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

Exhibit 99.1

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

POLYCOM REPORTS FIRST QUARTER EARNINGS

Revenues of $157.7M;

Year-Over-Year Revenue Growth of 15 Percent

PLEASANTON, Calif. – April 19, 2006 –Polycom, Inc. (NASDAQ: PLCM), the world’s leading provider of unified collaborative communications solutions, today reported its earnings for the first quarter ended March 31, 2006.

First quarter 2006 consolidated net revenues were $157.7 million, compared to $137.5 million for the first quarter of 2005. Non-GAAP net income in the first quarter of 2006 was $19.8 million, or 22 cents per diluted share. This compares to Non-GAAP net income of $17.6 million, or 18 cents per diluted share, for the first quarter of 2005. Non-GAAP financial measures exclude stock-based compensation expense, 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, income (loss) from discontinued operations, net of taxes, and gain from sale of discontinued operations, net of taxes.

GAAP net income for the first quarter of 2006 was $14.0 million, or 16 cents per diluted share. GAAP net income for the first quarter of 2006 includes stock-based compensation expense related to the implementation of Statement of Financial Accounting Standard (SFAS) 123R in fiscal 2006 of $3.5 million, net of tax, or 4 cents per diluted share. GAAP net income for the first quarter of 2005 was $16.4 million, or 16 cents per diluted share. GAAP net income prior to fiscal 2006 did not include stock-based compensation expense.Including the pro forma stock-based compensation expense previously disclosed in Polycom’s financial statement footnotes, net income for the first quarter of 2005 would have been $11.0 million or 11 cents per diluted share.

The reconciliation of the GAAP statement of operations amounts to the respective Non-GAAP figures, for the three months ended March 31, 2006 and 2005, is set forth at the end of this press release.

On a product line basis, consolidated net revenues for the first quarter of 2006 were comprised of 53 percent video communications, or $83.1 million; 21 percent network systems, or $33.8 million; and 26 percent voice communications, or $40.8 million. This compares to the first quarter of 2005, in which consolidated net revenues were comprised of 55 percent video communications, or $75.6 million; 24 percent network systems, or $33.6 million; and 21 percent voice communications, or $28.3 million.

“During the first quarter, Polycom continued to benefit from voice and video over IP adoption,” said Robert Hagerty, president and CEO. “In fact, although the first quarter is typically a seasonally tougher quarter, we experienced sequential revenue growth and a 15 percent year-over-year growth rate in revenues. We believe that achieving this sharp revenue growth provides empirical validation that our strategy of delivering a highly innovative and integrated voice, video and content solution to our enterprise, government, education, and healthcare customers is working. The applications for our collaborative communications solutions abound and, coupled with the ease of IP connectivity, are driving demand to a new level.”

Hagerty continued, “Against this backdrop of rising IP connectivity, Polycom is continuing to invest in product integration and go-to-market programs with our strategic partners. Working closely with both our call management and presence-based communications partners such as Alcatel, Avaya, Cisco, IBM, Microsoft, Nortel, and others, our solution is being rapidly adopted by organizations of all sizes on a global basis. The ease of use of our integrated collaborative communications solution is at a level that we believe is unparalleled, and we are pleased that our customers are adopting Polycom’s integrated solution at the highest levels thus far.”

“With our revenues of $157.7 million and our strong margins, we generated $26.1 million in positive operating cash flow in the first quarter,” said Michael Kourey, senior vice president, finance and administration, and CFO. “In concert with achieving these record revenue levels, Polycom’s backlog of $34.5 million is up 44 percent year over year while deferred revenue jumped 55 percent to $57.5 million. During the first quarter, we purchased an additional $52 million in Polycom common stock and exited the quarter with a remaining $67 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 voice and video over IP adoption as a driver for the Company’s business, revenue growth as a validation of the Company’s strategy, applications for the Company’s collaborative communications solutions and ease of IP connectivity as additional drivers for product demand, and the adoption rate of the Company’s integrated solutions. 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 Annual Report on Form 10-K for the year ended December 31, 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 April 12, 2006, Polycom will hold a conference call today, April 19, 2006, at 5:00 p.m. ET/2:00 p.m. PT to discuss its first 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 888-793-1722; and for callers outside of the US and Canada, by calling 212-896-6111, 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 21289479. A replay of the call will also be maintained on our website atwww.polycom.comunder 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 Stock-based compensation expense, Acquisition-related costs, Purchased in-process R&D, Amortization and

impairment 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

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	March 31, 2006			March 31, 2005
Revenues:
Product revenues	$	138,668		$	122,117
Service revenues		19,045			15,401
Total revenues		157,713			137,518
Cost of revenues:
Cost of product revenues		50,106			41,382
Cost of service revenues		9,631			9,625
Total cost of revenues		59,737			51,007
Gross profit		97,976			86,511
Operating expenses:
Sales and marketing		38,735			34,215
Research and development		25,757			21,842
General and administrative		8,934			8,991
Total operating expenses		73,426			65,048
Operating income		24,550			21,463
Interest income, net		3,918			2,744
Other expense, net		(136	)		(59	)
Income before provision for income taxes		28,332			24,148
Provision for income taxes		8,500			6,520
Non-GAAP net income	$	19,832		$	17,628
Basic net income per share	$	0.23		$	0.18
Diluted net income per share	$	0.22		$	0.18
Weighted average shares outstanding for basic net income per share		88,078			98,870
Weighted average shares outstanding for diluted net income per share		89,346			100,357

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 and are excluded by management for purposes of internal budgets and making operational decisions. 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
	March 31, 2006			March 31, 2005
Revenues:
Product revenues	$	138,668		$	122,117
Service revenues		19,045			15,401
Total revenues		157,713			137,518
Cost of revenues:
Cost of product revenues (includes stock-based compensation expense under SFAS 123R of $348 for the three months ended March 31, 2006 and $0 for the three months ended March 31, 2005)		50,454			41,382
Cost of service revenues (includes stock-based compensation expense under SFAS 123R of $404 for the three months ended March 31, 2006 and $0 for the three months ended March 31, 2005)		10,035			9,625
Total cost of revenues		60,489			51,007
Gross profit		97,224			86,511
Operating expenses:
Sales and marketing (includes stock-based compensation expense under SFAS 123R of $1,440 for the three months ended March 31, 2006 and $0 for the three months ended March 31, 2005)		40,175			34,215
Research and development (includes stock-based compensation expense under SFAS 123R of $1,766 for the three months ended March 31, 2006 and $0 for the three months ended March 31, 2005)		27,523			21,842
General and administrative (includes stock-based compensation expense under SFAS 123R of $1,243 for the three months ended March 31, 2006 and $0 for the three months ended March 31, 2005)		10,177			8,991
Acquisition-related costs		45			66
Amortization and impairment of purchased intangibles		1,588			1,807
Restructuring costs		555			—
Litigation reserves and payments		—			(28	)
Total operating expenses		80,063			66,893
Operating income		17,161			19,618
Interest income, net		3,918			2,744
Loss on strategic investments		—			(5	)
Other expense, net		(136	)		(59	)
Income from continuing operations before provision for income taxes		20,943			22,298
Provision for income taxes		6,911			6,005
Income from continuing operations		14,032			16,293
Gain from sale of discontinued operations, net of taxes		—			105
Net income	$	14,032		$	16,398
Basic net income per share:
Income per share from continuing operations	$	0.16		$	0.17
Gain per share from sale of discontinued operations, net		—			—
Basic net income per share	$	0.16		$	0.17
Diluted net income per share:
Income per share from continuing operations	$	0.16		$	0.16
Gain per share from sale of discontinued operations, net		—			—
Diluted net income per share	$	0.16		$	0.16
Weighted average shares outstanding for basic net income per share		88,078			98,870
Weighted average shares outstanding for diluted net income per share		89,346			100,357

POLYCOM, INC.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31, 2006
	GAAP			Excluded			Non-GAAP
Revenues:
Product revenues	$	138,668		$	—		$	138,668
Service revenues		19,045			—			19,045
Total revenues		157,713			—			157,713
Cost of revenues:
Cost of product revenues		50,454			348	(a)		50,106
Cost of service revenues		10,035			404	(a)		9,631
Total cost of revenues		60,489			752			59,737
Gross profit		97,224			(752	)		97,976
Operating expenses:
Sales and marketing		40,175			1,440	(a)		38,735
Research and development		27,523			1,766	(a)		25,757
General and administrative		10,177			1,243	(a)		8,934
Acquisition-related costs		45			45			—
Amortization and impairment of purchased intangibles		1,588			1,588			—
Restructuring costs		555			555			—
Total operating expenses		80,063			6,637			73,426
Operating income		17,161			(7,389	)		24,550
Interest income, net		3,918			—			3,918
Other expense, net		(136	)		—			(136	)
Income from continuing operations before provision for income taxes		20,943			(7,389	)		28,332
Provision for income taxes		6,911			(1,589	)		8,500
Net income	$	14,032		$	(5,800	)	$	19,832
Basic net income per share	$	0.16		$	(0.07	)	$	0.23
Diluted net income per share	$	0.16		$	(0.06	)	$	0.22
Weighted average shares outstanding for basic net income per share		88,078						88,078
Weighted average shares outstanding for diluted net income per share		89,346						89,346

(a) Excluded amount represents stock-based compensation expense recorded in accordance with SFAS 123R, “Share-Based Payment” during the period.

POLYCOM, INC.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31, 2005
	GAAP			Excluded			Non-GAAP
Revenues:
Product revenues	$	122,117		$	—		$	122,117
Service revenues		15,401			—			15,401
Total revenues		137,518			—			137,518
Cost of revenues:
Cost of product revenues		41,382			—			41,382
Cost of service revenues		9,625			—			9,625
Total cost of revenues		51,007			—			51,007
Gross profit		86,511			—			86,511
Operating expenses:
Sales and marketing		34,215			—			34,215
Research and development		21,842			—			21,842
General and administrative		8,991			—			8,991
Acquisition-related costs		66			66			—
Amortization of purchased intangibles		1,807			1,807			—
Litigation reserves and payments		(28	)		(28	)		—
Total operating expenses		66,893			1,845			65,048
Operating income		19,618			(1,845	)		21,463
Interest income, net		2,744			—			2,744
Loss on strategic investments		(5	)		(5	)		—
Other expense, net		(59	)		—			(59	)
Income from continuing operations before provision for income taxes		22,298			(1,850	)		24,148
Provision for income taxes		6,005			(515	)		6,520
Income from continuing operations		16,293			(1,335	)		17,628
Gain from sale of discontinued operations, net of taxes		105			105			—
Net income	$	16,398		$	(1,230	)	$	17,628
Basic net income per share:
Income per share from continuing operations	$	0.17		$	(0.01	)	$	0.18
Gain per share from sale of discontinued operations, net		—			—			—
Basic net income per share	$	0.17		$	(0.01	)	$	0.18
Diluted net income per share:
Income per share from continuing operations	$	0.16		$	(0.02	)	$	0.18
Gain per share from sale of discontinued operations, net		—			—			—
Diluted net income per share	$	0.16		$	(0.02	)	$	0.18
Weighted average shares outstanding for basic net income per share		98,870						98,870
Weighted average shares outstanding for diluted net income per share		100,357						100,357

POLYCOM, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	March 31, 2006		December 31, 2005
ASSETS
Current assets
Cash and cash equivalents	$	164,301	$	189,271
Short-term investments		133,277		88,191
Trade receivables, net		74,130		69,419
Inventories		44,675		45,782
Deferred taxes		31,407		31,407
Prepaid expenses and other current assets		13,373		13,668
Total current assets		461,163		437,738
Property and equipment, net		34,620		35,293
Long-term investments		145,401		182,942
Goodwill		359,115		359,071
Purchased intangibles, net		18,757		20,332
Deferred taxes		17,039		17,070
Other assets		19,757		18,954
Total assets	$	1,055,852	$	1,071,400
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	43,158	$	46,882
Accrued payroll and related liabilities		16,081		13,092
Taxes payable		60,248		60,784
Deferred revenue		41,857		37,908
Other accrued liabilities		31,570		32,832
Total current liabilities		192,914		191,498
Long-term deferred revenue		15,628		12,915
Other long-term liabilities		9,642		10,118
Total liabilities		218,184		214,531
Stockholders’ equity		837,668		856,869
Total liabilities and stockholders’ equity	$	1,055,852	$	1,071,400

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended
	March 31, 2006			March 31, 2005
Cash flows from operating activities:
Net income	$	14,032		$	16,398
Adjustments to reconcile net income to net cash provided by operating activities:
Gain from sale of discontinued operations, net of taxes		—			(105	)
Depreciation and amortization		5,152			5,101
Amortization of purchased intangibles		1,588			1,807
Provision for doubtful accounts		59			—
Provision for (benefit from) excess and obsolete inventories		45			(436	)
Non-cash stock based compensation		5,201			—
Gain on strategic investments		—			5
Amortization of unearned stock-based compensation		—			35
Loss on disposals of property and equipment		7			70
Changes in assets and liabilities, net of the effect of acquisitions:
Trade receivables		(4,770	)		(6,448	)
Inventories		1,062			(7,446	)
Prepaid expenses and other assets		52			3,840
Accounts payable		(3,724	)		(4,631	)
Taxes payable		(536	)		4,820
Other accrued liabilities		7,913			(4,222	)
Net cash provided by operating activities		26,081			8,788
Cash flows from investing activities:
Purchase of property and equipment		(4,037	)		(4,082	)
Purchases of investments		(172,599	)		(87,965	)
Proceeds from sale and maturity of investments		164,279			104,142
Proceeds from sale of discontinued operations		—			165
Net cash (used in) provided by investing activities		(12,357	)		12,260
Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock purchase plans		13,711			4,325
Repurchase of common stock		(52,405	)		(24,991	)
Net cash used in financing activities		(38,694	)		(20,666	)
Net increase (decrease) in cash and cash equivalents		(24,970	)		382
Cash and cash equivalents, beginning of period		189,271			96,331
Cash and cash equivalents, end of period	$	164,301		$	96,713