<PAGE>




                       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        MARCH 28, 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  1-4085


                              POLAROID CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           DELAWARE                                         04-1734655    
-----------------------------                           ------------------
(State or other jurisdiction                            (I.R.S. Employer
incorporation or organization)                        Identification No.)


                784 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS  02139
--------------------------------------------------------------------------------
                (Address of principal executive offices)         (Zip Code)


        Registrant's telephone number, including area code:    (781)  386-2000
--------------------------------------------------------------------------------

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, and (2) has been subject to such filing requirements
for the past 90 days.
                              YES    X       NO   
                                  -------         ------

                      Shares of Common Stock, $1 par value,
                   outstanding as of May 7, 1999: 44,209,450 shares
--------------------------------------------------------------------------------

                        This document contains 24 pages.
                        Exhibit index appears on page 23

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


<PAGE>

                  POLAROID CORPORATION AND SUBSIDIARY COMPANIES
                  Condensed Consolidated Statement of Earnings
                 Periods ended March 29, 1998 and March 28, 1999
                      (In millions, except per share data)




<TABLE>
<CAPTION>
                                                                                            (Unaudited)
                                                                                          First Quarter
                                                                                       1998            1999  
                                                                                       ----            ----

<S>                                                                                  <C>             <C>   
Net sales                                                                            $390.6          $379.0
--------------------------------------------------------------------------------------------------------------

         Cost of sales                                                                243.8           237.3

         Marketing, research, engineering and administrative expenses                 159.8           148.6

--------------------------------------------------------------------------------------------------------------
Total costs                                                                           403.6           385.9
--------------------------------------------------------------------------------------------------------------
Loss from operations                                                                 (13.0)           (6.9)

         Other expense                                                                  1.6            22.6

         Interest expense                                                              12.1            17.9

--------------------------------------------------------------------------------------------------------------
Loss before income taxes                                                             (26.7)          (47.4)

         Federal, state and foreign income tax benefit                                (9.3)          (16.6)
--------------------------------------------------------------------------------------------------------------
Net loss                                                                            ($17.4)         ($30.8)
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------


Basic loss per common share                                                         ($0.39)         ($0.70)  

Diluted loss per common share                                                       ($0.39)         ($0.70)
--------------------------------------------------------------------------------------------------------------
Cash dividends per common share                                                       $0.15           $0.15
Weighted average common shares used for basic
          loss per share calculation (in thousands)                                  44,475          44,066  
Weighted average common shares used for diluted
          loss per share calculation (in thousands)                                  44,475          44,066
Common shares outstanding at end of period (in thousands)                            44,469          44,150
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>



                                       2
<PAGE>

                  POLAROID CORPORATION AND SUBSIDIARY COMPANIES
                      Condensed Consolidated Balance Sheet
                                  (In millions)

<TABLE>
<CAPTION>
                                                                                                      (Unaudited)
                                                                                   December 31,         March 28,
                                                                                          1998              1999
                                                                                          ----              ----
<S>                                                                               <C>                       <C>  
    Assets
------------------------------------------------------------------------------------------------------------------
Current assets:
    Cash and cash equivalents                                                     $105.0                    $67.9
    Receivables                                                                    459.6                    445.7
    Inventories:
       Raw materials                                                                83.5                     89.0
       Work-in-process                                                             190.5                    171.7
       Finished goods                                                              259.3                    257.4
------------------------------------------------------------------------------------------------------------------
    Total inventories                                                              533.3                    518.1
    Prepaid expenses and other assets                                              195.5                    236.6
------------------------------------------------------------------------------------------------------------------
Total current assets                                                             1,293.4                  1,268.3
------------------------------------------------------------------------------------------------------------------
Property, plant and equipment
    Gross property, plant and equipment                                          1,975.9                  1,990.3
                                                                                                                    
    Less accumulated depreciation                                                1,409.4                  1,418.4   
------------------------------------------------------------------------------------------------------------------
    Net property, plant and equipment                                              566.5                    571.9
------------------------------------------------------------------------------------------------------------------
Deferred tax assets                                                                208.2                    218.9
------------------------------------------------------------------------------------------------------------------
Other assets                                                                       129.6                     80.2
------------------------------------------------------------------------------------------------------------------

Total assets                                                                    $2,197.7                 $2,139.3
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
Current liabilities:
    Short-term debt                                                               $331.7                   $298.7
    Payables and accruals                                                          358.4                    328.7
    Compensation and benefits                                                      208.5                    187.2
    Federal, state and foreign income taxes                                         34.4                     39.4
------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                          933.0                    854.0
------------------------------------------------------------------------------------------------------------------

Long-term debt                                                                     497.4                    572.7
------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefits                                                    241.9                    241.6
------------------------------------------------------------------------------------------------------------------
Other long-term liabilities                                                        135.5                    130.6
------------------------------------------------------------------------------------------------------------------

Common Stockholders' equity:
    Common stock, $1 par value                                                      75.4                     75.4
    Additional paid-in capital                                                     413.4                    408.6
    Retained earnings                                                            1,226.7                  1,189.3
    Accumulated other comprehensive income                                        (33.4)                   (49.0)
    Less:    Treasury stock, at cost                                             1,291.5                  1,283.4
             Deferred compensation                                                   0.7                      0.5
------------------------------------------------------------------------------------------------------------------
  Total common stockholders' equity                                                389.9                    340.4
------------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity                                      $2,197.7                 $2,139.3
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------

</TABLE>


                                       3
<PAGE>

                POLAROID CORPORATION AND SUBSIDIARY COMPANIES
               Condensed Consolidated Statement of Cash Flows
             Three Months Ended March 29, 1998 and March 28, 1999
                                (In millions)


<TABLE>
<CAPTION>

                                                                                                          (Unaudited)
Cash flows from operating activities                                                                1998               1999
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>                <C>    
     Net loss                                                                                    ($17.4)            ($30.8)

     Depreciation of property, plant and equipment                                                 25.6               23.1 
                                                                                                                            
     Decrease in receivables                                                                       47.6                4.9 
                                                                                                                            
     (Increase)/decrease in inventories                                                            (4.3)               3.8 
                                                                                                                            
     Increase in prepaids and other assets                                                        (10.7)             (35.4) 
                                                                                                                            
     Increase/(decrease) in payables and accruals                                                  34.3              (25.9) 
                                                                                                                            
     Decrease in compensation and benefits                                                        (12.0)             (19.4) 
                                                                                                                            
     Decrease in federal, state and foreign income taxes payable                                  (14.2)              (9.1) 
                                                                                                                            
     Gain on sale of real estate                                                                     --              (10.9) 
                                                                                                                           
     Other non cash items                                                                         (40.4)              39.1 

----------------------------------------------------------------------------------------------------------------------------
     Net cash provided/(used) by operating activities                                               8.5              (60.6)
----------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
----------------------------------------------------------------------------------------------------------------------------
     (Increase)/decrease in other assets                                                          (10.9)              14.4 
                                                                                                                            
     Additions to property, plant and equipment                                                   (34.9)             (46.6) 
                                                                                                                            
     Proceeds from sale of property, plant and equipment                                           60.7               22.6 
                                                                                                           
----------------------------------------------------------------------------------------------------------------------------
     Net cash provided/(used) by investing activities                                              14.9               (9.6)
----------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
----------------------------------------------------------------------------------------------------------------------------
     Net decrease in short-term debt (maturities 90 days or less)                                 (41.0)             (31.0) 
                                                                                                                            
     Short-term debt having (maturities over 90 days):                                                                      

          Proceeds                                                                                 24.3               11.2 
                                                                                                                            
          Payments                                                                                (25.5)              (8.3) 
                                                                                                                            
     Proceeds from issuances of long-term debt                                                       --              268.3 
                                                                                                                               
     Repayments of long-term debt                                                                    --             (200.0) 
                                                                                                                           
     Cash dividends paid                                                                             --               (6.6) 
                                                                                                                           
     Proceeds from issuance of shares in connection with stock incentive plan                       3.3                 -- 
                                                                                                                            
     Purchase of treasury stock                                                                   (11.4)                -- 
                                                                                                          
----------------------------------------------------------------------------------------------------------------------------
     Net cash provided/(used) by financing activities                                             (50.3)              33.6
----------------------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash                                                             1.2               (0.5)
                                                                                                          
----------------------------------------------------------------------------------------------------------------------------

Net decrease in cash and cash equivalents                                                         (25.7)             (37.1)

Cash and cash equivalents at beginning of period                                                   68.0              105.0
                                                                                                          
----------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of period                                                        $42.3              $67.9
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       4
<PAGE>

POLAROID CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    (Unaudited)


BASIS OF PRESENTATION

The condensed consolidated financial statements include the accounts of the 
Company's domestic and foreign subsidiaries, all of which are either wholly 
owned or majority owned. Intercompany accounts and transactions are 
eliminated. This is an interim unaudited report, subject to year end audit 
and adjustments. The information furnished, however, reflects all adjustments 
(consisting of normal recurring accruals) which, in the opinion of 
management, are necessary for a fair presentation of the results of the 
interim period. Certain prior year amounts have been reclassified to conform 
to the current year's presentation.

NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Financial 
Accounting Standards Board Statement No. 133, "Accounting for Derivative 
Instruments and Hedging Activities" ("FAS 133") that establishes accounting 
and reporting requirements for derivative instruments and for hedging 
activities. FAS 133 requires companies to recognize all derivatives as either 
assets or liabilities in the statement of financial position at fair value. 
If certain conditions are met, a derivative may be specifically designated as 
a hedge of the exposures to changes in fair value of recognized assets or 
liabilities or unrecognized firm commitments, a hedge of the exposure to 
variable cash flows of a forecasted transaction, or a hedge of the foreign 
currency exposure of a net investment in a foreign operation, unrecognized 
firm commitments, an available-for-sale security or a foreign-currency 
denominated forecasted transaction. The accounting for changes in fair value 
under FAS 133 depends on the intended use of the derivative and the resulting 
designation. FAS 133 must be adopted for all fiscal quarters of fiscal years 
beginning after June 15, 1999. The Company is currently evaluating the effect 
of this statement on its reported financial results.


                                       5
<PAGE>

EARNINGS PER SHARE RECONCILIATION

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

<TABLE>
<CAPTION>
                                                                                                  Per
                                                                                                 Share
                                                   Earnings/(Loss)           Shares              Amount
                                                   ---------------           ------              ------
<S>                                                 <C>                       <C>                <C>   
PERIOD ENDED MARCH 29, 1998
Basic loss per share                                $ (17.4)                  44.5               $(.39)
                                                    -------                   ----               ----- 
                                                    -------                   ----               ----- 


Diluted loss per share                              $ (17.4)                  44.5*             $ (.39)
                                                    -------                   ----               ----- 
                                                    -------                   ----               ----- 



PERIOD ENDED MARCH 28, 1999
Basic loss per share                                $ (30.8)                  44.0               $(.70)
                                                    -------                   ----               ----- 
                                                    -------                   ----               ----- 


Diluted loss per share                              $ (30.8)                  44.0*             $ (.70)
                                                    -------                   ----               ----- 
                                                    -------                   ----               ----- 
</TABLE>

*    At March 29, 1998 and March 28, 1999, stock options for shares of common
     stock totaling 4.2 million and 5.7 million, respectively, were outstanding
     but were not included in the calculations of diluted earnings/(loss) per
     share because the effects were anti-dilutive. In addition, the effect of .2
     million and .3 million outstanding performance shares at March 29, 1998 and
     March 28, 1999, respectively, were not included since the effect was
     anti-dilutive.

COMPREHENSIVE INCOME

The Company's total comprehensive income/(loss) was as follows: (in millions)

<TABLE>
<CAPTION>

                                                          Three Month Period Ended
                                                       -----------------------------
                                                       March 29, 1998  March 28,1999
                                                       --------------  -------------
<S>                                                    <C>             <C> 
Net loss                                                   $ (17.4)       $ (30.8)

Other comprehensive income:
   Currency translation adjustment                            (2.1)         (15.0)


   Reclassification adjustment
   for realized gains net-of-tax included 
   in net loss                                              --                (.6)
                                                           -------        ------- 

Total comprehensive income/(loss)                          $ (19.5)       $ (46.4)
                                                           -------        ------- 
                                                           -------        ------- 
</TABLE>


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


                                       6
<PAGE>


<TABLE>
<CAPTION>

                                                  Three Month Period Ended
                                               ------------------------------
                                               March 29, 1998  March 28, 1999
                                               --------------  --------------
<S>                                            <C>             <C> 
Net sales to customers:
Americas Region                                  $  211.8      $  227.1
European Region                                     113.8          86.5
Asia Pacific Region                                  65.0          65.4
Global Operations                                     --          --
Research and Development                              --          --
                                                 --------      -------- 
   Subtotal Segments                                390.6         379.0
Corporate                                             --          --
                                                 --------      -------- 
    Total                                        $  390.6      $  379.0
                                                 --------      -------- 
                                                 --------      -------- 
Profit/(loss) from operations:
Americas Region                                  $   51.8      $   57.9
European Region                                      14.3          12.8
Asia Pacific Region                                  15.5          13.8
Global Operations                                   (41.8)        (46.7)
Research and Development                            (28.8)        (20.7)
                                                 --------      -------- 
   Subtotal Segments                                 11.0          17.1
Corporate                                           (24.0)        (24.0)
                                                 --------      -------- 
    Total                                        $  (13.0)     $  ( 6.9)
                                                 --------      -------- 
                                                 --------      -------- 
</TABLE>

RESTRUCTURING CHARGE

As part of the restructuring and other charges recognized in the fourth 
quarter of 1997, the Company recorded a charge of approximately $150.0 
million related to an involuntary severance program. In 1998, the Company 
extended this program and recorded an additional charge of approximately 
$50.0 million bringing the total charge recorded for the involuntary 
severance program to approximately $200.0 million. These charges included 
pension curtailment costs related to this program of $7.5 million and $2.6 
million in 1997 and 1998, respectively, that have been reflected as non-cash 
items in the Company's consolidated statement of cash flows for those years. 
Under the 1997 severance program, including the extension in 1998, 
approximately 2,800 employees are expected to leave the Company 
(approximately 46% from Global Operations, approximately 40% from the 
regional segments, of which approximately half will be from the European 
Region, and less than 10% from Research and Development) by the end of 1999. 
As of March 28, 1999, approximately 1,660 employees had been terminated under 
this program. Through March 28, 1999, the Company had made approximately 
$86.0 million of cash payments related to this program. These cash payments 
are expected to be substantially completed by the end of 2000.

LONG-TERM DEBT

In a public offering in February 1999, the Company issued 11 1/2 % Notes due 
2006 (the "2006 Notes") in an aggregate principal amount of $275.0 million. 
The 2006 Notes were placed at par value. The net proceeds of $268.1 million 
from the sale of the 2006 Notes were used primarily for the payment of $200.0 
million aggregate principal amount of the Company's 8% Notes that were due 
March 15, 1999 and for general corporate purposes, including reducing 
outstanding borrowings under the Amended Credit Agreement and short-term 
lines of credit. The indenture, pursuant to which the 2006 Notes were issued 
(the "Indenture"), contains certain covenants that restrict, among other 
things, the Company and its subsidiaries from making certain restricted 
payments, including dividends on and the purchase of the Company's common 
stock and certain other payments; incurring additional debt and issuing 
preferred stock; creating certain liens; entering into sale and leaseback 
transactions; entering into certain transactions with affiliates; entering 
into certain mergers and consolidations or selling all or substantially all 
of the properties or assets of the Company.

                                       7
<PAGE>

OTHER

The Company owned approximately 14% of the common stock of SDI Holding Corp. 
("SDHI") with a book value of approximately $13.8 million at March 28, 1999. 
The Company also owned preferred stock, with a book value of approximately 
$35.0 million at that date, of Sterling Dry Imaging Systems, Inc. ("SDIS") a 
subsidiary of SDHI. In January 1999, Agfa-Gevaert N.V. agreed to acquire 
SDHI, excluding SDIS which, under the acquisition agreement, is to be spun 
off to SDHI's shareholders and not acquired by Agfa-Gevaert N.V. During the 
first quarter of 1999, the Company recorded a non-cash charge of $35.0 
million to establish a reserve for the value of its preferred stock 
investment in SDIS as circumstances regarding the pending acquisition of SDHI 
have clarified based on discussions with parties involved in the transaction.

SUBSEQUENT EVENT

Effective March 31, 1999, the Company entered into an amendment to its $350 
million Amended and Restated Credit Agreement dated December 11, 1998 (the 
"Amended Credit Agreement".) This amendment revised the requirements for the 
calculation of certain financial ratios required under the Amended Credit 
Agreement. The amendment also incorporated in the covenants under the Amended 
Credit Agreement certain covenants from the Company's Indenture which the 
lenders considered to be more restrictive as was their right under the 
Amended Credit Agreement.

LEGAL PROCEEDINGS 

Certain legal proceedings to which the Company is a party are discussed in 
Part II, Item 1 of this filing on Form 10-Q.

INDEPENDENT AUDITORS' REPORT

The March 29, 1998 and March 28, 1999 condensed consolidated financial 
statements included in this filing on Form 10-Q have been reviewed by KPMG 
LLP, independent certified public accountants, in accordance with established 
professional standards and procedures for such review. The report by KPMG LLP 
commenting upon their review of the condensed consolidated financial 
statements appears on the following page.

                                       8
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
Polaroid Corporation:

We have reviewed the condensed consolidated balance sheet of Polaroid 
Corporation and subsidiary companies as of March 28, 1999 and the related 
condensed consolidated statements of earnings and cash flows for the 
three-month periods ended March 29, 1998 and March 28, 1999. These condensed 
consolidated financial statements are the responsibility of the Company's 
management.

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

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

We have previously audited, in accordance with generally accepted auditing 
standards, the consolidated balance sheet of Polaroid Corporation and 
subsidiary companies as of December 31, 1998, and the related consolidated 
statements of earnings, cash flows and changes in common stockholders' equity 
for the year then ended (not presented herein); and in our report dated 
January 20, 1999, except for Note 8 to which the date is February 17, 1999, 
we expressed an unqualified opinion on those consolidated financial 
statements. In our opinion, the information set forth in the accompanying 
condensed consolidated balance sheet as of December 31, 1998, is fairly 
stated, in all material respects, in relation to the consolidated balance 
sheet from which it has been derived.

                                                      KPMG LLP




Boston, Massachusetts
April 14, 1999



                                       9
<PAGE>

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

GENERAL

The Company is managed in five primary segments: the Americas Region; the 
European Region; the Asia Pacific Region; Global Operations; and Research and 
Development. The Americas Region is comprised of all countries in North and 
South America. The European Region includes all of the countries of the 
European continent, the United Kingdom, Russia, the middle-eastern countries 
and the African continent. The Asia Pacific Region includes Japan, China, 
Australia and the rest of Asia. Global Operations includes worldwide 
activities associated with manufacturing, distribution, logistics, new 
product manufacturing development and inventory management. Research and 
Development is comprised of corporate research and engineering activities.

Additionally, the Company has one category called Corporate, which is not a 
segment. This category includes central marketing, general and administrative 
costs and certain other corporate costs, including worldwide restructuring 
and other charges.

The Company evaluates the performance of its segments primarily based on 
profit/(loss) from operations with a recognition of assets employed. For the 
regional segments, profit/(loss) from operations is based on standard product 
costs excluding inter-company margins and therefore reflects a contribution 
to worldwide Company profits related to segment third party sales. 
Non-standard manufacturing costs are reported as incurred in the Global 
Operations segment along with new product manufacturing development costs and 
regional warehousing and distribution costs. The Research and Development 
segment is also reported on an as-incurred cost basis.

The Company uses quantitative terms to explain changes in sales unit volumes. 
The table below quantifies the use of these terms:

TERM                      REPRESENTS CHANGE OF

low single digits            1  to   4 percent
high single digits           5  to   9 percent
low double digits           10  to  19 percent
mid double digits           20  to  39 percent
high double digits          40  to  99 percent


FIRST QUARTER RESULTS

Sales
-----

Worldwide net sales to customers for the first quarter of 1999 were $379 
million, a 3% decrease compared with worldwide net sales of $391 million in 
the first quarter of 1998. The principal reason for this decrease was lower 
sales of instant film -- especially the European Region (including Russia). 
This reduction in revenues was offset in part by higher revenues from the 
sales of new products. On a unit basis, worldwide shipments of instant 
cameras, led by new products, totaled 1.2 million in the first quarter of 
1999 compared with .9 million in the first quarter of 1998. Worldwide unit 
shipments to customers of instant film decreased by low single digits in the 
first quarter of 1999 compared with the first quarter of 1998.

Sales in the Americas Region increased 7% to $227 million during the first 
quarter of 1999 from $212 million in the first quarter of 1998. (These 
regional totals include sales in the United States of $198 million in 1999 
and $181 million in 1998.) The Americas' increase was due to several factors 
including revenues from products other than those in core instant imaging 
(including sunglasses), and higher revenues in the core instant imaging 
products, especially sales of new products and instant film. On a unit basis, 
shipments to customers of instant cameras increased 13%, while shipments to 
customers of instant film increased by low single digits in the first quarter 
of 1999 compared with the same period of 1998. In addition, at the United 
States retail sales level, the Company estimates that the unit volume of 
integral film decreased by high single digits, while instant cameras 
increased by low double digits compared with the first quarter of 1998.


                                       10
<PAGE>

Sales in the European Region decreased 24% to $87 million for the first 
quarter of 1999 compared with $114 million in the same period of 1998. The 
decrease was primarily due to lower instant film sales. In addition, to a 
lesser degree, sales were adversely affected by declines in products other 
than core instant imaging, instant cameras, and digital products. The 
reduction in instant film sales was due to a decline in channel inventories, 
a weak economy in Russia and lower retail demand. On a unit basis, shipments 
to customers of instant cameras decreased 33% while shipments to customers of 
instant film decreased by mid double digits in the first quarter of 1999 
compared with the first quarter of 1998.

Sales in the Asia Pacific Region were $65 million in both the first quarter 
of 1999 and 1998. Sales in 1999 benefitted from revenues from new products in 
Japan and, to a lesser degree, a weaker U.S. dollar. These favorable factors 
were largely offset, however, by lower sales of instant film in the region. 
These lower sales reflect, in part, continued weakness of the developing 
markets in the region. On a unit basis, including new products, shipments to 
customers of instant cameras increased over 200% and shipments to customers 
of instant film increased by low single digits.

Profit/(Loss)
-------------

In the first quarter of 1999, the Company incurred an operating loss of $7 
million compared with an operating loss of $13 million in the first quarter 
of 1998. This improvement reflected lower spending (primarily in research and 
development) and profits from new products, offset in part by higher costs in 
Global Operations and the impact of lower sales of instant film.

Profit from operations in the Americas Region was $58 million in the first 
quarter of 1999 compared with $52 million in the first quarter of 1998. This 
increase was largely due to the impact of higher instant film sales.

Profit from operations in the European Region was $13 million in the first 
quarter of 1999 compared with $14 million in the first quarter of 1998. The 
adverse margin impact of lower instant film sales in the region in the first 
quarter of 1999 compared with the same quarter in 1998 was largely offset by 
lower spending.

The profit from operations in the Asia Pacific Region declined to $14 million 
in the first quarter compared with $16 million in the same period in 1998. 
The increased profit from the sale of new instant camera and film products in 
the first quarter of 1999 compared with the first quarter of 1998 was more 
than offset by the impact of lower instant film sales.

Global Operations costs were $47 million in the first quarter of 1999 
compared with $42 million in the first quarter of 1998. This increase was due 
to several factors associated with the manufacturing of the Company's 
products.

Research and Development costs were $21 million in the first quarter of 1999 
compared with $29 million in the first quarter of 1998. This reduction in 
cost reflects a streamlining of this segment and a focusing of the Company's 
research and development efforts.

Corporate costs were $24 million in both the first quarter of 1999 and 1998.

The net of other income and other expense for the first quarter of 1999 was 
an expense of $23 million compared with an expense of $2 million in 1998. In 
1999, net other expense included a non-cash charge of $35 million and a gain 
on the sale of excess real estate totaling $11 million. The $35 million 
charge was recorded by the Company to establish a reserve for the book value 
of its preferred stock investment in Sterling Dry Imaging Systems, Inc. 
("SDIS"). This reserve was established because the circumstances around the 
pending acquisition of SDIS' parent by Agfa-Gevaert N.V. have clarified based 
on discussions with parties involved in this transaction.


                                       11
<PAGE>

Interest expense was $18 million and $12 million in the first quarter of 1999 
and 1998, respectively. The increase in 1999 was primarily due to higher 
levels of debt and, to a lesser degree, higher interest rates.

The effective tax rate was 35% for both the first quarter of 1999 and 1998.

The net loss was $31 million in the first quarter of 1999, or $.70 basic 
loss per common share, compared with a net loss of $17 million, or $.39 basic 
loss per common share in the first quarter of 1998. Diluted loss per common 
share was the same as the basic loss per common share in the first quarter of 
1999 and 1998.

FINANCIAL LIQUIDITY AND CAPITAL RESOURCES

At March 28, 1999, the Company's cash and cash equivalents amounted to $68 
million, compared to $105 million at December 31, 1998. The primary sources 
of cash in the first quarter of 1999 were cash flows provided by financing 
activities and the sale of real estate and other assets. Working capital 
increased to $414 million at March 28, 1999 from $360 million at December 31, 
1998. This net increase was due to several factors including higher prepaid 
taxes and expenses, lower cash, receivables and inventories, and reductions 
in short-term debt, payables and other accruals.

In the first quarter of 1999, capital spending totaled $47 million and 
depreciation expense was $23 million. This compares with capital expenditures 
of $35 million and depreciation expense of $26 million during the first 
quarter of 1998. The increase in capital spending was primarily related to 
spending associated with the Company's new enterprise-wide software system. 
Capital spending in both years was also a combination of other on-going 
capital programs, spending related to new products, and spending associated 
with the Company's efforts to consolidate real estate.

During the first quarter of 1999, the Company also expended approximately $16 
million to make payments relating to the 1997 involuntary severance program 
portion of the December 1997 restructuring (including the extension of this 
program in 1998) and $7 million to pay dividends to common stockholders.

In the first quarter of 1999, the Company sold certain assets primarily 
consisting of real estate and other assets, which resulted in cash proceeds 
of approximately $37 million.

The Company has three sources of debt financing: short-term lines of credit; 
the Amended Credit Agreement (as defined below); and the Company's 
outstanding 6 3/4% Notes due 2002, 7 1/4% Notes due 2007 and 11 1/2% Notes 
due 2006 (the "2006 Notes").

At March 28, 1999, the Company had outstanding $299 million in short-term 
debt. This was comprised of $230 million of borrowings under the Company's 
Amended Credit Agreement and $69 million borrowed under the Company's 
short-term lines of credit.

In December 1998, the Company entered into an amendment to its existing $350 
million Credit Agreement and amended that agreement effective March 31, 1999. 
The amended agreement (the "Amended Credit Agreement") provides for loans up 
to $350 million, will expire on December 31, 2001 and will be available on a 
revolving basis prior to its expiration. In connection with the Amended 
Credit Agreement, the Company entered into a collateral agreement and certain 
related documents that granted the lenders under the Amended Credit Agreement 
a first security interest in certain of the Company's domestic inventories 
and accounts receivable. This security will be released if the Company's 
credit rating is BBB- or higher by Standard & Poor's ("S&P") and Baa3 or 
higher by Moody's Investor's Services, Inc. ("Moody's").

The Amended Credit Agreement restricts, among other things, the Company's 
ability to do the following: to make certain capital expenditures; to make 
certain restricted payments; to incur debt in addition to the issuance of the 
2006 Notes; to incur certain liens; to make certain investments; to enter 
into certain sale and leaseback transactions; and to merge, consolidate, sell 
or transfer all or substantially all of the Company's assets, subject to 
certain conditions; and to enter into certain transactions with affiliates. 
Certain of these covenants were made more restrictive by amendment No. 1 to 
the Amended Credit Agreement by incorporating certain provisions of the 
covenants in the Indenture (as defined below).

The Amended Credit Agreement also requires the Company to maintain financial 
ratios relating to the maximum level of debt to EBITDA (earnings before 
interest, taxes, depreciation and amortization) and minimum interest 
coverage. In addition, the 


                                       12
<PAGE>

Amended Credit Agreement affords the lenders the right to incorporate 
covenants given to holders of notes or other securities of the Company which, 
in their judgement, are more restrictive. These lenders exercised this right 
to incorporate certain covenants included in the 2006 Notes in the Amended 
Credit Agreement.

The Amended Credit Agreement restricts the Company's ability to pay dividends 
and repurchase stock. This agreement limits the payment of dividends and 
repurchase of the Company's common stock to $3.75 million per quarter in 
excess of the value of ESOP shares issued and proceeds from the exercise of 
stock options on a cumulative basis. Since the Company issues ESOP shares to 
all qualified United States employees as part of compensation, this amount is 
expected to total approximately $14 million per annum. As a result, the 
Company believes it is unlikely that this limitation will prevent it from 
continuing the current dividend payment of $.60 per share, per annum. In 
addition, the indenture, pursuant to which the 2006 Notes were issued (the 
"Indenture"), also includes restrictions on dividends which the Company 
considers to be less restrictive than those contained in the Amended Credit 
Agreement.

Funds borrowed under the Amended Credit Agreement bear interest, at the 
Company's option, at either the prime rate of Morgan Guaranty Trust Company 
("Prime") plus a margin; or LIBOR on Euro-dollar loans ("Euro-dollar loans"), 
plus a margin. The margin ranges from 0.085% to 2.0% for Prime-based loans 
and from 0.275% to 3.0% for Euro-dollar loans, based on the Company's credit 
ratings. In addition, the Company will pay the lenders a commitment fee on 
unused commitments ranging from 0% to 0.025% on an annual basis, depending on 
the Company's credit rating, and a fee to the administrative agent.

At March 28, 1999 the Company and several of its subsidiaries had short-term 
lines of credit with a number of commercial banks that totaled $125 million 
in maximum commitments, of which $69 million was outstanding. One of these 
lines of credit, for a maximum amount of 115 million Deutsche Marks (or 
approximately $64 million at March 28, 1999), is on a committed basis with 
Deutsche Bank de Bary N.V.("Deutsche Bank"), the Dutch branch of Deutsche 
Bank A.G. A total of $21 million was outstanding under this agreement at 
March 28, 1999. The interest rate on this facility is LIBOR plus 2.0%. This 
facility, which permits borrowings on terms up to 6 months, may be terminated 
on three month's notice by either party. In April 1999, Deutsche Bank 
notified the Company of its intent to terminate the facility. However, the 
Company and Deutsche Bank are currently discussing keeping the line in place 
and the Company granting security for the Company and its subsidiaries' 
obligations.

At March 28, 1999, the Company had, in addition to $120 million under the 
Amended Credit Agreement, available overseas lines of credit totaling 
approximately $56 million to support international operations.

The Company issued in February 1999, in a public offering, the 2006 Notes in 
an aggregate principal amount of $275 million. The 2006 Notes were placed at 
par value. The net proceeds of $268 million from the sale of the 2006 Notes 
were used primarily for the payment of $200 million aggregate principal 
amount of the Company's 8% Notes that were due March 15, 1999 and for general 
corporate purposes, including reducing outstanding borrowings under the 
Amended Credit Agreement and short-term lines of credit. Since the Company 
refinanced the 8% Notes, the principal amount of these notes at December 31, 
1998 was classified as a long-term note payable. The Indenture contains 
certain covenants that restrict, among other things, the Company and its 
subsidiaries from making certain restricted payments, including dividends on 
and the purchase of the Company's common stock and certain other payments; 
incurring additional debt and issuing preferred stock; creating certain 
liens; entering into sale and leaseback transactions; entering into certain 
transactions with affiliates; and entering into certain mergers and 
consolidations or selling all or substantially all of the properties or 
assets of the Company.

The Company's cost of borrowing is dependent, in part, upon the Company's 
corporate long-term debt credit ratings. Currently, the Company's long-term 
debt is rated BB- by S&P, Ba3 by Moody's and BB by Duff & Phelps Credit 
Ratings Co.'s, ("D&P"). In late 1998, S&P lowered its long-term debt rating 
from BBB- to BB- with a negative outlook. Also in late 1998, D&P's lowered 
its long-term debt ratings from BBB to 

                                       13
<PAGE>

BB. In early 1999, Moody's lowered its long-term debt rating from Baa3 to Ba3 
with a negative outlook.

In October 1997, the Company's Board of Directors authorized the repurchase 
of up to five million shares of the Company's common stock over three years. 
During the first quarter of 1999, the Company did not repurchase any of its 
common stock. As of March 28, 1999, approximately 2.8 million shares remain 
to be purchased under the current program. Given the restricted payment 
covenants included in the Amended Credit Agreement and in the Indenture, it 
is unlikely that the Company will complete this repurchase plan within the 
program's three year period. When the Company does repurchase its common 
stock, it is its policy to repurchase its common stock on the open market, in 
privately negotiated transactions or otherwise (which may include 
transactions with Polaroid retirement plans, including the employee stock 
ownership portion of the Polaroid Retirement Savings Plan). The timing and 
amounts of future purchases under this program depend upon many factors, 
including market conditions, and the Company's business and financial 
condition and are limited by the terms of the Amended Credit Agreement and 
the Indenture.

The Company owned approximately 14% of the common stock of SDI Holding Corp. 
("SDHI") with a book value of approximately $14 million at March 28, 1999. 
The Company also owned preferred stock, with a book value of approximately 
$35 million at that date, of SDIS, a subsidiary of SDHI. In January 1999, 
Agfa-Gevaert N.V. agreed to acquire SDHI, excluding SDIS which, under the 
acquisition agreement, is to be spun off to SDHI's shareholders and not 
acquired by Agfa-Gevaert N.V. During the first quarter of 1999, the Company 
recorded a non-cash charge of $35 million to establish a reserve for the 
value of its preferred stock investment in SDIS as circumstances regarding 
the pending acquisition of SDHI have clarified based on discussions with 
parties involved in the transaction. If this transaction occurs, the Company 
expects to receive cash for at least the book value of its investment in SDHI.

The Company believes that the availability of funds under the Amended Credit 
Agreement, funds generated from operations and additional debt capacity will 
be adequate for at least the next twelve months to meet working capital 
needs, to fund spending for growth and maintenance of existing operations and 
to make payments associated with the December 1997 restructuring (including 
the extension to the involuntary severance program in 1998).

FOREIGN CURRENCY EXCHANGE

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

To minimize the adverse impact of currency fluctuations on net monetary 
assets denominated in currencies other than the relevant functional currency 
("nonfunctional currencies"), the Company engages in nonfunctional 
currency-denominated borrowings. The Company determines the aggregate amount 
of such borrowings based on forecasts of each entity's nonfunctional 
currency-denominated net monetary asset position and the relative strength of 
the functional currencies compared to the nonfunctional currencies. These 
borrowings create nonfunctional currency-denominated liabilities that hedge 
the Company's nonfunctional currency-denominated net monetary assets. Upon 
receipt of the borrowed nonfunctional currency-denominated funds, the Company 
converts those funds to the functional currency at the spot exchange rate. 
Exchange gains and losses on the nonfunctional currency-denominated 
borrowings are recognized in earnings as incurred. At March 28, 1999, the 
amount of the Company's outstanding short-term debt incurred for hedging 
purposes was $69 million.

From time to time, the Company may use over-the-counter currency exchange 
swaps to reduce the interest expense incurred through the borrowings 
described above and to replace the hedge created by those borrowings. When a 
currency exchange swap is used to replace a hedge, the currency received by 
the Company in the spot market component of the currency exchange swap is 
used to close out the borrowings and, simultaneously, the hedge is 
re-instituted through a forward contract (not exceeding 

                                       14
<PAGE>

six months). The net interest value of the currency exchange swap contract is 
amortized to earnings over the life of the contract. Exchange gains or losses 
on the foreign currency obligation component of the forward contract are 
recognized in earnings as incurred in each accounting period. The Company 
does not enter into currency exchange swaps for trading purposes. At March 
28, 1999, the aggregate notional value of the Company's outstanding 
short-term foreign exchange swap contracts was $50 million.

Since the Company has limited flexibility to increase prices in local 
currency to offset the adverse impact of foreign exchange, the Company may 
also purchase foreign currency call options. The term of these call options 
typically does not exceed 18 months. The Company's purchase of call options 
allows it to protect a portion of its expected foreign currency-denominated 
revenues from adverse foreign currency exchange movement. The Company 
typically does not buy call options, which can be exercised prior to the 
expiration date, nor does it typically write options or purchase call options 
for trading purposes. The Company amortizes premiums over the term of the 
option and defers any gains for its call options activity until the option 
exercise date. At March 28, 1999, option contracts with a notional value of 
$185 million were outstanding.

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

IMPACT OF INFLATION

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

NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Financial 
Accounting Standards Board Statement No. 133, "Accounting for Derivative 
Instruments and Hedging Activities" (FAS 133) that establishes accounting and 
reporting requirements for derivative instruments and for hedging activities. 
FAS 133 requires companies to recognize all derivatives as either assets or 
liabilities in the statement of financial position at fair value. If certain 
conditions are met, a derivative may be specifically designated as a hedge of 
the exposures to changes in fair value of recognized assets or liabilities or 
unrecognized firm commitments, a hedge of the exposure to variable cash flows 
of a forecasted transaction, or a hedge of the foreign currency exposure of a 
net investment in a foreign operation, unrecognized firm commitments, an 
available for sale security or a foreign-currency denominated forecasted 
transaction. The accounting for changes in fair value under FAS 133 depends 
on the intended use of the derivative and the resulting designation. FAS 133 
must be adopted for all fiscal quarters of fiscal years beginning after June 
15, 1999. The Company is currently evaluating the effect of this statement on 
its reported financial results.

EURO CONVERSION

On January 1, 1999, eleven of the fifteen member countries of the European 
Union established fixed conversion rates between their existing sovereign 
currencies (the "legacy currencies") and one common currency (the "Euro"). 
The participating countries had to adopt the Euro as their common legal 
currency on that date. The Euro is now traded on currency exchanges and may 
be used in 

                                       15
<PAGE>

business transactions. On January 1, 2002, new Euro-denominated bills and 
coins will be issued by participating countries. The legacy currencies will 
be withdrawn from circulation as legal tender effective January 1, 2002. 
During the period from January 1, 1999 and June 30, 2002, parties may use 
either the Euro or a participating country's legacy currency as legal tender.

In 1998, the Company formed an Economic and Monetary Union Steering Committee 
and Project Team (the "EMU Committee"). The EMU Committee has analyzed the 
impact of the Euro conversion on the Company in a number of areas, including 
the Company's information systems, product pricing, finance and banking 
resources, foreign exchange management, contracts and accounting and tax 
departments. While the Company is in the process of making certain 
adjustments to its business and operations to accommodate the Euro 
conversion, the EMU Committee believes, based on information available at the 
time and numerous assumptions, that this process of Euro conversion will 
not have a material adverse impact on the Company's financial position and 
results of operations.

YEAR 2000 DATE CONVERSION

The Year 2000 problem is the result of computer programs and embedded chips 
being written with two instead of four digits to define the applicable year. 
As a result, computer programs and embedded chips that use date-sensitive 
software may recognize a date using "00" as the year 1900 rather than the 
year 2000. If the Company, or third parties with whom the Company has a 
material relationship, do not correct a material Year 2000 problem, the 
result could be an interruption in, or a failure of, certain normal business 
activities.

To prepare for the year 2000, the Company formed a Year 2000 Steering 
Committee (the "Year 2000 Committee") and dedicated officers to identify the 
major areas of the Company that will be affected by the Year 2000 problem and 
to manage a three-step process of (i) assessing Year 2000 compliance, (ii) 
analyzing possible solutions and implementing remedial programs and (iii) 
testing such programs for each major area. To manage the process of becoming 
Year 2000 compliant across its major areas, the Year 2000 Committee has taken 
the following steps: it has established, and periodically evaluates and 
updates, a master schedule for each major area (ranked by the priority of its 
tasks), has retained a number of consultants to assist the Company's 
verification and validation processes, has licensed several software 
applications and is preparing contingency plans in the event that the Company 
or third parties fail to or are unable to make their systems Year 2000 
compliant in a timely fashion. In addition, the Company is in the process of 
installing a new enterprise-wide software system for most domestic and 
foreign locations. This new software will primarily facilitate the Company's 
effort to operate more efficiently and will also benefit the Company in 
becoming Year 2000 compliant. What follows is a summary of the six major 
areas identified by the Year 2000 Committee and the status of the three-step 
process for each.

The first major area comprises the business information systems that support 
the collection, processing and management of the Company's many internal data 
and recording needs, including those regarding order entry and billing, 
accounts receivable, accounts payable, product, customer and employee 
information, general ledger entries and related accounting functions, among 
others (collectively "Business Applications"). The Year 2000 Committee has 
completed the assessment phase for the Business Applications area. As of 
March 28, 1999, the Company had remediated, tested and placed into production 
approximately 66% of the Business Applications. The remaining implementation 
of the new enterprise-wide software system will replace approximately an 
additional 14% of the Business Applications. The Year 2000 Committee is 
forecasting, based on current information, completion of the entire Business 
Applications area by early in the third quarter of 1999.

The second major area is the Company's extensive computer hardware and 
software systems, including hardware platforms, telecommunications equipment 
and scientific and engineering applications and the networking of these 
systems throughout the Company's factories and offices (collectively, "IT 
Infrastructure"). The Year 2000 Committee has completed the assessment phase 
of the IT Infrastructure area and by March 28, 1999, it had remediated, 
tested and placed into production approximately 

                                       16
<PAGE>

75% of the IT Infrastructure area. The Company expects that the remaining 
portions will be completed by mid-year 1999.

The third major area is the embedded chips and related systems that enable 
the Company to manufacture products and track and control certain inventory 
(collectively, "Shop Floor"). The Year 2000 Committee has completed the 
assessment phase of the Shop Floor systems and as of March 28, 1999, had 
completed approximately 20% of the Shop Floor remediation. The Year 2000 
Committee's remediation efforts are complicated by the high degree to which 
Shop Floor applications are customized for the Company's manufacturing 
systems and the need to accommodate ongoing production schedules. Based on 
current information, the Year 2000 Committee believes that the remediation 
and testing phases of the Shop Floor area will be completed in the third 
quarter of 1999.

The fourth major area is the Company's physical plant, including the 
security, heating and ventilation of factories and other buildings 
(collectively, "Facilities"). The Year 2000 Committee has completed the 
assessment phase of the Facilities area and as of March 28, 1999, had 
certified 78% of this area as compliant. In addition remediation is currently 
underway in 14% of the Facilities area. Based on current information, the 
Year 2000 Committee expects that remediation and testing of the Facilities 
area will be completed in the third quarter of 1999.

The fifth major area relates to the Company's products. The majority of the 
Company's traditional instant camera and film products are not vulnerable to 
the Year 2000 problem. The Committee is continuing its assessment to 
determine any other product vulnerability and to evaluate the possible 
upgrading of certain products in a cost-effective manner. The Company has 
initiated remediation and testing for certain of these products. Since 
October 1, 1998, the Company has been shipping only Year 2000 compliant 
products to its customers. Based on current information, the Year 2000 
Committee expects to complete all phases related to the Company's products in 
the third quarter of 1999.

The sixth major area is the Company's material relationships and transactions 
with third parties, including the ability of suppliers to provide materials 
and services to the Company and the ability of customers to order and pay for 
products from the Company (collectively, "Third Parties"). The Year 2000 
Committee is in the assessment phase of the Third Parties area. The Company 
has identified the most critical of the Company's Third Parties 
relationships, is communicating with these companies to address their state 
of readiness, is identifying potential alternative vendors and has retained a 
consultant to assist its efforts. Based on current information, the Year 2000 
Committee is forecasting the completion of all phases of the Third Parties 
area, including the possible replacement of existing vendors, by the end of 
the third quarter of 1999.

The Year 2000 Committee is developing contingency plans to address the most 
reasonably likely worst case scenario resulting from Year 2000 problems. But, 
because the Company has not yet completed all phases of the Year 2000 
project, it has not been able to formulate these plans in their entirety or 
to forecast the total cost of contingency plans for each of the six major 
areas. The Year 2000 Committee expects to complete contingency plans during 
the first half of 1999.

The Year 2000 Committee has forecasted that the total cost of completing its 
Year 2000 project to be approximately $20 million to $25 million. The total 
projected amount of $20 million to $25 million includes internal staff costs 
associated with the Year 2000 project but does not include the estimated 
costs of the Company's new enterprise-wide software system or a forecast of 
the total cost for contingency plans for each of the six major areas. The 
Company has spent approximately $10 million of the projected total as of 
March 28, 1999. The Company expects to fund the cost of the Year 2000 project 
from general corporate funds.

The failure of the Company or the failure of its material third party vendors 
and customers to make their systems Year 2000 compliant could have a material 
adverse impact on the results of operations and financial condition of the 
Company. While recognizing the risks involved, the Company believes that the 
steps that the Year 2000 Committee has taken and is expected to take will 
significantly reduce the Company's exposure to the Year 2000 problem. The 
Year 2000 problem has, however, certain inherent risks that are difficult to 
measure, including the Company's ability to test all material remediated 
systems in a timely fashion and the 

                                       17
<PAGE>

readiness of third party vendors and customers. There can be no assurance 
that the Company will foresee all Year 2000 problems or remediate them on a 
timely basis.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Certain statements in this Management's Discussion and Analysis may be 
forward looking in nature, or "forward-looking statements" as defined in the 
Private Securities Litigation Reform Act of 1995 (the "Act"). The Company 
desires to take advantage of the "safe harbor" provisions of the Act. The 
Company therefore cautions shareholders and investors that actual results may 
differ materially from those projected in or implied by any forward-looking 
statement as the result of a wide variety of factors, which include but are 
not limited to those set forth below. Many of the important factors below 
have been discussed in prior filings by the Company with the Securities and 
Exchange Commission.

Ability to implement business strategy
--------------------------------------

The Company has implemented a business strategy to revitalize its instant 
imaging business which calls for, among other steps, the introduction of 
between 20 and 25 new products each year, the expansion of certain profitable 
businesses, and the continued reduction of costs and the improvement of 
operating efficiencies from its restructurings. As part of this strategy, the 
Company is promoting new uses of, and new markets for, its products and 
technology and is targeting new demographic segments, such as children, teens 
and young adults, through product innovations and marketing campaigns. There 
can be no assurance that the Company will be able to effectively implement 
this strategy. If this strategy is not successful the Company's business and 
results of operations could be negatively impacted. Similarly, a decline in 
retail demand could have a material adverse effect on the Company's business 
and financial results.

Net losses
----------

The Company experienced net losses for four of the last five fiscal years. 
These losses have been primarily due to the cost of restructurings, dealers' 
reduction in their inventories of the Company's products and the 
deterioration of economic conditions in the emerging markets in which the 
Company operates. If the Company continues to experience net losses, it may 
be required to find additional sources of financing to fund operating 
deficits, implement its business strategy and meet anticipated capital 
expenditures, research and development costs and financing commitments. There 
can be no assurance that if the Company needs to obtain such financing, that 
it will find it on acceptable terms or that it would be permitted under the 
Indenture or the Amended Credit Agreement.

Developing digital imaging products market
------------------------------------------

The Company's ability to effectively compete in the digital imaging market is 
dependent on its ability to develop new digital imaging products, including 
digital hardware with chemical-based media, in a profitable and timely manner 
and to market them effectively. In many instances, the Company will enhance 
its ability to succeed by developing meaningful strategic business 
relationships with other companies. The market for digital imaging products 
is, however, highly competitive in price, quality and product performance. 
Because it is a relatively new market, with high research and development and 
other costs, it is also currently a low margin business. Many of the 
Company's competitors have greater financial and other resources and have 
more experience serving the demands of these markets.

Accordingly, there can be no assurance that the Company will succeed in the 
digital imaging business. In addition, markets for digital imaging products 
are increasing rapidly and over time may erode either the growth or the 
absolute size of the Company's instant photography business.

Failure to market new products
------------------------------
                              
                                  18
<PAGE>

The Company's plan to increase profits relies on the development of new 
products and their speedy introduction into the market. Future operating 
results may be negatively affected if the Company is unable to promptly 
design, develop, manufacture and market innovative imaging products that 
receive customer acceptance. In addition, because some of the Company's new 
products will replace or compete with existing products, its operating 
results could be adversely affected even if the Company is successful in 
developing and introducing new products.

Substantial level of debt
-------------------------

The Company has a significant amount of debt. The Company's high level of 
debt could have important consequences to investors and stockholders. For 
example, it could:

-        make it more difficult to satisfy its debt and other obligations;
-        increase the Company's vulnerability to general adverse economic and
         industry conditions;
-        limit the Company's ability to fund future working capital needs,
         capital expenditures, acquisitions, research and development costs and
         other general corporate requirements;
-        require the Company to dedicate a substantial portion of its cash flow
         from operations to payments on its debt, thereby reducing the
         availability of the Company's cash flow to fund working capital needs,
         capital expenditures and acquisitions, research and development efforts
         and other general corporate purposes;
-        limit the Company's flexibility in planning for, or reacting to,
         changes in its business and the industry in which it operates;
-        place the Company at a competitive disadvantage compared to its
         competitors that are less leveraged; and
-        limit its ability to borrow additional funds.


Restrictions imposed by the company's debt and financial flexibility
--------------------------------------------------------------------

The Company has financial and other restrictive covenants in the Company's 
debt instruments including restrictions in the event of a change in control. 
Failure to comply with these covenants could result in an event of default 
under the Amended Credit Agreement, the Indenture, and certain of the 
agreements governing short-term debt. If such default is not cured or waived 
it could have a material adverse effect on the Company.

The Company's ability to make payments on and to refinance its debt, to 
execute its business strategy, to make capital expenditures and to fund 
research and development costs will depend on its ability to generate cash in 
the future. This, to a certain extent, is subject to general economic, 
financial, competitive, legislative, regulatory, exchange rate fluctuation 
and other factors, including retail demand and dealer inventory practices, 
that are beyond the Company's control. It is also subject to the Company's 
success in implementing its strategies. There can be no assurance that the 
Company will generate sufficient cash flow or that future borrowings will be 
available to the Company under the Amended Credit Agreement or short-term 
lines of credit in an amount sufficient to enable the Company to repay its 
debt and to fund other liquidity needs.

Failue to reduce cycle time
---------------------------

The Company has already reduced and is committed to further reducing its 
cycle time in bringing new products to market. There is no guarantee that the 
Company will succeed in this endeavor. Shorter cycle times present a 
challenge for the effective management of the transition from existing 
products to new products and could negatively impact the Company's future 
operating results.

Highly competitive markets
--------------------------

                                       19

<PAGE>

The timing and introduction of new products by the Company's competitors 
could have a material negative impact upon the Company's introduction of new 
or enhanced products. The Company has competitors worldwide, ranging from 
large corporations to smaller and more specialized companies. In the instant 
imaging market, the Company faces competition from Fuji Photo Film Co., Ltd. 
("Fuji"), which has introduced selected new competitive products in Japan and 
Europe. In the digital imaging market, the Company faces competition from 
Eastman Kodak Company, Fuji, Hewlett-Packard Company, Canon U.S.A., Inc., 
Sony Corporation and others. Many of the Company's competitors are larger and 
have greater financial and other resources. There can be no assurance that 
the Company will be able to compete successfully and its failure to do so 
could have a material adverse effect on its business and financial results.

Customer concentration
----------------------

One customer, Wal-Mart Stores Inc., comprises over 10% of the Company's 
sales. Sales to Wal-Mart totaled 11.9%, 12.5% and 13.0% of the Company's 
total annual net sales in 1996, 1997 and 1998 respectively. There has been no 
major change in the importance of this customer during the first quarter of 
1999.

Emerging markets
----------------

The Company continues to believe that the emerging markets in all regions in 
which it operates may offer attractive opportunities in the future. These 
markets are, however, considerably less stable than more established markets 
and continue to be troubled. For the foreseeable future, the Company does not 
anticipate that it will generate revenues in material amounts from Russia or 
certain other emerging markets. In Asia, the currency crisis and instability 
of the financial system have continued to negatively affect the Company's net 
sales. Accordingly, there can be no assurance that it will be able to 
increase its revenues from the emerging markets in which it operates.

Foreign exchange rate fluctuations
----------------------------------

The Company sells and markets its products worldwide. A major risk associated 
with such worldwide operations is the fluctuation of foreign exchange rates, 
particularly the Japanese Yen and German Mark. Although the Company engages 
in some foreign exchange hedging, fluctuations in foreign currencies could 
have a material adverse effect on the business and financial results of the 
Company.

Raw materials and supplies
--------------------------

The Company is affected by the price and availability of several raw 
materials and supplies, such as chemicals, polyester film base, specialty 
paper and electronic components that the Company uses to manufacture its 
products. The Company therefore could be adversely affected by its inability 
to obtain these raw materials and supplies on favorable terms, and, in 
particular, by an increase in the costs of such raw materials and supplies if 
the Company is unable to pass along such price increases to its customers.

Loss of patents and trademarks
------------------------------

The Company obtains patents where feasible to protect its investment in 
research and development. The ownership of patents contributes to the 
Company's ability to use its inventions and at the same time may provide 
significant patent license revenue.

In addition, the Company owns a number of valuable trademarks, including the 
trademark "Polaroid", which are important to its business. The loss of 
certain significant patents or trademarks would have a material adverse 
effect on the Company's business and financial results.

Potential exposure to environmental liabilities
-----------------------------------------------

The Company's business and facilities are subject to a number of federal, 
state and local laws and regulations, which govern, among other things, the 
discharge of hazardous materials into the air and water as well as the 
handling, storage and disposal of such materials. Under certain environmental 
laws, a current or previous owner or operator of land may be liable for the 
costs of investigation, removal or remediation of hazardous materials at that 
property. These laws typically impose 

                                       20

<PAGE>

liability whether or not the owner or operator of the land knew of, or was 
responsible for, the presence of the hazardous materials or for the disposal 
or treatment of hazardous materials. The owner or operator may also be liable 
for the costs of investigation, removal or remediation of such substances at 
the disposal or treatment site, regardless of whether the affected site is 
owned or operated by that party.

Because the Company owns and operates a number of facilities and because it 
arranges for the disposal of hazardous materials at many disposal sites, the 
Company expects to incur costs for investigation, removal and remediation, as 
well as capital costs associated with compliance with these laws. In 
addition, changes in environmental laws or unexpected investigations and 
clean-up costs could have a material adverse effect on the Company's business 
and financial condition.

Dependence on key personnel
---------------------------

The Company's success depends upon the continued contributions of a number of 
key senior managers and the loss of the services provided by them could have 
a material adverse effect on the Company. In particular, the loss of the 
services provided by Gary DiCamillo, the Chairman and Chief Executive 
Officer, as well as certain other senior managers, could have a material 
adverse effect upon the Company's business and development. If that were to 
occur, there is no assurance that the Company would be able to locate such 
qualified personnel or employ them on acceptable terms or on a timely basis.

In addition, the Company's continued growth depends in part on its continuing 
ability to attract and retain qualified senior managers who can implement the 
Company's business strategy. There can be no assurance that the Company will 
be able to attract and retain such senior managers.

Impact of the year 2000 problem
-------------------------------

The failure of the Company and its material third party vendors and suppliers 
to make their systems Year 2000 compliant could have a material adverse 
impact on the results of operations and financial condition of the Company. 
While recognizing the risks involved, the Company believes that the steps 
that the Year 2000 Committee has taken and is expected to take will 
significantly reduce the Company's exposure to the Year 2000 problem. The 
Year 2000 problem has, however, certain inherent risks that are difficult to 
measure, including the Company's ability to test all material systems in a 
timely fashion and the readiness of third party vendors and suppliers. There 
can be no assurance that the Company will foresee all Year 2000 problems or 
correct them on a timely basis.

                                       21

<PAGE>

PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company, together with other parties, is currently designated a 
Potentially Responsible Party (PRP) by the United States Environmental 
Protection Agency and certain state agencies with respect to the response 
costs for environmental remediation at several sites. The Company believes 
that its potential liability with respect to any site and with respect to all 
sites in the aggregate will not have a materially adverse effect on the 
financial condition or operating results of the Company.

Due to a wide range of estimates with regard to response costs at these sites 
and various other uncertainties, the Company cannot firmly establish its 
ultimate liability concerning these sites. In each case in which the Company 
is able to determine its likely exposure, such amount has been included in 
the Company's reserve for environmental liabilities. The Company's aggregate 
reserve for these liabilities as of March 28, 1999 was $2 million. The 
Company currently estimates that the majority of the $2 million amount 
reserved for environmental liabilities on March 28, 1999 will be payable over 
the next two to three years. The Company's analysis of data which underlies 
its establishment of this reserve is undertaken on a quarterly basis. The 
Company will continue to accrue in its reserve such amounts as management 
believes appropriate from time to time as circumstances warrant.

The Company is involved in various other legal proceedings and claims arising 
in the ordinary course of business. Management believes that the disposition 
of these matters will not have a materially adverse effect on the financial 
condition or results of operations of the Company.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(a)      Not applicable.
(b)      Not applicable.
(c)      Not applicable.
(d)      Not applicable.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None in the first quarter of 1999.


ITEM 5. OTHER INFORMATION

Not applicable.

                                       22

<PAGE>

                    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)    Exhibits:

        ( 3)      Amendment to the Restated Certificate of Incorporation of
                  Polaroid Corporation as of May 14, 1985.

        (10)      Amendment No. 1 to the $350,000,000 Amended and Restated
                  Credit Agreement (the $350,000,000 Amended and Restated Credit
                  Agreement was previously filed in a Current Report on Form 8-K
                  dated January 21, 1999).

        (12)      Ratio of Earnings to Fixed Charges.

        (15)      Letter from KPMG LLP re: unaudited interim
                  financial information.

        (27)      Financial Data Schedule.


(b) Reports on Form 8-K:

  During the first quarter of 1999, the Company filed:

*         a Current Report on Form 8-K dated January 21, 1999 (the Company filed
          its $350,000,000 Amended and Restated Credit Agreement entered into
          December 11, 1998 and its press release which announced the 1998
          fourth quarter and full year results);

*         a Current Report on Form 8-K dated January 28, 1999 (the Company filed
          as an exhibit its Statement of Computation of Ratio of Earnings to
          Fixed Charges for the nine months ended September 28, 1997); and,

*         a Current Report on Form 8-K dated February 18, 1999 (the Company
          reported and filed documents relating to its completion of its
          underwriting offering of $275 million aggregate principal amount of
          its 11 1/2% Notes due 2006 covered by its Shelf Registration 
          Statements on Form S-3 (File Nos. 333-0791 and 333-67647).


                                       23
<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.








                                    POLAROID CORPORATION
                                   -----------------------------------
                                    (Registrant)






         May 12, 1999               Judith G. Boynton
                                   -----------------------------------
                                    Judith G. Boynton
                                    Executive Vice President and
                                    Chief Financial Officer




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