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

Record Revenue at $140.8 Million in Q3 2004

PLEASANTON, Calif. – October 21, 2004 – Polycom^®, Inc. (NASDAQ: PLCM), the world’s leading provider of unified collaborative communications solutions, today reported its operating results for the third quarter ended September 30, 2004.

Third quarter 2004 consolidated net revenues were $140.8 million, compared to $109.8 million recorded for the third quarter of 2003. Pro forma net income in the third quarter of 2004 was $19.0 million, or 19 cents per diluted share. This compares to pro forma net income of $13.6 million, or 13 cents per diluted share, for the third quarter of 2003. Pro forma financial measures exclude acquisition-related costs, purchased in-process research and development costs, amortization of purchased intangibles, restructuring costs, litigation reserves and payments, loss on strategic investments, income tax effect of the preceding adjustments, income (loss) from discontinued operations, net of taxes, and gain from sale of discontinued operations, net of taxes. GAAP net income for the third quarter of 2004 was $11.0 million, or 11 cents per diluted share, compared to $10.0 million, or 10 cents per diluted share, for the same period last year. During the third quarter of 2004, the Company recorded a $5 million charge related to the Collaboration Properties, Inc. litigation. Also, as previously announced, Polycom completed its acquisition of Voyant^® Technologies, Inc., a leading provider of voice conferencing and collaboration network solutions on January 5, 2004.

For the nine months ended September 30, 2004, net revenues were $393.7 million, compared to $302.1 million for the first nine months of 2003. Pro forma net income for the period was $48.9 million, or 48 cents per diluted share, compared to $23.4 million, or 23 cents per diluted share for the first nine months of 2003. GAAP net income for the nine months ended September 30, 2004 was $27.2 million, or 27 cents per diluted share, compared to a GAAP net income of $9.2 million, or 9 cents per diluted share, for the same period last year.

The reconciliation of the GAAP statement of operations amounts to the respective pro forma figures, for the three and nine months ended September 30, 2004 and 2003 is set forth at the end of this press release.

On a product line basis, consolidated net revenues for the third quarter of 2004 were comprised of 53 percent video communications, or $74.4 million; 27 percent network systems, or $37.7 million; and 20 percent voice communications, or $28.7 million. This compares to the third quarter of 2003, in which consolidated net revenues were comprised of 63 percent video communications, or $69.6 million; 19 percent network systems, or $20.9 million; and 18 percent voice communications, or $19.3 million. Certain prior year revenue items have been reclassified to conform to the current year presentation.

“Voice and video over IP (V²oIP) continues to drive our industry and Polycom’s business,” said Robert Hagerty, president and CEO. “In fact, nearly three quarters of Polycom’s revenue is already either IP connected or ready for IP connectivity. This transition in the collaborative communications market space is enabling greater deployment for enterprises and government agencies in all geographies. This is generating the opportunity for extensive use of our unified collaborative technology in the meeting room,

and at the desktop—all managed by our network systems solutions. To further this growing adoption, Polycom recently announced a strategic partnership with Microsoft, integrating their leading desktop solution with Polycom’s voice, video, and network systems solutions, all seamlessly provided over a SIP network—the important, emerging protocol for IP-based rich-media communications.”

Hagerty continued, “In the new product arena, Polycom again had significant launch activity. For instance, the SoundStation^® 2W, our first wireless voice product began shipping worldwide. We introduced the VSX^™ 8000, our new flagship video product based on the award-winning VSX architecture. We also significantly ramped sales of our VSX3000 executive desktop product that began shipping just last quarter. For desktop deployment across an enterprise or agency, we just announced the Polycom PVX desktop video product. This product provides rich media collaboration with Polycom’s People+Content^™ , standards-based AES encryption, H.264 video compression, 30 frames per second video, and Siren 14 kHz voice clarity. With these desktop additions to our full suite of voice, video, and network solutions, Polycom is uniquely positioned to deliver the ultimate communications experience for our customers worldwide.”

“We are pleased with our 5 percent sequential revenue growth in a summer quarter, representing year over year growth of 28 percent” said Michael Kourey, senior vice president, finance and administration, and CFO. “This strong revenue and resultant operating margin, coupled with our continued success in managing receivables and our record 9.1 inventory turns, yielded our twenty-sixth consecutive quarter of positive operating cash flow at $32.2 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 regarding future events, future demand for our products, and the future performance of the Company that involve known and unknown risks and uncertainties, including the potential fluctuations in results and future growth rates, the market acceptance of Polycom’s products, possible delays in the development, availability and shipment of new products, and risks associated with changes in general economic conditions. Many of these risks and uncertainties are discussed in the Form 10-K for 2003, and other reports filed by Polycom with the SEC.

As has been noted on the Company’s web site since October 14, 2004, Polycom will hold a conference call today, October 21, 2004, 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 800-443-6324; and for callers outside of the US and Canada, call 212-676-4900, with the pass code being Polycom. A replay of the call will also be available 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 21211356. 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, SoundStation and Voyant are registered trademarks and Polycom Office, VSX and People + Content 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 reserves and payments, Loss on strategic investments,

Income (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, 2004			September 30, 2003			September 30, 2004			September 30, 2003
Revenues:
Product revenues	$	125,915		$	99,727		$	352,548		$	273,414
Service revenues		14,853			10,055			41,194			28,722
Total revenues		140,768			109,782			393,742			302,136
Cost of revenues:
Cost of product revenues		43,010			35,439			117,978			100,828
Cost of service revenues		9,091			7,239			27,487			20,784
Total cost of revenues		52,101			42,678			145,465			121,612
Gross profit		88,667			67,104			248,277			180,524
Operating expenses:
Sales and marketing		30,822			24,569			89,560			75,478
Research and development		23,751			17,368			69,494			55,008
General and administrative		9,826			7,935			26,663			23,250
Total operating expenses		64,399			49,872			185,717			153,736
Operating income		24,268			17,232			62,560			26,788
Interest income, net		1,804			1,893			4,996			6,397
Other expense, net		(71	)		(520	)		(568	)		(1,144	)
Income before provision for income taxes		26,001			18,605			66,988			32,041
Provision for income taxes		7,020			5,023			18,087			8,651
Pro forma net income	$	18,981		$	13,582		$	48,901		$	23,390
Basic net income per share	$	0.19		$	0.14		$	0.49		$	0.24
Diluted net income per share	$	0.19		$	0.13		$	0.48		$	0.23
Weighted average shares outstanding for basic net income per share		98,950			99,208			99,553			99,154
Weighted average shares outstanding for diluted net income per share		101,353			101,157			102,057			100,388

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)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2004			September 30, 2003			September 30, 2004			September 30, 2003
Revenues:
Product revenues	$	125,915		$	99,727		$	352,548		$	273,414
Service revenues		14,853			10,055			41,194			28,722
Total revenues		140,768			109,782			393,742			302,136
Cost of revenues:
Cost of product revenues		43,010			35,439			117,978			100,828
Cost of service revenues		9,091			7,239			27,487			20,784
Total cost of revenues		52,101			42,678			145,465			121,612
Gross profit		88,667			67,104			248,277			180,524
Operating expenses:
Sales and marketing		30,822			24,569			89,560			75,478
Research and development		23,751			17,368			69,494			55,008
General and administrative		9,826			7,935			26,663			23,250
Acquisition-related costs		147			—			1,328			188
Purchased in-process research and development		—			—			4,600			—
Amortization of purchased intangibles		5,717			4,398			17,797			13,193
Restructuring costs		262			—			262			5,029
Litigation reserves and payments		5,045			(65	)		5,045			—
Total operating expenses		75,570			54,205			214,749			172,146
Operating income		13,097			12,899			33,528			8,378
Interest income, net		1,804			1,893			4,996			6,397
Loss on strategic investments		(19	)		(483	)		(16	)		(597	)
Other expense, net		(71	)		(520	)		(568	)		(1,144	)
Income from continuing operations before provision for income taxes		14,811			13,789			37,940			13,034
Provision for income taxes		3,978			3,854			11,388			3,676
Income from continuing operations		10,833			9,935			26,552			9,358
Income (loss) from discontinued operations, net of taxes		—			(19	)		296			(695	)
Gain from sale of discontinued operations, net of taxes		143			66			362			493
Net income	$	10,976		$	9,982		$	27,210		$	9,156
Basic net income per share:
Income per share from continuing operations	$	0.11		$	0.10		$	0.27		$	0.09
Income (loss) per share from discontinued operations, net		—			—			—			(0.01	)
Gain per share from sale of discontinued operations, net		—			—			—			0.01
Basic net income per share	$	0.11		$	0.10		$	0.27		$	0.09
Diluted net income per share:
Income per share from continuing operations	$	0.11		$	0.10		$	0.27		$	0.09
Income (loss) per share from discontinued operations, net		—			—			—			(0.01	)
Gain per share from sale of discontinued operations, net		—			—			—			0.01
Diluted net income per share	$	0.11		$	0.10		$	0.27		$	0.09
Weighted average shares outstanding for basic net income per share		98,950			99,208			99,553			99,154
Weighted average shares outstanding for diluted net income per share		101,353			101,157			102,057			100,388

POLYCOM, INC.

GAAP to Pro Forma Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended									Nine Months Ended
	September 30, 2004									September 30, 2004
	GAAP			Excluded			Pro Forma			GAAP			Excluded			Pro forma
Revenues:
Product revenues	$	125,915		$	—		$	125,915		$	352,548		$	—		$	352,548
Service revenues		14,853			—			14,853			41,194			—			41,194
Total revenues		140,768			—			140,768			393,742			—			393,742
Cost of revenues:
Cost of product revenues		43,010			—			43,010			117,978			—			117,978
Cost of service revenues		9,091			—			9,091			27,487			—			27,487
Total cost of revenues		52,101			—			52,101			145,465			—			145,465
Gross profit		88,667			—			88,667			248,277			—			248,277
Operating expenses:
Sales and marketing		30,822			—			30,822			89,560			—			89,560
Research and development		23,751			—			23,751			69,494			—			69,494
General and administrative		9,826			—			9,826			26,663			—			26,663
Acquisition-related costs		147			147			—			1,328			1,328			—
Purchased in-process research and development		—			—			—			4,600			4,600			—
Amortization of purchased intangibles		5,717			5,717			—			17,797			17,797			—
Restructuring costs		262			262			—			262			262			—
Litigation reserves and payments		5,045			5,045			—			5,045			5,045			—
Total operating expenses		75,570			11,171			64,399			214,749			29,032			185,717
Operating income		13,097			(11,171	)		24,268			33,528			(29,032	)		62,560
Interest income, net		1,804			—			1,804			4,996			—			4,996
Loss on strategic investments		(19	)		(19	)		—			(16	)		(16	)		—
Other expense, net		(71	)		—			(71	)		(568	)		—			(568	)
Income from continuing operations before provision for income taxes		14,811			(11,190	)		26,001			37,940			(29,048	)		66,988
Provision for income taxes		3,978			(3,042	)		7,020			11,388			(6,699	)		18,087
Income from continuing operations		10,833			(8,148	)		18,981			26,552			(22,349	)		48,901
Income from discontinued operations, net of taxes		—			—			—			296			296			—
Gain from sale of discontinued operations, net of taxes		143			143			—			362			362			—
Net income	$	10,976		$	(8,005	)	$	18,981		$	27,210		$	(21,691	)	$	48,901
Basic net income per share:
Income per share from continuing operations	$	0.11		$	(0.08	)	$	0.19		$	0.27		$	(0.22	)	$	0.49
Income per share from discontinued operations, net		—			—			—			—			—			—
Gain per share from sale of discontinued operations, net		—			—			—			—			—			—
Basic net income per share	$	0.11		$	(0.08	)	$	0.19		$	0.27		$	(0.22	)	$	0.49
Diluted net income per share:
Income per share from continuing operations	$	0.11		$	(0.08	)	$	0.19		$	0.27		$	(0.21	)	$	0.48
Income per share from discontinued operations, net		—			—			—			—			—			—
Gain per share from sale of discontinued operations, net		—			—			—			—			—			—
Diluted net income per share	$	0.11		$	(0.08	)	$	0.19		$	0.27		$	(0.21	)	$	0.48
Weighted average shares outstanding for basic net income per share		98,950						98,950			99,553						99,553
Weighted average shares outstanding for diluted net income per share		101,353						101,353			102,057						102,057

POLYCOM, INC.

GAAP to Pro Forma Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30, 2003									Nine Months Ended September 30, 2003
	GAAP			Excluded			Pro Forma			GAAP			Excluded			Pro forma
Revenues:
Product revenues	$	99,727		$	—		$	99,727		$	273,414		$	—		$	273,414
Service revenues		10,055			—			10,055			28,722			—			28,722
Total revenues		109,782			—			109,782			302,136			—			302,136
Cost of revenues:												��
Cost of product revenues		35,439			—			35,439			100,828			—			100,828
Cost of service revenues		7,239			—			7,239			20,784			—			20,784
Total cost of 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 reserves and payments		(65	)		(65	)		—			—			—			—
Total operating expenses		54,205			4,333			49,872			172,146			18,410			153,736
Operating income (loss)		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:
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:
Income per share from continuing operations	$	0.10		$	(0.03	)	$	0.13		$	0.09		$	(0.14	)	$	0.23
Income (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

POLYCOM, INC.

Condensed Consolidated Balance Sheets

(In thousands)

	September30, 2004		December 31, 2003
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	218,703	$	212,562
Short-term investments		34,815		15,703
Trade receivables, net		52,406		42,836
Inventories		22,985		24,845
Deferred taxes		24,828		20,589
Prepaid expenses and other current assets		18,535		19,472
Total current assets		372,272		336,007
Property and equipment, net		37,240		28,493
Long-term investments		278,075		368,020
Goodwill		356,598		289,508
Purchased intangibles, net		29,640		15,236
Deferred taxes		41,762		56,513
Other assets		10,280		10,013
Total assets	$	1,125,867	$	1,103,790
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	39,246	$	36,247
Accrued payroll and related liabilities		17,576		12,644
Taxes payable		54,211		49,417
Deferred revenue		29,601		20,524
Other accrued liabilities		36,409		26,846
Total current liabilities		177,043		145,678
Long-term liabilities		10,703		28,833
Total liabilities		187,746		174,511
Stockholders’ equity		938,121		929,279
Total liabilities and stockholders’ equity	$	1,125,867	$	1,103,790

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30, 2004			September 30, 2003
Cash flows from operating activities:
Net income	$	27,210		$	9,156
Adjustments to reconcile net income to net cash provided by operating activities:
Gain from sale of discontinued operations, net of taxes		(362	)		(493	)
Depreciation and amortization		14,706			11,542
Amortization of purchased intangibles		17,797			13,193
Provision for (benefit from) doubtful accounts		(210	)		521
Provision for (benefit from) excess and obsolete inventories		(207	)		1,459
Tax benefit from exercise of stock options		3,136			1,250
Loss on strategic investments		16			597
Amortization of unearned stock-based compensation		165			250
Purchase of in-process research and development		4,600			—
Loss on disposals of property and equipment		63			—
Changes in assets and liabilities, net of the effect of acquisitions:
Trade receivables		(7,168	)		24,250
Inventories		5,438			10,267
Prepaid expenses and other assets		4,240			(2,199	)
Accounts payable		1,888			3,302
Taxes payable		3,857			2,152
Other accrued liabilities		3,930			(4,741	)
Net cash provided by operating activities		79,099			70,506
Cash flows from investing activities:
Purchase of property and equipment		(13,530	)		(11,670	)
Purchase of licensed technology		—			(3,528	)
Purchases of investments		(595,636	)		(643,083	)
Proceeds from sale and maturity of investments		665,163			623,666
Proceeds from sale of discontinued operations		570			1,304
Purchase of convertible note receivable		—			(522	)
Net cash paid in purchase acquisitions		(95,019	)		—
Net cash used in investing activities		(38,452	)		(33,833	)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock purchase plans		12,956			6,682
Repurchase of common stock		(47,462	)		(6,915	)
Net cash used in financing activities		(34,506	)		(233	)
Net increase in cash and cash equivalents		6,141			36,440
Cash and cash equivalents, beginning of period		212,562			155,191
Cash and cash equivalents, end of period	$	218,703		$	191,631