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

Record Revenue at $146.5 Million in Q4 2004; $540.3 Million for 2004

Fourth Quarter Year-Over-Year Revenue Growth of 24%

PLEASANTON, Calif. – January 26, 2005 – Polycom®, Inc. (NASDAQ: PLCM), the world’s leading provider of unified collaborative communications solutions, today reported its operating results for the fourth quarter ended December 31, 2004.

Fourth quarter 2004 consolidated net revenues were a record $146.5 million, compared to $118.3 million recorded for the fourth quarter of 2003. Non-GAAP net income in the fourth quarter of 2004 was $22.5 million, or 22 cents per diluted share. This compares to non-GAAP net income of $17.2 million, or 17 cents per diluted share, for the fourth quarter of 2003. Non-GAAP financial measures exclude acquisition-related costs, purchased in-process research and development costs, amortization of purchased intangibles, restructuring costs, litigation reserves and payments, gain (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 fourth quarter of 2004 was $8.1 million, or 8 cents per diluted share, compared to $13.7 million, or 13 cents per diluted share, for the same period last year. During the fourth quarter of 2004, the Company recorded a charge of $15.8 million 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 year ended December 31, 2004, net revenues were $540.3 million, compared to $420.4 million for the year ended December 31, 2003. Non-GAAP net income for 2004 was $71.4 million, or 70 cents per diluted share, compared to $40.6 million, or 40 cents per diluted share, for the comparable period of 2003. GAAP net income for the year ended December 31, 2004 was $35.3 million, or 35 cents per diluted share, compared to GAAP net income of $22.8 million, or 23 cents per diluted share, for the same period last year.

The reconciliation of the GAAP statement of operations amounts to the respective non-GAAP figures, for the three and twelve months ended December 31, 2004 and 2003 is set forth at the end of this press release.

On a product line basis, consolidated net revenues for the fourth quarter of 2004 were comprised of 53 percent video communications, or $78.0 million; 26 percent network systems, or $37.8 million; and 21 percent voice communications, or $30.7 million. This compares to the fourth quarter of 2003, in which consolidated net revenues were comprised of 62 percent video communications, or $72.7 million; 21 percent network systems, or $25.3 million; and 17 percent voice communications, or $20.3 million. Certain prior year revenue items have been reclassified to conform to the current year presentation.

“Polycom crossing the half billion dollar mark in annual revenue for the first time is a testament to the growing demand for voice and video IP communications worldwide” said Robert Hagerty, president and CEO. “In fact, converged collaboration has moved to mission-critical status in both commercial and public

sector enterprises throughout 2004. This powerful shift is creating demand for Polycom’s unified collaborative communications solutions at the desktop, in the meeting room, and at the network core. As this shift continues into 2005, Polycom is continuing its leadership position in SIP and H.323 standards, including our recent work to enable IP-based ‘any-to-any’ communications—securely crossing firewalls and making these IP video calls as simple as an ordinary phone call.”

Hagerty continued, “As our company drives to the next level against this industry backdrop, we are taking actions to further deploy the benefits of converged collaboration into the major markets worldwide. For instance, in the fourth quarter, we announced new partnerships with Telstra, the leading communications service provider in Australia, and Japan Telecom to bundle Polycom product solutions with their respective service offerings. We also announced an IP-based video telephony solution with our strategic partner Avaya that makes face-to-face communications easy and effective for office, home, or mobile workers. Importantly, we are actively co-developing the communications solution with Microsoft’s Live Communications Server, which is scheduled to drive integrated product deliveries in 2005 for Microsoft and Polycom customers everywhere. Through our strategic partnerships and with our robust delivery of new products in the IP-enabled world, Polycom is well positioned to capture the growing demand for converged communication solutions.”

“We are pleased with our record quarter and full-year revenues,” said Michael Kourey, senior vice president, finance and administration, and CFO. “This strong revenue and record gross margins, coupled with our continued success in managing inventory and accounts receivables, generated our twenty-seventh 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 +1-925-924-6000, or visit the Polycom website atwww.polycom.com.

This release contains forward-looking statements, within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, regarding future events, future demand for our products, and the future performance of the Company, including statements regarding growing worldwide demand for voice and video IP communications, increasing demand for converged collaboration solutions, and the anticipated product rollout through our collaboration with Microsoft. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, 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 Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, and in the other reports filed by Polycom with the SEC. Polycom disclaims any intent or obligations to update these forward-looking statements.

As has been noted on the Company’s web site since January 17, 2005, Polycom will hold a conference call today, January 26, 2005, 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 888-939-6307; and for callers outside of the US and Canada, call 415-908-4701, 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 21227704. 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.

Non-GAAP Condensed Consolidated Statements of Operations

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

purchased intangibles, Restructuring costs, Litigation reserves and payments, Gain (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						Twelve Months Ended
	December 31, 2004			December 31, 2003			December 31, 2004			December 31, 2003
Revenues:
Product revenues	$	130,987		$	108,025		$	483,535		$	381,439
Service revenues		15,523			10,262			56,717			38,984
Total revenues		146,510			118,287			540,252			420,423
Cost of revenues:
Cost of product revenues		43,641			36,857			161,619			137,685
Cost of service revenues		9,605			7,108			37,092			27,892
Total cost of revenues		53,246			43,965			198,711			165,577
Gross profit		93,264			74,322			341,541			254,846
Operating expenses:
Sales and marketing		31,139			26,406			120,699			101,884
Research and development		22,582			17,630			92,076			72,638
General and administrative		10,279			8,084			36,942			31,334
Total operating expenses		64,000			52,120			249,717			205,856
Operating income		29,264			22,202			91,824			48,990
Interest income, net		2,283			2,054			7,279			8,451
Other expense, net		(762	)		(630	)		(1,330	)		(1,774	)
Income before provision for income taxes		30,785			23,626			97,773			55,667
Provision for income taxes		8,311			6,379			26,398			15,030
Non-GAAP net income	$	22,474		$	17,247		$	71,375		$	40,637
Basic net income per share	$	0.23		$	0.17		$	0.72		$	0.41
Diluted net income per share	$	0.22		$	0.17		$	0.70		$	0.40
Weighted average shares outstanding for basic net income per share		98,678			99,514			99,334			99,244
Weighted average shares outstanding for diluted net income per share		101,901			101,843			102,018			100,752

Use of Non-GAAP Financial Information

To supplement our consolidated financial statements presented on a GAAP basis, Polycom uses non-GAAP 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 non-GAAP 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 non-GAAP 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						Twelve Months Ended
	December 31, 2004			December 31, 2003			December 31, 2004			December 31, 2003
Revenues:
Product revenues	$	130,987		$	108,025		$	483,535		$	381,439
Service revenues		15,523			10,262			56,717			38,984
Total revenues		146,510			118,287			540,252			420,423
Cost of revenues:
Cost of product revenues		43,641			36,857			161,619			137,685
Cost of service revenues		9,605			7,108			37,092			27,892
Total cost of revenues		53,246			43,965			198,711			165,577
Gross profit		93,264			74,322			341,541			254,846
Operating expenses:
Sales and marketing		31,139			26,406			120,699			101,884
Research and development		22,582			17,630			92,076			72,638
General and administrative		10,279			8,084			36,942			31,334
Acquisition-related costs		66			198			1,394			386
Purchased in-process research and development		—			—			4,600			—
Amortization of purchased intangibles		2,725			4,398			20,522			17,591
Restructuring costs		1,125			—			1,387			5,029
Litigation reserves and payments		15,905			—			20,950			—
Total operating expenses		83,821			56,716			298,570			228,862
Operating income		9,443			17,606			42,971			25,984
Interest income, net		2,283			2,054			7,279			8,451
Gain (loss) on strategic investments		4			(140	)		(12	)		(737	)
Other expense, net		(762	)		(630	)		(1,330	)		(1,774	)
Income from continuing operations before provision for income taxes		10,968			18,890			48,908			31,924
Provision for income taxes		2,944			5,282			14,332			8,958
Income from continuing operations		8,024			13,608			34,576			22,966
Income (loss) from discontinued operations, net of taxes		—			—			296			(695	)
Gain from sale of discontinued operations, net of taxes		115			59			477			552
Net income	$	8,139		$	13,667		$	35,349		$	22,823
Basic net income per share:
Income per share from continuing operations	$	0.08		$	0.14		$	0.36		$	0.23
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	$	0.08		$	0.14		$	0.36		$	0.23
Diluted net income per share:
Income per share from continuing operations	$	0.08		$	0.13		$	0.35		$	0.23
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	$	0.08		$	0.13		$	0.35		$	0.23
Weighted average shares outstanding for basic net income per share		98,678			99,514			99,334			99,244
Weighted average shares outstanding for diluted net income per share		101,901			101,843			102,018			100,752

POLYCOM, INC.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended December 31, 2004									Twelve Months Ended December 31, 2004
	GAAP			Excluded			Non-GAAP			GAAP			Excluded			Non-GAAP
Revenues:
Product revenues	$	130,987		$	—		$	130,987		$	483,535		$	—		$	483,535
Service revenues		15,523			—			15,523			56,717			—			56,717
Total revenues		146,510			—			146,510			540,252			—			540,252
Cost of revenues:
Cost of product revenues		43,641			—			43,641			161,619			—			161,619
Cost of service revenues		9,605			—			9,605			37,092			—			37,092
Total cost of revenues		53,246			—			53,246			198,711			—			198,711
Gross profit		93,264			—			93,264			341,541			—			341,541
Operating expenses:
Sales and marketing		31,139			—			31,139			120,699			—			120,699
Research and development		22,582			—			22,582			92,076			—			92,076
General and administrative		10,279			—			10,279			36,942			—			36,942
Acquisition-related costs		66			66			—			1,394			1,394			—
Purchased in-process research and development		—			—			—			4,600			4,600			—
Amortization of purchased intangibles		2,725			2,725			—			20,522			20,522			—
Restructuring costs		1,125			1,125			—			1,387			1,387			—
Litigation reserves and payments		15,905			15,905			—			20,950			20,950			—
Total operating expenses		83,821			19,821			64,000			298,570			48,853			249,717
Operating income		9,443			(19,821	)		29,264			42,971			(48,853	)		91,824
Interest income, net		2,283			—			2,283			7,279			—			7,279
Gain (loss) on strategic investments		4			4			—			(12	)		(12	)		—
Other expense, net		(762	)		—			(762	)		(1,330	)		—			(1,330	)
Income from continuing operations before provision for income taxes		10,968			(19,817	)		30,785			48,908			(48,865	)		97,773
Provision for income taxes		2,944			(5,367	)		8,311			14,332			(12,066	)		26,398
Income from continuing operations		8,024			(14,450	)		22,474			34,576			(36,799	)		71,375
Income from discontinued operations, net of taxes		—			—			—			296			296			—
Gain from sale of discontinued operations, net of taxes		115			115			—			477			477			—
Net income	$	8,139		$	(14,335	)	$	22,474		$	35,349		$	(36,026	)	$	71,375
Basic net income per share:
Income per share from continuing operations	$	0.08		$	(0.15	)	$	0.23		$	0.36		$	(0.36	)	$	0.72
Income per share from discontinued operations, net		—			—			—			—			—			—
Gain per share from sale of discontinued operations, net		—			—			—			—			—			—
Basic net income per share	$	0.08		$	(0.15	)	$	0.23		$	0.36		$	(0.36	)	$	0.72
Diluted net income per share:
Income per share from continuing operations	$	0.08		$	(0.14	)	$	0.22		$	0.35		$	(0.35	)	$	0.70
Income per share from discontinued operations, net		—			—			—			—			—			—
Gain per share from sale of discontinued operations, net		—			—			—			—			—			—
Diluted net income per share	$	0.08		$	(0.14	)	$	0.22		$	0.35		$	(0.35	)	$	0.70
Weighted average shares outstanding for basic net income per share		98,678						98,678			99,334						99,334
Weighted average shares outstanding for diluted net income per share		101,901						101,901			102,018						102,018

POLYCOM, INC.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended December 31, 2003									Twelve Months Ended December 31, 2003
	GAAP			Excluded			Non-GAAP			GAAP			Excluded			Non-GAAP
Revenues:
Product revenues	$	108,025		$	—		$	108,025		$	381,439		$	—		$	381,439
Service revenues		10,262			—			10,262			38,984			—			38,984
Total revenues		118,287			—			118,287			420,423			—			420,423
Cost of revenues:
Cost of product revenues		36,857			—			36,857			137,685			—			137,685
Cost of service revenues		7,108			—			7,108			27,892			—			27,892
Total cost of 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:
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:
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.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	December 31, 2004		December 31, 2003
ASSETS
Current assets
Cash and cash equivalents	$	175,356	$	212,562
Short-term investments		38,984		15,703
Trade receivables, net		62,535		42,836
Inventories		27,804		24,845
Deferred taxes		20,879		20,589
Prepaid expenses and other current assets		19,898		19,472
Total current assets		345,456		336,007
Property and equipment, net		37,544		28,493
Long-term investments		320,907		368,020
Goodwill		352,572		289,508
Purchased intangibles, net		26,915		15,236
Deferred taxes		49,060		56,513
Other assets		22,187		10,013
Total assets	$	1,154,641	$	1,103,790
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	45,682	$	36,247
Accrued payroll and related liabilities		18,852		12,644
Taxes payable		52,665		49,417
Deferred revenue		32,127		20,524
Other accrued liabilities		30,065		26,846
Total current liabilities		179,391		145,678
Long-term liabilities		10,636		28,833
Total liabilities		190,027		174,511
Stockholders’ equity		964,614		929,279
Total liabilities and stockholders’ equity	$	1,154,641	$	1,103,790

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Twelve Months Ended
	December 31, 2004				December 31, 2003
Cash flows from operating activities:
Net income	$	35,349			$	22,823
Adjustments to reconcile net income to net cash provided by operating activities:
Gain from sale of discontinued operations, net of taxes		(477	)			(552	)
Depreciation and amortization		19,971				15,263
Amortization of purchased intangibles		20,522				17,591
Provision for (benefit from) doubtful accounts		(210	)			521
Provision for (benefit from) excess and obsolete inventories		(202	)			1,805
Tax benefit from exercise of stock options		6,530				1,821
Loss on strategic investments		12				737
Amortization of unearned stock-based compensation		214				320
Purchase of in-process research and development		4,600				—
Loss on disposals of property and equipment		513				—
Changes in assets and liabilities, net of the effect of acquisitions:
Trade receivables		(17,297	)			22,113
Inventories		614				8,440
Deferred taxes		423				1,281
Prepaid expenses and other assets		(2,837	)			(4,389	)
Accounts payable		8,324				6,546
Taxes payable		2,257				4,763
Other accrued liabilities		1,271				1,724
Net cash provided by operating activities		79,577		��		100,807
Cash flows from investing activities:
Purchase of property and equipment		(19,285	)			(14,819	)
Purchase of licensed technology		—				(3,528	)
Purchases of investments		(853,967	)			(960,880	)
Proceeds from sale and maturity of investments		869,440				932,417
Proceeds from sale of discontinued operations		751				1,396
Purchase of convertible note receivable		—				(522	)
Net cash paid in purchase acquisitions		(94,993	)			—
Net cash used in investing activities		(98,054	)			(45,936	)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock purchase plans		33,816				9,415
Repurchase of common stock		(52,545	)			(6,915	)
Net cash provided by (used in) financing activities		(18,729	)			2,500
Net increase (decrease) in cash and cash equivalents		(37,206	)			57,371
Cash and cash equivalents, beginning of period		212,562				155,191
Cash and cash equivalents, end of period	$	175,356			$	212,562