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

Exhibit 99.1

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

POLYCOM REPORTS SECOND QUARTER EARNINGS

Revenues of $165.0M;

Year-Over-Year Revenue Growth of 16 Percent

PLEASANTON, Calif. – July 19, 2006 – Polycom, Inc. (NASDAQ: PLCM), the world’s leading provider of unified collaborative communications solutions, today reported its earnings for the second quarter ended June 30, 2006.

Second quarter 2006 consolidated net revenues were $165.0 million, compared to $142.7 million for the second quarter of 2005. Non-GAAP net income in the second quarter of 2006 was $21.9 million, or 24 cents per diluted share. This compares to Non-GAAP net income of $17.8 million, or 18 cents per diluted share, for the second quarter of 2005. Non-GAAP financial measures exclude stock-based compensation expense, the effect of stock-based compensation expense on warranty rates, 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 second quarter of 2006 was $15.0 million, or 17 cents per diluted share. GAAP net income for the second quarter of 2006 includes stock-based compensation expense related to the implementation of Statement of Financial Accounting Standard (SFAS) 123R in fiscal 2006 of $4.1 million, net of tax, or 5 cents per diluted share. GAAP net income for the second quarter of 2005 was $20.0 million, or 20 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, GAAP net income for the second quarter of 2005 would have been $14.4 million or 15 cents per diluted share.

For the six months ended June 30, 2006, net revenues were $322.7 million, compared to $280.2 million for the first six months of 2005. Non-GAAP net income for the period was $41.7 million, or 47 cents per diluted share, compared to $35.4 million, or 36 cents per diluted share for the first six months of 2005. GAAP net income for the six months ended June 30, 2006 was $29.0 million, or 32 cents per diluted share, compared to GAAP net income of $36.4 million, or 37 cents per diluted share, for the same period last year. GAAP net income for six months ended June 30, 2006 includes stock-based compensation expense related to the implementation of Statement of Financial Accounting Standard (SFAS) 123R in fiscal 2006 of $7.6 million, net of tax, or 9 cents per diluted share. Including the pro forma stock-based compensation expense previously disclosed in Polycom’s financial statement footnotes, GAAP net income for the six months ended June 30, 2005 would have been $25.5 million or 26 cents per diluted share.

The reconciliation of the GAAP statement of operations amounts to the respective Non-GAAP figures, for the three and six months ended June 30, 2006 and 2005, is set forth at the end of this press release.

On a product line basis, consolidated net revenues for the second quarter of 2006 were comprised of 54 percent video communications, or $89.0 million; 28 percent voice communications, or $45.8 million; and

18 percent network systems, or $30.2 million. This compares to the second quarter of 2005, in which consolidated net revenues were comprised of 52 percent video communications, or $74.8 million; 25 percent voice communications, or $35.0 million; and 23 percent network systems, or $32.9 million.

“Voice and video over IP drove our growth again in the second quarter,” said Robert Hagerty, president and CEO. “In fact, voice revenues grew 31 percent and video revenues grew by 19 percent year-over-year. The increasing growth rate for video began in Q4 of 2005 and has continued to build through our second quarter of 2006. This IP driver is enabling adoption of Polycom’s voice and video communications solutions at unprecedented levels.”

Hagerty continued, “During the second quarter, we announced significant advancements with our partners. For instance, we announced Cisco Skinny Client Control Protocol (SCCP) video products. We announced our new Communicator for wideband voice over IP with Skype. Finally, we announced support for the 2007 launch of Microsoft’s Unified Communications platform with Polycom VoIP endpoints. These integrated solutions augment our positions with many of the other leading call and presence-based architectures, such as Alcatel, Avaya, Nortel, and others.”

“In addition to these partnership advancements, Polycom launched several other new products at our Global Partners Conference in May. At this conference, with over 600 attendees, we unveiled our new immersive video solution, RealPresence™ Experience, or RPX™. We also announced the ReadiStreaming Server, or RSS™, which is the first recording, streaming, and archiving solution for high definition (HD) multimedia conferences. In addition, we launched a new, blue tooth VoiceStation^® and several other new products. Finally, we demonstrated our high-definition video conferencing solution, scheduled for general availability later this year. Our new product development engine is delivering a whole host of new products to fulfill the demand for Polycom’s industry-leading, IP-based unified collaborative communications solutions.”

“Polycom’s year-over-year revenue growth increased to 16 percent in the second quarter,” said Michael Kourey, senior vice president, finance and administration, and CFO. “With the resulting revenues of $165.0 million and strong gross and operating margins, Polycom generated $38.6 million in positive operating cash flow. Underpinning these excellent results was a 50 percent growth in backlog and a 46 percent growth in deferred revenues over Q2 of 2005. Backlog also grew 5 percent sequentially and deferred revenues grew 4 percent sequentially.”

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. 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, the impact of global conflicts such as those in the Middle East, 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 July 11, 2006, Polycom will hold a conference call today, July 19, 2006, at 5:00 p.m. ET/2:00 p.m. PT to discuss its second 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 888-214-7570; and for callers outside of the US and Canada, by calling 415-537-1857, 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 21298472. 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 reserves the right to modify future product plans at any time. Products and/or related specifications referenced in this press release are not guaranteed, and will be delivered on a when and if available basis.

Polycom, the Polycom logo, and VoiceStation are registered trademarks and RealPresence, RPX, and RSS are 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, Effect of Stock-based compensation expense on warranty rates, 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

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30, 2006		June 30, 2005		June 30, 2006		June 30, 2005
Revenues:
Product revenues	$	144,841	$	125,798	$	283,509	$	247,915
Service revenues		20,114		16,887		39,159		32,288
Total revenues		164,955		142,685		322,668		280,203
Cost of revenues:
Cost of product revenues		51,898		43,586		102,004		84,968
Cost of service revenues		10,455		10,066		20,086		19,691
Total cost of revenues		62,353		53,652		122,090		104,659
Gross profit		102,602		89,033		200,578		175,544
Operating expenses:
Sales and marketing		40,152		36,012		78,887		70,227
Research and development		26,784		22,615		52,541		44,457
General and administrative		9,925		9,377		18,859		18,368
Total operating expenses		76,861		68,004		150,287		133,052
Operating income		25,741		21,029		50,291		42,492
Interest income, net		4,608		3,154		8,526		5,898
Other income, net		870		191		734		132
Income before provision for income taxes		31,219		24,374		59,551		48,522
Provision for income taxes		9,365		6,581		17,865		13,101
Non-GAAP net income	$	21,854	$	17,793	$	41,686	$	35,421
Basic net income per share	$	0.25	$	0.18	$	0.47	$	0.36
Diluted net income per share	$	0.24	$	0.18	$	0.47	$	0.36
Weighted average shares outstanding for basic net income per share		87,829		97,243		87,953		97,962
Weighted average shares outstanding for diluted net income per share		89,761		98,484		89,553		99,326

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					Six Months Ended
	June 30, 2006		June 30, 2005			June 30, 2006		June 30, 2005
Revenues:
Product revenues	$	144,841	$	125,798		$	283,509	$	247,915
Service revenues		20,114		16,887			39,159		32,288
Total revenues		164,955		142,685			322,668		280,203
Cost of revenues:
Cost of product revenues (includes stock-based compensation expense under SFAS 123R of $401 and $749 for the three and six months ended June 30, 2006, respectively, and $0 for the three and six months ended June 30, 2005)		52,495		43,586			102,949		84,968
Cost of service revenues (includes stock-based compensation expense under SFAS 123R of $477 and $881 for the three and six months ended June 30, 2006, respectively, and $0 for the three and six months ended June 30, 2005)		10,932		10,066			20,967		19,691
Total cost of revenues		63,427		53,652			123,916		104,659
Gross profit		101,528		89,033			198,752		175,544
Operating expenses:
Sales and marketing (includes stock-based compensation expense under SFAS 123R of $1,785 and $3,225 for the three and six months ended June 30, 2006, respectively, and $0 for the three and six months ended June 30, 2005)		41,937		36,012			82,112		70,227
Research and development (includes stock-based compensation expense under SFAS 123R of $1,973 and $3,739 for the three and six months ended June 30, 2006, respectively, and $0 for the three and six months ended June 30, 2005)		28,757		22,615			56,280		44,457
General and administrative (includes stock-based compensation expense under SFAS 123R of $1,697 and $2,940 for the three and six months ended June 30, 2006, respectively, and $0 for the three and six months ended June 30, 2005)		11,622		9,377			21,799		18,368
Acquisition-related costs		40		62			85		128
Amortization of purchased intangibles		1,601		1,715			3,189		3,522
Restructuring costs		—		(10	)		555		(10	)
Litigation reserves and payments		—		(65	)		—		(93	)
Total operating expenses		83,957		69,706			164,020		136,599
Operating income		17,571		19,327			34,732		38,945
Interest income, net		4,608		3,154			8,526		5,898
Gain on strategic investments		—		4,515			—		4,510
Other income, net		870		191			734		132
Income from continuing operations before provision for income taxes		23,049		27,187			43,992		49,485
Provision for income taxes		8,046		7,322			14,957		13,327
Income from continuing operations		15,003		19,865			29,035		36,158
Gain from sale of discontinued operations, net of taxes		—		127			—		232
Net income	$	15,003	$	19,992		$	29,035	$	36,390
Basic net income per share:
Income per share from continuing operations	$	0.17	$	0.21		$	0.33	$	0.37
Gain per share from sale of discontinued operations, net		—		—			—		—
Basic net income per share	$	0.17	$	0.21		$	0.33	$	0.37
Diluted net income per share:
Income per share from continuing operations	$	0.17	$	0.20		$	0.32	$	0.37
Gain per share from sale of discontinued operations, net		—		—			—		—
Diluted net income per share	$	0.17	$	0.20		$	0.32	$	0.37
Weighted average shares outstanding for basic net income per share		87,829		97,243			87,953		97,962
Weighted average shares outstanding for diluted net income per share		89,761		98,484			89,553		99,326

POLYCOM, INC.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended							Six Months Ended
	June 30, 2006							June 30, 2006
	GAAP		Excluded			Non-GAAP		GAAP		Excluded			Non-GAAP
Revenues:
Product revenues	$	144,841	$	—		$	144,841	$	283,509	$	—		$	283,509
Service revenues		20,114		—			20,114		39,159		—			39,159
Total revenues		164,955		—			164,955		322,668		—			322,668
Cost of revenues:
Cost of product revenues		52,495		597	(a)(b)		51,898		102,949		945	(a)(b)		102,004
Cost of service revenues		10,932		477	(a)		10,455		20,967		881	(a)		20,086
Total cost of revenues		63,427		1,074			62,353		123,916		1,826			122,090
Gross profit		101,528		(1,074	)		102,602		198,752		(1,826	)		200,578
Operating expenses:
Sales and marketing		41,937		1,785	(a)		40,152		82,112		3,225	(a)		78,887
Research and development		28,757		1,973	(a)		26,784		56,280		3,739	(a)		52,541
General and administrative		11,622		1,697	(a)		9,925		21,799		2,940	(a)		18,859
Acquisition-related costs		40		40			—		85		85			—
Amortization of purchased intangibles		1,601		1,601			—		3,189		3,189			—
Restructuring costs		—		—			—		555		555			—
Total operating expenses		83,957		7,096			76,861		164,020		13,733			150,287
Operating income		17,571		(8,170	)		25,741		34,732		(15,559	)		50,291
Interest income, net		4,608		—			4,608		8,526		—			8,526
Other income, net		870		—			870		734		—			734
Income from continuing operations before provision for income taxes		23,049		(8,170	)		31,219		43,992		(15,559	)		59,551
Provision for income taxes		8,046		(1,319	)		9,365		14,957		(2,908	)		17,865
Net income	$	15,003	$	(6,851	)	$	21,854	$	29,035	$	(12,651	)	$	41,686
Basic net income per share	$	0.17	$	(0.08	)	$	0.25	$	0.33	$	(0.14	)	$	0.47
Diluted net income per share	$	0.17	$	(0.07	)	$	0.24	$	0.32	$	(0.15	)	$	0.47
Weighted average shares outstanding for basic net income per share		87,829					87,829		87,953					87,953
Weighted average shares outstanding for diluted net income per share		89,761					89,761		89,553					89,553

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

(b) Excluded amount includes $196 related to the affect of stock-based compensation on warranty expense rates.

POLYCOM, INC.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended								Six Months Ended
	June 30, 2005								June 30, 2005
	GAAP			Excluded			Non-GAAP		GAAP			Excluded			Non-GAAP
Revenues:
Product revenues	$	125,798		$	—		$	125,798	$	247,915		$	—		$	247,915
Service revenues		16,887			—			16,887		32,288			—			32,288
Total revenues		142,685			—			142,685		280,203			—			280,203
Cost of revenues:
Cost of product revenues		43,586			—			43,586		84,968			—			84,968
Cost of service revenues		10,066			—			10,066		19,691			—			19,691
Total cost of revenues		53,652			—			53,652		104,659			—			104,659
Gross profit		89,033			—			89,033		175,544			—			175,544
Operating expenses:
Sales and marketing		36,012			—			36,012		70,227			—			70,227
Research and development		22,615			—			22,615		44,457			—			44,457
General and administrative		9,377			—			9,377		18,368			—			18,368
Acquisition-related costs		62			62			—		128			128			—
Amortization of purchased intangibles		1,715			1,715			—		3,522			3,522			—
Restructuring costs		(10	)		(10	)		—		(10	)		(10	)		—
Litigation reserves and payments		(65	)		(65	)		—		(93	)		(93	)		—
Total operating expenses		69,706			1,702			68,004		136,599			3,547			133,052
Operating income		19,327			(1,702	)		21,029		38,945			(3,547	)		42,492
Interest income, net		3,154			—			3,154		5,898			—			5,898
Gain on strategic investments		4,515			4,515			—		4,510			4,510			—
Other income, net		191			—			191		132			—			132
Income from continuing operations before provision for income taxes		27,187			2,813			24,374		49,485			963			48,522
Provision for income taxes		7,322			741			6,581		13,327			226			13,101
Income from continuing operations		19,865			2,072			17,793		36,158			737			35,421
Gain from sale of discontinued operations, net of taxes		127			127			—		232			232			—
Net income	$	19,992		$	2,199		$	17,793	$	36,390		$	969		$	35,421
Basic net income per share:
Income per share from continuing operations	$	0.21		$	0.03		$	0.18	$	0.37		$	0.01		$	0.36
Gain per share from sale of discontinued operations, net		—			—			—		—			—			—
Basic net income per share	$	0.21		$	0.03		$	0.18	$	0.37		$	0.01		$	0.36
Diluted net income per share:
Income per share from continuing operations	$	0.20		$	0.02		$	0.18	$	0.37		$	0.01		$	0.36
Gain per share from sale of discontinued operations, net		—			—			—		—			—			—
Diluted net income per share	$	0.20		$	0.02		$	0.18	$	0.37		$	0.01		$	0.36
Weighted average shares outstanding for basic net income per share		97,243						97,243		97,962						97,962
Weighted average shares outstanding for diluted net income per share		98,484						98,484		99,326						99,326

POLYCOM, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	June 30, 2006		December 31, 2005
ASSETS
Current assets
Cash and cash equivalents	$	197,778	$	189,271
Investments		200,247		88,191
Trade receivables, net		77,949		69,419
Inventories		42,140		45,782
Deferred taxes		31,407		31,407
Prepaid expenses and other current assets		15,365		13,668
Total current assets		564,886		437,738
Property and equipment, net		36,205		35,293
Long-term investments		89,394		182,942
Goodwill		358,976		359,071
Purchased intangibles, net		17,161		20,332
Deferred taxes		16,985		17,070
Other assets		19,490		18,954
Total assets	$	1,103,097	$	1,071,400
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	47,193	$	46,882
Accrued payroll and related liabilities		18,692		13,092
Taxes payable		62,840		60,784
Deferred revenue		44,724		37,908
Other accrued liabilities		33,347		32,832
Total current liabilities		206,796		191,498
Long-term deferred revenue		15,310		12,915
Other long-term liabilities		9,907		10,118
Total liabilities		232,013		214,531
Stockholders’ equity		871,084		856,869
Total liabilities and stockholders’ equity	$	1,103,097	$	1,071,400

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended
	June 30, 2006			June 30, 2005
Cash flows from operating activities:
Net income	$	29,035		$	36,390
Adjustments:
Gain from sale of discontinued operations, net of taxes		—			(232	)
Depreciation and amortization		10,337			10,176
Amortization of purchased intangibles		3,189			3,522
Provision for doubtful accounts		59			—
Provision for benefit from excess and obsolete inventories		(92	)		(830	)
Non-cash stock based compensation		11,534			—
Excess tax benefits from stock-based compensation		(2,273	)		—
Gain on strategic investments		—			(4,510	)
Amortization of unearned stock-based compensation		—			35
Loss on disposals of property and equipment		85			92
Changes in assets and liabilities, net of the effect of acquisitions:
Trade receivables		(8,605	)		(2,312	)
Inventories		3,719			(7,926	)
Prepaid expenses and other assets		(2,110	)		920
Accounts payable		311			(9,115	)
Taxes payable		4,228			11,152
Other accrued liabilities		15,304			3,587
Net cash provided by operating activities		64,721			40,949
Cash flows from investing activities:
Purchase of property and equipment		(10,443	)		(9,221	)
Purchases of investments		(364,042	)		(184,090	)
Proceeds from sale and maturity of investments		344,933			231,294
Proceeds from sale of discontinued operations		—			365
Net cash paid in purchase acquisitions		—			69
Net cash provided by (used in) investing activities		(29,552	)		38,417
Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock purchase plans		23,470			5,429
Repurchase of common stock		(52,405	)		(49,992	)
Excess tax benefits from stock-based compensation		2,273			—
Net cash used in financing activities		(26,662	)		(44,563	)
Net increase in cash and cash equivalents		8,507			34,803
Cash and cash equivalents, beginning of period		189,271			96,331
Cash and cash equivalents, end of period	$	197,778		$	131,134