<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        September  26, 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 November 3, 1999: 44,524,580
-------------------------------------------------------------------------------

                        This document contains 38 pages.
                        Exhibit index appears on page 37.

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




<PAGE>



                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                  POLAROID CORPORATION AND SUBSIDIARY COMPANIES
                  CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
             PERIODS ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999
                      (IN MILLIONS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                                          (Unaudited)
                                                                            Third Quarter             Nine Months
                                                                          1998         1999         1998         1999
                                                                        -------       ------      -------       -------
<S>                                                                     <C>           <C>               <C>          <C>
Net sales                                                               $ 448.8       $463.0      $1,304.1     $1,328.8
-----------------------------------------------------------------------------------------------------------------------
    Cost of sales                                                         255.6        268.3         754.4        786.5

    Marketing, research, engineering and administrative expenses          151.6        182.9         516.3        496.5
-----------------------------------------------------------------------------------------------------------------------
Total costs                                                               407.2        451.2       1,270.7      1,283.0
-----------------------------------------------------------------------------------------------------------------------
Profit from operations                                                     41.6         11.8          33.4         45.8

    Other income/(expense)                                                 18.7          2.3          44.3        (19.2)

    Interest expense                                                       14.5         19.8          40.1         57.0
-----------------------------------------------------------------------------------------------------------------------
Earnings/(loss) before income taxes                                        45.8         (5.7)         37.6        (30.4)

    Federal, state and foreign income tax expense/(benefit)                16.0         (1.9)         13.1        (10.6)
-----------------------------------------------------------------------------------------------------------------------
Net earnings/(loss)                                                      $ 29.8       ($ 3.8)     $   24.5      ($ 19.8)
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Basic earnings/(loss) per common share                                   $  .68       ($ .09)     $    .55      ($  .45)

Diluted earnings/(loss) per common share                                 $  .68       ($ .09)     $    .55      ($  .45)
-----------------------------------------------------------------------------------------------------------------------
Cash dividends per common share                                          $  .15        $ .15      $    .45       $  .45

Weighted average common shares used for basic
    earnings/(loss) per share calculation (in thousands)                 43,984       44,382        44,268       44,227

Weighted average common shares used for diluted
    earnings/(loss) per share calculation (in thousands)                 44,070       44,382        44,527       44,227

Common shares outstanding at end of period (in thousands)                43,853       44,450        43,853       44,450
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>



See accompanying notes to condensed consolidated financial statements.

                                       2

<PAGE>



                             POLAROID CORPORATION AND SUBSIDIARY COMPANIES
                                  CONDENSED CONSOLIDATED BALANCE SHEET
                                             (IN MILLIONS)


<TABLE>
<CAPTION>
                                                               (Unaudited)
                                               December 31,   September 26,
Assets                                               1998           1999
---------------------------------------------------------------------------

<S>                                             <C>           <C>
Current assets:
    Cash and cash equivalents                   $    105.0    $     88.0
    Receivables                                      459.6         438.1
    Inventories:
       Raw materials                                  83.5          99.3
       Work-in-process                               190.5         150.5
       Finished goods                                259.3         207.1
-------------------------------------------------------------------------
    Total inventories                                533.3         456.9
    Prepaid expenses and other assets                195.5         231.8
-------------------------------------------------------------------------
Total current assets                               1,293.4       1,214.8
-------------------------------------------------------------------------
Property, plant and equipment
    Gross property, plant and equipment            1,975.9       2,025.7
    Less accumulated depreciation                  1,409.4       1,428.3
-------------------------------------------------------------------------
    Net property, plant and equipment                566.5         597.4
-------------------------------------------------------------------------
Deferred tax assets                                  208.2         205.7
-------------------------------------------------------------------------
Other assets                                         129.6          72.7
-------------------------------------------------------------------------
Total assets                                    $  2,197.7    $  2,090.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and stockholders' equity
-------------------------------------------------------------------------
Current liabilities:
    Short-term debt                             $    331.7    $    315.3
    Payables and accruals                            358.4         306.3
    Compensation and benefits                        208.5         164.6
    Federal, state and foreign income taxes           34.4           6.6
-------------------------------------------------------------------------
Total current liabilities                            933.0         792.8
-------------------------------------------------------------------------

Long-term debt                                       497.4         572.8
-------------------------------------------------------------------------
Accrued postretirement benefits                      241.9         238.3
-------------------------------------------------------------------------
Other long-term liabilities                          135.5         138.5
-------------------------------------------------------------------------

Common Stockholders' equity:
    Common stock, $1 par value                        75.4          75.4
    Additional paid-in capital                       413.4         400.7
    Retained earnings                              1,226.7       1,187.0
    Accumulated other comprehensive income           (33.4)        (46.2)
    Less: Treasury stock, at cost                  1,291.5       1,268.3
          Deferred compensation                         .7            .4
-------------------------------------------------------------------------
Total common stockholders' equity                    389.9         348.2
-------------------------------------------------------------------------
Total liabilities and stockholders' equity      $  2,197.7    $  2,090.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
                  POLAROID CORPORATION AND SUBSIDIARY COMPANIES
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
           NINE MONTHS ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 26, 1999
                                  (IN MILLIONS)


<TABLE>
<CAPTION>
                                                                                             (Unaudited)
Cash flows from operating activities                                                 1998                  1999
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                     <C>

Net earnings/(loss)                                                                 $ 24.5                ($19.8)
Depreciation of property, plant and equipment                                         70.7                  74.9
Decrease in receivables                                                               45.9                   4.0
(Increase)/decrease in inventories                                                   (67.9)                 38.5
Increase in prepaids and other assets                                                (15.5)                (28.7)
Increase/(decrease) in payables and accruals                                          26.0                 (49.0)
Decrease in compensation and benefits                                                (55.6)                (41.5)
Decrease in federal, state and foreign income taxes payable                           (1.4)                (24.3)
Gain on sale of real estate                                                          (44.7)                (12.0)
Other non cash items                                                                 (28.6)                 78.3
-----------------------------------------------------------------------------------------------------------------
Net cash provided by/(used by) operating activities                                  (46.6)                 20.4
-----------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
-----------------------------------------------------------------------------------------------------------------
(Increase)/decrease in other assets                                                  (18.3)                 25.8
Additions to property, plant and equipment                                          (125.9)               (131.8)
Proceeds from sale of property, plant and equipment                                  124.4                  30.3
Acquisitions, net of cash acquired                                                   (30.6)                  --
-----------------------------------------------------------------------------------------------------------------
Net cash used by investing activities                                                (50.4)                (75.7)
-----------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
-----------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in short-term debt (maturities 90 days or less)              127.4                 (29.5)
Short-term debt having (maturities over 90 days):
          Proceeds                                                                    85.8                  41.8
          Payments                                                                  (106.1)                (24.9)
Proceeds from issuances of long-term debt                                               --                 268.2
Repayments of long-term debt                                                             --                (200.0)
Cash dividends paid                                                                  (19.9)                (19.9)
Proceeds from issuance of shares in connection with stock incentive plan               5.9                    .2
Purchase of treasury stock                                                           (44.3)                   --
-----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                             48.8                  35.9
-----------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash                                                3.7                   2.4
-----------------------------------------------------------------------------------------------------------------

Net decrease in cash and cash equivalents                                            (44.5)                (17.0)

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

Cash and cash equivalents at end of period                                          $ 23.5                 $88.0
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       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. In these statements, intercompany accounts and
transactions have been 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 ("FASB") 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. In June 1999,
the FASB decided that the effective date for adopting the requirements of FAS
133 should be delayed one year to fiscal years beginning after June 15, 2000.
This delay, published as Financial Accounting Standards Board Statement No. 137,
applies to quarterly and annual financial statements. The Company is currently
evaluating the effect of FAS 133 on its reported financial results.

                                       5

<PAGE>

EARNINGS PER SHARE RECONCILIATION

The reconciliation of the numerators and deminators 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>
                                                                                  Weighted
                                                                                   Average              Per Share
                                                    Earnings/(loss)                 Shares               Amount
                                                    ---------------                 ------               ------
<S>                                                 <C>                            <C>                    <C>
QUARTER ENDED SEPTEMBER 27, 1998
Basic                                                     $  29.8                  44.0                   $   .68
                                                           -------                 ----                    -------
                                                           -------                 ----                    -------

Diluted                                                   $  29.8                  44.1   *               $   .68
                                                           -------                 ----                    -------
                                                           -------                 ----                    -------
QUARTER ENDED SEPTEMBER 26, 1999
Basic                                                     $  (3.8)                 44.4                   $  (.09)
                                                           -------                 ----                    -------
                                                           -------                 ----                    -------

Diluted                                                   $  (3.8)                 44.4   *               $  (.09)
                                                           -------                 ----                    -------
                                                           -------                 ----                    -------

NINE MONTHS ENDED SEPTEMBER 27, 1998
Basic                                                     $  24.5                  44.3                   $   .55
                                                           -------                 ----                    -------
                                                           -------                 ----                    -------

Diluted                                                   $  24.5                  44.5   *               $   .55
                                                           -------                 ----                    -------
                                                           -------                 ----                    -------

NINE MONTHS ENDED SEPTEMBER 26, 1999
Basic                                                     $ (19.8)                 44.2                   $  (.45)
                                                           -------                 ----                    -------
                                                           -------                 ----                    -------

Diluted                                                   $ (19.8)                 44.2   *               $  (.45)
                                                           -------                 ----                    -------
                                                           -------                 ----                    -------
</TABLE>

* Stock options for shares of common stock were outstanding but not included
in the calculations of diluted earnings/(loss) per share because the effects
were anti-dilutive. In addition the effects of outstanding performance shares
were not included since the performance criteria were not met. The stock
options and performance shares not included in these calculations were as
follows: (in millions)

<TABLE>
<CAPTION>
                                             Stock               Performance
                                             Options                 Shares
                                             -------                 ------
<S>                                          <C>                  <C>
QUARTER ENDED SEPTEMBER 27, 1998                3.5                     .2
                                                ---                     --
                                                ---                     --
QUARTER ENDED SEPTEMBER 26, 1999                6.5                     .3
                                                ---                     --
                                                ---                     --

NINE MONTHS ENDED SEPTEMBER 27, 1998            2.6                     .2
                                                ---                     --
                                                ---                     --
NINE MONTHS ENDED SEPTEMBER 26, 1999            5.9                     .3
                                                ---                     --
                                                ---                     --
</TABLE>

                                       6
<PAGE>

COMPREHENSIVE INCOME

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

<TABLE>
<CAPTION>
                                                  Quarter Ended
                                           September 27,     September 26,
                                                  1998             1999
                                                  ----             ----

<S>                                        <C>               <C>
Net earnings /(loss)                            $  29.8           $ (3.8)

Other comprehensive income:
Currency translation adjustment                     6.1              8.4
Unrealized gain on available-for-sale
  securities, net-of-tax                             -                .2
                                                 ------            ------

Total comprehensive income                      $  35.9           $  4.8
                                                 ------            ------
                                                 ------            ------

</TABLE>


<TABLE>
<CAPTION>
                                               Nine Months Ended
                                           September 27,     September 26,
                                                  1998             1999
                                                  ----             ----

<S>                                        <C>               <C>
Net earnings /(loss)                            $ 24.5            $(19.8)

Other comprehensive income:
Currency translation adjustment                   (1.4)            (12.7)
Unrealized loss on available-for-sale
  securities, net-of-tax                            -                (.1)
                                                 ------            ------
Total comprehensive income/(loss)               $ 23.1            $(32.6)
                                                 ------            ------
                                                 ------            ------

</TABLE>

                                       7

<PAGE>

SEGMENTS

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

<TABLE>
<CAPTION>
                                        Quarter Ended                Nine Months Ended
                                September 27,   September 26,   September 27,      September 26,
                                     1998            1999            1998               1999
                                     ----            ----            ----               ----
<S>                               <C>             <C>             <C>               <C>
Net sales to customers:

Americas Region                   $  294.4        $  284.8        $    788.1        $    813.4
European Region                       91.2            92.6             322.2             286.5
Asia Pacific Region                   63.2            85.6             193.8             228.9
Global Operations                       --              --                --                --
Research and Development                --              --                --                --
                                  --------        --------        ----------        ----------
  Subtotal of Segments               448.8           463.0           1,304.1           1,328.8
  Corporate                             --              --                --                --
                                  --------        --------        ----------        ----------
    Total                         $  448.8        $  463.0        $  1,304.1        $  1,328.8
                                  --------        --------        ----------        ----------
                                  --------        --------        ----------        ----------
</TABLE>

<TABLE>

Profit/(loss) from operations:

<S>                               <C>             <C>             <C>               <C>
Americas Region                   $  94.7         $  84.2         $  228.3          $  234.0
European Region                      14.4            15.3             41.1              47.7
Asia Pacific Region                  18.0            20.5             52.5              54.7
Global Operations                   (35.5)          (36.3)          (125.1)           (121.3)
Research and Development            (26.3)          (20.5)           (88.7)            (64.3)
                                 --------        --------        ---------          --------
Subtotal of Segments                 65.3            63.2            108.1             150.8

Corporate                           (23.7)          (51.4)           (74.7)           (105.0)
                                  --------        --------        ---------          --------
Total                             $  41.6         $  11.8         $   33.4          $   45.8
                                  --------        --------        ---------          --------
                                  --------        --------        ---------          --------
</TABLE>

                                       8

<PAGE>


RESTRUCTURING AND OTHER CHARGES

In 1997, the Company recorded restructuring and other charges of $340 million of
which $17 million represented inventory write-downs, which were not individually
material, that were recorded in cost of goods sold. In 1998, the Company
recorded a $50 million restructuring charge related to an expansion of the
severance component of the 1997 program. These charges (the "1997 Program") were
undertaken as the result of an assessment by management of the Company's
infrastructure to strengthen the Company's competitive cost position, to
streamline operations and to improve profitability by consolidating and selling
manufacturing facilities and reducing corporate overhead. The strategic
objective of this program was to reduce the cost of developing, manufacturing,
selling and distributing the Company's products; to change and improve the
Company's business processes to position it to deliver new products more
efficiently; to improve financial performance; and to fundamentally alter how
the Company conducts its business globally.

Approximately $150 million of the charges recorded in 1997 for the 1997
Program related to an involuntary severance program under which approximately
1,800 employees (consisting of sales and marketing employees in the regional
segments: Americas - 16%, Europe - 24%, Asia Pacific - 9%; primarily
manufacturing employees in Global Operations - 36%; research and engineering
employees in Research and Development - 5%; and administrative employees in
the non-segment Corporate category - 10%) are expected to leave the Company
at various times before the end of 1999. The 1998 extension to this
involuntary severance program added approximately 1,000 additional employees,
most of whom are expected to leave the Company by the end of 1999 (consisting
of sales and marketing employees in the regional segments: Americas - 7%,
Europe - 14%, Asia Pacific - 3%; primarily manufacturing employees in Global
Operations - 65%; research and engineering employees in Research and
Development - 10%; and administrative employees in the non-segment Corporate
category - 1%). Approximately 2,230 of the 2,800 expected total terminations
had occurred as of September 26, 1999. The cash payments related to this
severance program will be paid over time and are expected to be completed by
the end of 2000. Approximately $120 million of cash payments related to this
program had been made as of September 26, 1999. Of the total amount provided
for severance, approximately $10 million related to pension curtailment costs
related to the number of U.S. employees expected to terminate under this
program and approximately $4 million related to pension enhancement costs
incurred for certain non-U.S. employees expected to terminate under this
program.

In the Americas, European, and Asia Pacific Regions, the major impact of the
1997 Program consists of reducing the number of employees associated with sales
and marketing activities. The impact of this program in the European Region also
consists of consolidating back office activities in a centralized location.

The impact of the 1997 Program in Global Operations consists of reducing the
number of direct and indirect employees associated with the manufacture of
instant film and, to a lesser degree, instant hardware along with employees
required to procure goods and services, distribute finished products and
employees at the Company's chemical manufacturing facility in Freetown,
Massachusetts that the Company sold in February 1998.

The impact of the 1997 Program in Research and Development consists of reducing
the number of employees associated with research, engineering and development
activities.

The 1997 Program affected the non-segment Corporate category by reducing the
number of employees in corporate support functions such as central marketing,
finance, legal, information management, administration, human resources and
facilities support.

                                       9

<PAGE>



In addition, the asset impairment portion of the 1997 restructuring and other
charges amounted to $163 million and consisted of a write-down of the carrying
value of the Company's underutilized New Bedford coating facility by $106
million to an independently determined fair value of $18 million and a write-off
of the $22 million carrying value of unused battery manufacturing equipment that
was not required to support anticipated production requirements. The Company
also recognized a charge of $26 million related to the sale of its underutilized
chemical manufacturing facility located in Freetown, Massachusetts that included
a $22 million loss on the sale of the facility and $3 million in related exit
costs for environmental liabilities and $1 million of severance liabilities.
Additionally, these asset impairments included $13 million of other fixed asset
write-downs, which were individually not material, related to assets that were
no longer required primarily due to the consolidation of certain manufacturing
operations.

In addition to the $3 million of exit costs relating to the Freetown facility,
the balance of the 1997 restructuring and other charges consisted of $6 million
of exit costs, primarily for lease and contract termination and other costs
directly related to restructuring activities. The Company is pursuing several
strategic options for future use of the New Bedford coating facility, including
outright sale. The Company sold the Freetown chemical manufacturing facility in
February 1998. Under the terms of the agreement to sell the Freetown chemical
facility, the Company entered into a long-term supply agreement with the new
owner to purchase certain specialty chemicals used to manufacture the Company's
instant film. The assets included in the 1997 Program were primarily in Global
Operations.

The reserves established for the 1997 Program and related cash and non-cash
charges to those reserves as of September 26, 1999 are as shown on the following
page:


                                       10


<PAGE>

                          1997 RESTRUCTURING AND OTHER
                                  (in Millions)
<TABLE>
<CAPTION>
                                                 PENSION
                                               ENHANCEMENT
                                                   AND                   ASSET           EXIT
                               SEVERANCE       CURTAILMENTS           IMPAIRMENTS        COSTS            TOTAL
                               ---------       ------------           -----------        -----            -----
<S>                            <C>             <C>                    <C>                <C>             <C>
1997:
-----
Restructuring and Other         $144.0*              $7.5                $162.5             $9.5**        $323.5

Reclassification of Pension
Enhancements                      (1.6)               1.6                    -                -             0.0

Non-Cash Charges                    -                (9.1)               (162.5)              -          (171.6)
                                    -                -----               -------              -          -------

Ending Reserve
Balance                          142.4                0.0                   0.0              9.5          151.9
                                 -----                ---                   ---              ---          -----
                                 -----                ---                   ---              ---          -----

1998:
-----
Restructuring
and Other                         47.4                2.6                    -                -            50.0

Reclassification of Pension
Enhancement                       (2.4)               2.4                    -                -             0.0

Cash Charges                     (69.2)                -                     -              (7.1)         (76.3)

Non-Cash
Charges                             -                (5.0)                   -                -            (5.0)
                                    -                -----                   -                -            -----

Ending Reserve
Balance                          118.2                0.0                   0.0              2.4          120.6
                                 -----                ---                   ---              ---          -----
                                 -----                ---                   ---              ---          -----

1999:
-----
Q1
--

Cash Charges                     (16.8)                -                     -                -           (16.8)
                                 ------                -                     -                -          ------

Ending Reserve
Balance                          101.4                0.0                   0.0              2.4          103.8
                                 -----                ---                   ---              ---          -----
                                 -----                ---                   ---              ---          -----

Q2
--
Cash Charges                     (20.7)                -                     -               (.2)         (20.9)
                                 ------                -                     -               ----         ------

Ending Reserve
Balance                          $80.7               $0.0                  $0.0             $2.2          $82.9
                                 -----                ---                   ---             ----          -----
                                 -----                ---                   ---             ----          -----
Q3
--
Cash Charges                     (13.7)                -                     -                -           (13.7)
                                 ------                -                     -                -           ------

Ending Reserve
Balance                          $67.0               $0.0                  $0.0             $2.2          $69.2
                                 -----                ---                   ---             ----          -----
                                 -----                ---                   ---             ----          -----
</TABLE>

                                       11
<PAGE>


*    Includes approximately $1.5 million of termination costs related to the
     sale of the Company's Freetown, Massachusetts chemical manufacturing
     facility
**   Primarily consisting of lease termination costs related to abandoned
     facilities, contract settlement costs related to discontinued product lines
     and environmental remediation costs associated with the sale of the
     Freetown chemical facility.


SHORT-TERM DEBT

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 Credit Agreement").

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; 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 somewhat more restrictive by Amendment No. 1 dated March 31,
1999 to the Amended Credit Agreement by incorporating certain provisions of the
covenants in the Indenture (defined below).

On August 3, 1999, the Company's wholly-owned subsidiary, Polaroid (U.K.)
Limited ("Polaroid UK"), as borrower, and the Company, as guarantor, entered
into a new loan agreement with Deutsche Bank A.G. and ABN AMRO Bank NV for a
maximum commitment amount of 72.5 million euros (approximately $76 million at
September 26, 1999) which refinanced most of the Company's existing
short-term lines of credit with these banks. Borrowings under this facility
bear an interest rate of approximately 25 basis points higher than that paid
under the Amended Credit Agreement. The facility is scheduled to mature on
December 31, 2001. Several of the Company's foreign subsidiaries granted the
lenders under this facility a security interest in certain inventories and
Corporatereceivables. In addition, the Company has guaranteed the obligations
of Polaroid UK under the U.K. Credit Agreement. The U.K. Credit Agreement
contains restrictions that are similar to the Amended Credit Agreement.

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 $268.2 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 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; incurring 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.

                                       12

<PAGE>



MEDICAL IMAGING

In the fourth quarter of 1996, the Company sold its Helios medical diagnostic
imaging equipment line to Sterling Dry Imaging Systems, Inc. ("SDIS"), a
subsidiary of SDI Holding Corporation ("SDHI"), and acquired a minority interest
in the buyer (i.e., SDIS) and its parent company (i.e., SDHI).

The Company's interest as of December 31, 1998 consisted of: (1) 14% of the
common stock of SDHI with a book value of approximately $14 million; (2)
preferred stock of SDIS with a book value of approximately $35 million; and (3)
111 shares of SDIS common stock valued at $.01 per share. These investments were
made in cash and were carried at cost. The carrying value of these investments
was initially supported by an independent third-party business valuation and was
subsequently confirmed periodically by comparing SDHI's actual operating
results, including SDIS, with SDHI's original and revised business plans.

In January 1999, Agfa-Gevaert N.V. ("AGFA") agreed to acquire SDHI, excluding
SDIS which, under the acquisition agreement, would not be acquired by AGFA and
which would be spun off to a liquidating trust, the proceeds of which would be
distributed to the shareholders of SDHI. In the first quarter of 1999, the
Company recorded a non-cash charge of $35 million to establish a reserve for the
book value of its preferred stock investment in SDIS because it was probable
based on the information available to the Company at that time that SDIS would
not be viable as a stand-alone business and that the proceeds from the
liquidation would not be sufficient to redeem the preferred stock. During the
second quarter of 1999, AGFA completed its acquisition of SDHI, and the Company
received cash proceeds of approximately $16 million in return for its investment
in SDHI. The net gain of approximately $2 million on this transaction was
recorded in other income and expense. Any future recovery of the Company's
interest in SDHI upon liquidating SDHI's remaining assets is not expected to be
material to the financial position or results of operations of the Company.

In a related transaction during the second quarter of 1999, the Company acquired
certain assets of SDIS consisting of machinery and equipment and intellectual
property in return for the Company's preferred and common stock in SDIS,
forgiveness of approximately $2 million of amounts owed to the Company by SDIS
and the Company's rights under certain supply and technology agreements with
SDIS. The machinery and equipment and intellectual property acquired from SDIS
were deemed to have no value by the Company. The Company recognized the cost of
the forgiveness of approximately $2 million in amounts owed to it by SDIS in
other income and expense. To replace the Company's supply agreement with SDIS
and as a result of negotiations with AGFA, the Company has entered into a Helios
media supply contract with AGFA who has agreed to assume SDIS' marketing and
service responsibilities.

GRAPHIC ARTS

In the third quarter of 1999, the Company recorded charges totaling $40
million related to its graphics arts business. Approximately $33 million of
this total represented non-cash charges, which have been reported as non-cash
items in the Company's statement of cash flows. The $40 million charge
consisted of: approximately $16 million to increase reserves, principally for
trade accounts receivables and inventories; an impairment loss of
approximately $17 million related to a revaluation of the net assets of the
graphic arts business which had book value of $25 million that the Company
expected to contribute to a new joint venture; and approximately $3 million
for severance costs for approximately 40 employees expected to be terminated
and approximately $4 million for other liabilities related to the disposition
of this business. The majority of these severance and other liabilities are
expected to be

                                       13

<PAGE>



paid over the next nine to twelve months. Of the $40 million charge,
approximately $25 million was reported in cost of sales and approximately $15
million was reported in marketing and administrative expenses. On a segment
basis, the $40 million charge was allocated as follows: approximately $5 million
in the Americas Region; approximately $3 million in the European Region; and
approximately $11 million in Global Operations. In addition, approximately $21
million was reported in the non-segment Corporate category.

SUBSEQUENT EVENT

Effective as of October 18, 1999, the Company entered into an agreement with
Andlinger & Company, Inc. to contribute the net assets of its graphics arts
business to a new joint venture, PGI Graphics Imaging LLC ("PGI Graphics
Imaging"). In consideration for its contribution, the Company received a
redeemable preferred equity interest and a less than 20% common equity interest
in PGI Graphics Imaging. Under this agreement, the Company will not be required
to provide any future funding for PGI Graphics Imaging.

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 September 27, 1998 and September 26, 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.

                                       14


<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 September 26, 1999 and the related
condensed consolidated statements of earnings for the three and nine month
periods ended September 27, 1998 and September 26, 1999, and cash flows for the
nine month periods then ended. 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.



                                              /s/ KPMG LLP




Boston, Massachusetts
October 12, 1999

                                       15

<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. These three regions consist of sales and marketing operations.
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 recognition of assets employed. For the
regional sales and marketing 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 qualitative terms to explain changes in unit volumes of its
shipments of instant film and in retail sales. The table below quantifies the
use of these terms:

<TABLE>
<CAPTION>

TERM                             REPRESENTS CHANGE OF


<S>                              <C>

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

</TABLE>


THIRD QUARTER RESULTS

SALES

Worldwide net sales to customers for the third quarter of 1999 were $463
million, a 3% increase compared with worldwide net sales of $449 million in
the third quarter of 1998. This increase was primarily due to the sale of new
products and, to a lesser degree, the favorable impact of foreign exchange.
These factors were offset, in part, by a decline in sales of instant film
other than new products and, to a lesser degree, lower sales of other core
products and sales from non-core businesses. The Company's other core
products primarily consist of conventional 35mm cameras and film, videotapes,
unique ID products, and digital hardware other than new products ("other core
products"). The Company's non-core businesses primarily have consisted of
Graphics, Sunglasses, Polarizer and Holography ("non-core businesses"). On a
unit basis, worldwide shipments of instant cameras were 2.3 million in the
third quarter of 1999 compared with 1.0 million in the third quarter of 1998.
Worldwide unit shipments to customers of instant film increased by low single
digits in the third

                                       16

<PAGE>



quarter of 1999 compared with the third quarter of 1998. Both of these increases
were primarily due to sales of new products.

Sales in the Americas Region decreased 3% to $285 million during the third
quarter of 1999 from $295 million in the third quarter of 1998. These regional
segment totals include sales in the United States of $248 million in 1999 and
$259 million in 1998. The Americas Region decrease was due to lower sales of
instant film other than new products, and to a lesser degree, lower sales of
other core products and sales from non-core businesses. These factors were
offset, in part, by sales of new products.

On a unit basis in the Americas Region, shipments to customers of instant
cameras including new products increased 102%, while shipments to customers of
instant film decreased by high single digits in the third quarter of 1999
compared with the same period of 1998. In addition, at the United States retail
level, the Company estimates that the unit volume of integral film in the third
quarter of 1999 decreased by low single digits, while instant cameras increased
by high single digits compared with the third quarter of 1998.

Sales in the European Region increased 2% to $93 million for the third quarter
of 1999 compared with $91 million in the same period of 1998. Excluding the
impact of product returns from dealers in Russia in the third quarter of 1998,
sales in the European Region decreased primarily due to lower sales of instant
film, other than new products, outside of Russia. The loss associated with the
returns in Russia in 1998 was offset by reducing a reserve previously
established for that purpose.

On a unit basis, shipments to customers in the European Region of instant
cameras increased 53%, while shipments to customers of instant film increased by
low double digits in the third quarter of 1999 compared with the third quarter
of 1998 primarily due to a reduction in net shipments in 1998 related to returns
from dealers in Russia. Excluding the impact of those returns, shipments to
customers of instant film decreased in the low single digits in the third
quarter of 1999 compared with the same period in 1998.

Sales in the Asia Pacific Region increased 35% to $85 million for the third
quarter of 1999 from $63 million in the third quarter of 1998. This increase was
primarily due to sales of new products in Japan, and, to a lesser degree, the
favorable impact of a weaker U.S. dollar and higher sales of instant film other
than new products. These factors were offset, in part, by lower sales of other
core products and sales from non-core businesses.

On a unit basis in the Asia Pacific Region, shipments of instant cameras
increased 196% while shipments to customers of instant film increased by mid
double digits in the third quarter of 1999 compared with the same period of
1998. Both of these increases were primarily due to sales of new products.

PROFIT/(LOSS)

Worldwide profit from operations in the third quarter of 1999 was $12 million
compared to $42 million in the third quarter of 1998. In the third quarter of
1999, the Company recorded charges totaling $40 million related to its
graphics arts business. Approximately $33 million of this total represented
non-cash charges, which have been reported as non-cash items in the Company's
statement of cash flows. The $40 million charge consisted of: approximately
$16 million to increase reserves, principally for trade accounts receivables
and inventories; an impairment loss of approximately $17 million related to
an evaluation of the net assets of its graphic arts business which had a book
value of $25 million that the Company expected to contribute to a new joint
venture; and approximately $3 million for severance costs for approximately
40 employees expected to be terminated and approximately $4 million for other
liabilities related to the disposition of this business. The majority of

                                       17

<PAGE>



these severance and other liabilities are expected to be paid over the next nine
to twelve months. Of the $40 million charge, approximately $25 million was
reported in cost of sales and approximately $15 million was reported in
marketing and administrative expenses. On a segment basis, the $40 million
charge was allocated as follows: approximately $5 million in the Americas
Region; approximately $3 million in the European Region; and approximately $11
million in Global Operations. In addition, approximately $21 million was
reported in the non-segment Corporate category. In connection with the above,
effective as of October 18, 1999, the Company entered into an agreement with
Andlinger & Company, Inc. to contribute the net assets of its graphics arts
business to a new joint venture, PGI Graphics Imaging LLC ("PGI Graphics
Imaging"). Under this agreement, the Company will not be required to provide any
future funding for PGI Graphics Imaging.

Excluding the charge of $40 million in the third quarter of 1999 related to the
graphics arts business discussed above, the increase in worldwide profit from
operations of approximately $10 million in the third quarter of 1999 compared
with the third quarter of 1998 was due to savings from restructuring, lower
costs of manufacturing in 1999 and the impact of sales of new products. These
factors were offset, in part, by higher marketing and administrative expenses
and the impact of lower sales of instant film other than new products.

Profit from operations in the Americas Region was $84 million in the third
quarter of 1999 compared with $95 million in the third quarter of 1998. Profit
from operations in the Americas Region in the third quarter of 1999 included the
effect of a charge of approximately $5 million related to the graphics arts
business. In addition, the decrease in profit from operations was due to the
impact of lower sales of instant film other than new products and increased
marketing expenses. These factors were offset, in part, by the impact of sales
of new products.

Profit from operations in the European Region was $15 million in the third
quarter of 1999 compared with $14 million in the third quarter of 1998. Profit
from operations in this region in the third quarter of 1999 included the effect
of a charge of approximately $3 million related to the graphics arts business.
In addition, the increase in profit from operations was due to lower marketing
and administrative expenses primarily related to consolidating operations in the
region. These factors were offset, in part, by the impact of lower sales of
instant film other than new products outside of Russia.

Profit from operations in the Asia Pacific Region increased to $20 million in
the third quarter of 1999 compared with $18 million in the same period of 1998.
The increase was due to the favorable impact of sales of new products and higher
instant film sales other than new products. These factors were offset, in part,
by higher marketing expenses.

Global Operations costs were $36 million in the third quarter of 1999 compared
with $35 million in the third quarter of 1998. Global Operations costs in the
third quarter of 1999 included a charge of approximately $11 million related to
the graphics arts business. This increase in cost was offset by lower costs of
manufacturing in 1999, including savings from restructuring.

Research and Development costs were $20 million in the third quarter of 1999
compared with $26 million in the third quarter of 1998. This reduction reflects
a restructuring of the segment and a focusing of the Company's research and
development efforts on its core imaging business.

Corporate costs were $51 million in the third quarter of 1999 compared with $24
million in the same quarter of 1998. Corporate costs in the third quarter of
1999 included a charge of approximately $21 million for the impairment loss and


                                       18

<PAGE>



severance costs related to the graphics arts business. In addition, this
increase was due to higher spending in centralized information systems.

The net of other income and other expense for the third quarter of 1999 was
income of $2 million primarily due to minor gains related to the sale of
assets. In the third quarter of 1998, the net of other income and other
expense was income of $19 million primarily due to a gain on the sale of real
estate.

Interest expense was $20 million and $15 million in the third quarter of 1999
and 1998, respectively. This increase was due to higher interest rates on debt
and, to a lesser degree, higher levels of debt.

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

The net loss in the third quarter of 1999, including the effect of the $40
million pre-tax charge related to the graphics arts business, was $4 million or
$.09 basic loss per common share. This compares with net earnings in the third
quarter of 1998 of $30 million or $.68 basic earnings per common share,
including the effect of the pre-tax gain on the sale of real estate of $19
million. Diluted earnings per common share were the same as the basic earning
per common share in both the third quarter of 1999 and 1998.


NINE MONTH REVIEW

SALES

Worldwide net sales to customers for the first nine months of 1999 increased 2%
to $1.33 billion from $1.30 billion in the first nine months of 1998. The
principal reason for this increase was sales of new products. This was offset,
in part, by lower sales of other core products and lower sales of instant film
other than new products, which were unfavorably affected by product mix. Instant
film sales in the first nine months of 1998 were depressed due to the Company's
dealer inventory adjustment initiative. On a unit basis, worldwide shipments of
instant cameras, were 5.2 million in the first nine months of 1999 compared with
3.0 million in the first nine months of 1998. This increase was due to sales of
new products. Worldwide unit shipments to customers of instant film increased by
high single digits due to sales of new products in the first nine months of 1999
compared with the same period of 1998.

Sales in the Americas Region increased 3% to $813 million during the first nine
months of 1999 from $788 million in the first nine months of 1998. These
regional totals include sales in the United States of $713 million in 1999 and
$684 million in 1998. The Americas Region increase in 1999 was primarily due to
higher sales of new products offset, in part, by lower sales of other core
products and, to a lesser degree, lower sales of instant film other than new
products. Instant film sales in the first nine months of 1998 were depressed due
to the Company's dealer inventory adjustment initiative.

On a unit basis in the Americas Region, shipments to customers of instant
cameras increased 39%, while shipments to customers of instant film increased by
low single digits in the first nine months of 1999 compared with the same period
of 1998. These increases were primarily due to sales of new products. In
addition, at the United States retail level, the Company estimates that the unit
volume of integral film decreased by low single digits, while instant cameras
increased by low double digits compared with the first nine months of 1998.

                                       19

<PAGE>



Sales in the European Region decreased 11% to $287 million for the first nine
months of 1999 compared with $322 million in the same period of 1998. This
decrease was due to lower sales of instant film other than new products, which
included the effect of unfavorable product mix, and lower sales of other core
products. To a lesser degree, sales were adversely affected by lower sales of
instant cameras and the impact of the strengthening U.S. dollar. These factors
were offset, in part, by sales of new products and the absence of instant film
returns from dealers that occurred in Russia in the third quarter of 1998. The
loss associated with those returns was offset by reducing a reserve previously
established for that purpose.

On a unit basis in the first nine months of 1999 compared with the first nine
months of 1998, shipments to customers of instant cameras in the European
Region increased 1% while shipments to customers of instant film increased by
low single digits primarily due to a reduction in net shipments in 1998
related to returns from dealers in Russia. Excluding the impact of those
returns, shipments to customers of instant film in the region decreased in
the low single digits in the first nine months of 1999 compared with the same
period in 1998.

Sales in the Asia Pacific Region increased 18% to $229 million in the first nine
months of 1999 from $194 million in the first nine months of 1998. This increase
was due to sales of new products in Japan, and, to a lesser degree, the impact
of a weaker U.S. dollar. These factors were partly offset by lower sales of
instant film and cameras, other than new products, and lower sales of other core
products. In the first nine months of 1999 compared with the same period in
1998, on a unit basis including new products, shipments to customers of instant
cameras in the region increased 219% and shipments to customers of instant film
increased by low double digits.

PROFIT/(LOSS)

Worldwide profit from operations for the first nine months of 1999 was $46
million compared with $33 million for the same period in 1998. In the third
quarter of 1999, the Company recorded charges totaling $40 million related to
its graphics arts business. Approximately $33 million of this total
represented non-cash charges, which have been reported as non-cash items in
the Company's statement of cash flows. The $40 million charge consisted of:
approximately $16 million to increase reserves, principally for trade
accounts receivables and inventories; an impairment loss of approximately $17
million related to an evaluation of the net assets of its graphic arts
business which had a book value of $25 million that the Company expected to
contribute to a new joint venture; and approximately $3 million for severance
costs for approximately 40 employees expected to be terminated and
approximately $4 million for other liabilities related to the disposition of
this business. The majority of these severance and other liabilities are
expected to be paid over the next nine to twelve months. Of the $40 million
charge, approximately $25 million was reported in cost of sales and
approximately $15 million was reported in marketing and administrative
expenses. On a segment basis, the $40 million charge was allocated as
follows: approximately $5 million in the Americas Region; approximately $3
million in the European Region; and approximately $11 million in Global
Operations. In addition, approximately $21 million was reported in the
non-segment Corporate category. In connection with the above, effective as of
October 18, 1999, the Company entered into an agreement with Andlinger &
Company, Inc. to contribute the net assets of its graphics arts business to a
new joint venture, PGI Graphics Imaging LLC ("PGI Graphics Imaging"). Under
this agreement, the Company will not be required to provide any future
funding for PGI Graphics Imaging.

Excluding the $40 million of charges related to the graphic arts business
discussed above, the increase in profit from operations of $53 million in the
first nine months of 1999 compared with the same period in 1998 primarily
reflected savings from restructuring and, to a lesser
degree, from the impact of sales of new products and lower costs of
manufacturing in 1999. These factors were

                                       20

<PAGE>



offset, in part, by the impact of lower sales of instant film other than new
products, and lower sales of other core products and sales from non-core
businesses.

Profit from operations in the Americas Region increased 3% to $234 million in
the first nine months of 1999 compared with $228 million in the first nine
months of 1998. Profit from operations in the Americas Region in the first nine
months of 1999 included the effect of a charge of approximately $5 million
related to the graphics arts business. This charge was more than offset by the
impact of sales of new products and, to a lesser degree, lower marketing
expenses and the impact of higher instant camera sales other than new products.

Profit from operations in the European Region increased 17% to $48 million in
the first nine months of 1999 from $41 million in the first nine months of 1998.
Profit from operations in the European Region in 1999 included the effect of a
charge of approximately $3 million related to the graphics arts business. This
charge was more than offset by lower marketing and administrative expenses
reflecting, in part, the impact of the consolidation of operations in the
region. These lower expenses were offset, in part, by the impact of lower sales
of instant film other than new products, and, to a lesser degree, lower sales of
other core products and sales from non-core businesses.

Profit from operations in the Asia/Pacific region increased 4% to $55 million in
the first nine months of 1999 compared with $53 million in the first nine months
of 1998. This increase was primarily due to the impact of sales of new products
in Japan offset, in part, by the impact of lower sales of other core products.

Global Operations costs declined 3% to $121 million in the first nine months of
1999 from $125 million in the first nine months of 1998. Global Operations costs
in the first nine months of 1999 included a charge of approximately $11 million
related to the graphics arts business. This charge was more than offset by lower
costs of manufacturing in 1999, including savings from restructuring.

Research and Development costs decreased 27% to $65 million in the first nine
months of 1999 from $89 million in the first nine months of 1998. This reduction
reflects a restructuring of the segment and a focusing of the Company's research
and development efforts on its core imaging business.

Corporate costs were $105 million in the first nine months of 1999 compared with
$75 million during the same period in 1998. Corporate costs in the first nine
months of 1999 included a charge of approximately $21 million for the impairment
loss and severance costs related to the graphics arts business. In addition,
this increase was due to higher spending in centralized information systems and
higher central marketing expenses.

The net of other income and other expense for the first nine months of 1999 was
an expense of $19 million compared with income of $44 million during the same
period in 1998. In the first nine months of 1999, net other expense included a
non-cash charge of $35 million to establish a reserve for the Company's
preferred stock investment in Sterling Dry Imaging Systems, Inc. ("SDIS"). The
1999 net of other income and expense also included gains on the sale of real
estate totaling approximately $12 million. In the first nine months of 1998, the
net of other income and other expense included $45 million of gains on the sale
of real estate.

Interest expense was $57 million and $40 million in the first nine months of
1999 and 1998, respectively. The increase in interest expense in 1999 was
primarily due to higher interest rates and, to a lesser degree, higher levels of
debt.

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

                                       21

<PAGE>



For the first nine months of 1999, the net loss was $20 million, or $.45 basic
loss per common share, including the effects of the $40 million pre-tax charge
related to the graphics arts business recorded in the third quarter, the $35
million pre-tax charge related to SDIS recorded in the first quarter, and the
$12 million of pre-tax gains on the sale of real estate, which were primarily
recorded in the first quarter. This compares with a net income for the first
nine months of 1998 of $25 million, or $.55 basic earnings per common share,
including the effect of $45 million of pre-tax gains on the sale of real estate.
The diluted per common share amounts were the same as the basic per common share
amounts in the first nine months of 1999 and 1998.

RESTRUCTURING AND OTHER CHARGES

In 1997, the Company recorded restructuring and other charges of $340 million of
which $17 million represented inventory write-downs, which were not individually
material, that were recorded in cost of goods sold. In 1998, the Company
recorded a $50 million restructuring charge related to an expansion of the
severance component of the 1997 program. These charges (the "1997 Program") were
undertaken as the result of an assessment by management of the Company's
infrastructure to strengthen the Company's competitive cost position, to
streamline operations and to improve profitability by consolidating and selling
manufacturing facilities and reducing corporate overhead. The strategic
objective of this program was to reduce the cost of developing, manufacturing,
selling and distributing the Company's products; to change and improve the
Company's business processes to position it to deliver new products more
efficiently; to improve financial performance; and to fundamentally alter how
the Company conducts its business globally.

Approximately $150 million of the charges recorded in 1997 for the 1997
Program related to an involuntary severance program under which approximately
1,800 employees (consisting of sales and marketing employees in the regional
segments: Americas - 16%, Europe - 24%, Asia Pacific - 9%; primarily
manufacturing employees in Global Operations - 36%; research and engineering
employees in Research and Development - 5%; and administrative employees in
the non-segment Corporate category - 10%) are expected to leave the Company
at various times before the end of 1999. The 1998 extension to this
involuntary severance program added approximately 1,000 additional employees,
most of whom are expected to leave the Company by the end of 1999 (consisting
of sales and marketing employees in the regional segments: Americas - 7%,
Europe - 14%, Asia Pacific - 3%; primarily manufacturing employees in Global
Operations - 65%; research and engineering employees in Research and
Development - 10%; and administrative employees in the non-segment Corporate
category - 1%). Approximately 2,230 of the 2,800 expected total terminations
had occurred as of September 26, 1999. The cash payments related to this
severance program will be paid over time and are expected to be completed by
the end of 2000. Approximately $120 million of cash payments related to this
program had been made as of September 26, 1999. Of the total amount provided
for severance, approximately $10 million related to pension curtailment costs
related to the number of U.S. employees expected to terminate under this
program and approximately $4 million related to pension enhancement costs
incurred for certain non-U.S. employees expected to terminate under this
program.

In the Americas, European, and Asia Pacific Regions, the major impact of the
1997 Program consists of reducing the number of employees associated with sales
and marketing activities. The impact of this program in the European Region also
consists of consolidating back office activities in a centralized location.

The impact of the 1997 Program in Global Operations consists of reducing the
number of direct and indirect employees associated with the manufacture of
instant film and, to a lesser degree, instant hardware along with employees
required to procure goods and services, distribute finished products and
employees at the Company's chemical manufacturing facility in Freetown,
Massachusetts that the Company sold in February 1998.

                                       22

<PAGE>



The impact of the 1997 Program in Research and Development consists of reducing
the number of employees associated with research, engineering and development
activities.

The 1997 Program affected the non-segment Corporate category by reducing the
number of employees in corporate support functions such as central marketing,
finance, legal, information management, administration, human resources and
facilities support.

In addition, the asset impairment portion of the 1997 restructuring and other
charges amounted to $163 million and consisted of a write-down of the carrying
value of the Company's underutilized New Bedford coating facility by $106
million to an independently determined fair value of $18 million and a write-off
of the $22 million carrying value of unused battery manufacturing equipment that
was not required to support anticipated production requirements. The Company
also recognized a charge of $26 million related to the sale of its underutilized
chemical manufacturing facility located in Freetown, Massachusetts that included
a $22 million loss on the sale of the facility and $3 million in related exit
costs for environmental liabilities and $1 million of severance liabilities.
Additionally, these asset impairments included $13 million of other fixed asset
write-downs, which were individually not material, related to assets that were
no longer required primarily due to the consolidation of certain manufacturing
operations.

In addition to the $3 million of exit costs relating to the Freetown facility,
the balance of the 1997 restructuring and other charges consisted of $6 million
of exit costs, primarily for lease and contract termination and other costs
directly related to restructuring activities. The Company is pursuing several
strategic options for future use of the New Bedford coating facility, including
outright sale. The Company sold the Freetown chemical manufacturing facility in
February 1998. Under the terms of the agreement to sell the Freetown chemical
facility, the Company entered into a long-term supply agreement with the new
owner to purchase certain specialty chemicals used to manufacture the Company's
instant film. The assets included in the 1997 program were primarily located in
Global Operations.

Under the 1997 Program, the Company realized benefits of approximately $55
million in 1998 and expects an additional benefit of approximately $60 million
in 1999 and a further benefit of approximately $25 million in 2000 bringing the
estimated total benefit from the Program to approximately $140 million on an
annualized basis in 2000 when the benefits are expected to be fully realized.

FINANCIAL LIQUIDITY AND CAPITAL RESOURCES

At September 26, 1999, the Company's cash and cash equivalents totaled $88
million, compared with $105 million at December 31, 1998. The primary sources of
cash in the first nine months of 1999 were cash flows provided by financing and
operating activities and the sale of real estate and other investments. Working
capital increased to $422 million at September 26, 1999 from $360 million at
December 31, 1998. This net increase was due to lower payables and accruals,
compensation and benefit liabilities, income tax liabilities and higher prepaid
expenses, offset, in part, by lower inventories and receivables.

In the first nine months of 1999, capital spending totaled $132 million and
depreciation expense was $75 million. This compares with capital spending of
$126 million and depreciation expense of $71 million during the first nine
months of 1998. The increase in capital spending was related to spending
associated with new products and the Company's new enterprise-wide software
system. This was offset, in part, by a reduction in spending for on-going
programs and the consolidation of real estate.

                                       23

<PAGE>



In the first nine months of 1999, the Company also made payments of
approximately $51 million related to the 1997 involuntary severance program
portion of the December 1997 restructuring, including the extension of this
program in 1998, and $20 million to pay dividends to common stockholders.

In the first nine months of 1999, the Company sold certain assets primarily
consisting of real estate and other investments, which resulted in net cash
proceeds of approximately $60 million.

The Company has four sources of debt financing: short-term lines of credit; the
Amended Credit Agreement (as defined below); the U.K. 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 September 26, 1999, the Company had outstanding $315 million in short-term
debt. This was comprised of $245 million of borrowings under the Company's
Amended Credit Agreement, $41 million borrowed under the U.K. Credit Agreement
and $29 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 Credit 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 and the U.K. Credit Agreement (defined below)
restrict, 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 somewhat more
restrictive by Amendment No. 1, dated March 31, 1999, 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 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. The lenders exercised
this right to incorporate certain covenants included in the 2006 Notes in
Amendment No. 1 dated March 31, 1999 to the Amended Credit Agreement.

The Amended Credit Agreement and the U.K. Credit Agreement (defined below)
restrict 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 their compensation, this amount is expected to total
approximately $14 million per annum. As a result, the Company believes it is
likely to be able to

                                       24

<PAGE>



continue 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 pays 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 September 26, 1999 the Company and several of its subsidiaries had short-term
lines of credit with a few commercial banks under which $29 million was
outstanding. On August 3, 1999, the Company's wholly-owned subsidiary, Polaroid
(U.K.) Limited ("Polaroid UK"), as borrower, and the Company, as guarantor,
entered into a new loan agreement with Deutsche Bank A.G. and ABN AMRO Bank NV
for a maximum commitment amount of 72.5 million euros (approximately $76 million
at September 26, 1999) which refinanced most of the Company's existing
short-term lines of credit with these banks (the "U.K. Credit Agreement").
Borrowings under this facility bear an interest rate of approximately 25 basis
points higher than that paid under the Company's Amended Credit Agreement. The
facility is scheduled to mature on December 31, 2001. Several of the Company's
foreign subsidiaries granted the lenders under this facility a security interest
in certain inventories and receivables. In addition, the Company has guaranteed
the obligations of Polaroid UK under the U.K. Credit Agreement.

At September 26, 1999, the Company had, in addition to the $105 million under
the Amended Credit Agreement, approximately $38 million available under the U.K.
Credit Agreement and the short-term lines of credit to support international
operations.

In February 1999, the Company issued 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; incurring 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 lowered its long-term debt
ratings from BBB to 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 nine months of 1999, the Company did not repurchase any of its common


                                       25

<PAGE>



stock. As of September 26, 1999, approximately 2.8 million shares remain to
be purchased under the current program. Given the restricted payment
covenants contained 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. If the Company were to repurchase its common
stock, its policy is to make these repurchases 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 will 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, the U.K. Credit
Agreement, the U.K. Credit Agreement and the Indenture.

In the fourth quarter of 1996, the Company sold its Helios medical diagnostic
imaging equipment line to SDIS, a subsidiary of SDHI, and acquired a minority
interest in the buyer (i.e., SDIS) and its parent company (i.e., SDHI).

The Company's interest as of December 31, 1998 consisted of: (1) 14% of the
common stock of SDHI with a book value of approximately $14 million; (2)
preferred stock of SDIS with a book value of approximately $35 million; and (3)
111 shares of SDIS common stock valued at $.01 per share. These investments were
made in cash and were carried at cost. The carrying value of these investments
was initially supported by an independent third-party business valuation and was
subsequently confirmed periodically by comparing SDHI's actual operating
results, including SDIS, with SDHI's original and revised business plans.

In January 1999, Agfa-Gevaert N.V. ("AGFA") agreed to acquire SDHI, excluding
SDIS which, under the acquisition agreement, would not be acquired by AGFA and
which would be spun off to a liquidating trust, the proceeds of which would be
distributed to the shareholders of SDHI. In the first quarter of 1999, the
Company recorded a non-cash charge of $35 million to establish a reserve for the
book value of its preferred stock investment in SDIS because it was probable
based on the information available to the Company at that time that SDIS would
not be viable as a stand-alone business and that the proceeds from the
liquidation would not be sufficient to redeem the preferred stock. During the
second quarter of 1999, AGFA completed its acquisition of SDHI, and the Company
received cash proceeds of approximately $16 million in return for its investment
in SDHI. The net gain of approximately $2 million on this transaction was
recorded in other income and expense. Any future recovery of the Company's
interest in SDHI upon liquidating SDHI's remaining assets is not expected to be
material to the financial position or results of operations of the Company.

In a related transaction during the second quarter of 1999, the Company acquired
certain assets of SDIS consisting of machinery and equipment and intellectual
property in return for the Company's preferred and common stock in SDIS,
forgiveness of approximately $2 million of amounts owed to the Company by SDIS
and the Company's rights under certain supply and technology agreements with
SDIS. The machinery and equipment and intellectual property acquired from SDIS
were deemed to have no value by the Company. The Company recognized the cost of
the forgiveness of approximately $2 million in amounts owed to it by SDIS in
other income and expense. To replace the Company's supply agreement with SDIS
and as a result of negotiations with AGFA, the Company has entered into a Helios
media supply contract with AGFA who has agreed to assume SDIS' marketing and
service responsibilities.

The Company believes that the availability of funds under the Amended Credit
Agreement and the U.K. Credit Agreement, funds generated from operations and
additional debt capacity will be adequate for at least the next twelve months to


                                       26

<PAGE>



meet working capital needs, to fund spending for growth and maintenance of
existing operations and to make severance payments associated with the 1997
Program.

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 and, to a lesser
degree, in the short term, on currency hedging through the purchase of
options and through nonfunctional-currency denominated borrowings.

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 with 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 September 26, 1999, the amount of the Company's
outstanding short-term debt incurred for hedging purposes was $70 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 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 September 26, 1999, the aggregate notional value of the Company's
outstanding short-term foreign exchange swap contracts was $62 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
U.S. dollar call/foreign currency put options to reduce the Company's exposure
to exchange rate movements. The terms of these call options typically do 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 September 26, 1999,
option contracts with a notional value of $238 million were outstanding
primarily denominated in German marks, Japanese yen and euros, all of which
expire either in 1999 or 2000.

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

                                       27

<PAGE>



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 the
Company's earnings has not been material.

NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board ("FASB") 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. In June 1999,
the FASB decided that the effective date for adopting the requirements of FAS
133 should be delayed one year to fiscal years beginning after June 15, 2000.
This delay, published as Financial Accounting Standard Board Statement No 137,
applies to quarterly and annual financial statements. The Company is currently
evaluating the effect of FAS 133 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
business transactions. On January 1, 2002, new euro-denominated bills and coins
will be issued by participating countries. The legacy currencies will then be
withdrawn and will cease to be legal tender effective June 30, 2002. During the
period from January 1, 1999 to 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


                                       28

<PAGE>



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 has installed a new enterprise-wide software system for
most domestic and foreign locations. This new software has facilitated 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. For these six areas, all phases of the Year 2000
data conversion, including remediation, testing and placing back into
service, as appropriate, have been completed.

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. In addition, as of
September 26, 1999, the Company had remediated, tested and placed into
production all Business Applications.

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 completed the assessment phase of the
Infrastructure and, as of September 26, 1999 had remediated, tested and
placed into production all components of the IT Infrastructure.

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 area. As of September 26, 1999, the Committee
had remediated, tested and placed into production all systems in the Shop Floor
area.

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 September 26, 1999, had remediated, tested and placed
into production all components in the Facilities area.

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 has completed 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

                                       29

<PAGE>



compliant products to its customers. As of September 26, 1999, the Year 2000
Committee had completed over 99% of all remediation and testing phases related
to the Company's products. As of October 8, 1999, all remediation and testing
had been completed.

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 has completed the assessment phase of the Third Parties area. The
Company has identified the most critical of the Company's Third Parties
relationships, has communicated with these companies to address their state of
readiness, has identified potential alternative vendors and has developed and
executed contingency plans on a supplier by supplier basis. As of September 26,
1999 all aspects of the Third Parties area had been completed.

The Year 2000 Committee has developed contingency plans to address the most
reasonably likely worst case scenario resulting from Year 2000 problems.
Contingency plans were established to ensure the completion of critical
remediation projects. Some aspects of these plans were executed to deliver the
status described above. Other contingency plans address the continuation of
business in the event of problems in 2000. Some of these business continuation
plans have already been executed; others may be executed later in 1999 or only
in the event of an actual problem in 2000. For example, the Company has decided
to order an additional one-month's supply of some critical raw materials and to
convert these materials into work-in-process inventory between September and
December 1999. Also, the Company established a Y2K command center in October
1999 and will continue to operate it into 2000 until it is no longer necessary.
Its mission is to serve as a hotline for reporting problems and a central area
for deploying resources to remediate problems.

The Year 2000 Committee has forecasted that the total cost of completing its
Year 2000 project to be approximately $22 million to $25 million. The total
projected amount of $22 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 $21 million of the projected total as of September 26, 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 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

Some statements in this report may be forward looking in nature, or
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995 (the "Act"). These statements may be identified by the use
of forward-looking words or phrases such as "believe", expect", "anticipate",
"should", "plan", "estimate" and "potential" among others. The Company
desires to take advantage of the "safe harbor"

                                       30

<PAGE>



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, the sale of certain non-core businesses, the continued reduction
of costs and the improvement of operating efficiencies from its
restructurings. The Company's plan to increase profits relies on the
successful implementation of this strategy. 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. In
addition to these marketing campaigns, it is necessary to promptly design,
develop, manufacture, market, and deliver innovative imaging products to
market. 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 has experienced net losses for four of the last five fiscal years
and, most recently, for the first and third quarters of 1999. If the Company
experiences further 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, the Amended Credit Agreement or the U.K. 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 in a profitable
and timely manner and to market them effectively. In many instances, the
Company's ability to effectively compete in the digital imaging markets depends
on its ability to successfully develop 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.

                                       31

<PAGE>



SUBSTANTIAL LEVEL OF DEBT

The Company has a significant amount of debt. The Company's 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 with 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 U.K. 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, the U.K. 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.


FAILURE 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.

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HIGHLY COMPETITIVE MARKETS

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 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 net
sales. Net sales to this customer totaled 11.9%, 12.5%, and 13.0% of the
Company's annual net sales in 1996, 1997 and 1998 respectively. There has
been no major change in the importance of this customer during the third
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 instability of the currency and the
financial system could negatively affect the Company's net sales. Accordingly,
there can be no assurance that the Company 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, German mark, and euros. 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.


CONTRACT MANUFACTURING, RAW MATERIALS AND SUPPLIES

The Company is dependent on certain sole source suppliers for certain finished
products and components. The Company uses vendors to supply some of the raw
materials and supplies necessary for the manufacture of its products, including
chemicals, polyester film base, specialty paper and components, and is also
dependent on a sole source of supply for some of its raw material and supplies.
The Company is dependent on these suppliers' ability to meet its production
needs, at a competitive cost and quality. The Company therefore could be
adversely affected by the unanticipated interruption in the delivery of raw
materials, supplies or product production, including as a result of the Year
2000 problem, its inability to obtain them on favorable terms, or at all, and by
an increase in the costs of such products,

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<PAGE>



materials and supplies if the Company were unable to pass along these 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 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.

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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. The Year 2000
problem has 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 and the Company's ability to
establish and implement, if necessary, contingency plans. There can be no
assurance that the Company will foresee all Year 2000 problems or correct them
on a timely basis.


PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The Company is currently involved in several lawsuits, the unfavorable
disposition of which may have a material adverse effect on the financial
condition or operating results of the Company.

Potentially material are three suits against the Company and certain of its
officers by individuals claiming to have purchased stock in the Company and
purporting to represent a class of its shareholders in actions alleging
violations of the Federal Securities Law regarding the public disclosure of
information about the Company's business during a time period between April 16,
1997 and August 28, 1998. The initial suit, SCHREIBER V. POLAROID CORPORATION,
GARY DICAMILLO AND WILLIAM J. O'NEILL, JR. was filed in United States District
Court for the District of Massachusetts on June 8, 1999. Additional suits making
essentially the same allegations have been filed, but not yet served upon the
defendants. The Company believes the suits to be without merit and intends to
defend them vigorously.

A declaratory judgment action was filed by the Company against the successor to
the former trustee of the Polaroid Stock Equity Plan, NationsBank, NA, and its
insurer, American Casualty Company. The amended complaint in the action,
POLAROID CORPORATION V. NATIONSBANK, NA., A SUCCESSOR TO NATIONSBANK OF GEORGIA,
NA., AND AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, was filed in the
United States District Court for the District of Massachusetts on June 21, 1999.
The former trustee and its insurer both indicated they would seek
indemnification for costs incurred in this action by the Company. The Company
has requested the court to rule that the Company is not liable under an
indemnity provision of the Trust Agreement between the Company and the former
trustee for attorney fees incurred by the declaratory defendants in defending
claims by the United States Department of Labor that NationsBank breached its
fiduciary duty as trustee, or for the resulting settlement amounts paid by the
defendants.

In April 1999, a tribunal of the International Chamber of Commerce's
International Court of Arbitration entered a ruling against the Company's
wholly-owned subsidiary, Polaroid Far East Limited, in an arbitration proceeding
brought by Columbia Enterprises for breach of two distributor agreements
regarding the distribution of photographic equipment in the Philippines in 1996.
The proceeding has entered the damages phase, but the Company cannot predict the
likely amount of the award.

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On June 23, 1999 Polaroid received Notice of Service of Process in a patent
infringement action filed against Polaroid Corporation and many others by the
Lemelson Medical, Education and Research Foundation alleging that a broad range
of the Company's manufacturing equipment and products infringe a number of
patents. The Company believes the suit to be without merit and intends to defend
it vigorously.

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 September 26, 1999 was $1 million. The Company
currently estimates that the majority of the $1 million amount reserved for
environmental liabilities on September 26, 1999 will be payable over the next
two to three years. The Company's analysis of data that 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 third quarter of 1999.



ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

     (10.1)   Amendment No. 2 dated as of September 10, 1999 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).

     (10.2)   72.5 million euros Loan Agreement dated as of August 3, 1999
              between Polaroid (U.K.) Limited (a wholly owned subsidiary of
              Polaroid Corporation) as borrower; Polaroid Corporation as
              guarantor and Deutsche Bank AG and ABN AMRO BANK NV as lenders,
              Deutsche Bank AG, Amsterdam as agent, Deutsche Bank Securities and
              ABN AMRO BANK NV as co-arrangers, and ABN AMERO BANK NV.

     (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 third quarter of 1999, the Company did not file any current reports
on Form 8-K.

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                                  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)






                                    /s/ JUDITH G. BOYNTON
                                    -------------------------------
       November 8, 1999              Judith G. Boynton
                                     Executive Vice President and
                                     Chief Financial Officer



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