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        June 28, 1998
                                      --------------------------

                                       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.)


        549 TECHNOLOGY SQUARE, 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 August 5, 1998: 44,109,011 shares
--------------------------------------------------------------------------------

                        This document contains 20 pages.
                        Exhibit index appears on page 19
--------------------------------------------------------------------------------


<PAGE>
                          PART I. FINANCIAL INFORMATION
                          Item 1. Financial Statements

                  POLAROID CORPORATION AND SUBSIDIARY COMPANIES
            Condensed Consolidated Statement of Earnings (Unaudited)
           Three and Six Months ended JUNE 28, 1998 and JUNE 29, 1997
                      (In millions, except per share data)

<TABLE>
<CAPTION>
                                                                                Second Quarter           Six Months
                                                                           1998         1997          1998         1997
                                                                           ----         ----          ----         ----
<S>                                                                        <C>          <C>           <C>          <C>
Net sales:
         United States                                                     $247.0       $294.0        $427.8       $483.3
         International                                                      217.7        270.9         427.5        539.1
-------------------------------------------------------------------------------------------------------------------------
Total net sales                                                             464.7        564.9         855.3      1,022.4
-------------------------------------------------------------------------------------------------------------------------

         Cost of sales                                                      255.0        304.9         498.8        565.0

         Marketing, research, engineering and administrative expenses       204.9        195.8         364.7        373.9

-------------------------------------------------------------------------------------------------------------------------
Total costs                                                                 459.9        500.7         863.5        938.9
-------------------------------------------------------------------------------------------------------------------------
Profit/(loss) from operations                                                 4.8         64.2          (8.2)        83.5

         Other income/(expense)                                              27.2         (0.3)         25.6         16.9

         Interest expense                                                    13.5         11.5          25.6         22.9

-------------------------------------------------------------------------------------------------------------------------
Earnings/(loss) before income taxes                                          18.5         52.4          (8.2)        77.5

         Federal, state and foreign income tax expense/(benefit)              6.4         17.8          (2.9)        27.1
-------------------------------------------------------------------------------------------------------------------------
Net earnings/(loss)                                                         $12.1        $34.6         ($5.3)       $50.4
=========================================================================================================================

Basic earnings/(loss) per common share                                      $0.27        $0.77        ($0.12)       $1.12

Diluted earnings/(loss) per common share                                    $0.27        $0.76        ($0.12)       $1.11
-------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share                                             $0.15        $0.15         $0.30        $0.30
Weighted average common shares used for basic
          earnings/(loss) per share calculation (in thousands)             44,353       45,028        44,413       44,934
Weighted average common shares used for diluted
          earnings/(loss) per share calculation (in thousands)             44,648       45,705        44,413       45,545
Common shares outstanding at end of period (in thousands)                  44,132       45,251        44,132       45,251


=========================================================================================================================
</TABLE>


                                       2
<PAGE>
                  POLAROID CORPORATION AND SUBSIDIARY COMPANIES
                      Condensed Consolidated Balance Sheet
                                  (In millions)

<TABLE>
<CAPTION>
                                                         (Unaudited)
                                                            June 28,         December 31,
Assets                                                          1998                 1997
-------------------------------------------------------------------------------------------
<S>                                                           <C>                  <C>
Current assets
     Cash and cash equivalents                                   $37.7                $68.0
     Short-term investments                                       12.6                 11.0
     Receivables                                                 489.6                545.1
     Inventories:
        Raw materials                                            109.6                 91.0
        Work-in-process                                          179.9                192.4
        Finished goods                                           254.7                222.7
-------------------------------------------------------------------------------------------
     Total inventories                                           544.2                506.1
     Prepaid expenses and other assets                           304.1                289.1
-------------------------------------------------------------------------------------------
Total current assets                                           1,388.2              1,419.3
-------------------------------------------------------------------------------------------
Property, plant and equipment
     Gross property, plant and equipment                       1,882.7              1,936.3
     Less accumulated depreciation                             1,377.0              1,423.8
-------------------------------------------------------------------------------------------
     Net property, plant and equipment                           505.7                512.5
-------------------------------------------------------------------------------------------
Deferred tax assets                                              124.7                124.7
-------------------------------------------------------------------------------------------
Other assets                                                     101.7                 76.2
-------------------------------------------------------------------------------------------
Total assets                                                  $2,120.3             $2,132.7
-------------------------------------------------------------------------------------------

Liabilities and stockholders' equity
-------------------------------------------------------------------------------------------
Current liabilities
     Short-term debt                                            $306.7               $241.6
     Current portion of long-term debt                           200.0                 -
     Payables and accruals                                       288.0                277.3
     Compensation and benefits                                   274.7                310.9
     Federal, state and foreign income taxes                      18.7                 32.9
-------------------------------------------------------------------------------------------
Total current liabilities                                      1,088.1                862.7
-------------------------------------------------------------------------------------------
Long-term debt                                                   300.1                496.6
-------------------------------------------------------------------------------------------

Accrued postretirement benefits                                  248.3                246.5
Accrued postemployment benefits                                   43.2                 42.5
-------------------------------------------------------------------------------------------


Common stockholders' equity
     Common stock, $1 par value                                   75.4                 75.4
     Additional paid-in capital                                  421.3                425.2
     Retained earnings                                         1,285.6              1,304.1
     Accumulated other comprehensive income                      (47.3)               (39.8)
     Less:    Treasury stock, at cost                          1,293.1              1,279.4
                  Deferred compensation                            1.3                  1.1
-------------------------------------------------------------------------------------------
     Total common stockholders' equity                           440.6                484.4
-------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                    $2,120.3             $2,132.7
===========================================================================================
</TABLE>


                                        3

<PAGE>
                  POLAROID CORPORATION AND SUBSIDIARY COMPANIES
           Condensed Consolidated Statement of Cash Flows (Unaudited)
                Six Months Ended June 28, 1998 and June 29, 1997
                                  (In millions)

<TABLE>
<CAPTION>
Cash flows from operating activities                                                     1998             1997
----------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>              <C>
     Net earnings/(loss)                                                                  ($5.3)           $50.4
     Depreciation of property, plant and equipment                                         52.9             62.1
     (Increase)/Decrease in receivables                                                    47.5            (53.3)
     Increase in inventories                                                              (37.3)           (19.4)
     Increase in prepaids and other assets                                                (17.3)           (31.6)
     Increase in payables and accruals                                                     15.4             14.3
     Decrease in compensation and benefits                                                (29.9)           (58.0)
     Increase/(decrease) in federal, state and foreign income taxes payable               (12.4)            13.4
     Other non cash items                                                                 (68.4)            25.1
----------------------------------------------------------------------------------------------------------------
     Net cash provided/(used) by operating activities                                     (54.8)             3.0
----------------------------------------------------------------------------------------------------------------


Cash flows from investing activities
----------------------------------------------------------------------------------------------------------------
     Increase in short-term investments                                                    (1.5)            (2.7)
     Increase in other assets                                                             (25.6)           (11.4)
     Additions to property, plant and equipment                                           (70.7)           (55.8)
     Proceeds from sale of property, plant and equipment                                   92.8              0.1
----------------------------------------------------------------------------------------------------------------
     Net cash used by investing activities                                                 (5.0)           (69.8)
----------------------------------------------------------------------------------------------------------------


Cash flows from financing activities
----------------------------------------------------------------------------------------------------------------
     Net increase in short-term debt (maturities 90 days or less)                          93.1             91.9
     Short-term debt having (maturities over 90 days):
          Proceeds                                                                         43.5             20.3
          Payments                                                                        (71.2)           (17.1)
     Proceeds from issuances of long-term debt                                              -              296.5
     Repayments of long-term debt                                                           -             (327.8)
     Cash dividends paid                                                                  (13.3)           (13.5)
     Proceeds from issuance of shares in connection with stock incentive plan               5.8             17.2
     Purchase of treasury stock                                                           (30.6)            (5.4)
----------------------------------------------------------------------------------------------------------------
     Net cash provided by financing activities                                             27.3             62.1
----------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash                                                     2.2             (2.1)
----------------------------------------------------------------------------------------------------------------

Net decrease in cash and cash equivalents                                                 (30.3)            (6.8)

Cash and equivalents at beginning of period                                                68.0             72.8
----------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of period                                                $37.7            $66.0
================================================================================================================
</TABLE>

                                        4

<PAGE>


Polaroid Corporation and Subsidiary Companies
Notes to Condensed Consolidated Financial Statements    (Unaudited)


Basis of Presentation
---------------------

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

New Accounting Standards
------------------------

Effective January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" (FAS 130) which
establishes standards for reporting and display of comprehensive income and its
components in a full set of financial statements. For the Company, comprehensive
income includes net earnings and unrealized gains and losses from currency
translation. Prior periods presented for comparative purposes have been
formatted to comply with the requirements of FAS 130.

Effective January 1, 1998, the Company adopted American Institute of Certified
Public Accountants' Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1) which
establishes guidelines for the accounting for the costs of all computer software
developed or obtained for internal use. SOP 98-1 must be applied on a
prospective basis as of the adoption date. Under SOP 98-1, certain payroll and
related costs for Company employees working on the application of development
stage projects as defined in the SOP for internal use computer software must be
capitalized and amortized over the expected useful life of the software.
Previously, the Company had expensed these costs as incurred. The adoption of
SOP 98-1 did not have a material impact on the Company's results of operations
or financial position.

Foreign Currency Translation
----------------------------

Effective January 1, 1997, the Company determined that the local currency is the
functional currency for most of its subsidiaries outside of the U.S. The U.S.
dollar will continue to be the functional currency for subsidiaries in highly
inflationary economies.


                                       5
<PAGE>

Earnings Per Share Reconciliation
---------------------------------

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

<TABLE>
<CAPTION>
                                                             Weighted         Per
                                                             Average         Share
                                        Earnings/(loss)       Shares         Amount
                                        ---------------       ------         ------
<S>                                         <C>                <C>           <C>
Quarter ended June 28, 1998
---------------------------
Basic earnings per share                    $ 12.1             44.4           $.27
                                            ======             ====           ====

Diluted earnings per share                  $ 12.1             44.6*          $.27
                                            ======             ====           ====

Quarter ended June 29, 1997
---------------------------
Basic earnings per share                    $ 34.6             45.0           $.77
                                            ======             ====           ====

Diluted earnings per share                  $ 34.6             45.7*          $.76
                                            ======             ====           ====

Six months ended June 28, 1998
------------------------------
Basic loss per share                        $ (5.3)            44.4          $(.12)
                                            ======             ====           ====

Diluted loss per share                      $ (5.3)            44.4**        $(.12)
                                            ======             ====           ====

Six months ended June 29, 1997
------------------------------
Basic earnings per share                    $ 50.4             44.9          $1.12
                                            ======             ====           ====

Diluted earnings per share                  $ 50.4             45.5**        $1.11
                                            ======             ====           ====
</TABLE>


*    For the quarter ended June 28, 1998, stock options for shares of common
     stock totaling 2.9 million were outstanding but were not included in the
     calculation of diluted earnings per share because the effect was
     anti-dilutive. In addition, the effect of .2 million outstanding
     performance shares for the quarter ended June 28, 1998 was not included
     since the performance criteria were not met. For the quarter ended June 29,
     1997, the effect of .1 million outstanding performance shares was not
     included since the performance criteria were not met.

**   For the six months ended June 28, 1998, stock options for shares of common
     stock totaling 4.7 million were outstanding but were not included in the
     calculation of diluted loss per share because the effect was antidilutive.
     In addition, the effect of .2 million outstanding performance shares for
     the six months ended June 28, 1998 was not included since the effect was
     antidilutive. For the six months ended June 29, 1997, the effect of .1
     million outstanding performance shares was not included since the
     performance criteria were not met.

The total number of common shares outstanding were 44.1 million and 45.3 million
as of June 28, 1998 and June 29, 1997, respectively.

                                       6
<PAGE>

Comprehensive Income
--------------------

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

<TABLE>
<CAPTION>
                                                        Quarter ended
                                                        -------------
                                            June 28, 1998             June 29, 1997
                                            -------------             -------------
<S>                                         <C>                       <C>
Net earnings                                    $12.1                     $34.6

Other comprehensive income:
   Currency translation adjustment              (5.4)                       1.6
                                                -----                     -----

Total comprehensive income                      $6.7                      $36.2
                                                =====                     =====



                                                      Six months ended
                                                      ----------------
                                            June 28, 1998             June 29, 1997
                                            -------------             -------------

Net earnings/(loss)                            $(5.3)                     $50.4

Other comprehensive income:
   Currency translation adjustment             $(7.5)                    $(28.1)
                                               ------                    -------

Total comprehensive income/(loss)              $(12.8)                    $22.3
                                               =======                   ======
</TABLE>

Restructuring Charge
--------------------

As part of the restructuring charge recognized in the fourth quarter of 1997,
the Company recorded a charge of approximately $142.0 million related to
payments to be made under an involuntary severance program under which
approximately 1,800 employees will leave the Company (approximately 40% from
manufacturing and 60% from non-manufacturing jobs) over approximately 18 months.
As of June 28, 1998, approximately 600 employees were terminated under this
program. Through June 28, 1998, the Company has paid approximately $29.0 million
of the amount accrued, in costs related to this program.

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 June 28, 1998 and June 29, 1997 condensed consolidated financial statements
included in this filing on Form 10-Q have been reviewed by KPMG Peat Marwick
LLP, independent certified public accountants, in accordance with established
professional standards and procedures for such review. The report by KPMG Peat
Marwick LLP commenting upon their review of the condensed consolidated financial
statements appears on the following page.

                                       7
<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 June 28, 1998 and the related
condensed consolidated statements of earnings for the three and six-month
periods ended June 28, 1998 and June 29, 1997, and cash flows for the six-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, 1997, 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 27, 1998, 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, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.

                                                       /s/ KPMG Peat Marwick LLP


Boston, Massachusetts
July 14, 1998

                                       8

<PAGE>

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

The Company often uses the following qualitative descriptors to explain its
results of operations: "flat" indicates fluctuations of zero-to-one percent;
"slight" is in the two-to-three percent range; "moderate" means four-to-ten
percent; "significant" is in the eleven-to-twenty percent range; and
"substantial" represents fluctuations greater than twenty percent.

Second Quarter Results
----------------------

In June of 1998, the Company announced that it would take steps to accelerate
the implementation of new inventory strategies and practices at the dealer
level. This was a result of the Company initiating meetings with several large
dealers in order to understand their inventory management plans. The Company
learned that as a result of business combinations and improved logistics
practices, these customers, in general, would be driving their inventory levels
lower well into 1999. The Company decided to work with these key customers to
accelerate this reduction in channel inventories. A large portion of this
decline occurred in the second quarter and the Company plans to manage the
remaining reduction over the next few quarters to achieve targeted levels.
Because of this strategy to reduce channel inventories, the Company expects to
spend a greater portion of its marketing funds at the retail, rather than dealer
level.

This change in inventory strategies discussed above, along with the weaknesses
in Asia and other emerging markets and, to a lesser degree, a stronger U.S.
dollar, were the major reasons why the Company's worldwide sales declined from
$564.9 million in the second quarter of 1997 to $464.7 million in the second
quarter of 1998. On a unit basis, worldwide shipments of cameras decreased
significantly and worldwide shipments of instant film decreased substantially in
the second quarter of 1998 compared to the same period last year. Conventional
film shipments were flat while shipments of videotapes decreased significantly
in the second quarter of 1998 compared to the same period last year.

Sales in the United States during the second quarter of 1998 totaled $247.0
million versus $294.0 million recorded in the second quarter of 1997. As noted
above, the decrease is largely due to the Company's decision to reduce dealer
inventory levels in the U.S. On a unit basis, the Company's shipments to its
customers of both instant cameras and instant film decreased substantially.
However, retail unit sales of both instant cameras and integral film were down
less than 5% versus the second quarter last year. Shipments of conventional film
increased significantly and shipments of videotapes decreased significantly in
the second quarter of 1998 compared to the same period last year.

International sales declined from $270.9 million in the second quarter of 1997
to $217.7 million in the second quarter of 1998. This reduction was due to
weaknesses in Asia and other emerging markets and, to a lesser degree, the
strengthening of the U.S. dollar. On a unit basis, shipments of instant cameras
decreased moderately and shipments of instant film decreased substantially.
Shipments of conventional film decreased significantly and shipments of
videotapes decreased substantially in the second quarter of 1998 compared to the
same period last year.

Gross margin, as a percent of sales, decreased to 45% in the second quarter of
1998 from 46% in the second quarter of 1997. This decrease was primarily due to
lower sales of instant film.

                                       9
<PAGE>

Second Quarter Results (continued)
----------------------------------

Marketing, research, engineering and administrative expenses increased from
$195.8 million in the second quarter of 1997 to $204.9 million in the second
quarter of 1998. This increase was primarily related to a $10.0 million reserve
recorded against Russian receivables in response to recent economic turmoil in
that country.

Profit from operations for the second quarter of 1998 was $4.8 million compared
to $64.2 million in the second quarter of 1997. The decrease was largely due to
lower film sales as the Company responded to new inventory strategies and
practices at the dealer level. In addition, profits were adversely affected by
weaknesses in Asia and other emerging markets and the additional reserve
established for Russian receivables. These adverse factors were offset in part
by savings from restructuring.

In the second quarter of 1998, the net of other income and expense was income of
$27.2 million compared to an expense of $.3 million in 1997. Second quarter 1998
other income included gains of $26.3 million from the sale of real estate.

Subsequent to the second quarter, the Company sold additional real estate which
resulted in a pre-tax gain of approximately $18.0 million. This real estate
sale, which occurred on July 15, 1998, will be reflected in the Company's
financial results for the third quarter of 1998.

Interest expense was $13.5 million in the second quarter of 1998 compared to
$11.5 million in the second quarter of 1997. The increase is primarily due to
higher obligations and, to a lesser degree, lower capitalized interest.

Income tax expense was $6.4 million in the second quarter of 1998 compared to
$17.8 million in the same period a year ago. The effective income tax rate was
35% for the second quarter of 1998 compared to 34% in the same period last year.

Net earnings for the second quarter of 1998 were $12.1 million, or $.27 basic
earnings per common share, compared to net earnings of $34.6 million, or $.77
basic earnings per common share for the second quarter of 1997. Diluted earnings
per common share were the same as basic earnings per common share for the second
quarter of 1998. Diluted earnings per common share were $.76 in the second
quarter of 1997.

Six Month Review
----------------

Worldwide sales for the first six months of 1998 decreased 16% to $855.3 million
from $1.02 billion for the first six months of 1997. This decrease was the
result of the channel inventory strategies discussed earlier, weaknesses in Asia
and other emerging markets and, to a lesser degree, the adverse impact of
foreign exchange. On a unit basis, during the first half of 1998, worldwide
shipments of instant cameras decreased significantly and worldwide shipments of
instant film declined substantially compared with the same period last year.
Worldwide shipments of both conventional film and videotapes declined slightly
in the first half of 1998 versus the first half of 1997.

                                       10
<PAGE>

Six Month Review (continued)
----------------------------

U.S. sales decreased 11% to $427.8 million for the first six months of 1998
compared to $483.3 million for the same period in 1997. This decrease was
largely due to the Company's decision, implemented in the second quarter of
1998, to reduce dealer inventory levels in the U.S. As a result, in the first
half of 1998, unit shipments of both instant cameras and instant film in the
U.S. were significantly lower than in the first half of 1997. During the first
half of 1998, at the retail level, unit volumes of both instant cameras and
integral film were down approximately 3% versus the first six months of last
year. Shipments of conventional film increased significantly and shipments of
videotapes increased slightly during the first half of 1998 versus the same
period last year.

International sales decreased 21% to $427.5 million for the first six months of
1998 compared to $539.1 million for the same period in 1997. The major reasons
for this reduction were a decline in instant film sales, reflecting weaknesses
in Asia and other emerging markets and, to a lesser degree, the adverse impact
of foreign exchange. In addition to instant film, which fell substantially, unit
shipments of instant cameras decreased significantly during the first half of
1998 compared with the same period last year. Shipments of conventional film
decreased significantly and shipments of videotapes decreased substantially
during the first half of 1998 versus the same period last year.

Gross margin as a percent of sales was 42% for the first six months of 1998
compared to 45% for the first six months of 1997. The decrease was primarily due
to lower sales of instant film.

Marketing, research, engineering and administrative expenses for the first six
months of 1998 decreased to $364.7 million from $373.9 million in the first six
months of 1997. This overhead decrease was due to lower variable selling and
marketing expenses and a stronger U.S. dollar, offset in part by the addition to
the reserve for Russian receivables.

The loss from operations was $8.2 million in the first six months of 1998
compared to a profit from operations of $83.5 million in the first six months of
1997. The decrease in operating profit is primarily due to the new inventory
adjustment strategy and weaknesses in Asia and other emerging markets. In
addition, operating profit was also negatively impacted by the addition to the
reserve for Russian receivables and an increase in new product development
costs. These adverse factors were offset in part by savings from restructuring
and reductions from losses in the Company's digital imaging products.

Other income for the first six months of 1998 was $25.6 million compared to
$16.9 million for the first six months of 1997. In the first half of 1998, other
income includes $26.1 million in gains from the sale of real estate. Other
income in the first half of 1997 included a $15.8 million gain primarily
attributable to the change in the Company's method of applying Financial
Accounting Standards Board Statement No. 52, "Foreign Currency Translation" (FAS
52) for translating the financial results of most of its foreign subsidiaries
from dollar functional to local currency functional.

                                       11
<PAGE>


Six Month Review (continued)
----------------------------

Interest expense was $25.6 million and $22.9 million in the first six months of
1998 and 1997, respectively. The increase is primarily due to higher obligations
and, to a lesser degree, lower capitalized interest.

The income tax benefit was $2.9 million in the first half of 1998 compared to an
income tax expense of $27.1 million in the same period a year ago. The effective
tax rate was 35% for both the first half of 1998 and 1997.

For the first half of 1998, the net loss was $5.3 million, or $.12 basic loss
per common share, compared to net earnings of $50.4 million, or $1.12 basic
earnings per common share in the first half of 1997. Diluted loss per common
share was the same as basic loss per common share for the first half of 1998.
Diluted earnings per common share were $1.11 for the first half of 1997.

Financial Liquidity and Capital Resources
-----------------------------------------

As of June 28, 1998, the Company's cash and cash equivalents and short-term
investments amounted to $50.3 million, compared to $79.0 million at December 31,
1997. The primary sources of cash in the first half of 1998 were cash flows
provided by financing activities and proceeds from the sale of fixed assets
totalling $92.8 million. These sources were more than offset by cash used by
operating and other investing activities. In addition, working capital decreased
to $300.1 million at June 28, 1998 from $556.6 million at December 31, 1997.
This decrease was primarily a result of reclassifying $199.7 million of 8%
Notes, due March 15, 1999, from long-term to short-term debt and an increase in
short-term borrowings.

In the first half of 1998, capital spending totaled $70.7 million and
depreciation expense was $52.9 million. This compares with capital expenditures
of $55.8 million and depreciation expense of $62.1 million during the first half
of 1997. Capital spending in both years was a combination of on-going capital
programs and spending related to new products. In 1998, capital spending also
included costs associated with the installation of a new enterprise-wide
software system. The Company has increased its forecast of capital expenditures
for 1998 from approximately $165 million to approximately $200 million. The
increase is principally due to more spending on new products to meet increased
demand, the installation of the new enterprise-wide software system and
outfitting facilities associated with the Company's consolidation of real
estate.

During the first half of 1998, the Company also expended cash to make payments
relating to the 1997 involuntary severance program, to repurchase the Company's
stock and to pay dividends to common stockholders.

As part of the Company's December 1997 restructuring program, the Company sold
its underutilized chemical manufacturing facility in Freetown, Mass. for $55.0
million in the first half of 1998. The Company also sold certain real estate
which resulted in cash proceeds of $37.7 million in the first half of 1998.

In March 1997, the Company executed a $350.0 million credit agreement which
provides committed funds for general corporate purposes. This agreement expires
at the end of 2001 and is subject to certain debt covenants which limit the
Company's borrowing capacity. At June 28, 1998, there were no borrowings under
this facility. Gross borrowings from the Company's international uncommitted
lines of credit were $194.8 million at June 28, 1998. Cash balances of $10.9
million at June 28, 1998 were required to support international borrowings.
Additional available international


                                       12
<PAGE>

Financial Liquidity and Capital Resources (continued)
-----------------------------------------------------

uncommitted lines of credit were $56.0 million at June 28, 1998. Gross
borrowings from uncommitted lines of credit for U.S. operations were $111.9
million at June 28, 1998. As of June 28, 1998, additional available uncommitted
lines of credit for U.S operations were $38.1 million. In the first quarter of
1998, the Company reclassified $199.7 million of 8% Notes, due March 15, 1999,
from long-term to short-term debt. The Company plans to refinance this debt on a
long term basis upon maturity. The Company also has available for issuance $200
million of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission.

The Company's cost of borrowing is generally dependent upon its short and
long-term debt credit ratings. The Company's credit rating by Moody's Investor's
Services, Inc. for long-term debt obligations is Baa3 while Duff & Phelps Credit
Ratings Co's rating for long-term debt is BBB. The Company's credit ratings by
Standard & Poor's ("S&P") are "A-3" in the commercial paper market and "BBB-"
for long-term obligations. In July 1998, S&P confirmed the Company's ratings but
revised its ratings outlook on the Company from stable to negative.

In October 1997, the Company's Board of Directors authorized up to 5 million
shares to be repurchased over three years. During the second quarter of 1998,
the Company repurchased approximately 509,000 shares of its common stock at a
cost of $20.3 million. For the six month period ended June 28, 1998
approximately 761,000 shares were repurchased at a cost of $31.8 million. As of
June 28, 1998, up to 3.2 million shares remain to be purchased under the current
program. It is the Company's policy to repurchase its common stock on the open
market, in privately negotiated transactions or otherwise (which may include
transactions with Polaroid retirement plans, including the employee stock
ownership plan). The timing and amounts of any future purchases under this
program depend upon many factors, including market conditions as well as the
Company's business and financial condition.

The Company believes that its borrowing capacity and other existing corporate
resources are adequate for at least the next twelve months to meet working
capital needs, to fund planned capital expenditures, to make payments associated
with the December 1997 restructuring program, to pursue future growth
opportunities and to fund other corporate requirements.

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.

Effective January 1, 1997, the Company determined that the local currency is the
functional currency for most of its subsidiaries outside of the U.S. The U.S.
dollar will continue to be the functional currency for subsidiaries in highly
inflationary economies.

To minimize the adverse impact of currency fluctuations on net assets
denominated in currencies other than the relevant functional currency
(nonfunctional currencies), the Company may engage in nonfunctional
currency-denominated borrowings. The Company determines the aggregate amount of
such borrowings based on forecasts of each entity's nonfunctional net asset
position and the relative strength of the

                                       13
<PAGE>

Foreign Currency Exchange (continued)
-------------------------------------

functional currencies compared to the nonfunctional currencies. These borrowings
create nonfunctional currency-denominated liabilities that hedge the Company's
nonfunctional currency-denominated net 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 June 28, 1998 the amount of the Company's outstanding short-term
debt incurred for hedging purposes was approximately $192.4 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 reinstituted 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. The aggregate notional value of the Company's short-term foreign
exchange swap contracts was $12.5 million at June 28, 1998.

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 options. The term of these call options typically does not
exceed 18 months. The Company's purchase of call options allows it to protect a
portion of its expected foreign currency-denominated revenues from adverse
foreign currency exchange movement. The Company typically does not buy call
options which can be exercised prior to the expiration date, nor does it
typically write options or purchase call options for trading purposes. The
Company amortizes premiums over the term of the option and defers any gains for
its call options activity until the option exercise date. At June 28, 1998,
option contracts with a notional value of $269.0 million were outstanding.

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

Impact of Inflation
-------------------

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

New Accounting Standards
------------------------

In June 1997, the Financial Accounting Standards Board (FASB) issued Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (FAS 131) that requires companies to determine reportable
segments based on how management makes decisions about allocating resources to
the segments and measures their performance. Disclosures for segments are
similar to

                                       14
<PAGE>

New Accounting Standards (continued)
------------------------------------

those required under current standards. However, certain new information and
quarterly disclosures will be required. In addition, new entity-wide disclosures
will be required about products and services and the countries in which material
assets are located and that report material revenues. Prior period information
disclosed will be restated to comply with FAS 131. The Company will be adopting
FAS 131 in 1998 and it will be applicable for the Company's year end
disclosures. The disclosure requirements under FAS 131 for interim quarters will
be applicable for the Company's first quarter disclosures in 1999. The Company
is still evaluating the effect of this statement on its reported segment
information.

In February 1998, the FASB issued Financial Accounting Standard No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" (FAS
132). The implementation of FAS 132 will revise certain footnote disclosure
requirements and add certain new disclosures related to pension and other
retiree benefit plans. However, it does not change the measurement or
recognition requirements for those plans. Implementation of FAS 132 is required
for year end 1998 disclosures.

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

Year 2000 Date Conversion
-------------------------

The Year 2000 problem is the result of computer programs being written with two
digits instead of four digits to define the applicable year. Without
modifications and conversions, the Year 2000 problem could have a material
adverse impact on the results of operations and financial condition of the
Company. However, the Company's management has initiated a multi-phase
company-wide program to prepare the Company for the Year 2000.

During the first phase of the Company's program, the Company conducted a
comprehensive review of the Company's information technology ("IT") and non-IT
systems and software to identify the systems and software that could be affected
by this issue.

During the second phase of the Company's program, a plan to resolve Year 2000
issues relating to the Company's systems and software is being developed and
implemented. The Company presently believes that with modifications to existing
systems and software and converting to new systems and software as part of the
Company's effort to streamline its operations, the Year 2000 problem, as it
applies to the Company's own systems and software, should not pose a significant
operational problem to the


                                       15

<PAGE>

Year 2000 Date Conversion (continued)
-------------------------------------

Company. The Company expects the Year 2000 related modifications and conversions
to its own systems and software, including testing, to be substantially
completed by the middle of 1999. The cost to modify existing software is
expected to be approximately $10 to $15 million, of which approximately $2
million has been expended through June 28, 1998.

Concurrently with the development and implementation of plans to resolve Year
2000 issues relating to the Company's systems and software, the Company is also
reviewing the possible impact of the Year 2000 problem on its customers and
suppliers. The Company has not completed its assessment of its exposure to risks
relating to the Year 2000 issues of third parties with which it has a material
relationship.

Upon the completion of the Company's assessment of its exposure to the risk of
Year 2000 non-compliance by third parties, the Company will formulate
contingency plans to handle the most likely worst case Year 2000 scenarios.
Until the assessment is completed, the Company cannot reasonably define what
those scenarios might be.

Factors That May Affect Future Results
--------------------------------------

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

The Company sells and markets its products worldwide. A major risk associated
with such worldwide operations is the fluctuation of foreign exchange rates,
particularly the Japanese yen and German mark.

The Company's future operating results may be negatively affected if the Company
is unable to promptly design, develop, manufacture and market innovative imaging
products that meet customer demands. Since some of the Company's new products
will replace or compete with its existing products, the Company's operating
results could be adversely affected even if it is successful in developing and
introducing new products.

In addition, the timing and introduction of competitors' new products could have
a 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. Its most significant traditional
competitors, Eastman Kodak Company and Fuji Photo Film Co., Ltd., are
considerably larger than the Company and have more resources. The Company
anticipates that price competition from conventional film and other imaging
technologies will place continued pressure on instant products. The impact of
these factors can cause results that are both adverse and varied.

The Company is committed to 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.

The Company is affected by retail demand for its products, particularly in the
United States, Europe and Japan, and by factors extraneous to the Company's
performance such as economic conditions. Moreoever, dealers implementation of
new inventory strategies and practices could continue to affect operating
profit. Changes in laws and regulations, particularly in the environmental
arena, also could adversely affect the Company's results from operations.

While the Company believes that developing markets continue to present
attractive opportunities, such markets tend to be considerably less stable than
more established markets and there can be no assurance that developing markets
will produce favorable results for the Company. For example, recently there has
been substantial unexpected economic turmoil in Russia which could create
difficulties in collection of receivables.

The Company is continuing to develop digital imaging products. The operating
losses of the Company's digital imaging business have reduced the profits of the
Company. 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. Worldwide marketing of digital imaging products is highly
competitive in price, quality and product performance and there is no assurance
that the Company will attain the level of success in these markets that it has
achieved with respect to instant photography. The Company's ability to compete
effectively in digital imaging markets is also dependent on its ability to
develop new products in a timely manner and to market them effectively.

The future prospects of the Company's digital imaging business are uncertain.
These markets require a speed of execution that is greater than that of the
Company's traditional business; and, competition in these new markets includes
companies some of which have greater resources and have more experience serving
the demands of these markets. Moreover, the Company's ability to succeed in
these new markets will be enhanced if it is able to develop meaningful strategic
business relationships with other companies; there can be no assurance that it
will achieve these objectives. The Company's ability to achieve anticipated
savings in overhead and other costs from its restructuring programs is also
important to its ability to compete effectively in digital markets but there can
be no assurance that it will achieve these objectives.

The Company aggressively endeavors to protect its investment in research and
development by obtaining patents where feasible. The ownership of these patents
contributes to the Company's ability to use its inventions and at the same time
may provide significant patent license revenue. While in the aggregate, the
Company's patents are considered to be of material importance in the operation
of its business, the patents relating to any single product or process may not
necessarily be of material significance when judged from the standpoint of the
Company's total business.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
------------------------------------------------------------------

Not applicable.



                                       16
<PAGE>


                           PART II. OTHER INFORMATION

                            Item 1. Legal Proceedings
                            -------------------------

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

Due to a wide range of estimates with regard to response costs at these sites
and various other uncertainties, the Company cannot firmly establish its
ultimate liability concerning these sites. In each case in which the Company is
able to determine its likely exposure, such amount has been included in the
Company's reserve for environmental liabilities. The Company's aggregate reserve
for these liabilities as of June 28, 1998 was $1.6 million. The Company
currently estimates that the majority of the $1.6 million amount reserved for
environmental liabilities on June 28, 1998 will be payable over the next two to
three years. The Company's analysis of data which underlies its establishment of
this reserve is undertaken on a quarterly basis. The Company will continue to
accrue in its reserve such amounts as management believes appropriate from time
to time as circumstances warrant.

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

                Item 2. Changes in Securities and Use of Proceeds
                -------------------------------------------------

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



                     Item 3. Defaults Upon Senior Securities
                     ---------------------------------------

None.

                                       17
<PAGE>


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



On May 5, 1998 the Company held its annual meeting of stockholders. The owners
of 94% of the shares of common stock entitled to vote at this meeting were
present either in person or by proxy. The following are the voting results for
the meeting:


    [bullet] the stockholders ratified the appointment of KPMG Peat Marwick LLP,
             Independent Public Accountants, as the Company's auditors for 1998
             with 41,128,013 votes in favor, 445,534 votes against and 227,595
             abstentions and broker nonvotes.

    [bullet] the stockholders elected the nominated slate of directors to hold
             office until the next annual meeting with the following votes:

<TABLE>
<CAPTION>
                                          For               Withheld
                                          ---               --------
<S>                                    <C>                 <C>
             Gary T. DiCamillo         40,626,594          1,174,548
             Ralph E. Gomory           36,730,965          5,070,177
             Frank S. Jones            40,788,319          1,012,823
             Stephen P. Kaufman        40,789,350          1,011,792
             John W. Loose             40,810,063            991,079
             Albin F. Moschner         40,783,945          1,017,197
             Ronald F. Olsen           40,764,139          1,037,003
             Ralph Z. Sorenson         40,779,944          1,021,198
             Carole F. St. Mark        40,787,370          1,013,772
             Delbert C. Staley         40,763,642          1,037,500
             Bernee D.L. Strom         40,775,850          1,025,292
             Alfred M. Zeien           40,799,330          1,001,812
</TABLE>


                            Item 5. Other Information
                            -------------------------

Not applicable.


                                       18

<PAGE>

                    Item 6. Exhibits and Reports on Form 8-K
                    ----------------------------------------

(a)    Exhibits:


       (10.1)   Amendment No. 3 and Waiver dated as of June 30, 1998 with
                respect to the $350,000,000 Credit Agreement, dated as of March
                19, 1997 among Polaroid Corporation, Morgan Guaranty Trust
                Company of New York, as Agent, and Banks listed therein.

       (12)     Ratio of Earnings to Fixed Charges

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

       (27)     Financial Data Schedule

       (27.1)   Restated Financial Data Schedule



(b) Reports on Form 8-K:

                During the second quarter of 1998, the Company filed a report
                on Form 8-K, dated June 12, 1998.


                                       19
<PAGE>

                                   SIGNATURES
                                   ----------





Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.







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






       August 6, 1998         /s/ Judith G. Boynton
                                  ------------------------------
                                  Judith G. Boynton
                                  Executive Vice President and
                                  Chief Financial Officer


                                       20