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

Exhibit 99.1

Contact:	Michael R. Kourey, CFO
	Polycom, Inc.
	925-924-5742
	mkourey@polycom.com

POLYCOM REPORTS FOURTH QUARTER RESULTS

Revenue Growth of 26 Percent to $118.3 Million in Q4 2003;

Positive Operating Cash Flow of $30.3 Million

PLEASANTON, Calif. – Jan. 28, 2004 – 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 fourth quarter ended Dec. 31, 2003.

Fourth quarter 2003 consolidated net revenues were $118.3 million, compared to $94.2 million recorded for the fourth quarter of 2002. Pro forma net income in the fourth quarter of 2003 was $17.2 million, or 17 cents per diluted share. This compares to pro forma net income of $6.8 million, or 7 cents per diluted share, for the fourth 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 from sale of discontinued operations, net of taxes. GAAP net income for the fourth quarter of 2003 was $13.7 million, or 13 cents per diluted share, compared to GAAP net income of $3.1 million, or 3 cents per diluted share, for the same period last year.

For the year ended Dec. 31, 2003, net revenues were $420.4 million, compared to $452.1 million for the year ended Dec. 31, 2002. Pro forma net income for the year ended Dec. 31, 2003 was $40.6 million, or 40 cents per diluted share, compared to $55.3 million, or 55 cents per diluted share, for the comparable period of 2002. GAAP net income for the year ended Dec. 31, 2003 was $22.8 million, or 23 cents per diluted share, compared to GAAP net income of $26.8 million, or 27 cents per diluted share, for the same period last year.

Prior year revenue, GAAP 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 twelve months ended Dec. 31, 2003 and 2002 is set forth at the end of this press release.

On a product line basis, consolidated net revenues for the fourth quarter of 2003 were comprised of 58 percent video communications, or $67.9 million; 21 percent network systems, or $25.3 million; 17 percent voice communications, or $20.3 million; and 4 percent iPower^™-related services or $4.8 million. This compares to the fourth quarter of 2002, in which consolidated net revenues were comprised of 53 percent video communications, or $49.4 million; 24 percent

network systems, or $22.7 million; 17 percent voice communications, or $16.3 million; and 6 percent iPower-related services, or $5.8 million. Certain prior year revenue items have been reclassified to conform to current year presentation.

“The year 2003 was clearly transformational for Polycom,” stated Robert Hagerty, president and CEO. “We entered the year with virtually no backlog and the prospects of a first quarter that promised to be challenging. We exited the year with a significantly improved set of circumstances—DSO, backlog, linearity, cash, and gross margins all at record levels. Inventory turns and operating margins are near record levels and, in spite of typical first quarter seasonality, the prospect of Q104 is significantly better than the year-ago period due to both the backlog and the execution of our new, high-touch sales force.”

Hagerty continued, “For 2004, we see several key drivers for our industry and our business: (1) from a macro standpoint, an improving capital spending environment appears to exist in the IT community and, particularly, in our space. This includes spending by commercial enterprises and the public sector, (2) the fast growth of Voice over IP and its ramifications for Polycom’s voice and video over IP converged solution create a broader opportunity for deployment through single network connectivity and an unprecedented phone call ease-of-use, (3) with Voyant being integrated into The Polycom Office, we have an end-to-end solution for the service provider and the enterprise that enables a converged backbone for voice, video, and web communications, (4) our new product engine was fully-productive during 2003 and is on-track to deliver a broad array of integrated converged solutions throughout 2004, and (5) our high-touch solutions selling approach is giving us the capacity to work as a trusted advisor with our customers throughout the world—enabling broad deployments of our solution that for many of them has already become mission-critical.”

“Polycom’s gross margin increased to a record 62.8 percent in the fourth quarter,” said Michael Kourey, senior vice president, finance and administration, and CFO. “With this enhanced gross margin and revenue growth, Polycom’s pro forma operating margin increased to 18.8 percent in the period. This profitability level, coupled with our continued success in managing inventory and receivables, yielded our twenty-third consecutive quarter of positive operating cash flow at $30.3 million.”

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.

This release contains forward-looking statements, including forward-looking statements regarding backlog, linearity and gross margins and their likely impact on Polycom’s prospects for the first quarter of 2004 and beyond, improved IT capital spending, the growth of voice over IP and video over IP markets and opportunities, the integration of Voyant into the Polycom Office, the delivery of new products in 2004, and the effectiveness of Polycom’s solution selling approach. These statements are subject to many risks and uncertainties, including potential fluctuations and changes in operating results and growth rates, the health of our industry, possible reductions in capital spending, the market acceptance of Polycom’s products, possible delays in the development, availability and shipment of new products, problems in the integration of our acquisition of Voyant, and risks associated with changes in general economic conditions. Further risks are detailed from time to time in Polycom’s SEC reports, including the Form 10-K for 2002, and subsequent Form 10-Q filings.

As has been noted on the Company’s web site since Jan. 21, 2004, Polycom will hold a conference call today at 5:00 p.m. ET/2:00 p.m. PT to discuss its fourth 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 877-809-5475; and for callers outside of the US and Canada, call 706-679-4994, with the pass code being Polycom. A replay of the call will also be available through February 9, 2004 atwww.polycom.com or, 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 21182294. 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 and the Polycom logo are registered trademarks and iPower and Polycom Office are trademarks of Polycom in the U.S. and various countries. All other trademarks are the property of their respective owners. ©2004, Polycom, Inc. All rights reserved.

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,

Income (loss) from discontinued operations, Gain from sale of discontinued operations and Related tax effects

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Twelve Months Ended
	December 31, 2003			December 31, 2002			December 31, 2003			December 31, 2002
Net revenues	$	118,287		$	94,248		$	420,423		$	452,091
Cost of net revenues		43,965			38,489			165,577			187,513
Gross profit		74,322			55,759			254,846			264,578
Operating expenses:
Sales and marketing		26,406			23,675			101,884			97,105
Research and development		17,630			18,096			72,638			72,487
General and administrative		8,084			6,854			31,334			29,947
Total operating expenses		52,120			48,625			205,856			199,539
Operating income		22,202			7,134			48,990			65,039
Interest income, net		2,054			2,331			8,451			9,492
Other income (expense), net		(630	)		(33	)		(1,774	)		527
Income before provision for income taxes		23,626			9,432			55,667			75,058
Provision for income taxes		6,379			2,629			15,030			19,752
Pro forma net income	$	17,247		$	6,803		$	40,637		$	55,306
Basic net income per share	$	0.17		$	0.07		$	0.41		$	0.56
Diluted net income per share	$	0.17		$	0.07		$	0.40		$	0.55
Weighted average shares outstanding for basic net income per share		99,514			99,641			99,244			99,324
Weighted average shares outstanding for diluted net income per share		101,843			100,404			100,752			100,696

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.

POLYCOM, INC.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

	Three Months Ended						Twelve Months Ended
	December 31, 2003			December 31, 2002			December 31, 2003			December 31, 2002
	(Unaudited)			(Unaudited)
Net revenues	$	118,287		$	94,248		$	420,423		$	452,091
Cost of net revenues		43,965			38,489			165,577			187,513
Gross profit		74,322			55,759			254,846			264,578
Operating expenses:
Sales and marketing		26,406			23,675			101,884			97,105
Research and development		17,630			18,096			72,638			72,487
General and administrative		8,084			6,854			31,334			29,947
Acquisition-related costs		198			875			386			3,699
Purchased in-process research and development		—			—			—			900
Amortization of purchased intangibles		4,398			4,398			17,591			17,135
Restructuring costs		—			584			5,029			1,657
Litigation settlements		—			—			—			(257	)
Total operating expenses		56,716			54,482			228,862			222,673
Operating income		17,606			1,277			25,984			41,905
Interest income, net		2,054			2,331			8,451			9,492
Loss on strategic investments		(140	)		(455	)		(737	)		(7,465	)
Other income (expense), net		(630	)		(33	)		(1,774	)		527
Income from continuing operations before provision for income taxes		18,890			3,120			31,924			44,459
Provision for income taxes		5,282			946			8,958			11,675
Income from continuing operations		13,608			2,174			22,966			32,784
Income (loss) from discontinued operations, net of taxes		—			961			(695	)		(6,024	)
Gain from sale of discontinued operations, net of taxes		59			—			552			—
Net income	$	13,667		$	3,135		$	22,823		$	26,760
Basic net income per share:
Net income per share from continuing operations	$	0.14		$	0.02		$	0.23		$	0.33
Income (loss) per share from discontinued operations, net		—			0.01			(0.01	)		(0.06	)
Gain per share from sale of discontinued operations, net		—			—			0.01			—
Basic net income per share	$	0.14		$	0.03		$	0.23		$	0.27
Diluted net income per share:
Net income per share from continuing operations	$	0.13		$	0.02		$	0.23		$	0.33
Income (loss) per share from discontinued operations, net		—			0.01			(0.01	)		(0.06	)
Gain per share from sale of discontinued operations, net		—			—			0.01			—
Diluted net income per share	$	0.13		$	0.03		$	0.23		$	0.27
Weighted average shares outstanding for basic net income per share		99,514			99,641			99,244			99,324
Weighted average shares outstanding for diluted net income per share		101,843			100,404			100,752			100,696

POLYCOM, INC.

GAAP to Pro Forma Reconciliation

(In thousands, except per share amounts)

	Three Months Ended									Twelve Months Ended
	December 31, 2003									December 31, 2003
	GAAP			Excluded			Pro Forma			GAAP			Excluded			Pro forma
	(Unaudited)			(Unaudited)			(Unaudited)						(Unaudited)			(Unaudited)
Net revenues	$	118,287		$	—		$	118,287		$	420,423		$	—		$	420,423
Cost of net revenues		43,965			—			43,965			165,577			—			165,577
Gross profit		74,322			—			74,322			254,846			—			254,846
Operating expenses:
Sales and marketing		26,406			—			26,406			101,884			—			101,884
Research and development		17,630			—			17,630			72,638			—			72,638
General and administrative		8,084			—			8,084			31,334			—			31,334
Acquisition-related costs		198			198			—			386			386			—
Amortization of purchased intangibles		4,398			4,398			—			17,591			17,591			—
Restructuring costs		—			—			—			5,029			5,029			—
Total operating expenses		56,716			4,596			52,120			228,862			23,006			205,856
Operating income		17,606			(4,596	)		22,202			25,984			(23,006	)		48,990
Interest income, net		2,054			—			2,054			8,451			—			8,451
Loss on strategic investments		(140	)		(140	)		—			(737	)		(737	)		—
Other expense, net		(630	)		—			(630	)		(1,774	)		—			(1,774	)
Income from continuing operations before provision for income taxes		18,890			(4,736	)		23,626			31,924			(23,743	)		55,667
Provision for income taxes		5,282			(1,097	)		6,379			8,958			(6,072	)		15,030
Income from continuing operations		13,608			(3,639	)		17,247			22,966			(17,671	)		40,637
Loss from discontinued operations, net of taxes		—			—			—			(695	)		(695	)		—
Gain from sale of discontinued operations, net of taxes		59			59			—			552			552			—
Net income	$	13,667		$	(3,580	)	$	17,247		$	22,823		$	(17,814	)	$	40,637
Basic net income per share:
Net income per share from continuing operations	$	0.14		$	(0.03	)	$	0.17		$	0.23		$	(0.18	)	$	0.41
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	$	0.14		$	(0.03	)	$	0.17		$	0.23		$	(0.18	)	$	0.41
Diluted net income per share:
Net income per share from continuing operations	$	0.13		$	(0.04	)	$	0.17		$	0.23		$	(0.17	)	$	0.40
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	$	0.13		$	(0.04	)	$	0.17		$	0.23		$	(0.17	)	$	0.40
Weighted average shares outstanding for basic net income per share		99,514						99,514			99,244						99,244
Weighted average shares outstanding for diluted net income per share		101,843						101,843			100,752						100,752

POLYCOM, INC.

GAAP to Pro Forma Reconciliation

(In thousands, except per share amounts)

	Three Months Ended									Twelve Months Ended
	December 31, 2002									December 31, 2002
	GAAP			Excluded			Pro Forma			GAAP			Excluded			Pro forma
	(Unaudited)			(Unaudited)			(Unaudited)						(Unaudited)			(Unaudited)
Net revenues	$	94,248		$	—		$	94,248		$	452,091		$	—		$	452,091
Cost of net revenues		38,489			—			38,489			187,513			—			187,513
Gross profit		55,759			—			55,759			264,578			—			264,578
Operating expenses:
Sales and marketing		23,675			—			23,675			97,105			—			97,105
Research and development		18,096			—			18,096			72,487			—			72,487
General and administrative		6,854			—			6,854			29,947			—			29,947
Acquisition-related costs		875			875			—			3,699			3,699			—
Purchased in-process research and development		—			—			—			900			900			—
Amortization of purchased intangibles		4,398			4,398			—			17,135			17,135			—
Restructuring costs		584			584			—			1,657			1,657			—
Litigation settlement		—			—			—			(257	)		(257	)		—
Total operating expenses		54,482			5,857			48,625			222,673			23,134			199,539
Operating income		1,277			(5,857	)		7,134			41,905			(23,134	)		65,039
Interest income, net		2,331			—			2,331			9,492			—			9,492
Loss on strategic investments		(455	)		(455	)		—			(7,465	)		(7,465	)		—
Other income (expense), net		(33	)		—			(33	)		527			—			527
Income from continuing operations before provision for income taxes		3,120			(6,312	)		9,432			44,459			(30,599	)		75,058
Provision for income taxes		946			(1,683	)		2,629			11,675			(8,077	)		19,752
Income from continuing operations		2,174			(4,629	)		6,803			32,784			(22,522	)		55,306
Income (loss) from discontinued operations, net of taxes		961			961			—			(6,024	)		(6,024	)		—
Net income	$	3,135		$	(3,668	)	$	6,803		$	26,760		$	(28,546	)	$	55,306
Basic net income per share:
Net income per share from continuing operations	$	0.02		$	(0.05	)	$	0.07		$	0.33		$	(0.23	)	$	0.56
Income (loss) per share from discontinued operations, net		0.01			0.01			—			(0.06	)		(0.06	)		—
Basic net income per share	$	0.03		$	(0.04	)	$	0.07		$	0.27		$	(0.29	)	$	0.56
Diluted net income per share:
Net income per share from continuing operations	$	0.02		$	(0.05	)	$	0.07		$	0.33		$	(0.22	)	$	0.55
Income (loss) per share from discontinued operations, net		0.01			0.01			—			(0.06	)		(0.06	)		—
Diluted net income per share	$	0.03		$	(0.04	)	$	0.07		$	0.27		$	(0.28	)	$	0.55
Weighted average shares outstanding for basic net income per share		99,641						99,641			99,324						99,324
Weighted average shares outstanding for diluted net income per share		100,404						100,404			100,696						100,696

POLYCOM, INC.

Condensed Consolidated Balance Sheets

(In thousands)

	December 31, 2003		December 31, 2002
ASSETS
Current assets
Cash and cash equivalents	$	212,562	$	155,191
Short-term investments		15,703		38,670
Trade receivables, net		42,836		65,470
Inventories		24,845		32,308
Deferred taxes		20,589		29,787
Prepaid expenses and other current assets		19,472		16,622
Total current assets		336,007		338,048
Property and equipment, net		28,493		28,428
Long-term investments		368,020		319,147
Goodwill		289,508		300,039
Purchased intangibles, net		15,236		32,827
Deferred taxes		56,513		53,446
Other assets		10,013		4,939
Total assets	$	1,103,790	$	1,076,874
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	36,247	$	29,788
Accrued payroll and related liabilities		12,644		7,540
Taxes payable		49,417		44,338
Deferred revenue		20,524		16,950
Other accrued liabilities		26,846		36,519
Total current liabilities		145,678		135,135
Long-term liabilities		28,833		37,996
Total liabilities		174,511		173,131
Stockholders’ equity		929,279		903,743
Total liabilities and stockholders’ equity	$	1,103,790	$	1,076,874

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

	Twelve Months Ended
	December 31, 2003			December 31, 2002
Cash Flows from operating activities:
Net income	$	22,823		$	26,760
Adjustments to reconcile net income to net cash provided by operating activities:
Gain from sale of discontinued operations, net of taxes		(552	)		—
Depreciation and amortization		15,263			14,001
Amortization of purchased intangibles		17,591			17,135
Provision for doubtful accounts		521			3,213
Provision for excess and obsolete inventories		1,805			3,133
Tax benefit from exercise of stock options		1,821			1,751
Loss on strategic investments		737			7,465
Amortization of unearned stock-based compensation		320			544
Purchase of in-process research and development		—			900
Changes in assets and liabilities, net of the effect of acquisitions:
Trade receivables		22,113			23,061
Inventories		8,440			9,761
Deferred taxes		1,281			(10,688	)
Prepaid expenses and other assets		(4,389	)		(2,127	)
Accounts payable		6,546			(1,632	)
Taxes payable		4,763			20,085
Other accrued liabilities		1,724			(31,862	)
Net cash provided by operating activities		100,807			81,500
Cash flows from investing activities:
Purchase of property and equipment		(14,819	)		(12,893	)
Purchase of licensed technology		(3,528	)		—
Purchases of investments		(960,880	)		(971,370	)
Proceeds from sale and maturity of investments		932,417			702,779
Proceeds from sale of discontinued operations		1,396			—
Purchase of convertible note receivable		(522	)		—
Net cash received in purchase acquisitions		—			93
Net cash used in investing activities		(45,936	)		(281,391	)
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		9,415			6,666
Purchase of treasury stock		(6,915	)		(15,911	)
Net cash provided by financing activities		2,500			228,250
Net increase in cash and cash equivalents		57,371			28,359
Cash and cash equivalents, beginning of period		155,191			126,832
Cash and cash equivalents, end of period	$	212,562		$	155,191