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

Revenues of $186.5M;

Revenue Growth of 20 Percent Year-Over-Year

PLEASANTON, Calif. – January 24, 2007 – 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, 2006.

Fourth quarter 2006 consolidated net revenues were $186.5 million, compared to $156.1 million for the fourth quarter of 2005. Non-GAAP net income in the fourth quarter of 2006 was $32.0 million, or 35 cents per diluted share. This compares to Non-GAAP net income of $21.0 million, or 23 cents per diluted share, for the fourth 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, 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 2006 was $25.8 million, or 28 cents per diluted share. GAAP net income for the fourth quarter of 2006 includes stock-based compensation expense related to the implementation of Statement of Financial Accounting Standard (SFAS) 123R in fiscal 2006 of $4.8 million, net of tax, or 5 cents per diluted share. GAAP net income for the fourth quarter of 2005 was $9.3 million, or 10 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 fourth quarter of 2005 would have been $5.3 million, or 6 cents per diluted share.

For the year ended December 31, 2006, net revenues were $682.4 million, compared to $580.7 million for the year ended December 31, 2005. Non-GAAP net income for the year ended December 31, 2006 was $98.1 million, or $1.09 per diluted share, compared to $75.5 million, or 78 cents per diluted share for the comparable period of 2005. GAAP net income for the year ended December 31, 2006 was $71.9 million, or 80 cents per diluted share, compared to GAAP net income of $62.7 million, or 65 cents per diluted share, for the same period last year. GAAP net income for year ended December 31, 2006 includes stock-based compensation expense related to the implementation of SFAS 123R in fiscal 2006 of $16.3 million, net of tax, or 18 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 year ended December 31, 2005 would have been $44.7 million or 46 cents per diluted share.

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

On a product line basis, consolidated net revenues for the fourth quarter of 2006 were comprised of 55 percent video communications, or $103.0 million; 28 percent voice communications, or $52.4 million;

and 17 percent network systems, or $31.1 million. This compares to the fourth quarter of 2005, in which consolidated net revenues were comprised of 53 percent video communications, or $83.1 million; 25 percent voice communications, or $39.1 million; and 22 percent network systems, or $33.9 million.

“2006 was an excellent year for Polycom,” said Robert Hagerty, president and CEO. “In fact, Q4 punctuated the year with strength in demand for Polycom voice and video over IP (V²oIP) solutions across all geographies. Throughout 2006, we strengthened our strategic partnerships with Alcatel, Avaya, Cisco, IBM, Microsoft, and Nortel. We also added an important new partnership with Skype. In addition, we broadened our V²oIP offerings with leading service providers across the globe. Collaborative communications has become a key and visible initiative for commercial and public organizations of all sizes, capturing the productivity and agility gains only possible through IP-based unified collaboration.”

Hagerty continued, “We believe Polycom’s product strength, coupled with our strategic partnerships, channel, sales force, and brand, makes us the best positioned company to lead the unified collaboration market space. With Polycom’s recently launched Polycom HDX™ 9000 high definition video products, Polycom HD Voice™ products, and our leading network systems, Polycom is again illustrating that we are a leading innovator in this industry and that our integrated product solution is unparalleled.”

“Polycom’s revenue grew 20 percent year-over-year in the fourth quarter to $186.5 million,” said Michael Kourey, senior vice president, finance and administration, and CFO. “This growth was fueled by sequential revenue gains in all product segments, yielding backlog and deferred revenue growth to record levels—$40.4 million and $61.0 million, respectively. Polycom’s operating margins also expanded in the fourth quarter, driving operating cash flow to $43.7 million.”

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 Polycom as being best positioned to lead the unified collaboration market space. 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 HD products, and changing market demands, including demands for differing technologies or product and services offerings, 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, 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 17, 2007, Polycom will hold a conference call today, January 24, 2007, at 5:00 p.m. EST/2:00 p.m. PST 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 800-582-6982; and for callers outside of the US and Canada, by calling 415-537-1885, 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 21323974. 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 and the Polycom logo are registered trademarks and Polycom HDX 9000 and Polycom HD Voice are trademarks in the U.S. and various countries. All other trademarks are the property of their respective owners. ©2007, 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, 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

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended					Twelve Months Ended
	December 31,		December 31,			December 31,		December 31,
	2006		2005			2006		2005
Revenues:
Product revenues	$	164,784	$	137,343		$	600,703	$	511,462
Service revenues		21,725		18,709			81,682		69,197
Total revenues		186,509		156,052			682,385		580,659
Cost of revenues:
Cost of product revenues		59,837		50,209			216,932		179,837
Cost of service revenues		10,973		10,252			41,380		39,680
Total cost of revenues		70,810		60,461			258,312		219,517
Gross profit		115,699		95,591			424,073		361,142
Operating expenses:
Sales and marketing		43,188		37,131			163,060		142,719
Research and development		27,585		23,760			107,020		91,479
General and administrative		10,287		8,494			39,409		35,631
Total operating expenses		81,060		69,385			309,489		269,829
Operating income		34,639		26,206			114,584		91,313
Interest income, net		7,022		3,346			21,164		12,848
Other income (expense), net		139		(28	)		540		(5	)
Income before provision for income taxes		41,800		29,524			136,288		104,156
Provision for income taxes		9,815		8,493			38,161		28,644
Non-GAAP net income	$	31,985	$	21,031		$	98,127	$	75,512
Basic net income per share	$	0.36	$	0.23		$	1.11	$	0.79
Diluted net income per share	$	0.35	$	0.23		$	1.09	$	0.78
Weighted average shares outstanding for basic net income per share		89,397		91,159			88,419		95,691
Weighted average shares outstanding for diluted net income per share		91,880		92,385			90,373		97,014

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					Twelve Months Ended
	December 31,		December 31,			December 31,		December 31,
	2006		2005			2006		2005
Revenues:
Product revenues	$	164,784	$	137,343		$	600,703	$	511,462
Service revenues		21,725		18,709			81,682		69,197
Total revenues		186,509		156,052			682,385		580,659
Cost of revenues:
Cost of product revenues (includes stock-based compensation expense under SFAS 123R of $366 and $1,474 for the three and twelve months ended December 31, 2006, respectively, and $0 for the three and twelve months ended December 31, 2005)		60,211		50,209			218,810		179,837
Cost of service revenues (includes stock-based compensation expense under SFAS 123R of $421 and $1,734 for the three and twelve months ended December 31, 2006, respectively, and $0 for the three and twelve months ended December 31, 2005)		11,394		10,252			43,114		39,680
Total cost of revenues		71,605		60,461			261,924		219,517
Gross profit		114,904		95,591			420,461		361,142
Operating expenses:
Sales and marketing (includes stock-based compensation expense under SFAS 123R of $1,792 and $6,768 for the three and twelve months ended December 31, 2006, respectively, and $0 for the three and twelve months ended December 31, 2005)		44,980		37,131			169,828		142,719
Research and development (includes stock-based compensation expense under SFAS 123R of $1,772 and $7,311 for the three and twelve months ended December 31, 2006, respectively, and $0 for the three and twelve months ended December 31, 2005)		29,357		23,760			114,331		91,479
General and administrative (includes stock-based compensation expense under SFAS 123R of $1,430 and $6,001 for the three and twelve months ended December 31, 2006, respectively, and $0 for the three and twelve months ended December 31, 2005)		11,717		8,494			45,410		35,631
Acquisition-related costs		24		30			161		351
Purchased in-process research and development		—		—			—		300
Amortization and impairment of purchased intangibles		2,812		3,585			7,452		8,790
Restructuring costs		543		(7	)		2,410		633
Litigation reserves and payments		—		—			—		(93	)
Total operating expenses		89,433		72,993			339,592		279,810
Operating income		25,471		22,598			80,869		81,332
Interest income, net		7,022		3,346			21,164		12,848
Gain (loss) on strategic investments		176		(1,600	)		176		2,908
Other income (expense), net		139		(28	)		540		(5	)
Income from continuing operations before provision for income taxes		32,808		24,316			102,749		97,083
Provision for income taxes		7,045		15,051			30,825		34,722
Income from continuing operations		25,763		9,265			71,924		62,361
Gain from sale of discontinued operations, net of taxes		—		—			—		384
Net income	$	25,763	$	9,265		$	71,924	$	62,745
Basic net income per share:
Income per share from continuing operations	$	0.29	$	0.10		$	0.81	$	0.66
Gain per share from sale of discontinued operations, net		—		—			—		—
Basic net income per share	$	0.29	$	0.10		$	0.81	$	0.66
Diluted net income per share:
Income per share from continuing operations	$	0.28	$	0.10		$	0.80	$	0.65
Gain per share from sale of discontinued operations, net		—		—			—		—
Diluted net income per share	$	0.28	$	0.10		$	0.80	$	0.65
Weighted average shares outstanding for basic net income per share		89,397		91,159			88,419		95,691
Weighted average shares outstanding for diluted net income per share		91,880		92,385			90,373		97,014

POLYCOM, INC.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended							Twelve Months Ended
	December 31, 2006							December 31, 2006
	GAAP		Excluded			Non-GAAP		GAAP		Excluded			Non-GAAP
Revenues:
Product revenues	$	164,784	$	—		$	164,784	$	600,703	$	—		$	600,703
Service revenues		21,725		—			21,725		81,682		—			81,682
Total revenues		186,509		—			186,509		682,385		—			682,385
Cost of revenues:
Cost of product revenues		60,211		374	(a)(b)		59,837		218,810		1,878	(a)(c)		216,932
Cost of service revenues		11,394		421	(a)		10,973		43,114		1,734	(a)		41,380
Total cost of revenues		71,605		795			70,810		261,924		3,612			258,312
Gross profit		114,904		(795	)		115,699		420,461		(3,612	)		424,073
Operating expenses:
Sales and marketing		44,980		1,792	(a)		43,188		169,828		6,768	(a)		163,060
Research and development		29,357		1,772	(a)		27,585		114,331		7,311	(a)		107,020
General and administrative		11,717		1,430	(a)		10,287		45,410		6,001	(a)		39,409
Acquisition-related costs		24		24			—		161		161			—
Amortization and impairment of purchased intangibles		2,812		2,812			—		7,452		7,452			—
Restructuring costs		543		543			—		2,410		2,410			—
Total operating expenses		89,433		8,373			81,060		339,592		30,103			309,489
Operating income		25,471		(9,168	)		34,639		80,869		(33,715	)		114,584
Interest income, net		7,022		—			7,022		21,164		—			21,164
Gain on strategic investments		176		176			—		176		176			—
Other income, net		139		—			139		540		—			540
Income from continuing operations before provision for income taxes		32,808		(8,992	)		41,800		102,749		(33,539	)		136,288
Provision for income taxes		7,045		(2,770	)		9,815		30,825		(7,336	)		38,161
Net income	$	25,763	$	(6,222	)	$	31,985	$	71,924	$	(26,203	)	$	98,127
Basic net income per share	$	0.29	$	(0.07	)	$	0.36	$	0.81	$	(0.30	)	$	1.11
Diluted net income per share	$	0.28	$	(0.07	)	$	0.35	$	0.80	$	(0.29	)	$	1.09
Weighted average shares outstanding for basic net income per share		89,397					89,397		88,419					88,419
Weighted average shares outstanding for diluted net income per share		91,880					91,880		90,373					90,373

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

(b) Excluded amount includes $8 related to the effect of stock-based compensation on warranty expense rates.

(c) Excluded amount includes $404 related to the effect 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										Twelve Months Ended
	December 31, 2005										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
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
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
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.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	December 31, 2006		December 31, 2005
ASSETS
Current assets
Cash and cash equivalents	$	316,368	$	189,271
Investments		157,345		88,191
Trade receivables, net		79,057		69,419
Inventories		48,029		45,782
Deferred taxes		22,459		31,407
Prepaid expenses and other current assets		16,719		13,668
Total current assets		639,977		437,738
Property and equipment, net		39,426		35,293
Long-term investments		102,133		182,942
Goodwill		356,755		359,071
Purchased intangibles, net		12,935		20,332
Deferred taxes		16,746		17,070
Other assets		22,043		18,954
Total assets	$	1,190,015	$	1,071,400
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	53,602	$	46,882
Accrued payroll and related liabilities		22,182		13,092
Taxes payable		58,092		60,784
Deferred revenue		40,227		37,908
Other accrued liabilities		39,780		32,832
Total current liabilities		213,883		191,498
Long-term deferred revenue		20,798		12,915
Other long-term liabilities		8,614		10,118
Total liabilities		243,295		214,531
Stockholders’ equity		946,720		856,869
Total liabilities and stockholders’ equity	$	1,190,015	$	1,071,400

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Twelve Months Ended
	December 31, 2006			December 31, 2005
Cash flows from operating activities:
Net income	$	71,924		$	62,745
Adjustments:
Gain from sale of discontinued operations, net of taxes		—			(384	)
Depreciation and amortization		21,035			20,720
Amortization and impairment of purchased intangibles		7,452			8,790
Provision for doubtful accounts		120			—
Provision for (benefit from) excess and obsolete inventories		1,306			(731	)
Non-cash stock based compensation		23,288			—
Excess tax benefits from stock-based compensation		(10,246	)		—
Tax benefit from exercise of stock options		—			1,408
Gain on strategic investments		(176	)		(2,908	)
Amortization of unearned stock-based compensation		—			35
Purchase of in-process research and development		—			300
Loss on disposals of property and equipment		116			367
Changes in assets and liabilities, net of the effect of acquisitions:
Trade receivables		(9,774	)		(6,447	)
Inventories		(3,568	)		(16,290	)
Deferred taxes		9,264			20,916
Prepaid expenses and other assets		(4,783	)		6,341
Accounts payable		6,720			209
Taxes payable		9,139			7,899
Other accrued liabilities		25,869			14,414
Net cash provided by operating activities		147,686			117,384
Cash flows from investing activities:
Purchase of property and equipment		(23,475	)		(16,758	)
Purchases of investments		(660,668	)		(458,806	)
Proceeds from sale and maturity of investments		669,812			631,673
Proceeds from sale of discontinued operations		—			604
Net cash paid in purchase acquisitions		(188	)		(8,648	)
Net cash provided by (used in) investing activities		(14,519	)		148,065
Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock purchase plans		87,304			11,458
Repurchase of common stock		(103,620	)		(183,967	)
Excess tax benefits from stock-based compensation		10,246			—
Net cash used in financing activities		(6,070	)		(172,509	)
Net increase in cash and cash equivalents		127,097			92,940
Cash and cash equivalents, beginning of period		189,271			96,331
Cash and cash equivalents, end of period	$	316,368		$	189,271