UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
October 22, 2014
 
POLYCOM, INC.
(Exact name of registrant as specified in its charter)

State of Delaware	 	000-27978	 	94-3128324	
(State or Other Jurisdiction
of Incorporation)	 	(Commission
File Number)	 	(IRS Employer
Identification No.)	
 
6001 America Center Drive
San Jose, California	 	95002	
(Address of principal executive offices)	 	(Zip Code)	
(408) 586-6000
Registrant’s telephone number, including area code
N/A
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

 

Item 2.02. Results of Operations and Financial Condition
On October 22, 2014, Polycom, Inc. issued a press release announcing its financial results for the three months ended September 30, 2014. The full text of the press release is furnished as Exhibit 99.1.
 
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
99.1 Press Release, dated October 22, 2014, entitled “Polycom Reports Significant Improvement in Operating Performance on Revenue of $336 Million in Third Quarter 2014.”

 

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
POLYCOM, INC.	
 
By:	/s/ Laura J. Durr 	
 	Laura J. Durr	
 	Chief Financial Officer and Executive Vice President	
Date: October 22, 2014

 

EXHIBIT INDEX
 
Exhibit No.	  	Description	
99.1	  	Press Release, dated October 22, 2014, entitled “Polycom Reports Significant Improvement in Operating Performance on Revenue of $336 Million in Third Quarter 2014.”	

 
Exhibit 99.1

Investor Contact:	 	Laura Graves	
 	 	Polycom, Inc.	
 	 	1.408.586.4271	
 	 	laura.graves@polycom.com	
 
Press Contact:	 	Michael Rose	
 	 	Polycom, Inc.	
 	 	+65 6389 9134	
 	 	michael.rose@polycom.com	
 
Polycom Reports Significant Improvement in Operating Performance
on Revenue of $336 Million in Third Quarter 2014
 
· Non-GAAP EPS grows 100 percent year-over-year
· GAAP EPS grows 186 percent year-over-year
SAN JOSE, Calif. – October 22, 2014 – Polycom, Inc . (Nasdaq: PLCM) today reported third quarter 2014 revenues of $336 million, non-GAAP net income of $31 million and non-GAAP earnings per diluted share of 22 cents. GAAP net income for the third quarter was $17 million, or 12 cents per diluted share. A reconciliation of GAAP to non-GAAP results is provided in the tables at the end of this press release.
“Our customers continue to adopt Polycom technology which enhances employee productivity, improves business agility and allows customers to contain costs,” stated Peter Leav, President and Chief Executive Officer.  “We are committed to developing the best solutions in the marketplace, while driving continuous improvement in our financial model.”
“Operating margins grew significantly on both an absolute dollar and percentage basis versus the year ago period,” said Laura Durr, Chief Financial Officer and Executive Vice President.  “ Polycom also generated $34 million in operating cash flow and repurchased $25 million in common stock during the quarter. ”  
On a comparative basis, consolidated financial results were:
 
($ in millions, except per share data)	Q3 2014	 	 	Q2 2014	 	 	Q3 2013	 	 	Year-Over-Year Change	 	
Revenues	$	335.7	 	 	$	332.0	 	 	$	336.5	 	 	 	—	 	
Non-GAAP Net Income	$	30.7	 	 	$	29.6	 	 	$	19.3	 	 	 	59	%	
Non-GAAP EPS	$	0.22	 	 	$	0.21	 	 	$	0.11	 	 	 	100	%	
GAAP Net Income (Loss)	$	17.0	 	 	$	8.6	 	 	$	(24.0	)	 	 	171	%	
GAAP EPS	$	0.12	 	 	$	0.06	 	 	$	(0.14	)	 	 	186	%	
 
On a geographic basis, consolidated revenues were comprised of:
 
($ in millions)	Q3 2014	 	 	Q2 2014	 	 	Q3 2013	 	 	Year-Over-Year Change	 	
Americas	$	166.4	 	 	$	167.8	 	 	$	177.3	 	 	 	(6	)%	
% of revenues	 	50	%	 	 	51	%	 	 	53	%	 	 	 	 	
Europe, Middle East & Africa (EMEA)	 	84.0	 	 	 	83.1	 	 	$	80.0	 	 	 	5	%	
% of revenues	 	25	%	 	 	25	%	 	 	24	%	 	 	 	 	
Asia Pacific	 	85.3	 	 	 	81.1	 	 	$	79.2	 	 	 	8	%	
% of revenues	 	25	%	 	 	24	%	 	 	23	%	 	 	 	 	
Totals *	$	335.7	 	 	$	332.0	 	 	$	336.5	 	 	 	—	 	
* may not foot due to rounding

 
By product category, inclusive of its service component, consolidated revenues were comprised of:
 
($ in millions)	Q3 2014	 	 	Q2 2014	 	 	Q3 2013	 	 	Year-Over-Year Change	 	
UC Group Systems	$	217.3	 	 	$	218.5	 	 	$	221.4	 	 	 	(2	)%	
% of revenues	 	65	%	 	 	66	%	 	 	66	%	 	 	 	 	
UC Personal Devices	 	60.1	 	 	 	53.6	 	 	 	56.9	 	 	 	6	%	
% of revenues	 	18	%	 	 	16	%	 	 	17	%	 	 	 	 	
UC Platform	 	58.3	 	 	 	59.9	 	 	 	58.2	 	 	 	—	 	
% of revenues	 	17	%	 	 	18	%	 	 	17	%	 	 	 	 	
Totals *	$	335.7	 	 	$	332.0	 	 	$	336.5	 	 	 	—	 	
* may not foot due to rounding
 
In Q3 2014, Polycom generated a total of $34 million in operating cash flow. Operating cash flow on a trailing 12 month basis was $164 million. Cash and investments at the end of Q3 2014 totaled $643 million, of which approximately $248 million is located onshore. Net of existing debt, cash and investments at the end of Q3 2014 totaled $399 million.
Earnings Call Details
Polycom will hold a conference call today, October 22, 2014, at 5:00 p.m. ET/2:00 p.m. PT to discuss these third quarter 2014 financial results and guidance for the fourth quarter 2014. You may participate by listening to the webcast at www.polycom.com/investors or, for callers in the U.S. and Canada, you may participate by calling 1.800.895.6437 and for callers outside of the U.S. and Canada, by calling 1.212.231.2931. The pass code for the call is “Polycom.” A replay of the call will also be available at www.polycom.com or, for callers in the U.S. and Canada, at 1.800.633.8284 and, for callers outside of the U.S. and Canada, at 1.402.977.9140. The access number for the replay is 21736661. A replay of the call will be available on www.polycom.com for at least three months.
Forward Looking Statements and Risk Factors
This release contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 regarding our future solutions and continuous improvement in our financial model. 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 and any resulting loss of business; the impact of increased competition due to consolidation in our industry or competition from companies that are larger or that have greater resources than we do; potential fluctuations in results and future growth rates; risks associated with global economic conditions and external market factors; the market acceptance of our products and changing market demands, including demands for differing technologies or product and services offerings; our ability to successfully implement process improvements and cost containment initiatives; changes to our strategic areas of focus; our ability to successfully integrate our acquisitions into our business; possible delays in the development, availability and shipment of new products due to engineering, manufacturing or other delays; increasing costs and the availability and differing uses of capital; changes in key personnel that may cause disruption to the business; the impact of restructuring actions; and the impact of global conflicts that may adversely impact our business. Many of these risks and uncertainties are discussed in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, and in other reports filed by Polycom with the SEC. Polycom disclaims any intent or obligations to update these forward-looking statements.
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.
GAAP to non-GAAP Reconciliation
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.

 
About Polycom
Polycom helps organizations unleash the power of human collaboration. More than 400,000 companies and institutions worldwide defy distance with secure video, voice and content solutions from Polycom to increase productivity, speed time to market, provide better customer service, expand education and save lives. Polycom and its global partner ecosystem provide flexible collaboration solutions for any environment that deliver the best user experience, the broadest multi-vendor interoperability and unmatched investment protection. Visit www.polycom.com or connect with us on Twitter, Facebook and LinkedIn to learn more.
© 2014 Polycom, Inc. All rights reserved. POLYCOM ® , the Polycom logo, and the names and marks associated with Polycom’s products are trademarks and/or service marks of Polycom, Inc. and are registered and/or common law marks in the United States and various other countries. All other trademarks are property of their respective owners.

 

 
POLYCOM, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2014	 	 	September 30,
2013	 	 	September 30,
2014	 	 	September 30,
2013	 	
Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Product revenues	$	240,059	 	 	$	242,515	 	 	$	708,133	 	 	$	740,066	 	
Service revenues	 	95,627	 	 	 	93,946	 	 	 	288,096	 	 	 	280,381	 	
Total revenues	 	335,686	 	 	 	336,461	 	 	 	996,229	 	 	 	1,020,447	 	
Cost of revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of product revenues	 	101,399	 	 	 	102,830	 	 	 	296,745	 	 	 	309,994	 	
Cost of service revenues	 	37,617	 	 	 	38,587	 	 	 	115,607	 	 	 	114,714	 	
Total cost of revenues	 	139,016	 	 	 	141,417	 	 	 	412,352	 	 	 	424,708	 	
Gross profit	 	196,670	 	 	 	195,044	 	 	 	583,877	 	 	 	595,739	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and marketing	 	97,953	 	 	 	107,292	 	 	 	289,757	 	 	 	325,663	 	
Research and development	 	51,024	 	 	 	54,220	 	 	 	148,202	 	 	 	164,782	 	
General and administrative	 	25,746	 	 	 	28,468	 	 	 	74,175	 	 	 	76,461	 	
Amortization of purchased intangibles	 	2,435	 	 	 	2,487	 	 	 	7,363	 	 	 	7,535	 	
Restructuring costs	 	(2,631	)	 	 	24,887	 	 	 	36,887	 	 	 	34,639	 	
Litigation reserves and payments	 	3,130	 	 	 	—	 	 	 	3,130	 	 	 	—	 	
Transaction-related costs	 	—	 	 	 	39	 	 	 	156	 	 	 	3,411	 	
Total operating expenses	 	177,657	 	 	 	217,393	 	 	 	559,670	 	 	 	612,491	 	
Operating Income (loss)	 	19,013	 	 	 	(22,349	)	 	 	24,207	 	 	 	(16,752	)	
Interest and other income (expense), net	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	(1,470	)	 	 	(850	)	 	 	(4,404	)	 	 	(1,736	)	
Other income (expense)	 	1,285	 	 	 	(784	)	 	 	1,828	 	 	 	(1,041	)	
Interest and other income (expense), net	 	(185	)	 	 	(1,634	)	 	 	(2,576	)	 	 	(2,777	)	
Income (loss) from continuing operations before provision for (benefit from) income taxes	 	18,828	 	 	 	(23,983	)	 	 	21,631	 	 	 	(19,529	)	
Provision for (benefit from) income taxes	 	1,817	 	 	 	(5	)	 	 	54	 	 	 	(2,963	)	
Net income (loss) from continuing operations	 	17,011	 	 	 	(23,978	)	 	 	21,577	 	 	 	(16,566	)	
Gain from sale of discontinued operations, net of taxes	 	—	 	 	 	—	 	 	 	—	 	 	 	459	 	
Net income (loss)	$	17,011	 	 	$	(23,978	)	 	$	21,577	 	 	$	(16,107	)	
Basic net income (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) per share from continuing operations	$	0.12	 	 	$	(0.14	)	 	$	0.16	 	 	$	(0.10	)	
Gain per share from sale of discontinued operations, net
   of taxes	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Basic net income (loss) per share	$	0.12	 	 	$	(0.14	)	 	$	0.16	 	 	$	(0.09	)	
Diluted net income (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) per share from continuing operations	$	0.12	 	 	$	(0.14	)	 	$	0.15	 	 	$	(0.10	)	
Gain per share from sale of discontinued operations, net
   of taxes	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Diluted net income (loss) per share	$	0.12	 	 	$	(0.14	)	 	$	0.15	 	 	$	(0.09	)	
Number of shares used in computation of net income (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	136,606	 	 	 	170,310	 	 	 	137,139	 	 	 	172,644	 	
Diluted	 	142,176	 	 	 	170,310	 	 	 	142,406	 	 	 	172,644	 	
 
Note: Earnings per share amounts for continuing operations, discontinued operations and net income, as presented above, are calculated individually and may not sum due to rounding differences.
 
As a result of the net loss from continuing operations in some of the periods presented, all potentially issuable common shares for those periods have been excluded from the diluted shares used in the computation of earnings per share as their effect is anti-dilutive.

 

POLYCOM, INC.
Reconciliation of GAAP to Non-GAAP Net Income (Loss)
(In thousands, except per share amounts)
(Unaudited)
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2014	 	 	September 30,
2013	 	 	September 30,
2014	 	 	September 30,
2013	 	
GAAP net income (loss)	$	17,011	 	 	$	(23,978	)	 	$	21,577	 	 	$	(16,107	)	
Gain from sale of discontinued operations, net of taxes	 	—	 	 	 	—	 	 	 	—	 	 	 	(459	)	
Amortization of purchased intangibles	 	3,167	 	 	 	3,735	 	 	 	9,667	 	 	 	11,279	 	
Restructuring costs	 	(2,631	)	 	 	24,887	 	 	 	36,887	 	 	 	34,639	 	
Litigation reserves and payments	 	3,130	 	 	 	—	 	 	 	3,130	 	 	 	—	 	
Transaction-related costs	 	—	 	 	 	39	 	 	 	156	 	 	 	3,411	 	
Stock-based compensation expense	 	14,768	 	 	 	17,202	 	 	 	34,178	 	 	 	53,300	 	
Effect of stock-based compensation on warranty rates	 	204	 	 	 	120	 	 	 	410	 	 	 	421	 	
Costs associated with CEO separation and related SEC
   investigation	 	960	 	 	 	2,107	 	 	 	1,951	 	 	 	2,107	 	
Income tax effect of non-GAAP exclusions	 	(5,865	)	 	 	(4,826	)	 	 	(21,545	)	 	 	(20,088	)	
Non-GAAP net income	$	30,744	 	 	$	19,286	 	 	$	86,411	 	 	$	68,503	 	
GAAP net income (loss) per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	$	0.12	 	 	$	(0.14	)	 	$	0.16	 	 	$	(0.09	)	
Diluted	$	0.12	 	 	$	(0.14	)	 	$	0.15	 	 	$	(0.09	)	
Non-GAAP net income per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	$	0.22	 	 	$	0.11	 	 	$	0.63	 	 	$	0.40	 	
Diluted	$	0.22	 	 	$	0.11	 	 	$	0.61	 	 	$	0.39	 	
Number of shares used in computation of net
   income (loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	136,606	 	 	 	170,310	 	 	 	137,139	 	 	 	172,644	 	
Diluted	 	142,176	 	 	 	173,992	 	 	 	142,406	 	 	 	176,241	 	
 
Note: As a result of the GAAP net loss from continuing operations in some of the periods presented, all potentially issuable common shares for those periods have been excluded from the diluted shares used in the computation of GAAP earnings per share as their effect is anti-dilutive.

 
POLYCOM, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
 	September 30,
2014	 	 	December 31,
2013	 	
ASSETS	 	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	 	
Cash and cash equivalents	$	406,323	 	 	$	392,629	 	
Short-term investments	 	151,069	 	 	 	134,684	 	
Trade receivables, net	 	181,447	 	 	 	183,369	 	
Inventories	 	97,949	 	 	 	103,309	 	
Deferred taxes	 	37,547	 	 	 	37,085	 	
Prepaid expenses and other current assets	 	63,214	 	 	 	50,352	 	
Total current assets	 	937,549	 	 	 	901,428	 	
Property and equipment, net	 	106,081	 	 	 	115,157	 	
Long-term investments	 	85,599	 	 	 	56,372	 	
Goodwill and purchased intangibles, net	 	587,021	 	 	 	596,918	 	
Deferred taxes	 	47,416	 	 	 	51,398	 	
Other assets	 	28,062	 	 	 	27,757	 	
Total assets	$	1,791,728	 	 	$	1,749,030	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	
Accounts payable	$	94,478	 	 	$	84,640	 	
Accrued payroll and related liabilities	 	34,785	 	 	 	40,162	 	
Taxes payable	 	4,226	 	 	 	5,389	 	
Deferred revenue	 	175,307	 	 	 	172,408	 	
Current portion of long-term debt	 	6,250	 	 	 	6,250	 	
Other accrued liabilities	 	78,479	 	 	 	77,744	 	
Total current liabilities	 	393,525	 	 	 	386,593	 	
Non-current liabilities	 	 	 	 	 	 	 	
Long-term deferred revenue	 	82,101	 	 	 	87,467	 	
Taxes payable	 	11,745	 	 	 	12,419	 	
Deferred taxes	 	117	 	 	 	149	 	
Long-term debt	 	237,500	 	 	 	242,188	 	
Other non-current liabilities	 	47,651	 	 	 	43,849	 	
Total liabilities	 	772,639	 	 	 	772,665	 	
Stockholders' equity	 	1,019,089	 	 	 	976,365	 	
Total liabilities and stockholders' equity	$	1,791,728	 	 	$	1,749,030	 	

 

POLYCOM, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 	Nine Months Ended	 	
 	September 30,
2014	 	 	September 30,
2013	 	
Cash flows from operating activities:	 	 	 	 	 	 	 	
Net income (loss)	$	21,577	 	 	$	(16,107	)	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	
Depreciation and amortization	 	43,201	 	 	 	49,607	 	
Amortization of purchased intangibles	 	9,724	 	 	 	11,335	 	
Amortization of capitalized software development costs for products to be sold	 	1,269	 	 	 	47	 	
Amortization of debt issuance costs	 	400	 	 	 	52	 	
Amortization of discounts and premiums on investments, net	 	1,440	 	 	 	1,323	 	
Provision for doubtful accounts	 	600	 	 	 	—	 	
Write-down of excess and obsolete inventories	 	3,682	 	 	 	5,625	 	
Stock-based compensation expense	 	34,178	 	 	 	53,300	 	
Excess tax benefits from stock-based compensation expense	 	(2,595	)	 	 	(780	)	
Loss on disposal of property and equipment	 	4,987	 	 	 	3,658	 	
Net gain on sale of discontinued operations	 	—	 	 	 	(459	)	
Changes in assets and liabilities, net of effects of acquisitions:	 	 	 	 	 	 	 	
Trade receivables	 	1,432	 	 	 	21,857	 	
Inventories	 	1,678	 	 	 	(13,346	)	
Deferred taxes	 	(7,705	)	 	 	2,058	 	
Prepaid expenses and other assets	 	(11,974	)	 	 	(18,915	)	
Accounts payable	 	8,867	 	 	 	(1,118	)	
Taxes payable	 	7,178	 	 	 	(4,006	)	
Other accrued liabilities and deferred revenue	 	(3,290	)	 	 	24,661	 	
Net cash provided by operating activities	 	114,649	 	 	 	118,792	 	
Cash flows from investing activities:	 	 	 	 	 	 	 	
Purchases of property and equipment	 	(36,847	)	 	 	(40,704	)	
Capitalized software development costs for products to be sold	 	(3,069	)	 	 	(1,089	)	
Purchases of investments	 	(220,575	)	 	 	(202,268	)	
Proceeds from sale of investments	 	40,709	 	 	 	21,802	 	
Proceeds from maturities of investments	 	132,753	 	 	 	185,634	 	
Net cash received from sale of discontinued operations	 	—	 	 	 	556	 	
Net cash paid in purchase acquisitions	 	—	 	 	 	(7,974	)	
Net cash used in investing activities	 	(87,029	)	 	 	(44,043	)	
Cash flows from financing activities:	 	 	 	 	 	 	 	
Proceeds from issuance of common stock under employee option and stock purchase plans	 	23,407	 	 	 	23,326	 	
Proceeds from debt, net of debt issuance costs	 	—	 	 	 	247,582	 	
Payments on debt	 	(4,688	)	 	 	—	 	
Purchase and retirement of common stock	 	(35,240	)	 	 	(110,816	)	
Excess tax benefits from stock-based compensation expense	 	2,595	 	 	 	780	 	
Net cash provided by (used in) financing activities	 	(13,926	)	 	 	160,872	 	
Net increase (decrease) in cash and cash equivalents	 	13,694	 	 	 	235,621	 	
Cash and cash equivalents, beginning of period	 	392,629	 	 	 	477,073	 	
Cash and cash equivalents, end of period	$	406,323	 	 	$	712,694	 	
 
Certain prior period amounts have also been reclassified to conform to the current period presentation.

 

 
POLYCOM, INC.
Selected Summary Data
(In millions except per share amounts and headcount)
(Unaudited)
 
 	September 30,
2014	 	 	June 30,
2014	 	 	September 30,
2013	 	
Balance Sheet Highlights	 	 	 	 	 	 	 	 	 	 	 	
Cash and investments	$	643	 	 	$	640	 	 	$	954	 	
Number of shares outstanding	 	136	 	 	 	137	 	 	 	170	 	
Cash and investments per share	$	4.71	 	 	$	4.68	 	 	$	5.60	 	
Debt	$	244	 	 	$	245	 	 	$	250	 	
Operating cash flow - quarterly	$	34	 	 	$	62	 	 	$	36	 	
Operating cash flow - trailing 12 months	$	164	 	 	$	167	 	 	$	183	 	
DSO (Days Sales Outstanding)	 	49	 	 	 	49	 	 	 	47	 	
Inventory turns - GAAP	 	5.7	 	 	 	5.2	 	 	 	5.3	 	
Inventory turns - non-GAAP	 	5.6	 	 	 	5.1	 	 	 	5.1	 	
Deferred revenue	$	257	 	 	$	259	 	 	$	260	 	
Share repurchases:	 	 	 	 	 	 	 	 	 	 	 	
Quarter-to-date share purchases - shares	 	1.9	 	 	 	1.5	 	 	 	1.7	 	
Quarter-to-date share repurchases - dollars	$	25	 	 	$	—	 	 	$	18	 	
Year-to-date share purchases - shares (1)	 	3.4	 	 	 	1.5	 	 	 	9.8	 	
Year-to-date share repurchases - dollars	$	25	 	 	$	—	 	 	$	102	 	
Remaining authorization for share repurchases (2)	$	175	 	 	$	—	 	 	$	400	 	
Ending headcount	 	3,528	 	 	 	3,558	 	 	 	3,789	 	

 	For the Three Months Ended	 	
 	September 30,
2014	 	 	June 30,
2014	 	 	September 30,
2013	 	
Income Statement Highlights	 	 	 	 	 	 	 	 	 	 	 	
GAAP:	 	 	 	 	 	 	 	 	 	 	 	
Revenues	$	336	 	 	$	332	 	 	$	336	 	
Gross margin	 	58.6	%	 	 	58.8	%	 	 	58.0	%	
Operating expenses	$	178	 	 	$	183	 	 	$	217	 	
Operating margin	 	5.7	%	 	 	3.6	%	 	 	-6.6	%	
Diluted EPS	$	0.12	 	 	$	0.06	 	 	$	(0.14	)	
Non-GAAP:	 	 	 	 	 	 	 	 	 	 	 	
Revenues	$	336	 	 	$	332	 	 	$	336	 	
Gross margin	 	59.4	%	 	 	59.5	%	 	 	59.0	%	
Operating expenses	$	161	 	 	$	159	 	 	$	173	 	
Operating margin	 	11.5	%	 	 	11.6	%	 	 	7.7	%	
Diluted EPS	$	0.22	 	 	$	0.21	 	 	$	0.11	 	
 
(1)	Year-to-date share repurchases include final settlement of shares under prior Accelerated Share Repurchase program completed in the three month period ended June 30, 2014 for which funds were advanced in the three month period ended December 31, 2013.	
(2 )	Polycom is not obligated to purchase any specific number of shares under its Share Repurchase Program and the program may be modified, suspended or discontinued at any time.	

 

 
POLYCOM, INC.
Reconciliations of GAAP Measures to Non-GAAP Measures
(In thousands)
(Unaudited)
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2014	 	 	September 30,
2013	 	 	September 30,
2014	 	 	September 30,
2013	 	
GAAP cost of revenues used in inventory turns	$	139,016	 	 	$	141,417	 	 	$	412,352	 	 	$	424,708	 	
Stock-based compensation expense	 	(1,770	)	 	 	(2,165	)	 	 	(4,992	)	 	 	(6,852	)	
Effect of stock-based compensation expense on warranty rates	 	(204	)	 	 	(120	)	 	 	(410	)	 	 	(421	)	
Amortization of purchased intangibles	 	(732	)	 	 	(1,248	)	 	 	(2,304	)	 	 	(3,744	)	
Non-GAAP cost of revenues used in inventory turns	$	136,310	 	 	$	137,884	 	 	$	404,646	 	 	$	413,691	 	
GAAP gross profit	$	196,670	 	 	$	195,044	 	 	$	583,877	 	 	$	595,739	 	
Stock-based compensation expense	 	1,770	 	 	 	2,165	 	 	 	4,992	 	 	 	6,852	 	
Effect of stock-based compensation expense on warranty rates	 	204	 	 	 	120	 	 	 	410	 	 	 	421	 	
Amortization of purchased intangibles	 	732	 	 	 	1,248	 	 	 	2,304	 	 	 	3,744	 	
Non-GAAP gross profit	$	199,376	 	 	$	198,577	 	 	$	591,583	 	 	$	606,756	 	
Non-GAAP gross margin	 	59.4	%	 	 	59.0	%	 	 	59.4	%	 	 	59.5	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP sales and marketing expense	$	97,953	 	 	$	107,292	 	 	$	289,757	 	 	$	325,663	 	
Stock-based compensation expense	$	(4,673	)	 	 	(5,889	)	 	 	(10,397	)	 	 	(19,742	)	
Non-GAAP sales and marketing expense	$	93,280	 	 	$	101,403	 	 	$	279,360	 	 	$	305,921	 	
Non-GAAP sales and marketing expense as percent of revenues	 	27.8	%	 	 	30.1	%	 	 	28.0	%	 	 	30.0	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP research and development expense	$	51,024	 	 	$	54,220	 	 	$	148,202	 	 	$	164,782	 	
Stock-based compensation expense	 	(3,203	)	 	 	(3,669	)	 	 	(7,304	)	 	 	(12,578	)	
Non-GAAP research and development expense	$	47,821	 	 	$	50,551	 	 	$	140,898	 	 	$	152,204	 	
Non-GAAP research and development expense as percent of
     revenues	 	14.2	%	 	 	15.0	%	 	 	14.1	%	 	 	14.9	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP general and administrative expense	$	25,746	 	 	$	28,468	 	 	$	74,175	 	 	$	76,461	 	
Stock-based compensation expense	 	(5,122	)	 	 	(5,479	)	 	 	(11,485	)	 	 	(14,128	)	
Costs associated with CEO separation and related SEC
     investigation	 	(960	)	 	 	(2,107	)	 	 	(1,951	)	 	 	(2,107	)	
Non-GAAP general and administrative expense	$	19,664	 	 	$	20,882	 	 	$	60,739	 	 	$	60,226	 	
Non-GAAP general and administrative expense as percent of
     revenues	 	5.9	%	 	 	6.2	%	 	 	6.1	%	 	 	5.9	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP total operating expenses	$	177,657	 	 	$	217,393	 	 	$	559,670	 	 	$	612,491	 	
Stock-based compensation expense	 	(12,998	)	 	 	(15,037	)	 	 	(29,186	)	 	 	(46,448	)	
Amortization of purchased intangibles	 	(2,435	)	 	 	(2,487	)	 	 	(7,363	)	 	 	(7,535	)	
Restructuring costs	 	2,631	 	 	 	(24,887	)	 	 	(36,887	)	 	 	(34,639	)	
Litigation reserves and payments	 	(3,130	)	 	 	—	 	 	 	(3,130	)	 	 	—	 	
Transaction-related costs	 	—	 	 	 	(39	)	 	 	(156	)	 	 	(3,411	)	
Costs associated with CEO separation and related SEC
     investigation	 	(960	)	 	 	(2,107	)	 	 	(1,951	)	 	 	(2,107	)	
Non-GAAP total operating expenses	$	160,765	 	 	$	172,836	 	 	$	480,997	 	 	$	518,351	 	
Non-GAAP total operating expenses as percent of revenues	 	47.9	%	 	 	51.4	%	 	 	48.3	%	 	 	50.8	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP operating income	$	19,013	 	 	$	(22,349	)	 	$	24,207	 	 	$	(16,752	)	
Stock-based compensation expense	 	14,768	 	 	 	17,202	 	 	 	34,178	 	 	 	53,300	 	
Effect of stock-based compensation expense on warranty rates	 	204	 	 	 	120	 	 	 	410	 	 	 	421	 	
Amortization of purchased intangibles	 	3,167	 	 	 	3,735	 	 	 	9,667	 	 	 	11,279	 	
Restructuring costs	 	(2,631	)	 	 	24,887	 	 	 	36,887	 	 	 	34,639	 	
Litigation reserves and payments	 	3,130	 	 	 	—	 	 	 	3,130	 	 	 	—	 	
Transaction-related costs	 	—	 	 	 	39	 	 	 	156	 	 	 	3,411	 	
Costs associated with CEO separation and related SEC
     investigation	 	960	 	 	 	2,107	 	 	 	1,951	 	 	 	2,107	 	
Non-GAAP operating income	$	38,611	 	 	$	25,741	 	 	$	110,586	 	 	$	88,405	 	
Non-GAAP operating margin	 	11.5	%	 	 	7.7	%	 	 	11.1	%	 	 	8.7	%	

 
 
POLYCOM, INC.
Summary of Stock-Based Compensation Expense
(In thousands)
(Unaudited)
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2014	 	 	September 30,
2013	 	 	September 30,
2014	 	 	September 30,
2013	 	
Cost of product revenues	$	668	 	 	$	686	 	 	$	1,828	 	 	$	2,252	 	
Cost of service revenues	 	1,102	 	 	 	1,479	 	 	 	3,164	 	 	 	4,600	 	
Stock-based compensation expense in total cost of revenues	 	1,770	 	 	 	2,165	 	 	 	4,992	 	 	 	6,852	 	
Sales and marketing	 	4,673	 	 	 	5,889	 	 	 	10,397	 	 	 	19,742	 	
Research and development	 	3,203	 	 	 	3,669	 	 	 	7,304	 	 	 	12,578	 	
General and administrative	 	5,122	 	 	 	5,479	 	 	 	11,485	 	 	 	14,128	 	
Stock-based compensation expense in operating expenses	 	12,998	 	 	 	15,037	 	 	 	29,186	 	 	 	46,448	 	
Total stock-based compensation expense	$	14,768	 	 	$	17,202	 	 	$	34,178	 	 	$	53,300