     Net cash provided by financing activities                          13,664               2,207
                                                                    ----------          ----------

Effect of exchange rate changes on cash                                    (50)                (40)
                                                                    ----------          ----------

Decrease in cash                                                        (6,047)             (2,985)

Cash and cash equivalents, beginning of period                          10,277              11,727
                                                                    ----------          ----------
Cash and cash equivalents, end of period                            $    4,230          $    8,742
                                                                    ==========          ==========

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid                                                       $   34,369          $   34,699
                                                                    ==========          ==========
Income taxes paid                                                   $      335          $      201
                                                                    ==========          ==========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       5
<PAGE>


                             DICTAPHONE CORPORATION

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                (Dollars in thousands, or as otherwise indicated)


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The condensed  consolidated  financial statements of Dictaphone Corporation
(the  "Company") are  unaudited,  as of and for the three and nine month periods
ended  September  30,  1999  and  September  30,  1998,  but in the  opinion  of
management  contain all adjustments  which are of a normal and recurring  nature
necessary to present fairly the financial position and results of operations and
cash flows for the periods presented.  These financial statements should be read
in conjunction  with the financial  statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect  the  reported  amount of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and reported  amounts of revenues and expenses  during the reporting
period. Actual results could differ from those estimates.

     COSTS AND EXPENSES.  Operating  expenses of field sales and service offices
which  represent  the cost of support  services  revenue are included in cost of
sales.

     DERIVATIVE FINANCIAL INSTRUMENTS.  The Company has only limited involvement
with  derivative  financial  instruments  and  does  not use  them  for  trading
purposes.  The Company  enters into  interest  rate swap and cap  agreements  to
reduce its  exposure to interest  rate  fluctuations.  The net gain or loss from
exchange  of  interest   payments  is  included  in  interest   expense  in  the
consolidated   financial   statements   and  interest   paid  in  the  condensed
consolidated statements of cash flow.

     ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting Standards
Board  ("FASB")  issued  Statement of Financial  Accounting  Standards  No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The
statement  requires  companies to recognize all  derivatives as either assets or
liabilities,  with the  instruments  measured at fair value.  The accounting for
changes in fair  value,  gains or losses,  depends  on the  intended  use of the
derivative  and  its  resulting  designation.  The  statement,  as  amended,  is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company will adopt SFAS 133 by January 1, 2001.  Adoption of SFAS 133 is not
currently  expected  to have a  material  impact on the  Company's  consolidated
financial statements.


                                       6
<PAGE>

2.   INVENTORIES

     Inventories consist of the following:
<TABLE>
<CAPTION>
                                                 December 31,      September 30,
                                                     1998              1999
                                                 ------------      -------------
<S>                                                <C>               <C>
      Raw materials and work in process          $   15,799        $   19,797
      Supplies and service parts                     15,376            10,825
      Finished products                              22,187            14,594
                                                 ----------        ----------
      Total inventories                          $   53,362        $   45,216
                                                 ==========        ==========
</TABLE>

3.   INTANGIBLES

     The following summarizes intangible assets, net of accumulated amortization
and  writedowns  of $122,595 and $131,753 at December 31, 1998 and September 30,
1999,  respectively.  Amortization  expense for the three and nine months  ended
September  30,  1998 was $4,679 and  $20,393,  and for the three and nine months
ended September 30, 1999 was $2,681 and $9,158, respectively.

<TABLE>
<CAPTION>
                                         December 31,             September 30,
                                             1998                     1999
                                         ------------             -------------
<S>                                       <C>                      <C>
 Goodwill                                 $  127,611               $  124,530
 Tradenames                                   71,265                   69,805
 Service contracts                             2,530                      ---
 Non-compete agreement                         2,463                    1,459
 Patents                                       2,253                    1,202
                                          ----------               ----------
                                          $  206,122               $  196,996
                                          ==========               ==========
</TABLE>


4.   INCOME TAXES

     The income tax expense for the three and nine months  ended  September  30,
1999 is $832 and $1,753, respectively. The income tax expense for both the three
and nine month periods relates to income attributable to the Company's Non-U.S.
Operations.

     The  Company  has  recorded a gross  deferred  tax asset of $101.6  million
reflecting the benefit of net operating loss  carryforwards and various book tax
temporary  differences.  The net operating loss  carryforward for federal income
tax purposes as of September 30, 1999 is $137.0 million,  of which $13.7 million
of the net  operating  loss  carryforward  will  expire in the year 2010,  $33.2
million  will  expire in the year 2011,  $40.0  million  will expire in the year
2012,  $35.7  million will expire in the year 2018 and $14.4 million will expire
in the year 2020. In order to fully realize the deferred tax asset,  the Company
will need to generate  future  taxable  income  prior to  expiration  of the net
operating  loss  carryforwards.  In 1997,  the Company  established  a valuation
allowance of $24.1  million  against the deferred  tax asset.  During 1998,  the
Company  increased its valuation  allowance by $20.8  million.  During the first
nine months of 1999,  the Company  increased  its  valuation  allowance  by $2.6
million resulting in a deferred tax asset of $54.1 million. Including a deferred
tax  liability of $14.8  million,  the net  deferred tax asset at September  30,
1999,  totalled $39.3  million.  Management  believes,  based upon the Company's
history  of  prior  operating  results,  its  current  circumstances,   and  its
expectations for the future, that taxable income of the Company will more likely

                                       7
<PAGE>

4.   INCOME TAXES (Continued)

than not be  sufficient to fully utilize the deferred tax asset of $54.1 million
recorded at September 30, 1999, prior to expiration.  The amount of the deferred
tax asset  considered  realizable,  however,  could be reduced if  estimates  of
future  taxable  income during the net operating  loss  carryforward  period are
reduced.

5.   CONTINGENCIES AND CONCENTRATIONS OF RISK

     Concentrations of Risks

     A substantial  portion of the Company's  revenues are derived from the sale
of  products  manufactured  at the  Company's  manufacturing  facility  which is
located in Melbourne,  Florida.  This  manufacturing  facility is subject to the
normal hazards of any such facility that could result in damage to the facility.
Any such damage to this  facility or prolonged  delay in the  operations of this
facility for repairs or other reason would have a materially  adverse  effect on
the Company's financial position and results of operations.

     Contingencies

     On February 14, 1995, Pitney Bowes, Inc. ("Pitney Bowes") filed a complaint
against Sudbury  Systems,  Inc.  ("Sudbury") in the United States District court
for the District of Connecticut alleging  intentional and wrongful  interference
with Pitney Bowes's plans to sell the Company. The complaint seeks damages and a
declaratory  judgment  relating  to the  validity  of a patent  owned by Sudbury
entitled "Rapid  Simultaneous  Multiple Access Information Storage and Retrieval
System" and the alleged infringement  thereof by the Company.  Sudbury responded
by  answering  the  complaint  and filing a  third-party  complaint  against the
Company  alleging  patent  infringement  and seeking  preliminary  and permanent
injunctive relief and treble damages. Sudbury's patent expired in April 1998. As
a  result,  injunctive  relief  is no  longer  available  to  Sudbury.  Pretrial
proceedings,   including  claim   construction   and  dispositive   motions  are
continuing. A trial date in 2000 is likely.

     Management  believes  the  Company has  meritorious  defenses to the claims
against it. Consequently,  the Company has not provided for any loss exposure in
connection with this complaint. Additionally,  regardless of the outcome of this
litigation,  Pitney Bowes has agreed to defend this action and to indemnify  the
Company for any liabilities arising from such litigation.

     The  Company is subject to  federal,  state and local laws and  regulations
concerning the  environment  and is currently  participating  in  administrative
proceedings as a participant in a group of  potentially  responsible  parties in
connection  with two third party disposal  sites.  These  proceedings are in the
preliminary  stage,  and it is currently  impossible to reasonably  estimate the
potential costs of remediation,  the timing and extent of remedial actions which
may be required by governmental authorities, and the amount of the liability, if
any,  of the  Company  alone or in  relation  to that of any  other  responsible
parties.  When it is possible  to make a  reasonable  estimate of the  Company's
liability  with  respect  to  such  a  matter,  a  provision  will  be  made  as
appropriate.  Additionally,  the Company has settled and paid its  liability  at
three other third party disposal  sites.  At a fourth site, the Company has paid
approximately  $11 thousand for its share of the costs of the first phase of the
clean up of the site and management  believes that it has no continuing material
liability for any later phases of the cleanup. Consequently, management believes
that its future  liability,  if any,  for these four sites is not  material.  In
addition,  regardless of the outcome of such matters, Pitney Bowes has agreed to
indemnify the Company in connection with retained environmental  liabilities and


                                       8
<PAGE>

5.   CONTINGENCIES AND CONCENTRATIONS OF RISK (Continued)

     Contingencies (cont.)

for breaches of the  environmental  representations  and warranties in the Stock
and Asset Purchase Agreement,  originally executed on April 25, 1995 and amended
August 11, 1995  between  Dictaphone  Acquisition  Corporation  and Pitney Bowes
subject to certain limitations.

     In  July,  1999,  Bruce  Hilt  d/b/a  Integrated  Resources,  Inc.  filed a
complaint in the Middle District of Alabama against the Company and Pitney Bowes
Credit Corporation.  Plaintiff commenced this action in Alabama State Court as a
purported  class  action  for  similarly  situated  persons  within the State of
Alabama.  Plaintiff  alleges that the Company's  recording system he leases from
Pitney Bowes Credit Corporation is not Y2K compliant and will not function after
December 31, 1999.  The  complaint  seeks damages of less than $74,000 per class
member and  alleges  that there are  hundreds of  potential  class  members.  In
August,  1999, the Company and Pitney Bowes removed the action to Federal Court,
in part based on the new Federal Y2K Act, 15 U.S.C.  ss. 6601, et seq. (the "Y2K
Act").  Plaintiff has filed a motion to remand the case to State Court, which is
fully briefed and before the Court.

     Plaintiff to date has not moved to certify the case as a class  action.  In
October,  1999,  the  Company  and Pitney  Bowes  filed a motion to dismiss  the
action. Plaintiff has not yet responded to the motion to dismiss, and no hearing
date has been set by the Court.

     The Company intends to continue to vigorously defend this action.  Although
the litigation is in its preliminary  stages,  the Company  believes that it has
meritorious defenses to this case, especially in light of a remedy that has been
offered to plaintiff, and does not believe that a class should be certified.

     The  Company  is a  defendant  in  a  number  of  additional  lawsuits  and
administrative  proceedings,  none of which will, in the opinion of  management,
have a material adverse effect on the Company's  consolidated financial position
or results of operations.

     The  Company  does  not  believe  that  the  ultimate   resolution  of  the
litigation, administrative proceedings and environmental matters described above
in  the  aggregate  will  have  a  material  adverse  effect  on  the  Company's
consolidated financial position or results of operations.

6.   SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT INFORMATION

     The following consolidated financial statements include the Company and all
majority-owned subsidiaries as follows:  Dictaphone Canada Ltd/Ltee,  Dictaphone
Company  Ltd.,  Dictaphone  Deutschland  GmbH,  Dictaphone  Netherlands  BV  and
Dictaphone International A.G. (together "Dictaphone Non-U.S.").

     Dictaphone  Corporation  has  fully  and  unconditionally   guaranteed  the
repayment of $200.0 million of 11-3/4% Senior  Subordinated  Notes Due 2005 (the
"Notes") issued to finance the acquisition of the Company from Pitney Bowes. The
Notes are  subordinate  to  financing of the Credit  Agreement,  dated August 7,
1995,  as amended by five  amendments  to the Credit  Agreement,  dated June 28,
1996,  June 27,  1997,  July 21,  1997,  November 14, 1997 and December 31, 1998
(collectively, the "Credit Agreement"), and other senior indebtedness as defined


                                       9
<PAGE>

6.   SUPPLEMENTAL  CONDENSED   CONSOLIDATING   FINANCIAL  STATEMENT  INFORMATION
     (Continued)

in the indenture pursuant to which the Notes were issued (the "Note Indenture").
The Credit Agreement  currently  consists of a $75.0 million Tranche B Term Loan
due June 30, 2002 (the "Tranche B Loan"),  a $62.75 million  Tranche C Term Loan
due June 30, 2002 (the  "Tranche C Loan" and  together  with the Tranche B Loan,
the "Term  Loans")  and a  six-year  revolving  credit  facility  of up to $40.0
million  (the  "Revolving  Credit  Facility").  Dictaphone  Non-U.S.  is  not  a
guarantor of the Notes. In January 1998, Dictaphone  Corporation was merged into
Dictaphone  Corporation (U.S.),  whereupon the surviving corporation changed its
name to "Dictaphone Corporation".

     The following are the supplemental  consolidating  statements of operations
for the three and nine month  periods  ended  September  30, 1998 and 1999,  the
supplemental consolidating balance sheet information as of December 31, 1998 and
September 30, 1999, and cash flow  information  for the nine month periods ended
September 30, 1998 and 1999.


                             DICTAPHONE CORPORATION
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                      THREE MONTHS ENDED SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
                                              Dictaphone       Dictaphone       Consolidating
                                              Corporation       Non-U.S.         Adjustments      Consolidated
                                              -----------       --------         -----------      ------------
<S>                                           <C>              <C>              <C>               <C>
Revenue from:
  Product sales and rentals                   $   50,780       $   3,593        $   (2,173)       $   52,200
  Contract manufacturing sales                    11,575             ---               ---            11,575
  Support services                                20,222           1,879               ---            22,101
                                              ----------       ---------        ----------        ----------
      Total revenues                              82,577           5,472            (2,173)           85,876
                                              ----------       ---------        ----------        ----------

Costs and expenses:
  Cost of sales, rentals and support services     43,800           3,445            (2,114)           45,131
  Selling and administrative                      28,815           2,640               ---            31,455
  Research and development                         4,898             ---               ---             4,898
  Interest expense - net and other                 9,337           1,026               ---            10,363
                                              ----------       ---------        ----------        ----------
      Total costs and expenses                    86,850           7,111            (2,114)           91,847
                                              ----------       ---------        ----------        ----------

Equity (loss) earnings                              (702)            ---               702               ---
                                              ----------       ---------        ----------        ----------

(Loss) income before income taxes                 (4,975)         (1,639)              643            (5,971)

Income tax (expense) benefit                         (23)            586                24               587
                                              ----------       ---------        ----------        ----------

Net (loss) income                             $   (4,998)      $  (1,053)       $      667        $   (5,384)
                                              ==========       =========        ==========        ==========
</TABLE>


                                       10
<PAGE>


6.   SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL
     STATEMENT INFORMATION  (Continued)


                             DICTAPHONE CORPORATION
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                      THREE MONTHS ENDED SEPTEMBER 30, 1999


<TABLE>
<CAPTION>
                                              Dictaphone       Dictaphone       Consolidating
                                              Corporation       Non-U.S.         Adjustments      Consolidated
                                              -----------       --------         -----------      ------------
<S>                                           <C>              <C>               <C>               <C>
Revenue from:
  Product sales and rentals                   $   56,629       $    7,967        $   (4,530)       $   60,066
  Contract manufacturing sales                    10,830              ---               ---            10,830
  Support services                                22,495            2,470               ---            24,965
                                              ----------       ----------        ----------        ----------
      Total revenues                              89,954           10,437            (4,530)           95,861
                                              ----------       ----------        ----------        ----------

Costs and expenses:
  Cost of sales, rentals and support services     50,428            5,607            (4,530)           51,505
  Selling and administrative                      28,433            2,125               ---            30,558
  Research and development                         2,099              ---               ---             2,099
  Interest expense - net and other                 9,453              531               ---             9,984
                                              ----------       ----------        ----------        ----------
      Total costs and expenses                    90,413            8,263            (4,530)           94,146
                                              ----------       ----------        ----------        ----------
Equity earnings (loss)                             1,801              ---            (1,801)              ---
                                              ----------       ----------        ----------        ----------

Income (loss) before income taxes                  1,342            2,174            (1,801)            1,715

Income tax expense                                    21              811               ---               832
                                              ----------       ----------        ----------        ----------
Net income (loss)                             $    1,321       $    1,363        $   (1,801)       $      883
                                              ==========       ==========        ==========        ==========
</TABLE>


                                       11
<PAGE>

6.     SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
       INFORMATION  (Continued)


                             DICTAPHONE CORPORATION
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                      NINE MONTHS ENDED SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
                                              Dictaphone       Dictaphone       Consolidating
                                              Corporation       Non-U.S.         Adjustments      Consolidated
                                              -----------       --------         -----------      ------------
<S>                                           <C>              <C>               <C>               <C>
Revenue from:
  Product sales and rentals                   $  147,103       $   13,514        $   (7,198)       $  153,419
  Contract manufacturing sales                    35,067              ---               ---            35,067
  Support services                                60,488            5,712               ---            66,200
                                              ----------       ----------        ----------        ----------
      Total revenues                             242,658           19,226            (7,198)          254,686
                                              ----------       ----------        ----------        ----------

Costs and expenses:
  Cost of sales, rentals and support services    132,359           12,260            (7,519)          137,100
  Selling and administrative                      93,420            9,078               ---           102,498
  Research and development                        12,854              ---               ---            12,854
  Interest expense - net and other                26,978            2,449               ---            29,427
                                              ----------       ----------        ----------        ----------
      Total costs and expenses                   265,611           23,787            (7,519)          281,879
                                              ----------       ----------        ----------        ----------

Equity (loss) earnings                            (1,800)             ---             1,800               ---
                                              ----------       ----------        ----------        ----------

(Loss) income before income taxes                (24,753)          (4,561)            2,121           (27,193)

Income tax (expense) benefit                      (1,383)           1,754              (118)              253
                                              ----------       ----------        ----------        ----------

Net (loss) income                             $  (26,136)      $   (2,807)       $    2,003        $  (26,940)
                                              ==========       ==========        ==========        ==========
</TABLE>


                                       12
<PAGE>

6.     SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
       INFORMATION  (Continued)


                             DICTAPHONE CORPORATION
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                      NINE MONTHS ENDED SEPTEMBER 30, 1999


<TABLE>
<CAPTION>
                                              Dictaphone       Dictaphone       Consolidating
                                              Corporation       Non-U.S.         Adjustments      Consolidated
                                              -----------       --------         -----------      ------------
<S>                                           <C>              <C>               <C>               <C>
Revenue from:
  Product sales and rentals                   $  146,159       $   20,225        $   (9,551)       $  156,833
  Contract manufacturing sales                    34,078              ---               ---            34,078
  Support services                                66,267            6,954               ---            73,221
                                              ----------       ----------        ----------        ----------
      Total revenues                             246,504           27,179            (9,551)          264,132
                                              ----------       ----------        ----------        ----------
Costs and expenses:
  Cost of sales, rentals and support services    136,044           14,868            (9,655)          141,257
  Selling and administrative                      81,836            6,564               ---            88,400
  Research and development                         6,979              ---               ---             6,979
  Interest expense - net and other                28,292            2,132               ---            30,424
                                              ----------       ----------        ----------        ----------
      Total costs and expenses                   253,151           23,564            (9,655)          267,060
                                              ----------       ----------        ----------        ----------
Equity earnings (loss)                             2,874              ---            (2,874)              ---
                                              ----------       ----------        ----------        ----------
(Loss) income before income taxes                 (3,773)           3,615            (2,770)           (2,928)

Income tax expense                                    66            1,645                42             1,753
                                              ----------       ----------        ----------        ----------
Net (loss) income                             $   (3,839)      $    1,970        $   (2,812)       $   (4,681)
                                              ==========       ==========        ==========        ==========
</TABLE>


                                       13
<PAGE>


6.     SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
       INFORMATION  (Continued)


                             DICTAPHONE CORPORATION
         SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
                                DECEMBER 31, 1998


<TABLE>
<CAPTION>
                                              Dictaphone       Dictaphone       Consolidating
                                              Corporation       Non-U.S.         Adjustments      Consolidated
                                              -----------       --------         -----------      ------------
<S>                                           <C>              <C>               <C>               <C>
ASSETS
Current assets:
  Cash and cash equivalents                   $   10,114       $    1,613        $      ---        $   11,727
  Accounts receivable, less allowances            75,447            6,782            (4,797)           77,432
  Inventories                                     50,666            2,987              (291)           53,362
  Other current assets                             4,062            3,079               118             7,259
                                              ----------       ----------        ----------        ----------
    Total current assets                         140,289           14,461            (4,970)          149,780

Investments in subsidiaries                       28,520              ---           (28,520)              ---
Property, plant and equipment, net                29,320            3,105               ---            32,425
Deferred financing costs, net                      9,920              ---               ---             9,920
Intangibles, net                                 192,492           13,630               ---           206,122
Other assets                                      52,028            4,052               ---            56,080
                                              ----------       ----------        ----------        ----------
Total assets                                  $  452,569       $   35,248        $  (33,490)       $  454,327
                                              ==========       ==========        ==========        ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable, interest payable
   and accrued liabilities                    $   53,100       $   11,111        $   (5,581)       $   58,630
  Advance billings                                37,294            2,292               ---            39,586
  Current portion of long-term debt                  628              167               ---               795
                                              ----------       ----------        ----------        ----------
    Total current liabilities                     91,022           13,570            (5,581)           99,011
Long-term debt                                   369,445           17,783           (17,491)          369,737
Other liabilities                                 13,324              817               ---            14,141
Stockholders' equity (deficit)                   (21,222)           3,078           (10,418)          (28,562)
                                              ----------       ----------        ----------        ----------
Total liabilities and stockholders' equity    $  452,569       $   35,248        $  (33,490)       $  454,327
                                              ==========      ===========        ==========       ===========
</TABLE>


                                       14
<PAGE>

6.  SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
       INFORMATION  (Continued)


                             DICTAPHONE CORPORATION
         SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
                               SEPTEMBER 30, 1999


<TABLE>
<CAPTION>
                                              Dictaphone       Dictaphone       Consolidating
                                              Corporation       Non-U.S.         Adjustments      Consolidated
                                              -----------       --------         -----------      ------------
<S>                                           <C>              <C>               <C>               <C>
ASSETS
Current assets:
  Cash and cash equivalents                   $    7,861       $      881        $      ---        $    8,742
  Accounts receivable, less allowances            84,115           12,067            (3,077)           93,105
  Inventories                                     43,582            1,821              (187)           45,216
  Other current assets                             2,895            3,339                76             6,310
                                              ----------       ----------        ----------        ----------
    Total current assets                         138,453           18,108            (3,188)          153,373

Investments in subsidiaries                       31,194              ---           (31,194)              ---
Property, plant and equipment, net                34,389            2,788               ---            37,177
Deferred financing costs, net                      8,580              ---               ---             8,580
Intangibles, net                                 184,364           12,632               ---           196,996
Other assets                                      56,542            3,732               ---            60,274
                                              ----------       ----------        ----------        ----------
Total assets                                  $  453,522       $   37,260        $  (34,382)       $  456,400
                                              ==========       ==========        ==========        ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable, interest payable
   and accrued liabilities                    $   49,489       $   11,954        $   (4,161)       $   57,282
  Advance billings                                42,758            2,510               ---            45,268
  Current portion of long-term debt                  628              161               ---               789
                                              ----------       ----------        ----------        ----------
    Total current liabilities                     92,875           14,625            (4,161)          103,339
Long-term debt                                   352,945           17,152           (16,991)          353,106
Other liabilities                                 12,763              624               ---            13,387
Stockholders' equity (deficit)                    (5,061)           4,859           (13,230)          (13,432)
                                              ----------       ----------        ----------        ----------
Total liabilities and stockholders' equity    $  453,522       $   37,260        $  (34,382)       $  456,400
                                              ==========       ==========        ==========        ==========
</TABLE>


                                       15
<PAGE>


6.   SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
     INFORMATION  (Continued)


                             DICTAPHONE CORPORATION
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                      NINE MONTHS ENDED SEPTEMBER 30, 1998


<TABLE>
<CAPTION>
                                              Dictaphone       Dictaphone       Consolidating
                                              Corporation       Non-U.S.         Adjustments      Consolidated
                                              -----------       --------         -----------      ------------
<S>                                           <C>              <C>               <C>               <C>
Operating activities:
  Net loss                                    $  (26,136)      $   (2,807)       $    2,003        $  (26,940)
  Adjustments to reconcile net loss
   to net cash (used in) provided by
   operating activities:
    Depreciation and amortization                 29,253            2,055               ---            31,308
    Provision for deferred income taxes            1,150           (1,543)              ---              (393)
    Change in assets and liabilities:
      Accounts receivable                        (15,822)           2,638             1,830           (11,354)
      Inventories                                 (5,380)             (58)             (321)           (5,759)
      Other current assets                           885             (129)              118               874
      Accounts payable and accrued
       liabilities                               (11,909)             680            (2,011)          (13,240)
      Advance billings                             5,190             (166)              ---             5,024
      Other assets and other                      (4,976)             516            (3,407)           (7,867)
                                              ----------       ----------        ----------        ----------
Cash (used in) provided by investing
 activities                                      (27,745)           1,186            (1,788)          (28,347)
                                              ----------       ----------        ----------        ----------

Investing activities:
  Net investment in fixed assets                  (4,895)            (419)              ---            (5,314)
  Sale of building                                14,000              ---               ---            14,000
                                              ----------       ----------        ----------        ----------
Cash provided by (used in) investing
 activities                                        9,105             (419)              ---             8,686
                                              ----------       ----------        ----------        ----------

Financing activities:
  Repayment under term loan facility              (1,800)             ---               ---            (1,800)
  Borrowing from revolving credit facility        54,000              ---               ---            54,000
  Repayment under revolving credit facility      (37,000)             ---               ---           (37,000)
  Other                                           (1,473)          (1,851)            1,788            (1,536)
                                              ----------       ----------        ----------        ----------
Cash provided by (used in) financing
  activities                                      13,727           (1,851)            1,788            13,664
                                              ----------       ----------        ----------        ----------

Effect of exchange rate changes on cash              ---              (50)              ---               (50)
                                              ----------       ----------        ----------        ----------

Decrease in cash                                  (4,913)          (1,134)              ---            (6,047)

Cash and cash equivalents,
 beginning of period                               8,276            2,001               ---            10,277
                                              ----------       ----------        ----------        ----------

Cash and cash equivalents,
 end of period                                $    3,363       $      867        $      ---        $    4,230
                                              ==========       ==========        ==========        ==========
</TABLE>


                                       16
<PAGE>

6.     SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
       INFORMATION  (Continued)


                             DICTAPHONE CORPORATION
    SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                      NINE MONTHS ENDED SEPTEMBER 30, 1999


<TABLE>
<CAPTION>
                                              Dictaphone       Dictaphone       Consolidating
                                              Corporation       Non-U.S.         Adjustments      Consolidated
                                              -----------       --------         -----------      ------------
<S>                                           <C>              <C>               <C>               <C>
Operating activities:
  Net (loss) income                           $   (3,839)      $    1,970        $   (2,812)       $   (4,681)
  Adjustments to reconcile net loss
   to net cash provided by (used in)
   operating activities:
    Depreciation and amortization                 16,963            1,262               ---            18,225
    Provision for deferred income taxes              ---              130               323               453
    Change in assets and liabilities:
       Accounts receivable                        (8,668)          (5,294)           (1,720)          (15,682)
       Inventories                                 7,084            1,146              (104)            8,126
       Other current assets                        1,167              (58)             (281)              828
       Accounts payable and accrued               (3,752)           1,266             1,420            (1,066)
        liabilities
       Advance billings                            5,464              200               ---             5,664
       Other assets and other                    (11,200)            (536)            3,174            (8,562)
                                              ----------       ----------        ----------        ----------
Cash provided by operating
 activities                                        3,219               86               ---             3,305
                                              ----------       ----------        ----------        ----------

Investing activities:
  Net investment in fixed assets                  (8,110)            (347)              ---            (8,457)
                                              ----------       ----------        ----------        ----------
Cash used in investing activities                 (8,110)            (347)              ---            (8,457)
                                              ----------       ----------        ----------        ----------

Financing activities:
  Sale of Preferred Stock                         20,000              ---               ---            20,000
  Borrowing from revolving credit facility        31,000              ---               ---            31,000
  Repayment under revolving credit facility      (47,500)             ---               ---           (47,500)
  Other                                             (862)            (431)              ---            (1,293)
                                              ----------       ----------        ----------        ----------
Cash provided by (used in) financing
 activities                                        2,638             (431)              ---             2,207
                                              ----------       ----------        ----------        ----------

Effect of exchange rate changes on cash              ---              (40)              ---               (40)
                                              ----------       ----------        ----------        ----------

Decrease in cash                                  (2,253)            (732)              ---            (2,985)

Cash and cash equivalents,
 beginning of period                              10,114            1,613               ---            11,727
                                              ----------       ----------        ----------        ----------

Cash and cash equivalents,
 end of period                                $    7,861       $      881        $      ---        $    8,742
                                              ==========       ==========        ==========        ==========
</TABLE>

                                       17
<PAGE>


7.   COMPREHENSIVE INCOME

     The Company adopted  Statement of Financial  Accounting  Standards No. 130,
"Reporting  Comprehensive  Income" ("SFAS 130") as of January 1, 1998.  SFAS 130
establishes  standards for reporting and display of comprehensive income and its
components.

     Total  comprehensive  (loss)  income for the three and nine  months  ending
September 30, 1998 and 1999 consists of the following:

<TABLE>
<CAPTION>
                                           Three Months Ended         Nine Months Ended
                                               September 30,             September 30,
                                           ------------------         -----------------
                                           1998         1999          1998           1999
                                           ----         ----          ----           ----
<S>                                    <C>           <C>           <C>            <C>
Net (loss) income                      $(5,384)      $   883       $ (26,940)     $(4,681)

Foreign currency translation
 adjustments                                76           (20)           (282)        (189)
                                       -------       -------       ---------      -------
Total comprehensive (loss) income      $(5,308)      $   863       $ (27,222)     $(4,870)
                                       =======       =======       =========      =======
</TABLE>


                                       18
<PAGE>


8.       DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
         INFORMATION

     Dictaphone has two reportable segments:  System Products and Services,  and
Contract Manufacturing. The System Products and Services segment consists of the
sale and service of  system-related  products to dictation and voice  management
and communications  recording system customers in selected vertical markets. The
Contract  Manufacturing  segment  consists of the  Manufacturing  Operations  of
Dictaphone which provides outside electronics manufacturing services to original
equipment manufacturers in the telecommunications, data management, computer and
electronics industries.

     The accounting  policies of the segments are the same as those described in
the summary of significant accounting policies. Dictaphone evaluates performance
based  on  profit  or  loss  from  operations  before  income  taxes,  including
nonrecurring gains and losses and foreign exchange gains and losses.


                             DICTAPHONE CORPORATION
                             SEGMENT PROFIT AND LOSS
<TABLE>
<CAPTION>
                                               System
                                             Products &        Contract
                                              Services       Manufacturing         Total
                                            -----------      -------------         -----
<S>                                         <C>               <C>              <C>
Revenue from external customers
  Three months ended September 30,  1999    $   85,031        $   10,830       $   95,861
  Three months ended September 30,  1998        74,301            11,575           85,876

  Nine months ended September 30,   1999       230,054            34,078          264,132
  Nine months ended September 30,   1998       219,619            35,067          254,686

Intersegment revenues
  Three months ended September 30,  1999           ---             9,097            9,097
  Three months ended September 30,  1998           ---            12,233           12,233

  Nine months ended September 30,   1999           ---            28,984           28,984
  Nine months ended September 30,   1998           ---            43,662           43,662

Segment profit (loss)
  Three months ended September 30,  1999           450             1,265            1,715
  Three months ended September 30,  1998        (7,466)            1,495           (5,971)

  Nine months ended September 30,   1999        (6,862)            3,934           (2,928)
  Nine months ended September 30,   1998       (30,531)            3,338          (27,193)

Segment assets
  As of September 30,               1999       413,288            43,112          456,400
  As of December 31,                1998    $  410,522        $   43,805       $  454,327
</TABLE>

                                       19
<PAGE>

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS


Overview

<TABLE>
<CAPTION>
                                                   Three Months Ended              Nine Months Ended
                                                      September 30,                  September 30,
                                                   ------------------              -----------------
                                                  1998            1999            1998           1999
                                                  ----            ----            ----           ----
                                                                     (in millions)
                                                                      (unaudited)
<S>                                            <C>             <C>              <C>           <C>
Total revenue                                  $    85.9       $    95.9        $  254.7      $   264.1

Cost of sales, rentals and support services         45.1            51.5           137.1          141.2
Selling and administrative expense (1)              31.5            30.6           102.5           88.4
Research and development                             4.9             2.1            12.9            7.0
                                               ---------       ---------        --------      ---------
    Operating profit                                 4.4            11.7             2.2           27.5
                                               ---------       ---------        --------      ---------

Net interest expense and other                      10.4            10.0            29.4           30.4
Income tax benefit (expense)                         0.6            (0.8)            0.3           (1.8)
                                               ---------       ---------        --------      ---------

Net (loss) income                              $    (5.4)      $     0.9        $  (26.9)     $    (4.7)
                                               =========       =========        ========      =========

EBITDA (2)                                     $    10.9       $    16.5        $   33.0      $    44.0
                                               =========       =========        ========      =========
</TABLE>

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

     (1)  Includes amortization of intangibles.

     (2)  EBITDA is defined  as income  before  effect of changes in  accounting
          plus  interest,  income taxes,  depreciation,  amortization  and other
          significant  non-cash,  non-recurring  charges.  EBITDA  is  presented
          because it is a widely  accepted  financial  indicator  of a company's
          ability  to incur and  service  debt.  However,  EBITDA  should not be
          considered in isolation or as a substitute for net income or cash flow
          data  prepared  in  accordance  with  generally  accepted   accounting
          principles or as a measure of a company's  profitability or liquidity,
          and is not  necessarily  comparable  to similarly  titled  measures of
          other companies.


                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                         Three Months Ended              Nine Months Ended
                                                           September 30,                  September 30,
                                                         ------------------              -----------------
                                                        1998            1999            1998           1999
                                                        ----            ----            ----           ----
                                                                           (in millions)
                                                                            (unaudited)
<S>                                                   <C>            <C>              <C>           <C>
Revenue from:
    Sales:
    Integrated Voice Systems                          $    9.1       $    12.2        $   33.1      $    26.4
    Integrated Health Systems                             12.3            19.5            32.4           49.0
    Communication Recording Systems                       19.4            12.5            48.8           37.2
    Customer Service Parts                                 4.2             4.3            13.3           12.3
    International and Dealer Operations                    6.8            11.3            24.8           31.0
    Rentals                                                0.4             0.3             1.0            0.9
                                                      --------       ---------        --------      ---------
         Product Sales and Rentals                        52.2            60.1           153.4          156.8
                                                      ========       =========        ========      =========
    Support service:
    Customer Service                                      19.3            21.0            58.5           62.5
    Application & Training Specialists                     0.9             1.5             2.0            3.7
    International and Dealer Operations                    1.9             2.5             5.7            7.0
                                                      --------       ---------        --------      ---------
         Total support service                            22.1            25.0            66.2           73.2
                                                      --------       ---------        --------      ---------
    Total System Products and Services                    74.3            85.1           219.6          230.0
    Contract Manufacturing                                11.6            10.8            35.1           34.1
                                                      --------       ---------        --------      ---------
Total revenue                                         $   85.9       $    95.9        $  254.7      $   264.1
                                                      ========       =========        ========      =========
</TABLE>

RESULTS OF OPERATIONS - THIRD QUARTER 1999 VS. THIRD QUARTER 1998

     Total revenue increased 11.6% to $95.9 million in the third quarter of 1999
from $85.9 million in the third quarter of 1998.  This increase is  attributable
to higher  product sales revenue from  Integrated  Voice Systems  ("I.V.S.') and
Integrated  Health  Systems  ("I.H.S."),  higher  support  service  revenue from
Application and Training Specialists ("A.T.S.") and higher revenue from Customer
Service  and  International  and  Dealer  Operations,  offset in part,  by lower
product sales revenue from  Communications  Recording  Systems  ("C.R.S."),  and
lower revenue from Contract Manufacturing.

     I.V.S. revenue increased 33.0% to $12.2 million due to increased Enterprise
Express(TM) revenue.  I.V.S. orders in the third quarter of 1999 increased 26.8%
to $12.5 million from $9.9 million in the third quarter of 1998. I.H.S.  revenue
increased 59.2% to $19.5 million from $12.3 million due to the continued  growth
of  Enterprise  Express(TM)  sales.  I.H.S.  orders in the third quarter of 1999
increased  42.6% to $25.8  million  from $18.1  million in the third  quarter of
1998.   C.R.S.   revenue  from  existing  products  has  been  impacted  by  the
announcement of the Company's new generation of products, namely daVinci(TM) and
Freedom(TM).  C.R.S.  revenue declined 35.5% to $12.5 million from $19.4 million
due to lower  Prolog(TM)/Guardian(TM)  sales. C.R.S. orders in the third quarter
of 1999 declined  17.9% to $13.6 million from $16.5 million in the third quarter
of 1998.  Customer  Service revenue  (including sale of parts) increased 7.6% to
$25.3  million  from $23.5  million due to increased  installation  and warranty
revenue.  A.T.S.  revenue  increased  59.4%  to $1.5  million  due to  increased
training  provided  in support of system  products.  Sales and  support  service
revenue  from  International  and  Dealer  Operations  increased  59.2% to $13.8
million from $8.7 million due to increased system,  C.R.S., desktop and portable
and service revenue derived from the Company's Canadian Operations and increased
desktop and  portable,  C.R.S.  and system  revenue  derived  from its  European
Operations.  Orders for International and Dealer Operations in the third quarter
of 1999 increased  56.7% to $10.8 million from $6.9 million in the third quarter
of 1998. Contract  Manufacturing  revenue declined by 6.4% to $10.8 million from
$11.6  million  in the third  quarter of 1998 due to lower  sales from  existing
customers.

                                       21
<PAGE>

     Cost of  sales,  rentals  and  support  services  increased  14.1% to $51.5
million  (53.7% of  revenue)  in the third  quarter of 1999 from  $45.1  million
(52.6% of revenue) in the third quarter of 1998.

     Selling and administrative expenses (including amortization of intangibles)
declined 2.9% to $30.6  million  (31.9% of revenue) in the third quarter of 1999
from  $31.5  million  (36.6% of  revenue)  in the third  quarter  of 1998.  This
decrease is attributable to lower  amortization  expense related to intangibles,
lower  I.V.S.  and C.R.S.  selling  expenses and lower  international  operating
expenses, partially offset by increased I.H.S. selling expenses.

     Research and  development  expenses of $2.1 million  (3.5% of product sales
and rental revenue)  declined 57.1% from $4.9 million (9.4% of product sales and
rental  revenue),  reflecting  reduced  staffing and a more focused  development
effort consistent with the requirements of major projects under development.

     The  Company  recorded  an  operating  profit  of $11.7  million  (12.2% of
revenue)  during the third  quarter of 1999  compared to an operating  profit of
$4.4 million  (5.1% of revenue)  for the third  quarter of 1998.  Excluding  the
impact of reduced amortization expense, operating profit would have increased by
$5.3 million due to higher revenue.

RESULTS OF  OPERATIONS  - NINE MONTHS ENDED  SEPTEMBER  30, 1999 VS. NINE MONTHS
ENDED SEPTEMBER 30, 1998

     Total revenue for the first nine months of 1999 of $264.1 million increased
3.7%  from  $254.7  million  for the first  nine  months  of 1998.  The  Company
experienced  increased product sales revenue from I.H.S. and higher revenue from
A.T.S.,  Customer Service and  International  and Dealer  Operations,  partially
offset by lower product sales revenue from I.V.S.  and C.R.S.  and lower revenue
from Contract Manufacturing.

     I.V.S. revenue declined 20.2% to $26.4 million in response to actions taken
by the Company in the fourth quarter of 1998 to reduce and consolidate its sales
force to focus on the more profitable  systems  business in commercial  markets.
I.V.S.  orders for the first nine months of 1999 declined 16.9% to $28.0 million
from $33.7  million for the first nine months of 1998.  I.V.S.  order backlog at
September  30, 1999  increased  23.1% to $5.8 million  versus  order  backlog at
December 31, 1998.  I.H.S.  revenue  increased 51.2% to $49.0 million from $32.4
million due to the continued  growth of  Enterprise  Express(TM)  sales.  I.H.S.
orders for the first nine months of 1999  increased  62.6% to $62.0 million from
$38.1  million  for the first  nine  months of 1998.  I.H.S.  order  backlog  at
September  30, 1999  increased  86.7% to $27.1  million  versus order backlog at
December 31, 1998.  C.R.S.  revenue  declined  23.8% to $37.2 million from $48.8
million due to lower Prolog(TM)/Guardian(TM)  sales. C.R.S. orders for the first
nine months of 1999  declined  5.8% to $42.5  million from $45.1 million for the
first nine months of 1998. C.R.S.  order backlog at September 30, 1999 increased
103.6% to $10.3  million  versus order  backlog at December  31, 1998.  Customer
Service revenue  (including sale of parts)  increased 4.2% to $74.8 million from
$71.8 million due to increased warranty and installation revenue. A.T.S. revenue
increased  $1.7  million to $3.7  million  due to  increased  customer  training
provided in support of system  products.  Sales and support service revenue from
International  and Dealer  Operations  increased  24.6% to $38.0  million due to
increased Canadian system, desktop and portable,  C.R.S. and service revenue and
higher system,  C.R.S.  and service revenue derived from the Company's  European
Operations. International and Dealer Operations orders for the first nine months
of 1999  increased  36.5% to $31.0 million from $22.7 million for the first nine
months of 1998.  Order  backlog  for  International  and  Dealer  Operations  at
September  30, 1999  increased  24.1% to $2.1 million  versus  order  backlog at
December 31, 1998. Contract Manufacturing revenue declined 2.8% to $34.1 million
from $35.1 million for the first nine months of 1998.

     Cost of  sales,  rentals  and  support  services  increased  3.0% to $141.2
million (53.5% of revenue) for the first nine months of 1999 from $137.1 million


                                       22
<PAGE>

(53.8% of revenue)  for the first nine months of 1998.  This  decline in cost of
sales  expressed as a percentage of revenue is  attributable  to lower  Customer
Service  field  overhead,  technical  and support  costs and  improved  Canadian
margins.

     Selling and administrative expenses (including amortization of intangibles)
declined  13.8% to $88.4 million (33.5% of revenue) for the first nine months of
1999 from $102.5  million  (40.2% of revenue) for the first nine months of 1998.
This  decrease is  attributable  to lower  amortization  expense,  lower selling
expenses  associated  with I.V.S.  sales force  reductions and related  overhead
expenses,  lower  C.R.S.  selling  expenses  and lower  international  operating
expenses.

     Research and  development  expenses of $7.0 million  (4.4% or product sales
and rental revenue) declined 45.7% from $12.9 million (8.4% of product sales and
rental  revenue),  reflecting  reduced  staffing and a more focused  development
effort.

     The  Company  recorded  an  operating  profit  of $27.5  million  (10.4% of
revenue) during the first nine months of 1999 compared to an operating profit of
$2.2 million (0.9% of revenue) for the first nine months of 1998.  Excluding the
impact of reduced amortization expense, operating profit would have increased by
$14.0 million due to higher revenue, lower costs and reduced operating expenses.

     The  Company  has  recorded a gross  deferred  tax asset of $101.6  million
reflecting the benefit of net operating loss  carryforwards and various book tax
temporary  differences.  The net operating loss  carryforward for federal income
tax purposes as of September 30, 1999 is $137.0 million,  of which $13.7 million
of the net  operating  loss  carryforward  will  expire in the year 2010,  $33.2
million  will  expire in the year 2011,  $40.0  million  will expire in the year
2012,  $35.7  million will expire in the year 2018 and $14.4 million will expire
in the year 2020. In order to fully realize the deferred tax asset,  the Company
will need to generate  future  taxable  income  prior to  expiration  of the net
operating  loss  carryforwards.  In 1997,  the Company  established  a valuation
allowance of $24.1  million  against the deferred  tax asset.  During 1998,  the
Company  increased its valuation  allowance by $20.8  million.  During the first
nine months of 1999,  the Company  increased  its  valuation  allowance  by $2.6
million resulting in a deferred tax asset of $54.1 million. Including a deferred
tax liability of $14.8 million, the net deferred tax asset at September 30, 1999
totalled $39.3 million. Management believes, based upon the Company's history of
prior operating results, its current circumstances, and its expectations for the
future,  that  taxable  income  of the  Company  will  more  likely  than not be
sufficient to fully utilize the deferred tax asset of $54.1 million  recorded at
September 30, 1999,  prior to  expiration.  The amount of the deferred tax asset
considered realizable,  however, could be reduced if estimates of future taxable
income during the net operating loss carryforward period are reduced.

LIQUIDITY AND CAPITAL RESOURCES

     The  Company's  liquidity   requirements  consist  primarily  of  scheduled
payments of principal and interest on its  indebtedness,  working  capital needs
and capital  expenditures.  At September 30, 1999,  the Company had  outstanding
Term Loans of $131.6 million,  a $22.0 million loan outstanding  under the $40.0
million  Revolving  Credit  Facility  and  the  Notes.  Availability  under  the
Revolving  Credit  Facility at September 30, 1999 was $18.0  million.  Scheduled
annual  principal  payments on the Term Loans are $0.6 million in 1999 and 2000,
$36.3  million  in 2001 and  $94.0  million  in  2002.  There  are no  scheduled
reductions in the Revolving Credit Facility over the next two years.

     On  December  31,  1998,  the  Company  and the  lenders  executed  a fifth
amendment  to the  Credit  Agreement.  Under  the terms of this  amendment,  the
lenders agreed to waive  compliance by the Company with the financial  covenants
as of December 31, 1998 and for the four-fiscal quarter period then ended. Other
changes  effected by the amendment were (i)  modifications  to the covenants and
related definitions in respect of certain asset sales and the utilization of the
proceeds  from such asset sales,  (ii)  modifications  to the  required  Maximum
Leverage,  Minimum  EBITDA and Minimum  Interest  Coverage  Ratio  covenants (as


                                       23
<PAGE>

defined in the Credit  Agreement),  (iii) a change in the  maturity  date of the
Tranche C Loans to be equal to that of the Tranche B Loans, and (iv) an increase
in the interest rate on the Tranche B Loans to be equal to that of the Tranche C
Loans.

     In January 1999, the Company sold 2.0 million shares of its 12% Convertible
Pay-in-Kind  Preferred Stock to Stonington Capital  Appreciation 1994 Fund, L.P.
("Stonington")  for $20 million.  In February 1999,  $11.75 million was used for
the semi-annual interest payment on the Notes.  Proceeds from the sale were also
used to repay amounts outstanding under the Revolving Credit Facility.

     In connection with the terms of the Credit  Agreement,  the Company entered
into interest  rate swap  agreements in November  1995,  effective  February 16,
1996, with an aggregate  notional  principal amount  equivalent to $75.0 million
which matured on February 16, 1999. The swap effectively  converted that portion
of the Term Loans to a fixed rate component of 5.8%;  thus,  reducing the impact
of changes in interest rates,  converting the total  effective  interest rate on
fifty percent of the initial outstanding Term Loans to 9.55%. No funds under the
swap  agreements were actually  borrowed or were repaid.  Amounts due to or from
the  counterparties  were reflected in interest  expense in the periods in which
they accrued.  On February 11, 1999, the Company  entered into interest rate cap
agreements  effective  February 16, 1999, with an aggregate  notional  principal
amount equivalent to $66.0 million maturing on February 16, 2001. The cap limits
that portion of the Company's Term Loans to a fixed rate component of 5.5%; thus
reducing  the impact of  increases in interest  rates,  limiting  the  effective
interest rate on fifty percent of the currently outstanding Term Loans to 9.25%.

     In addition,  the Credit Agreement  contains  covenants that  significantly
limit or  prohibit,  among  other  things,  the  ability of the Company to incur
indebtedness,  make prepayments of certain indebtedness, pay dividends on common
stock,   make   investments,   engage  in  transactions  with  stockholders  and
affiliates,  create liens, sell assets and engage in mergers and  consolidations
and requires that the Company maintain certain financial ratios.

     The Company had $200.0  million of Notes  outstanding  as of September  30,
1999. The Notes are  subordinated to the Credit  Agreement  financings and other
senior  indebtedness,  as  defined  in the Note  Indenture.  The  Notes  contain
covenants  similar to the Credit  Agreement  and provide for each  noteholder to
have the right to require that the Company  repurchase  the Notes at 101% of the
principal  amount upon a change of control  (as defined in the Note  Indenture).
The Notes bear  interest of 11-3/4%  per annum,  payable  semi-annually  on each
February 1 and August 1. The Notes mature on August 1, 2005.  At  September  30,
1999,  the fair value of the Notes was  favorable  $56  million  based on dealer
quotes.

     Capital  expenditures  for the  first  nine  months  of 1999  totaled  $8.5
million. The Company does not expect that the limitation on capital expenditures
contained in the Credit  Agreement  will limit,  in any material  respects,  the
Company's ability to fund capital expenditures.

     The Company's  quarterly revenues and other operating results have been and
will  continue  to be affected  by a wide  variety of factors  that could have a
material  adverse  effect on the  Company's  financial  performance  during  any
particular quarter.  Such factors include,  but are not limited to, the level of
orders that are  received and shipped by the Company in any given  quarter,  the
rescheduling and  cancellation of orders by customers,  availability and cost of
materials,  the  Company's  ability  to enhance  its  existing  products  and to
develop,  manufacture and  successfully  introduce and market new products,  new
product developments by the Company's competitors, market acceptance of products
of both the Company and its competitors,  competitive  pressures on prices,  the
ability to attract and retain qualified technical personnel,  significant damage
to or  prolonged  delay  in  operations  at  the  Company's  sole  manufacturing
facility,  and  interest  rate and foreign  exchange  fluctuations.  The Company
introduced a number of new products in its target markets in 1997,  1998 and the


                                       24
<PAGE>

first nine months of 1999 which are  expected  to enhance  future  revenues  and
liquidity of the Company.  However,  there can be no assurance  that the Company
will be able to  implement  its plans to  introduce  such  products  in a timely
fashion,  or that such  products will meet the  expectations  of the Company for
either revenues or  profitability.  Notwithstanding  the introduction of its new
products,  the  1999  sale of 12%  Convertible  Pay-in-Kind  Preferred  Stock to
Stonington and its availability under the Revolving Credit Facility, the Company
will continue to focus on cash flows from operating activities.  The Company has
implemented  new  measures to improve  working  capital in order to provide this
improved  cash flow,  but there can be no assurance,  however,  that the Company
will be successful in such efforts.

YEAR 2000 READINESS

General
-------

     Most  businesses are facing a challenge at the turn of the century due to a
common  computer-related  practice  employed since the 1960's of  representing a
year with just two digits rather than four digits. The problem is not restricted
to system  hardware  components  but will be  manifested  within many  operating
systems,  firmware,  application  software  and  equipment  used  throughout  an
organization.  Dictaphone  has been and  continues  to be  actively  engaged  in
resolving  its Year 2000  issues.  The Company  established  a Year 2000 Project
Office charged with  evaluating  the Company's Year 2000 issues and  identifying
and  developing  appropriate  remedies  and  action  plans  with  respect to the
Company's  internal  systems  and the  Company's  products  to  ensure  a smooth
transition into the new millennium.

     The Year 2000 Project  Office  adopted a five phase  program to address the
Company's  Year 2000  issues  consisting  of Phase I - review and  inventory  of
existing systems, products,  equipment and suppliers that may be affected by the
Year 2000 issue;  Phase II - assessment  of the impact of the Year 2000 issue on
systems,  products,   equipment  and  suppliers;  Phase  III  -  remediation  or
replacement of non-compliant  systems,  products and equipment and determination
and implementation of solutions to address non-compliant  suppliers and vendors;
Phase IV - testing of systems, product and equipment following remediation;  and
Phase V - contingency planning.

     The Company's Year 2000 efforts have  concentrated  on two major areas:  1)
internal use systems,  equipment and third party  products used in the Company's
operations and 2) products sold by the Company to its customers.

State of Readiness
------------------

     The Company is utilizing  both  internal and external  resources to perform
Year 2000  testing on its  internal  systems  and  equipment.  The  Company  has
completed Phases I through IV of its program for all of its critical systems and
equipment.  The Company continues to review and test the Year 2000 compliance of
these systems and will  continue to do so throughout  the remainder of the year.
In connection with the Company's  efforts to make its internal systems Year 2000
compliant, the Company accelerated the implementation of certain components of a
new enterprise-wide computer system. The Company completed the implementation of
these components in September 1999.

     With respect to third party suppliers,  in early 1998 the Company began the
process of  identifying  and  prioritizing  critical  suppliers  and vendors and
initiated  communication  concerning their plans to address the Year 2000 issue.
Based on the  responses we have  received to date,  we have not  identified  any
critical problems or failures and we do not anticipate a material adverse impact
on our business due to third party Year 2000 problems.  However, there can be no
assurance  that these  responses are accurate or that we will receive  responses
from all third  parties.  In the  event  that any of the  Company's  significant


                                       25
<PAGE>

suppliers,   vendors  or  service  providers,  such  as  the  telecommunications
providers,  do not  successfully  achieve  Year  2000  compliance  prior  to the
millennium  event,  and the  Company  is  unable  to  replace  them  with new or
alternate  suppliers,  vendors  or service  providers,  the  Company's  business
operations could be materially adversely affected .

     With respect to products sold to the Company's  customers,  the Company has
completed  Phases I and II of the program and is actively  engaged in Phases III
through  IV.  The  Company  has  identified   certain   products  which  require
remediation,  has developed and communicated  the necessary  remediations to the
Company's  customers  and is installing  such  remediations  at customer  sites.
Installations  of product  remediations  and  installation  of new  products  to
replace non-compliant products will continue throughout 1999.

     Many of the Company's  products rely on third party hardware,  software and
firmware. The Company has been diligently working with all such third parties to
ascertain their readiness and the affect, if any, of their products'  compliance
status  on the  efficient  and  effective  operation  and  use of the  Company's
products.  Generally,  all  software,  hardware and firmware are supplied to the
Company by leading software companies that have Year 2000 programs of their own.
A majority of these vendors have provided  disclosure  statements to the Company
as to their  products' Year 2000  compliance  status.  The Company has relied on
these disclosure  statements in making assessments about the Company's products.
However, there can be no guarantee that these disclosure statements are accurate
or that the  software,  hardware or firmware  certified by these  statements  on
which the Company has relied,  will operate  effectively and efficiently  during
and after the millennium.  The Company has, however, conducted certain Year 2000
testing on integrated  products and believes that the risk of material operating
failures  associated  with the  components  provided by these  third  parties is
consistent with their product representations concerning Year 2000 compliance.

Costs
-----

     The Company  estimates  that the  aggregate  costs of its Year 2000 program
will be  approximately  $12.5 million,  including $10.8 million of costs already
incurred. Of the total program costs,  approximately $9.0 million represents new
software and hardware  purchases  for internal  Company  systems which have been
accelerated in connection with the Year 2000 issue. A significant portion of the
remaining  $1.7 million  represents  the remaining  implementation  costs of the
non-Year 2000 critical components of the  enterprise-wide  computer system. This
enterprise-wide  computer  system will be fully  implemented  during  2000.  The
Company  does not believe that the costs  associated  with Year 2000 issues will
have a material adverse effect on the Company's consolidated financial position,
results of  operations  or cash  flows in future  periods.  However,  these cost
estimates,  as well as the project timetables  previously mentioned are based on
management's best estimates,  and there can be no guarantee that these estimates
will be achieved or that actual  results will not  materially  differ from these
estimates.

Risks
-----

     With respect to the Company's internal systems,  the most reasonably likely
worst case  scenario for the  Company's  failure to identify or remediate a Year
2000 problem could be an interruption in, or failure of, certain normal business
activities or operations.  Such failures could  materially and adversely  affect
the Company's  results of  operations,  liquidity and  financial  condition.  In
addition,  any  disruption  in the  business  of our key  suppliers  or  selling
partners as a result of Year 2000 issues or any general disruption or failure of
the  financial,  telecommunications,  power or other  infrastructure  could also
disrupt our business and  potentially  have a material  impact on the  Company's
consolidated financial position, results of operations or cash flows.

                                       26
<PAGE>

     The Company's  Year 2000  program,  however,  is expected to  significantly
reduce the Company's  exposure to these types of failures.  The Company believes
that the implementation of the new systems and the timely completion of the Year
2000  program  should  reduce the risk of  internal  business  interruption  and
adverse financial impact.

     With respect to products  sold to  customers,  the most  reasonably  likely
worst case  scenario for Year 2000 related  product  failures  could include the
suspension of use of such product,  or continued use of the product with reduced
functionality  or  operating  ability.  If this were to occur,  customers  could
attempt to assert liability  claims against the Company.  Year 2000 claims could
result in costly and  distracting  litigation  and in material  liability to the
Company.  If our products suffer significant Year 2000 defects,  we could suffer
damage to our business and  reputation.  Correcting  defects could be costly and
could divert resources from new product development and sales activity. However,
the Company believes that, based on the level of Year 2000 testing  performed to
date,  the product  remedies  being made  available to its  customers,  the time
remaining to implement  such remedies,  and the legal defenses  available to the
Company,  the  likelihood  of the  occurrence  of such  worst case  scenario  is
minimized.

Contingency Plans
-----------------

     Contingency  plans are being prepared,  where  practical,  so that critical
business  functions  will  continue  to operate.  These  plans will  address the
Company's  internal  systems  and  equipment,  products  sold by the  Company to
customers and third party supplier relationships.  The contingency plans include
manual alternatives to electronic  processes,  repair or replacement of products
and systems and changes in suppliers.

     With respect to our products and the support we provide our  customers  for
their product performance,  our contingency planning includes increased staffing
of our customer call centers  throughout  the  millennium  weekend to handle any
increase  in customer  service  calls and any general  Year 2000  inquiries.  In
addition, our service organization has restricted vacation and any personal time
of its  employees  during  the  critical  December  1999  through  January  2000
timeframe to better meet our customer  needs.  We will have increased  levels of
technical support staff, including product engineering, available throughout the
millennium weekend to further supplement our service  organization.  With regard
to our internal  systems,  resources from the  information  systems area will be
working throughout the millennium  roll-over weekend to verify the operation and
functionality of our critical systems and equipment.

     Contingency  planning  efforts  will  continue  throughout  1999,  and will
continue to be updated and revised to reflect the most  current  information  on
the Company's  state of  readiness,  and the state of readiness of the Company's
suppliers and customers.

     The  Company  may,  from  time to  time,  provide  estimates  as to  future
performance.  Such estimates would be  "forward-looking"  statements  within the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities  Exchange Act of 1934.  Because  such  statements  include  risks and
uncertainties,  actual  results  may  differ  materially  from  those  estimates
provided.  The  Company  undertakes  no  duty to  update  such  forward  looking
statements. Factors that could cause actual results to differ from these forward
looking statements include,  but are not limited to, those previously  discussed
herein.


                                       27
<PAGE>

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The  Company's  cash flows and  earnings are subject to  fluctuations  from
changes in interest rates and, to a lesser  extent,  foreign  currency  exchange
fluctuations.  See "Item 2 -  Management's  Discussion and Analysis of Financial
Condition  and Results of  Operations  - Liquidity  and Capital  Resources"  for
further information on interest rate risk.

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     See Note 5 to the Company's Condensed Consolidated Statements of Operations
(Unaudited) which is incorporated herein by reference.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits
          --------

          10.22 -- Employment Agreement dated June 1, 1999,  between  Dictaphone
                   Corporation and Mr. Daniel P. Hart.

          10.23 -- Employment Agreement dated June 1, 1999,  between  Dictaphone
                   Corporation and Mr. Joseph D. Skrzypczak.

          10.24 -- Employment Agreement dated June 1, 1999,  between  Dictaphone
                   Corporation and Mr. Ronald A. Elwell.

          10.25 -- Employment Agreement dated June 1, 1999,  between  Dictaphone
                   Corporation and Mr. Robert G. Schwager.

          10.26 -- Amendment No. 3 to the Management Stock Option Plan, dated as
                   of July 28, 1999.

             27 -- Financial Data Schedule.

UNDERTAKING:
     The undersigned,  Dictaphone  Corporation,  hereby undertakes,  pursuant to
Regulation  S-K, Item 601(b),  paragraph (4) (iii), to furnish to the Securities
and Exchange  Commission upon request all constituent  instruments  defining the
rights  of  holders  of  long-term  debt  of  Dictaphone   Corporation  and  its
consolidated  subsidiaries  not filed  herewith  for the  reason  that the total
amount of securities authorized under any of such instruments does not exceed 10
percent  of the total  consolidated  assets of  Dictaphone  Corporation  and its
consolidated subsidiaries.

(b)  Reports on Form 8-K
     -------------------

     There  were no Reports  on Form 8-K filed by the  Company  during the three
months ended September 30, 1999.


                                       28
<PAGE>


                                   SIGNATURES


     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.


Dated:  November 12, 1999                     Dictaphone Corporation
                                   ---------------------------------------------
                                                   (Registrant)


                          By:                  /s/  John H. Duerden
                                   ---------------------------------------------
                          Name:                   John H. Duerden
                          Title:      Chairman, Chief Executive Officer
                                                   and President
                                          (Principal Executive Officer)



                           By:               /s/  Joseph D. Skrzypczak
                                   ---------------------------------------------
                           Name:               Joseph D. Skrzypczak
                           Title:     Chief Operating Officer, Chief Financial
                                               Officer and Director
                                    (Principal Financial and Accounting Officer)


                                       29
<PAGE>


                                  EXHIBIT INDEX



     EXHIBITS                       DESCRIPTION
     --------                       -----------

      10.22    --  Employment  Agreement dated June 1, 1999, between  Dictaphone
                   Corporation and Mr. Daniel P. Hart.

      10.23    --  Employment  Agreement dated June 1, 1999, between  Dictaphone
                   Corporation and Mr. Joseph D. Skrzypczak.

      10.24    --  Employment  Agreement dated June 1, 1999, between  Dictaphone
                   Corporation and Mr. Ronald A. Elwell.

      10.25    --  Employment  Agreement dated June 1, 1999, between  Dictaphone
                   Corporation and Mr. Robert G. Schwager.

      10.26    --  Amendment No. 3 to the Management Stock Option Plan, dated as
                   of July 28, 1999.

         27    --  Financial Data Schedule.


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