Polycom (PLCM) 8-K Polycom Reports Third Quarter Results

Exhibit 99.1

Contact: Michael R. Kourey, CFO

Polycom, Inc.

925-924-5742

mkourey@polycom.com

POLYCOM REPORTS THIRD QUARTER RESULTS

Sequential Revenue Growth of Ten Percent to $109.8 Million;

Record Operating Cash Flow of $38.8 Million

PLEASANTON, Calif. – Oct. 16, 2003 – Polycom^®, Inc. (NASDAQ: PLCM), the world’s leader in video and voice conferencing, conference bridges, and integrated web collaboration solutions, today reported its operating results for the third quarter ended Sept. 30, 2003.

Third quarter consolidated net revenues were $109.8 million, compared to $103.4 million recorded for the third quarter of 2002. Pro forma net income in the third quarter was $13.6 million, or 13 cents per diluted share. This compares to pro forma net income of $10.1 million, or 10 cents per diluted share, for the third quarter of 2002. Pro forma financial measures exclude acquisition-related costs, purchased in-process research and development, amortization of purchased intangibles, restructuring costs, litigation settlement, loss on strategic investments, income tax effect of the preceding adjustments, loss from discontinued operations, net of taxes, and gain (loss) from sale of discontinued operations, net of taxes. GAAP net income for the third quarter of 2003 was $10.0 million, or 10 cents per diluted share, compared to GAAP net income of $3.5 million, or 3 cents per diluted share, for the same period last year.

For the nine months ended Sept. 30, 2003, net revenues were $302.1 million, compared to $357.8 million for the first nine months of 2002. Pro forma net income for the period was $23.4 million, or 23 cents per diluted share, compared to $48.5 million, or 48 cents per diluted share for the first nine months of 2002. GAAP net income for the nine months ended Sept. 30, 2003 was $9.2 million, or 9 cents per diluted share, compared to GAAP net income of $23.6 million, or 23 cents per diluted share, for the same period last year.

Prior year revenue and pro forma net income figures include certain reclassifications primarily to reflect the effect of discontinued operations associated with the sale of the network access product line. Network access revenue and related expenses, net of taxes, are shown as discontinued operations in the financial statements.

The reconciliation of the GAAP statement of operations amounts to the respective pro forma figures, for the three and nine months ended Sept. 30, 2003 and 2002 is set forth at the end of this press release.

On a product line basis, consolidated net revenues for the third quarter of 2003 were comprised of 59 percent video communications, or $64.8 million; 19 percent network systems, or $20.9 million; 18 percent voice communications, or $19.3 million; and 4 percent iPower^™-related services, or $4.8 million. This compares to the third quarter of 2002, in which consolidated net revenues were comprised of 55 percent video communications, or $56.8 million; 19 percent network systems, or $20.0 million; 18 percent voice communications, or $18.8 million; and 8 percent iPower-related services, or $7.8 million.

“The collaboration and conferencing sector continued to gain strength in the third quarter,” stated Robert Hagerty, president and CEO. “In addition to this sector gain, we are seeing some evidence of broader capital spending increases that, coupled with Polycom’s recent execution improvements, are driving our revenue improvements across the globe. For instance, our sharp sequential increase in network systems sales validates that our high touch sales model is working as much of this product is being sold as part of a broad solution that includes Polycom’s leading video and voice product offerings. Clearly, all of the key revenue, profit, and balance sheet measures also indicate that our strategy is effective in delivering the Polycom Office^™ solution to a broadening group of end user customers in the enterprise, government, education, and medical arenas. As another key indicator that collaboration and conferencing is becoming a highly visible mission-critical space, the Polycom User Group meeting last month had a record 540 attendees, representing end users and ecosystem partners from around the world.”

Hagerty continued, “Finally, we are delighted to highlight our launch of the Polycom VSX 7000^™ video conferencing product—a new platform that is already receiving an excellent reaction from industry analysts and the customer community. This product furthers our long-standing objective of delivering a unified communications solution that is as easy to use as a telephone.”

“We are pleased with Polycom’s 10 percent sequential revenue growth and return to year-over-year growth for the third quarter,” said Michael Kourey, senior vice president, finance and administration, and CFO. “With the revenue and gross margin improvements in the third quarter, Polycom’s pro forma operating margin grew to 15.7 percent, yielding a pro forma EPS of 13 cents. This significant profitability growth, coupled with an improvement in DSO to 34 days, drove our operating cash flow to a record $38.8 million for the quarter. Q3 represented our twenty-second consecutive quarter of positive operating cash flow.”

About Polycom

Polycom, Inc. is the world’s technology leader of high-quality, easy-to-use video, voice, data and web conferencing and collaboration solutions. The Polycom Office^™ is our continued commitment to make distance communications as natural and interactive as being there by providing best-in-class conferencing solutions that are interoperable, integrated and intuitive to the user. The Polycom Office is based on industry standards and supported by an open architecture that promotes interoperability in multi-vendor environments and complements leading network infrastructure platforms. For additional information call 1-800-POLYCOM (765-9266) or +1-408-526-9000, or visit the Polycom website atwww.polycom.com.

As has been noted on the Company’s web site since October 7, 2003, Polycom will hold a conference call today at 5:00 p.m. ET/2:00 p.m. PT to discuss its third quarter results. Robert Hagerty, chairman, president and CEO, and Michael Kourey, chief financial officer, will host the conference. You may participate by viewing the webcast atwww.polycom.com or, for callers in the US and Canada, call 888-813-7826; and for callers outside of the US and Canada, call 212-676-5390, with the pass code being Polycom. A replay of the call will also be available through October 23, 2003 for callers in the US and Canada, at 800-633-8284; and for callers outside of the US and Canada, at 402-977-9140. The access number for the replay is 21162901. A replay of the call will also be maintained on our website atwww.polycom.com under Investor Relations – Archived Conference Calls for twelve months.

Polycom, the Polycom logo, and ViewStation are registered trademarks and Polycom VSX, iPower and The Polycom Office are trademarks of Polycom in the U.S. and various countries.^©2002, Polycom, Inc. All rights reserved.

2

POLYCOM, INC.

Pro Forma Condensed Consolidated Statements of Operations

Excluding Acquisition-related costs, Purchased in-process R&D, Amortization of purchased intangibles,

Restructuring costs, Litigation settlements, Loss on strategic investments,

Loss from discontinued operations and Gain from sale of discontinued operations

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30, 2003			September 30, 2002		September 30, 2003			September 30, 2002
Net revenues	$	109,782		$	103,393	$	302,136		$	357,843
Cost of net revenues		42,678			44,265		121,612			149,024
Gross profit		67,104			59,128		180,524			208,819
Operating expenses:
Sales and marketing		24,569			24,696		75,478			73,430
Research and development		17,368			17,143		55,008			54,391
General and administrative		7,935			6,775		23,250			23,093
Total operating expenses		49,872			48,614		153,736			150,914
Operating income		17,232			10,514		26,788			57,905
Interest income, net		1,893			2,991		6,397			7,161
Other income (expense), net		(520	)		194		(1,144	)		560
Income before provision for income taxes		18,605			13,699		32,041			65,626
Provision for income taxes		5,023			3,635		8,651			17,123
Pro forma net income	$	13,582		$	10,064	$	23,390		$	48,503
Basic net income per share	$	0.14		$	0.10	$	0.24		$	0.49
Diluted net income per share	$	0.13		$	0.10	$	0.23		$	0.48
Weighted average shares outstanding for basic net income per share		99,208			99,987		99,154			99,218
Weighted average shares outstanding for diluted net income per share		101,157			100,805		100,388			100,793

Use of Pro Forma Financial Information

To supplement our consolidated financial statements presented on a GAAP basis, Polycom uses pro forma measures of operating results, net income and income per share, which are adjusted to exclude certain costs, expenses, gains and losses we believe appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of Polycom's underlying operational results and trends and our marketplace performance. For example, the pro forma results are an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. In addition, these adjusted pro forma results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or diluted net income per share prepared in accordance with generally accepted accounting principles in the United States.

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POLYCOM, INC.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002
Net revenues	$	109,782		$	103,393		$	302,136		$	357,843
Cost of net revenues		42,678			44,265			121,612			149,024
Gross profit		67,104			59,128			180,524			208,819
Operating expenses:
Sales and marketing		24,569			24,696			75,478			73,430
Research and development		17,368			17,143			55,008			54,391
General and administrative		7,935			6,775			23,250			23,093
Acquisition-related costs		—			101			188			2,824
Purchased in-process research and development		—			—			—			900
Amortization of purchased intangibles		4,398			4,398			13,193			12,737
Restructuring costs		—			1,073			5,029			1,073
Litigation settlements		(65	)		—			—			(257	)
Total operating expenses		54,205			54,186			172,146			168,191
Operating income		12,899			4,942			8,378			40,628
Interest income, net		1,893			2,991			6,397			7,161
Loss on strategic investments		(483	)		(2,383	)		(597	)		(7,010	)
Other income (expense), net		(520	)		194			(1,144	)		560
Income from continuing operations before provision for income taxes		13,789			5,744			13,034			41,339
Provision for income taxes		3,854			1,511			3,676			10,729
Income from continuing operations		9,935			4,233			9,358			30,610
Loss from discontinued operations, net of taxes		(19	)		(749	)		(695	)		(6,985	)
Gain from sale of discontinued operations, net of taxes		66			—			493			—
Net income	$	9,982		$	3,484		$	9,156		$	23,625
Basic net income per share:
Net income per share from continuing operations	$	0.10		$	0.04		$	0.09		$	0.31
Loss per share from discontinued operations, net		—			(0.01	)		(0.01	)		(0.07	)
Gain per share from sale of discontinued operations, net		—			—			0.01			—
Basic net income per share	$	0.10		$	0.03		$	0.09		$	0.24
Diluted net income (loss) per share:
Net income per share from continuing operations	$	0.10		$	0.04		$	0.09		$	0.30
Loss per share from discontinued operations, net		—			(0.01	)		(0.01	)		(0.07	)
Gain per share from sale of discontinued operations, net		—			—			0.01			—
Diluted net income per share	$	0.10		$	0.03		$	0.09		$	0.23
Weighted average shares outstanding for basic net income per share		99,208			99,987			99,154			99,218
Weighted average shares outstanding for diluted net income per share		101,157			100,805			100,388			100,793

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POLYCOM, INC.

GAAP to Pro Forma Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended									Nine Months Ended
	September 30, 2003									September 30, 2003
	GAAP			Excluded			Pro Forma			GAAP			Excluded			Pro forma
Net revenues	$	109,782		$	—		$	109,782		$	302,136		$	—		$	302,136
Cost of net revenues		42,678			—			42,678			121,612			—			121,612
Gross profit		67,104			—			67,104			180,524			—			180,524
Operating expenses:
Sales and marketing		24,569			—			24,569			75,478			—			75,478
Research and development		17,368			—			17,368			55,008			—			55,008
General and administrative		7,935			—			7,935			23,250			—			23,250
Acquisition-related costs		—			—			—			188			188			—
Amortization of purchased intangibles		4,398			4,398			—			13,193			13,193			—
Restructuring costs		—			—			—			5,029			5,029			—
Litigation settlements		(65	)		(65	)		—			—			—			—
Total operating expenses		54,205			4,333			49,872			172,146			18,410			153,736
Operating income		12,899			(4,333	)		17,232			8,378			(18,410	)		26,788
Interest income, net		1,893			—			1,893			6,397			—			6,397
Loss on strategic investments		(483	)		(483	)		—			(597	)		(597	)		—
Other expense, net		(520	)		—			(520	)		(1,144	)		—			(1,144	)
Income from continuing operations before provision for income taxes		13,789			(4,816	)		18,605			13,034			(19,007	)		32,041
Provision for income taxes		3,854			(1,169	)		5,023			3,676			(4,975	)		8,651
Income from continuing operations		9,935			(3,647	)		13,582			9,358			(14,032	)		23,390
Loss from discontinued operations, net of taxes		(19	)		(19	)		—			(695	)		(695	)		—
Gain from sale of discontinued operations, net of taxes		66			66			—			493			493			—
Net income	$	9,982		$	(3,600	)	$	13,582		$	9,156		$	(14,234	)	$	23,390
Basic net income per share:
Net income per share from continuing operations	$	0.10		$	(0.04	)	$	0.14		$	0.09		$	(0.15	)	$	0.24
Loss per share from discontinued operations, net		—			—			—			(0.01	)		(0.01	)		—
Gain per share from sale of discontinued operations, net		—			—			—			0.01			0.01			—
Basic net income per share	$	0.10		$	(0.04	)	$	0.14		$	0.09		$	(0.15	)	$	0.24
Diluted net income per share:
Net income per share from continuing operations	$	0.10		$	(0.03	)	$	0.13		$	0.09		$	(0.14	)	$	0.23
Loss per share from discontinued operations, net		—			—			—			(0.01	)		(0.01	)		—
Gain per share from sale of discontinued operations, net		—			—			—			0.01			0.01			—
Diluted net income per share	$	0.10		$	(0.03	)	$	0.13		$	0.09		$	(0.14	)	$	0.23
Weighted average shares outstanding for basic net income per share		99,208						99,208			99,154						99,154
Weighted average shares outstanding for diluted net income per share		101,157						101,157			100,388						100,388

5

POLYCOM, INC.

GAAP to Pro Forma Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended								Nine Months Ended
	September 30, 2002								September 30, 2002
	GAAP			Excluded			Pro Forma		GAAP			Excluded			Pro forma
Net revenues	$	103,393		$	—		$	103,393	$	357,843		$	—		$	357,843
Cost of net revenues		44,265			—			44,265		149,024			—			149,024
Gross profit		59,128			—			59,128		208,819			—			208,819
Operating expenses:
Sales and marketing		24,696			—			24,696		73,430			—			73,430
Research and development		17,143			—			17,143		54,391			—			54,391
General and administrative		6,775			—			6,775		23,093			—			23,093
Acquisition-related costs		101			101			—		2,824			2,824			—
Purchased in-process research and development		—			—			—		900			900			—
Amortization of purchased intangibles		4,398			4,398			—		12,737			12,737			—
Restructuring costs		1,073			1,073			—		1,073			1,073			—
Litigation settlement		—			—			—		(257	)		(257	)		—
Total operating expenses		54,186			5,572			48,614		168,191			17,277			150,914
Operating income		4,942			(5,572	)		10,514		40,628			(17,277	)		57,905
Interest income, net		2,991			—			2,991		7,161			—			7,161
Loss on strategic investments		(2,383	)		(2,383	)		—		(7,010	)		(7,010	)		—
Other income, net		194			—			194		560			—			560
Income from continuing operations before provision for income taxes		5,744			(7,955	)		13,699		41,339			(24,287	)		65,626
Provision for income taxes		1,511			(2,124	)		3,635		10,729			(6,394	)		17,123
Income from continuing operations		4,233			(5,831	)		10,064		30,610			(17,893	)		48,503
Loss from discontinued operations, net of taxes		(749	)		(749	)		—		(6,985	)		(6,985	)		—
Net income	$	3,484		$	(6,580	)	$	10,064	$	23,625		$	(24,878	)	$	48,503
Basic net income per share:
Net income per share from continuing operations	$	0.04		$	(0.06	)	$	0.10	$	0.31		$	(0.18	)	$	0.49
Loss per share from discontinued operations, net		(0.01	)		(0.01	)		—		(0.07	)		(0.07	)		—
Basic net income per share	$	0.03		$	(0.07	)	$	0.10	$	0.24		$	(0.25	)	$	0.49
Diluted net income per share:
Net income per share from continuing operations	$	0.04		$	(0.06	)	$	0.10	$	0.30		$	(0.18	)	$	0.48
Loss per share from discontinued operations, net		(0.01	)		(0.01	)		—		(0.07	)		(0.07	)		—
Diluted net income per share	$	0.03		$	(0.07	)	$	0.10	$	0.23		$	(0.25	)	$	0.48
Weighted average shares outstanding for basic net income per share		99,987						99,987		99,218						99,218
Weighted average shares outstanding for diluted net income per share		100,805						100,805		100,793						100,793

6

POLYCOM, INC.

Condensed Consolidated Balance Sheets

(In thousands)

	September 30, 2003		December 31, 2002
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	191,631	$	155,191
Short-term investments		6,907		38,670
Trade receivables, net		40,699		65,470
Inventories		22,623		32,308
Deferred taxes		27,707		29,787
Prepaid expenses and other current assets		19,016		16,622
Total current assets		308,583		338,048
Property and equipment, net		28,755		28,428
Long-term investments		369,025		319,147
Goodwill		296,324		300,039
Purchased intangibles, net		19,634		32,827
Deferred taxes		53,646		53,446
Other assets		8,212		4,939
Total assets	$	1,084,179	$	1,076,874
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	33,090	$	29,788
Accrued payroll and related liabilities		9,933		7,540
Taxes payable		46,773		44,338
Deferred revenue		18,147		16,950
Other accrued liabilities		28,651		36,519
Total current liabilities		136,594		135,135
Long-term liabilities		34,700		37,996
Total liabilities		171,294		173,131
Stockholders' equity		912,885		903,743
Total liabilities and stockholders' equity	$	1,084,179	$	1,076,874

7

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30, 2003			September 30, 2002
Cash Flows from operating activities:
Net income	$	9,156		$	23,625
Adjustments to reconcile net income to net cash provided by operating activities:
Gain from sale of discontinued operations, net of taxes		(493	)		—
Depreciation and amortization		11,542			10,704
Amortization of purchased intangibles		13,193			12,737
Provision for doubtful accounts		521			3,112
Provision for excess and obsolete inventories		1,459			4,263
Tax benefit from exercise of stock options		1,250			2,000
Loss on strategic investments		597			7,010
Amortization of unearned stock-based compensation		250			425
Purchase of in-process research and development		—			900
Changes in assets and liabilities, net of the effect of acquisitions:
Trade receivables		24,250			14,182
Inventories		10,267			5,968
Deferred taxes		—			257
Prepaid expenses and other assets		(2,199	)		(2,693	)
Accounts payable		3,302			1,988
Taxes payable		2,152			5,791
Other accrued liabilities		(4,741	)		(26,357	)
Net cash provided by operating activities		70,506			63,912
Cash flows from investing activities:
Purchase of property and equipment		(11,670	)		(9,633	)
Purchase of licensed technology		(3,528	)		—
Purchases of investments		(643,083	)		(694,583	)
Proceeds from sale and maturity of investments		623,666			460,121
Proceeds from sale of discontinued operations		1,304			—
Purchase of convertible note receivable		(522	)		—
Net cash received in purchase acquisitions		—			93
Net cash used in investing activities		(33,833	)		(244,002	)
Cash flows from financing activities:
Proceeds from stock offering, net of issuance costs		—			237,495
Proceeds from issuance of common stock under employee option and stock purchase plans		6,682			6,487
Purchase of treasury stock		(6,915	)		(8,813	)
Net cash provided by (used in) financing activities		(233	)		235,169
Net increase in cash and equivalents		36,440			55,079
Cash and cash equivalents, beginning of period		155,191			126,832
Cash and cash equivalents, end of period	$	191,631		$	181,911

8