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

Exhibit 99.1

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

POLYCOM REPORTS FOURTH QUARTER EARNINGS

Record Revenues of $156.1M;

Record Operating Cash Flow of $41.5M

PLEASANTON, Calif. – January 25, 2006 –Polycom®, Inc. (NASDAQ: PLCM), the world’s leading provider of unified collaborative communications solutions, today reported its earnings for the fourth quarter ended December 31, 2005.

Fourth quarter 2005 consolidated net revenues were $156.1 million, compared to $146.5 million recorded for the fourth quarter of 2004. Non-GAAP net income in the fourth quarter of 2005 was $21.0 million, or 23 cents per diluted share. This compares to Non-GAAP net income of $22.5 million, or 22 cents per diluted share, for the fourth quarter of 2004. Non-GAAP financial measures exclude acquisition-related costs, purchased in-process research and development costs, amortization and impairment of purchased intangibles, restructuring costs, litigation reserves and payments, gain (loss) on strategic investments, income tax effect of the preceding adjustments, tax charge associated with the repatriation of foreign earnings at a one-time favorable tax rate under the American Jobs Creation Act of 2004, 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 2005 was $9.3 million, or 10 cents per diluted share, compared to $8.1 million, or 8 cents per diluted share, for the same period last year.

For the year ended December 31, 2005, net revenues were $580.7 million, compared to $540.3 million for the year ended December 31, 2004. Non-GAAP net income for 2005 was $75.5 million, or 78 cents per diluted share, compared to $71.4 million, or 70 cents per diluted share for the comparable period of 2004. GAAP net income for the year ended December 31, 2005 was $62.7 million, or 65 cents per diluted share, compared to GAAP net income of $35.3 million, or 35 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, 2005 and 2004, is set forth at the end of this press release.

On a product line basis, consolidated net revenues for the fourth quarter of 2005 were comprised of 53 percent video communications, or $83.1 million; 22 percent network systems, or $33.9 million; and 25 percent voice communications, or $39.1 million. This compares to the fourth quarter of 2004, in which consolidated net revenues 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.

“In Q4, we began to experience the benefit that voice over IP is bringing to the video communications arena and the collaborative communications space as a whole,” said Robert Hagerty, president and CEO. “Our VoIP product revenues again grew over 100% year over year and our video growth rate jumped—delivering a 10% sequential growth rate in the fourth quarter. This increase in demand is validating our vision for an integrated, IP based collaboration solution. In fact, our customers are adopting this

technology at record levels due to the ever increasing need for real-time collaboration across corporate and geographic boundaries. Applications in enterprise, government, education, and healthcare are growing rapidly as converged, remote collaboration is becoming simple and reliable in IP environments.”

Hagerty continued, “2006 is a turning point for our industry. For the first time, IP connectivity is providing customers not just bandwidth, but the mechanism for seamless integration with call management, or PBX functionality, and with presence-based, or instant messaging, communications models. This is why Polycom has been aggressively executing on our strategy of closely partnering with the leading communications providers in the world, such as Alcatel, Avaya, Cisco, IBM, Microsoft, Nortel, and others. Our integrated offering gives customers the best-of-breed solutions for their collaborative communications needs.”

“With our record revenues of $156.1 million and our strong margins, we generated $41.5 million in positive operating cash flow in the fourth quarter,” said Michael Kourey, senior vice president, finance and administration, and CFO. “In concert with our positive operating results, we also achieved record levels of backlog and deferred revenues. During Q4, we purchased $85 million in Polycom stock and exited the quarter with a remaining $119 million authorization under the current share repurchase program.”

About Polycom

Polycom, Inc. is the worldwide leader in unified collaborative communications (UCC) that maximize the efficiency and productivity of people and organizations by integrating the broadest array of video, voice, data and Web solutions to deliver the ultimate communications experience. Polycom’s high quality, standards-based conferencing and collaboration solutions are easy to deploy and manage, as well as intuitive to use. Supported by an open architecture, they integrate seamlessly with leading telephony and presence-based networks. With its market driving technologies, best-in-class products, alliance partnerships, and world-class service, Polycom is the smart choice for organizations seeking proven solutions and a competitive advantage in real-time communications and collaboration. 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, 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 customer adoption rates and the Company’s execution of its partnering strategy. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the impact of competition on our product sales and for our customers and partners, potential fluctuations in results and future growth rates, the market acceptance of Polycom’s products, such as voice and video over IP products, and changing market demands, possible delays in the development, availability and shipment of new products, increasing costs and differing uses of capital, challenges associated with integrating acquired companies, changes in key personnel, 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, 2005, and in 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 12, 2006, Polycom will hold a conference call today, January 25, 2006, at 5:00 p.m. ET/2:00 p.m. PT to discuss its fourth quarter earnings. 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, by calling 800-618-9649; and for callers outside of the US and Canada, by calling 415-908-6244,

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 21280997. 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 in the U.S. and various countries. All other trademarks are the property of their respective owners. ©2006, Polycom, Inc. All rights reserved.

POLYCOM, INC.

Non-GAAP Condensed Consolidated Statements of Operations

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

purchased intangibles, Restructuring costs, Litigation reserves and payments, Gain (loss) on strategic investments,

Income tax effect of preceding adjustments, Tax charge associated with the repatriation of foreign earnings

at a one-time favorable tax rate under the American Jobs Creation Act of 2004,

Income (loss) from discontinued operations, and Gain from sale of discontinued operations, net of taxes

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Twelve Months Ended
	December 31, 2005			December 31, 2004			December 31, 2005			December 31, 2004
Revenues:
Product revenues	$	137,343		$	130,987		$	511,462		$	483,535
Service revenues		18,709			15,523			69,197			56,717
Total revenues		156,052			146,510			580,659			540,252
Cost of revenues:
Cost of product revenues		50,209			43,641			179,837			161,619
Cost of service revenues		10,252			9,605			39,680			37,092
Total cost of revenues		60,461			53,246			219,517			198,711
Gross profit		95,591			93,264			361,142			341,541
Operating expenses:
Sales and marketing		37,131			31,139			142,719			120,699
Research and development		23,760			22,582			91,479			92,076
General and administrative		8,494			10,279			35,631			36,942
Total operating expenses		69,385			64,000			269,829			249,717
Operating income		26,206			29,264			91,313			91,824
Interest income, net		3,346			2,283			12,848			7,279
Other expense, net		(28	)		(762	)		(5	)		(1,330	)
Income before provision for income taxes		29,524			30,785			104,156			97,773
Provision for income taxes		8,493			8,311			28,644			26,398
Non-GAAP net income	$	21,031		$	22,474		$	75,512		$	71,375
Basic net income per share	$	0.23		$	0.23		$	0.79		$	0.72
Diluted net income per share	$	0.23		$	0.22		$	0.78		$	0.70
Weighted average shares outstanding for basic net income per share		91,159			98,678			95,691			99,334
Weighted average shares outstanding for diluted net income per share		92,385			101,901			97,014			102,018

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, 2005			December 31, 2004			December 31, 2005			December 31, 2004
Revenues:
Product revenues	$	137,343		$	130,987		$	511,462		$	483,535
Service revenues		18,709			15,523			69,197			56,717
Total revenues		156,052			146,510			580,659			540,252
Cost of revenues:
Cost of product revenues		50,209			43,641			179,837			161,619
Cost of service revenues		10,252			9,605			39,680			37,092
Total cost of revenues		60,461			53,246			219,517			198,711
Gross profit		95,591			93,264			361,142			341,541
Operating expenses:
Sales and marketing		37,131			31,139			142,719			120,699
Research and development		23,760			22,582			91,479			92,076
General and administrative		8,494			10,279			35,631			36,942
Acquisition-related costs		30			66			351			1,394
Purchased in-process research and development		—			—			300			4,600
Amortization and impairment of purchased intangibles		3,585			2,725			8,790			20,521
Restructuring costs		(7	)		1,125			633			1,387
Litigation reserves and payments		—			15,905			(93	)		20,951
Total operating expenses		72,993			83,821			279,810			298,570
Operating income		22,598			9,443			81,332			42,971
Interest income, net		3,346			2,283			12,848			7,279
Gain (loss) on strategic investments		(1,600	)		4			2,908			(12	)
Other expense, net		(28	)		(762	)		(5	)		(1,330	)
Income from continuing operations before provision for income taxes		24,316			10,968			97,083			48,908
Provision for income taxes		15,051			2,944			34,722			14,332
Income from continuing operations		9,265			8,024			62,361			34,576
Income from discontinued operations, net of taxes		—			—			—			296
Gain from sale of discontinued operations, net of taxes		—			115			384			477
Net income	$	9,265		$	8,139		$	62,745		$	35,349
Basic net income per share:
Income per share from continuing operations	$	0.10		$	0.08		$	0.66		$	0.36
Income per share from discontinued operations, net		—			—			—			—
Gain per share from sale of discontinued operations, net		—			—			—			—
Basic net income per share	$	0.10		$	0.08		$	0.66		$	0.36
Diluted net income per share:
Income per share from continuing operations	$	0.10		$	0.08		$	0.65		$	0.35
Income per share from discontinued operations, net		—			—			—			—
Gain per share from sale of discontinued operations, net		—			—			—			—
Diluted net income per share	$	0.10		$	0.08		$	0.65		$	0.35
Weighted average shares outstanding for basic net income per share		91,159			98,678			95,691			99,334
Weighted average shares outstanding for diluted net income per share		92,385			101,901			97,014			102,018

POLYCOM, INC.

2005 GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended December 31, 2005									Twelve Months Ended December 31, 2005
	GAAP			Excluded			Non-GAAP			GAAP			Excluded			Non-GAAP
Revenues:
Product revenues	$	137,343		$	—		$	137,343		$	511,462		$	—		$	511,462
Service revenues		18,709			—			18,709			69,197			—			69,197
Total revenues		156,052			—			156,052			580,659			—			580,659
Cost of revenues:
Cost of product revenues		50,209			—			50,209			179,837			—			179,837
Cost of service revenues		10,252			—			10,252			39,680			—			39,680
Total cost of revenues		60,461			—			60,461			219,517			—			219,517
Gross profit		95,591			—			95,591			361,142			—			361,142
Operating expenses:
Sales and marketing		37,131			—			37,131			142,719			—			142,719
Research and development		23,760			—			23,760			91,479			—			91,479
General and administrative		8,494			—			8,494			35,631			—			35,631
Acquisition-related costs		30			30			—			351			351			—
Purchased in-process research and development		—			—			—			300			300			—
Amortization and impairment of purchased intangibles		3,585			3,585			—			8,790			8,790			—
Restructuring costs		(7	)		(7	)		—			633			633			—
Litigation reserves and payments		—			—			—			(93	)		(93	)		—
Total operating expenses		72,993			3,608			69,385			279,810			9,981			269,829
Operating income		22,598			(3,608	)		26,206			81,332			(9,981	)		91,313
Interest income, net		3,346			—			3,346			12,848			—			12,848
Gain (loss) on strategic investments		(1,600	)		(1,600	)		—			2,908			2,908			—
Other expense, net		(28	)		—			(28	)		(5	)		—			(5	)
Income from continuing operations before provision for income taxes		24,316			(5,208	)		29,524			97,083			(7,073	)		104,156
Provision for income taxes		15,051			6,558	A		8,493			34,722			6,078	A		28,644
Income from continuing operations		9,265			(11,766	)		21,031			62,361			(13,151	)		75,512
Income from discontinued operations, net of taxes		—			—			—			—			—			—
Gain from sale of discontinued operations, net of taxes		—			—			—			384			384			—
Net income	$	9,265		$	(11,766	)	$	21,031		$	62,745		$	(12,767	)	$	75,512
Basic net income per share:
Income per share from continuing operations	$	0.10		$	(0.13	)	$	0.23		$	0.66		$	(0.13	)	$	0.79
Income per share from discontinued operations, net		—			—			—			—			—			—
Gain per share from sale of discontinued operations, net		—			—			—			—			—			—
Basic net income per share	$	0.10		$	(0.13	)	$	0.23		$	0.66		$	(0.13	)	$	0.79
Diluted net income per share:
Income per share from continuing operations	$	0.10		$	(0.13	)	$	0.23		$	0.65		$	(0.13	)	$	0.78
Income per share from discontinued operations, net		—			—			—			—			—			—
Gain per share from sale of discontinued operations, net		—			—			—			—			—			—
Diluted net income per share	$	0.10		$	(0.13	)	$	0.23		$	0.65		$	(0.13	)	$	0.78
Weighted average shares outstanding for basic net income per share		91,159						91,159			95,691						95,691
Weighted average shares outstanding for diluted net income per share		92,385						92,385			97,014						97,014

Note A: Non-GAAP Provision for Income Taxes excludes $7.5 million related to a distribution of cash from our foreign subsidiaries of $137.5 million, of which $118.1 million is deemed an extraordinary dividend. The resultant tax reflects the one-time favorable tax rates pursuant to the American Jobs Creation Act of 2004.

POLYCOM, INC.

2004 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			—			20,521			20,521			—
Restructuring costs		1,125			1,125			—			1,387			1,387			—
Litigation reserves and payments		15,905			15,905			—			20,951			20,951			—
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.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	December 31, 2005		December 31, 2004
ASSETS
Current assets
Cash and cash equivalents	$	189,271	$	96,331
Short-term investments		88,191		118,009
Trade receivables, net		69,419		62,535
Inventories		45,782		27,804
Deferred taxes		31,407		20,879
Prepaid expenses and other current assets		13,668		19,898
Total current assets		437,738		345,456
Property and equipment, net		35,293		37,544
Long-term investments		182,942		320,907
Goodwill		359,071		352,572
Purchased intangibles, net		20,332		26,915
Deferred taxes		17,070		49,060
Other assets		18,954		22,187
Total assets	$	1,071,400	$	1,154,641
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	46,882	$	45,682
Accrued payroll and related liabilities		13,092		18,852
Taxes payable		60,784		52,665
Deferred revenue		37,908		26,889
Other accrued liabilities		32,832		30,065
Total current liabilities		191,498		174,153
Long-term deferred revenue		12,915		5,238
Other long-term liabilities		10,118		10,636
Total liabilities		214,531		190,027
Stockholders’ equity		856,869		964,614
Total liabilities and stockholders’ equity	$	1,071,400	$	1,154,641

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Twelve Months Ended
	December 31, 2005			December 31, 2004
Cash flows from operating activities:
Net income	$	62,745		$	35,349
Adjustments to reconcile net income to net cash provided by operating activities:
Gain from sale of discontinued operations, net of taxes		(384	)		(477	)
Depreciation and amortization		20,720			19,971
Amortization and impairment of purchased intangibles		8,790			20,521
Provision for (benefit from) doubtful accounts		—			(210	)
Provision for (benefit from) excess and obsolete inventories		(731	)		(202	)
Tax benefit from exercise of stock options		1,408			6,530
(Gain) Loss on strategic investments		(2,908	)		12
Amortization of unearned stock-based compensation		35			214
Purchase of in-process research and development		300			4,600
Loss on disposals of property and equipment		367			513
Changes in assets and liabilities, net of the effect of acquisitions:
Trade receivables		(6,447	)		(17,297	)
Inventories		(16,290	)		614
Deferred taxes		20,916			423
Prepaid expenses and other assets		6,341			(2,837	)
Accounts payable		209			8,324
Taxes payable		7,899			2,257
Other accrued liabilities		14,414			1,272
Net cash provided by operating activities		117,384			79,577
Cash flows from investing activities:
Purchase of property and equipment		(16,758	)		(19,285	)
Purchases of investments		(458,806	)		(561,755	)
Proceeds from sale and maturity of investments		631,673			556,453
Proceeds from sale of discontinued operations		604			751
Net cash paid in purchase acquisitions		(8,648	)		(94,993	)
Net cash provided by (used in) investing activities		148,065			(118,829	)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock purchase plans		11,458			33,816
Repurchase of common stock		(183,967	)		(52,545	)
Net cash used in financing activities		(172,509	)		(18,729	)
Net increase (decrease) in cash and cash equivalents		92,940			(57,981	)
Cash and cash equivalents, beginning of period		96,331			154,312
Cash and cash equivalents, end of period	$	189,271		$	96,331