Edgar Filing: POLYCOM INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Quarterly Report on Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-27978

POLYCOM, INC.

(Exact name of registrant as specified in its charter)


DELAWARE		94-3128324
(State or other jurisdiction of incorporation or organization)		(IRS employer identification number)

4750 WILLOW ROAD, PLEASANTON, CA		94588
(Address of principal executive offices)		(Zip Code)

(925) 924-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 in Exchange Act). Yes ¨ No x

There were 178,288,849 shares of the Company’s Common Stock, par value $.0005, outstanding on April 20, 2012.

POLYCOM, INC.

INDEX

REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2012


PART I FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited):	3

	Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011	3

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and March 31, 2011	4

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and March 31, 2011	5

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and March 31, 2011	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4	Controls and Procedures	35
PART II OTHER INFORMATION

Item 1—Legal Proceedings		36

Item 1A—Risk Factors		36

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds		52

Item 3—Defaults Upon Senior Securities		52

Item 4—Mine Safety Disclosures		52

Item 5—Other Information		52

Item 6—Exhibits		53

SIGNATURES		54

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

POLYCOM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)


	March 31, 2012		December 31, 2011
ASSETS
Current assets
Cash and cash equivalents	$	390,278	$	375,441
Short-term investments		173,910		159,426
Trade receivables, net of allowance for doubtful accounts of $2,017 and $1,732 at March 31, 2012 and December 31, 2011, respectively		211,189		219,557
Inventories		122,032		107,613
Deferred taxes		39,923		40,153
Prepaid expenses and other current assets		58,810		51,375

Total current assets		996,142		953,565
Property and equipment, net		134,435		130,047
Long-term investments		53,824		56,772
Goodwill		585,039		584,187
Purchased intangibles, net		72,444		78,883
Deferred taxes		19,954		20,930
Other assets		19,678		20,421

Total assets	$	1,881,516	$	1,844,805

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	115,699	$	113,922
Accrued payroll and employee-related liabilities		31,429		40,650
Deferred revenue		150,818		143,091
Other accrued liabilities		50,354		61,502

Total current liabilities		348,300		359,165
Non-current liabilities
Long-term deferred revenue		88,576		83,143
Taxes payable		16,995		16,845
Deferred taxes		2,263		2,274
Other non-current liabilities		14,292		13,262

Total non-current liabilities		122,126		115,524

Total liabilities		470,426		474,689
Stockholders’ equity
Common stock, $0.0005 par value; Authorized: 350,000,000 shares; Issued and outstanding: 178,275,332 shares at March 31, 2012 and 176,316,968 shares at December 31, 2011		40		40
Additional paid-in capital		1,273,691		1,246,201
Retained earnings		133,367		118,265
Accumulated other comprehensive income		3,992		5,610

Total stockholders’ equity		1,411,090		1,370,116

Total liabilities and stockholders’ equity	$	1,881,516	$	1,844,805

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

POLYCOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)


	Three Months Ended
	March 31, 2012			March 31, 2011
Revenues:
Product revenues	$	277,564		$	285,469
Service revenues		89,904			58,696

Total revenues		367,468			344,165

Cost of revenues:
Cost of product revenues		114,526			111,987
Cost of service revenues		37,293			26,424

Total cost of revenues		151,819			138,411

Gross profit		215,649			205,754

Operating expenses:
Sales and marketing		113,679			100,621
Research and development		52,097			44,231
General and administrative		21,638			18,429
Amortization of purchased intangibles		3,387			1,382
Restructuring costs		2,923			2,578
Acquisition-related costs		1,914			2,349

Total operating expenses		195,638			169,590

Operating income		20,011			36,164
Interest and other income (expense), net		(1,787	)		(1,279	)

Income before provision for income taxes		18,224			34,885
Provision for income taxes		3,122			907

Net income	$	15,102		$	33,978

Basic net income per share	$	0.09		$	0.19

Diluted net income per share	$	0.08		$	0.19

Weighted average shares outstanding for basic net income per share calculation		177,427			175,056
Weighted average shares outstanding for diluted net income per share calculation		180,488			180,600

*	Shares have been retrospectively adjusted to reflect the two-for-one split which was effective on July 1, 2011.

See Note 1 of Notes to Condensed Consolidated Financial Statements.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

POLYCOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)


	Three Months Ended
	March 31, 2012			March 31, 2011
Net income	$	15,102		$	33,978

Other comprehensive income, net of tax:
Foreign currency translation adjustments		1,055			2,614
Unrealized gains/(losses) on investments:
Unrealized holding gains arising during the period		15			9
Net (gains)/losses reclassified into earnings		—			(11	)

Net unrealized gains/(losses) on investments		15			(2	)

Unrealized gains/(losses) on hedging securities:
Unrealized hedge losses arising during the period		(1,561	)		(4,069	)
Net (gains)/losses reclassified into earnings for revenue hedges		(2,376	)		1,183
Net (gains)/losses reclassified into earnings for expense hedges		1,249			(723	)

Net unrealized losses on hedging securities		(2,688	)		(3,609	)

Other comprehensive income		(1,618	)		(997	)

Comprehensive income	$	13,484		$	32,981

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

POLYCOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Three Months Ended
	March 31, 2012			March 31, 2011
Cash flows from operating activities:
Net income	$	15,102		$	33,978
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,438			12,512
Amortization of purchased intangibles		6,446			4,668
Provision for doubtful accounts		250			—
Provision for excess and obsolete inventories		2,310			2,490
Stock-based compensation		18,146			10,255
Excess tax benefits from stock-based compensation		(4,939	)		(10,087	)
Impairment of private company investments		—			500
Loss on disposal of property and equipment		233			581
Changes in assets and liabilities, net of effects of acquisitions:
Trade receivables		8,118			(17,840	)
Inventories		(16,729	)		(4,904	)
Deferred taxes		1,206			397
Prepaid expenses and other assets		(10,132	)		(10,013	)
Accounts payable		(855	)		5,204
Taxes payable		4,632			2,986
Other accrued liabilities and deferred revenue		(6,189	)		14,867

Net cash provided by operating activities		32,037			45,594

Cash flows from investing activities:
Purchases of property and equipment		(15,800	)		(14,848	)
Purchases of investments		(92,355	)		(62,491	)
Proceeds from sale of investments		4,169			22,956
Proceeds from maturity of investments		76,900			74,855
Net cash received from (paid) in purchase acquisitions		85			(50,041	)

Net cash used in investing activities		(27,001	)		(29,569	)

Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock purchase plans		14,607			26,945
Purchase and retirement of common stock		(9,745	)		(14,688	)
Excess tax benefits from stock-based compensation		4,939			10,087

Net cash provided by financing activities		9,801			22,344

Net increase in cash and cash equivalents		14,837			38,369
Cash and cash equivalents, beginning of period		375,441			324,188

Cash and cash equivalents, end of period	$	390,278		$	362,557

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

POLYCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited financial statements, consisting of the condensed consolidated balance sheet as of March 31, 2012, the condensed consolidated statements of operations for the three months ended March 31, 2012 and 2011, the condensed consolidated statements of comprehensive income for the three months ended March 31, 2012 and 2011, and the condensed consolidated statements of cash flows for the three months ended March 31, 2012 and 2011, have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes typically found in the audited consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K of Polycom, Inc. and its subsidiaries (the “Company”). In the opinion of management, all adjustments (primarily consisting of normal recurring adjustments) considered necessary for a fair statement have been included.

The condensed consolidated balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements as of that date but does not include all of the information and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

On June 1, 2011, the Company announced that its Board of Directors approved a two-for-one stock split of the Company’s outstanding shares of common stock effected in the form of a 100% stock dividend (“the stock split”). The stock split entitled each stockholder of record at the close of business on June 15, 2011 to receive one additional share of common stock for every one share of common stock owned as of that date, payable by the Company’s transfer agent on July 1, 2011. The par value of the Company’s common stock was maintained at the pre-split amount of $0.0005 per share. The condensed consolidated financial statements and notes thereto, including all share and per share data, have been restated as if the stock split had occurred as of the earliest period presented.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates and operating results for the three months ended March 31, 2012 and are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies were described in Note 1 to the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”). There have been no significant changes to these policies and no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2012 that are of significance or potential significance to the Company.

3. BUSINESS COMBINATIONS

During 2011, the Company completed three business acquisitions. On March 21, 2011, the Company completed its acquisition of all of the outstanding shares of Accordent Technologies, Inc. (“Accordent”), a privately held video content management and delivery solutions company. On July 27, 2011, the Company acquired the assets of the Hewlett-Packard Visual Collaboration (“HPVC”) business, including the Halo Products and Managed Services business. On October 14, 2011, the Company acquired ViVu Inc. (“ViVu”), a privately-held video collaboration software company. The Company has included the financial results of Accordent, HPVC and ViVu in its Condensed Consolidated Financial Statements from their respective dates of acquisition.

4. GOODWILL AND PURCHASED INTANGIBLES

The following table presents details of the Company’s goodwill by segment (in thousands):


	Americas			EMEA			APAC			Total
Balance at December 31, 2011	$	322,145		$	111,333		$	150,709		$	584,187
Foreign currency translation		—			398			539			937
Changes in fair value of assets acquired and liabilities assumed		(48	)		(16	)		(21	)		(85	)

Balance at March 31, 2012	$	322,097		$	111,715		$	151,227		$	585,039

The following table presents details of the Company’s total purchased intangible assets as of March 31, 2012 and December 31, 2011 (in thousands):


	March 31, 2012							December 31, 2011
Purchased Intangible Assets	Gross Value		Accumulated Amortization and Impairment			Net Value		Gross Value		Accumulated Amortization and Impairment			Net Value
Core and developed technology	$	131,178	$	(109,380	)	$	21,798	$	129,778	$	(106,363	)	$	23,415
Customer and partner relationships		94,725		(47,573	)		47,152		94,725		(44,586	)		50,139
Trade name		10,503		(8,328	)		2,175		10,503		(7,910	)		2,593
In process research and development		—		—			—		1,400		—			1,400
Other		5,362		(4,961	)		401		5,362		(4,944	)		418

Finite Lives Intangible Assets		241,768		(170,242	)		71,526		241,768		(163,803	)		77,965
Indefinite life trade name		918		—			918		918		—			918

Total	$	242,686	$	(170,242	)	$	72,444	$	242,686	$	(163,803	)	$	78,883

Purchased intangibles include a purchased trade name with an indefinite life as the Company expects to generate cash flows related to this asset indefinitely. Consequently, this trade name is not amortized but is reviewed for impairment annually or sooner when indicators of potential impairment exist. Development on products associated with in-process research and development (“IPRD”) previously capitalized was completed in the three months ended March 31, 2012, and the underlying products were made available for general release. The associated IPRD of $1.4 million was reclassified to core and developed technology, and amortization over the estimated lives of the products commenced during the three months ended March 31, 2012.

For the three months ended March 31, 2012 and 2011, the Company recorded $3.4 million and $1.4 million, respectively, in amortization expense related to purchased intangibles, which is included in “Amortization of purchased intangibles” in the condensed consolidated statements of operations. The Company recorded approximately $3.1 million and $3.3 million during the three months ended March 31, 2012 and 2011, respectively, of amortization of purchased intangibles to “Cost of product revenues” in the condensed consolidated statements of operations. Amortization of intangibles is not allocated to the Company’s segments.

The estimated future amortization expense of purchased intangible assets as of March 31, 2012 is as follows (in thousands):


Year ending December 31,	Amount
Remainder of 2012	$	17,795
2013		15,555
2014		13,384
2015		11,101
2016		9,255
Thereafter		4,436

Total	$	71,526

5. BALANCE SHEET DETAILS

Inventories are valued at the lower of cost or market with cost computed on a first-in, first-out (“FIFO”) basis. Consideration is given to obsolescence, excessive levels, deterioration and other factors in evaluating net realizable value. Inventories consist of the following (in thousands):


	March 31, 2012		December 31, 2011
Raw materials	$	4,105	$	4,690
Work in process		1,684		1,006
Finished goods		116,243		101,917

	$	122,032	$	107,613

Prepaid expenses and other current assets consist of the following (in thousands):


	March 31, 2012		December 31, 2011
Non-trade receivables	$	9,012	$	9,534
Prepaid expenses		43,467		32,010
Other current assets		6,331		9,831

	$	58,810	$	51,375

Deferred revenues consist of the following (in thousands):


	March 31, 2012		December 31, 2011
Short-term:
Service	$	148,918	$	141,116
Product		500		575
License		1,400		1,400

	$	150,818	$	143,091

Long-term:
Service	$	81,711	$	75,911
Product		40		57
License		6,825		7,175

	$	88,576	$	83,143

Other accrued liabilities consist of the following (in thousands):


	March 31, 2012		December 31, 2011
Accrued expenses	$	11,276	$	15,496
Accrued co-op expenses		5,526		4,862
Restructuring reserves		2,612		3,150
Warranty obligations		11,653		11,886
Derivative liability		3,750		4,609
Employee stock purchase plan withholding		4,234		11,116
Other accrued liabilities		11,303		10,383

	$	50,354	$	61,502

6. RESTRUCTURING COSTS

During the three months ended March 31, 2012 and 2011, the Company recorded charges totaling $2.9 million and $2.6 million, respectively, related to restructuring actions that resulted from the elimination or relocation of various positions as part of restructuring plans approved by management. These actions are generally intended to reallocate resources to more strategic growth areas of the business. The actions taken during the quarter ended March 31, 2012 were also related to the reorganization of its global go-to-market and other organizations.

The Company has approved plans to consolidate and eliminate certain facilities in order to gain efficiencies, including the combination of its headquarters and San Jose and Santa Clara, California operations into one new location in San Jose, California. As a result, the Company expects to record approximately $8.7 million in additional restructuring charges related to idle facilities upon vacating these facilities in the second quarter of 2012.

The following table summarizes the changes in the Company’s restructuring reserves (in thousands):


Balance at December 31, 2011	$	2,940
Additions to the reserve		2,923
Cash payments and other usage		(3,398	)

Balance at March 31, 2012	$	2,465

7. GUARANTEES

Warranty

The Company provides for the estimated costs of product warranties at the time revenue is recognized. The specific terms and conditions of those warranties vary depending upon the product sold. In the case of hardware manufactured by Polycom, warranties generally start from the delivery date and continue for one to three years depending on the product purchased. Software products generally carry a 90-day warranty from the date of shipment. The Company’s liability under warranties on software products is to provide a corrected copy of any portion of the software found not to be in substantial compliance with the agreed upon specifications. Factors that affect the Company’s warranty obligation include product failure rates, material usage and service delivery costs incurred in correcting product failures. The Company assesses the adequacy of its recorded warranty liabilities every quarter and makes adjustments to the liability if necessary.

Changes in the warranty obligation, which is included as a component of “Other accrued liabilities” on the condensed consolidated balance sheets, during the periods, are as follows (in thousands):


	Three Months Ended
	March 31, 2012			March 31, 2011
Balance at beginning of period	$	11,886		$	9,569
Accruals for warranties issued during the period, net		4,275			6,340
Actual warranty claims received during the period		(4,508	)		(5,707	)

Balance at end of period	$	11,653		$	10,202

Deferred Maintenance Revenue

The Company offers maintenance contracts for sale on most of its products which allow for customers to receive service and support in addition to, or subsequent to, the expiration of the contractual product warranty. The Company recognizes the maintenance revenue from these contracts over the life of the service contract.

Deferred maintenance revenue of $148.9 million and $141.1 million is short-term and is included as a component of “Deferred revenue” as of March 31, 2012 and December 31, 2011, respectively, and $81.7 million and $75.9 million is long-term and is included in “Long-term deferred revenue” as of March 31, 2012 and December 31, 2011, respectively, on the condensed consolidated balance sheets.

Changes in deferred maintenance revenue for the three months ended March 31, 2012 and 2011 are as follows (in thousands):


	Three Months Ended
	March 31, 2012			March 31, 2011
Balance at beginning of period	$	217,027		$	146,840
Additions to deferred maintenance revenue		91,342			66,968
Amortization of deferred maintenance revenue		(77,739	)		(49,198	)

Balance at end of period	$	230,630		$	164,610

The cost of providing maintenance services for the three months ended March 31, 2012 and 2011 was $36.3 million and $25.7 million, respectively.

Officer and Director Indemnifications

As permitted or required under Delaware law and to the maximum extent allowable under that law, the Company has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is unlimited; however, the Company has a director and officer insurance policy that mitigates the Company’s exposure and enables the Company to recover a portion of any future amounts paid. As a result of the Company’s insurance policy coverage, the Company believes the estimated fair value of these indemnification obligations is not material.

Other Indemnifications

As is customary in the Company’s industry, as provided for in local law in the U.S. and other jurisdictions, the Company’s standard contracts provide remedies to its customers, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of its products. From time to time, the Company indemnifies customers against combinations of loss, expense, or liability arising from various trigger events related to the sale and the use of its products and services. In addition, from time to time the Company also provides protection to customers against claims related to undiscovered liabilities, additional product liability or environmental obligations.

POLYCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

8. INVESTMENTS AND FAIR VALUE MEASUREMENTS

The Company had cash and cash equivalents of $390.3 million and $375.4 million at March 31, 2012 and December 31, 2011, respectively. Cash and cash equivalents consist of cash in banks, as well as highly liquid investments in money market funds, time deposits, savings accounts, commercial paper, U.S. government and agency securities, municipal securities and corporate debt securities. At March 31, 2012, the Company’s long-term investments had contractual maturities of one to two years.

In addition, the Company has short-term and long-term investments in debt and equity securities which are summarized as follows (in thousands):



	Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value
Balances at March 31, 2012:
Investments—Short-term:
U.S. government securities	$	24,906	$	1	$	(6	)	$	24,901
U.S. government agency securities		64,783		27		(1	)		64,809
Non-U.S. government securities		7,231		1		(2	)		7,230
Corporate debt and equity securities		76,935		60		(25	)		76,970

Total investments – short-term	$	173,855	$	89	$	(34	)	$	173,910

Investments—Long-term:
U.S. government securities	$	2,525	$	1	$	—		$	2,526
U.S. government agency securities		38,099		19		(5	)		38,113
Non-U.S. government securities		—		—		—			—
Corporate debt and equity securities		13,197		5		(17	)		13,185

Total investments – long-term	$	53,821	$	25	$	(22	)	$	53,824

Balances at December 31, 2011:
Investments—Short-term:
U.S. government securities	$	15,135		3	$	—		$	15,138
U.S. government agency securities		79,299		33		(4	)		79,328
Non-U.S. government securities		1,724		2		(1	)		1,725
Corporate debt and equity securities		63,204		42		(11	)		63,235

Total investments – short-term	$	159,362	$	80	$	(16	)	$	159,426

Investments—Long-term:
U.S. government securities	$	11,455	$	—	$	(2	)	$	11,453
U.S. government agency securities		34,506		10		(4	)		34,512
Non-U.S. government securities		—		—		—			—
Corporate debt and equity securities		10,835		2		(30	)		10,807

Total investments – long-term	$	56,796	$	12	$	(36	)	$	56,772

As of March 31, 2012, the Company’s total cash and cash equivalents and investments held in the United States totaled $216.6 million with the remaining $401.4 million held by various foreign subsidiaries outside of the United States.

U.S. Government Securities

The Company’s U.S. government securities mostly comprised of direct U.S. Treasury obligations that are guaranteed by the U.S. government. To ensure that the investment portfolio is sufficiently diversified, the Company’s investment policy requires that a certain percentage of the Company’s portfolio be invested in these types of securities.

U.S. Government Agency Securities

The Company’s U.S. government agency securities are mostly comprised of U.S. government agency instruments, including mortgage-backed securities. To ensure that the investment portfolio is sufficiently diversified, the Company’s investment policy requires that a certain percentage of the Company’s portfolio be invested in these types of securities.

Non-U.S. Government Securities

The Company’s Non-U.S. government securities are mostly comprised of non-U.S. government instruments, including state, municipal and foreign government securities. To ensure that the investment portfolio is sufficiently diversified, the Company’s investment policy allows a certain percentage of the Company’s portfolio be invested in these types of securities.

Corporate Debt Securities

The Company’s corporate debt securities are comprised of publicly-traded domestic and foreign corporate debt securities. The Company does not purchase auction rate securities, and cash investments are in instruments that meet high quality credit rating standards, as specified in its investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issuer or type of instrument.

Unrealized Losses

The following table summarizes the fair value and gross unrealized losses of the Company’s investments, including those that are categorized as cash equivalents, with unrealized losses aggregated by type of investment instrument and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2012 and December 31, 2011 (in thousands):


	Less than 12 Months					12 Months or Greater				Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
March 31, 2012:
U.S. government securities	$	25,149	$	(7	)	$	—	$	—	$	25,149	$	(7	)
U.S. government agencies securities		18,654		(5	)		—		—		18,654		(5	)
Non-U.S. government securities		5,969		(2	)		—		—		5,969		(2	)
Corporate debt and equity securities		37,614		(42	)		—		—		37,614		(42	)

Total investments	$	87,386	$	(56	)	$	—	$	—	$	87,386	$	(56	)

December 31, 2011:
U.S. government securities	$	15,222	$	(2	)	$	—	$	—	$	15,222	$	(2	)
U.S. government agencies securities		32,790		(8	)		—		—		32,790		(8	)
Non-U.S. government securities		5,054		(3	)		—		—		5,054		(3	)
Corporate debt and equity securities		29,511		(42	)		—		—		29,511		(42	)

Total investments	$	82,577	$	(55	)	$	—	$	—	$	82,577	$	(55	)

The Company reviews the individual securities in its portfolio to determine whether a decline in a security’s fair value below the amortized cost basis is other- than -temporary. If the decline in fair value is considered to be other-than-temporary, the cost basis of the individual security is written down to its fair value as a new cost basis, and the amount of the write-down is accounted for as a realized loss and included in earnings. During the three months ended March 31, 2012 and 2011, the Company determined that there were no investments in its portfolio that were other-than temporarily impaired.

Private Company Investments

For strategic reasons the Company has made various investments in private companies. The private company investments are carried at cost and written down to their estimated net realizable value when indications exist that these investments have been impaired. During the three months ended March 31, 2011, the Company recorded $0.5 million of impairment charges related to its private company investments in interest and other income (expense), net in the Company’s condensed consolidated statements of operations. The Company did not record any such impairment charges during the three months ended March 31, 2012. The cost of these investments at both March 31, 2012 and December 31, 2011 was $2.0 million, and is recorded in “Other assets” in the Company’s condensed consolidated balance sheets.

Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As the basis for considering such assumptions, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including its marketable securities and foreign currency contracts.

The Company’s cash and investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using inputs such as quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include money market funds and are generally classified within Level 1 of the fair value hierarchy.

The types of instruments valued based on other observable inputs include U.S. Treasury securities and other government agencies, corporate bonds and commercial paper. Such instruments are generally classified within Level 2 of the fair value hierarchy. Level 2 instruments are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. There have been no transfers between Level 1 and Level 2 during the three months ended March 31, 2012. The Company does not hold any investments classified as Level 3 as of March 31, 2012 and December 31, 2011.

As of March 31, 2012, the Company’s fixed income available-for-sale securities include U.S. Treasury obligations and other government agency instruments (52%), corporate bonds (33%), commercial paper (9%), Non-U.S. Government Securities (3%) and money market funds (3%). Included in available-for-sale securities is approximately $28.1 million of cash equivalents, which consist of investments with original maturities of three months or less and include money market funds.

The principal market where the Company executes its foreign currency contracts is the retail market in an over-the-counter environment with a relatively high level of price transparency. The market participants and the Company’s counterparties are large money center banks and regional banks. The Company’s foreign currency contracts valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy. The fair value of the Company’s marketable securities and foreign currency contracts was determined using the following inputs at March 31, 2012 and December 31, 2011 (in thousands):


			Fair Value Measurements at March 31, 2012 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs
			(Level 1)		(Level 2)
Assets:
Fixed income available-for-sale securities (a)	$	255,549	$	7,294	$	248,255
Non-fixed income available-for-sale-securities (a)	$	252		—	$	252
Foreign currency forward contracts (c)	$	5,208		—	$	5,208
Liabilities:
Foreign currency forward contracts (d)	$	3,750		—	$	3,750


			Fair Value Measurements at December 31, 2011 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs
			(Level 1)		(Level 2)
Assets:
Fixed income available-for-sale securities (a)	$	257,607	$	17,157	$	240,450
Non-fixed income available-for-sale-securities (b)	$	235		—	$	235
Foreign currency forward contracts (c)	$	9,216		—	$	9,216
Liabilities:
Foreign currency forward contracts (d)	$	4,609		—	$	4,609

(a)	Included in cash and cash equivalents and short and long-term investments on the Company’s condensed consolidated balance sheets.

(b)	Included in other non-current assets on the Company’s condensed consolidated balance sheets.

(c)	Included in short-term derivative asset as prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets.

(d)	Included in short-term derivative liability as other accrued liabilities on the Company’s condensed consolidated balance sheets.

9. FOREIGN CURRENCY DERIVATIVES

The Company maintains a foreign currency risk management program that is designed to reduce the volatility of the Company’s economic value from the effects of unanticipated currency fluctuations. International operations generate both revenues and costs denominated in foreign currencies. The Company’s policy is to hedge significant foreign currency revenues and costs to improve margin visibility and reduce earnings volatility associated with unexpected changes in currency.

Non-Designated Hedges

The Company hedges its net foreign currency monetary assets and liabilities primarily resulting from foreign currency denominated revenues and expenses with foreign exchange forward contracts to reduce the risk that the Company’s earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These derivative instruments are carried at fair value with changes in the fair value recorded as interest and other income (expense), net. These derivative instruments do not subject the Company to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset remeasurement gains and losses on the hedged assets and liabilities. The Company executes non-designated foreign exchange forward contracts primarily denominated in Euros, British Pounds, Israeli Shekels, Brazilian Reais, Japanese Yen and Mexican Pesos.

The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent, at March 31, 2012 of the outstanding non-designated hedges (foreign currency and dollar amounts in thousands):


	Original Maturities of 360 Days or Less						Original Maturities of Greater than 360 Days
	Foreign Currency		USD Equivalent		Positions		Foreign Currency		USD Equivalent		Positions
Brazilian Real		3,504	$	1,923		Buy		—	$	—		—
Brazilian Real		6,239	$	3,469		Sell		—	$	—		—
Euro		35,276	$	47,027		Buy		5,879	$	8,258		Buy
Euro		42,480	$	56,669		Sell		29,117	$	40,159		Sell
British Pound		8,314	$	13,238		Buy		5,643	$	8,996		Buy
British Pound		13,275	$	21,090		Sell		6,244	$	9,954		Sell
Israeli Shekel		18,048	$	4,835		Buy		18,900	$	5,362		Buy
Israeli Shekel		24,862	$	6,695		Sell		—	$	—		—
Japanese Yen		205,800	$	2,497		Buy		—	$	—		—
Japanese Yen		342,657	$	4,136		Sell		—	$	—		—
Mexican Peso		5,610	$	438		Buy		—	$	—		—
Mexican Peso		11,381	$	886		Sell		—	$	—		—

The following table shows the effect of the Company’s non-designated hedges in the condensed consolidated statements of operations for the three months ended March 31, 2012 and 2011 (in thousands):


Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Loss Recognized in Income on Derivative
Derivatives Not Designated as Hedging Instruments		March 31, 2012			March 31, 2011
Foreign exchange contracts	Interest and other income (expense), net	$	(1,646	)	$	(2,017	)

Cash Flow Hedges

The Company’s foreign exchange risk management program objective is to reduce volatility in the Company’s economic value from unanticipated foreign currency fluctuations. The Company designates forward contracts as cash flow hedges of foreign currency revenues and expenses, primarily the Euro, British Pound and Israeli Shekel. All foreign exchange contracts are carried at fair value on the condensed consolidated balance sheets and the maximum duration of foreign exchange forward contracts do not exceed thirteen months. Speculation is prohibited by policy.

To receive hedge accounting treatment under ASC 815, Derivatives and Hedging, all cash flow hedging relationships are formally designated at hedge inception, and tested both prospectively and retrospectively to ensure the forward contracts are highly effective in offsetting changes to future cash flows on the hedged transactions. The Company records effective spot to spot changes in these cash flow hedges in cumulative other comprehensive income until they are reclassified to revenue, cost of goods sold or operating expenses together with the hedged transaction. The time value on forward contracts is excluded from effectiveness testing and recorded to interest and other income (expense), net over the life of the contract together with any ineffective portion of the hedge.

The following tables show the effect of the Company’s derivative instruments designated as cash flow hedges in the condensed consolidated statements of operations for the three months ended March 31, 2012 and 2011 (in thousands):


Three Months Ended March 31, 2012:	Loss Recognized in OCI— Effective Portion			Location of Gain or (Loss) Reclassified from OCI into Income—Effective Portion	Gain or (Loss) Reclassified from OCI into Income— Effective Portion			Location of Loss Recognized— Ineffective Portion and Amount Excluded from Effectiveness Testing	Loss Recognized— Ineffective Portion and Amount Excluded from Effectiveness Testing (a)
Foreign exchange contracts	$	(1,561	)	Product revenues	$	2,376		Interest and other income (expense), net	$	(211	)
				Cost of revenues		(232	)
				Sales and marketing		(484	)
				Research and development		(301	)
				General and administrative		(232	)

Total	$	(1,561	)		$	1,127			$	(211	)


Three Months Ended March 31, 2011:
Foreign exchange contracts	$	(4,069	)	Product revenues	$	(1,183	)	Interest and other income (expense), net	$	(66	)
				Cost of revenues		34
				Sales and marketing		557
				Research and development		91
				General and administrative		41

Total	$	(4,069	)		$	(460	)		$	(66	)

(a)	For both the three months ended March 31, 2012 and 2011, no loss or gain was recorded for the ineffective portion. For the three months ended March 31, 2012 and 2011, the losses recorded for the excluded time value portion of the hedge were immaterial.

As of March 31, 2012, the Company estimated all values reported in cumulative other comprehensive income will be reclassified to income within the next twelve months.

The following table summarizes the derivative-related activity in accumulated other comprehensive income (loss) (in thousands):


	Three Months Ended
	March 31, 2012			March 31, 2011
Beginning Balance	$	3,730		$	(574	)
Net change in fair value of cash flow hedges		(1,561	)		(4,069	)
Net gains/losses reclassified into earnings for revenue hedges		(2,376	)		1,183
Net gains/losses reclassified into earnings for expense hedges		1,249			(723	)

Ending Balance	$	1,042		$	(4,183	)

In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, the related hedge gains and losses on the cash flow hedge would be immediately reclassified to interest and other income (expense), net on the condensed consolidated statements of operations. For the three months ended March 31, 2012 and 2011, there were no gains/losses recognized in interest and other income (expense), net relating to hedges of forecasted transactions that did not occur.

The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent, at March 31, 2012 of the outstanding cash flow hedges, all of which are carried at fair value on the condensed consolidated balance sheets (foreign currency and dollar amounts in thousands):


	Original Maturities of 360 Days or Less						Original Maturities of Greater than 360 Days
	Foreign Currency		USD Equivalent		Positions		Foreign Currency		USD Equivalent		Positions
Euro		6,682	$	8,874		Buy		18,332	$	24,803		Buy
Euro		7,406	$	9,935		Sell		64,033	$	86,811		Sell
British Pound		5,167	$	8,148		Buy		17,242	$	26,978		Buy
British Pound		3,039	$	4,776		Sell		17,506	$	27,376		Sell
Israeli Shekel		10,447	$	2,777		Buy		57,042	$	15,497		Buy

The estimates of fair value are based on applicable and commonly quoted prices and prevailing financial market information as of March 31, 2012 and 2011. See Note 8 for additional information on the fair value measurements for all financial assets and liabilities, including derivative assets and derivative liabilities that are measured at fair value in the condensed consolidated financial statements on a recurring basis.

The following table shows the Company’s derivative instruments measured at gross fair value as reflected in the condensed consolidated balance sheets as of March 31, 2012 and December 31, 2011 (in thousands):


	Fair Value of Derivatives Designated as Hedge Instruments				Fair Value of Derivatives Not Designated as Hedge Instruments
	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
Derivative assets (a):
Foreign exchange contracts	$	3,409	$	7,345	$	1,799	$	1,871
Derivative liabilities (b):
Foreign exchange contracts	$	2,590	$	3,796	$	1,160	$	813

(a)	All derivative assets are recorded as prepaid and other current assets in the condensed consolidated balance sheets.

(b)	All derivative liabilities are recorded as other accrued liabilities in the condensed consolidated balance sheets.

10. STOCKHOLDERS’ EQUITY

Share Repurchase Program

From time to time, the Company’s Board of Directors has approved plans under which the Company may at its discretion purchase shares of its common stock in the open market. During the three months ended March 31, 2012 and 2011, the Company did not purchase any shares of common stock in the open market. The purchase price for the shares of the Company’s stock repurchased is recorded as a reduction to stockholders’ equity. As of March 31, 2012, the Company was authorized to purchase up to an additional $78.0 million of shares in the open market under the current share repurchase plan.

Accumulated Other Comprehensive Income, net of tax (in thousands):


	Three Months Ended
	March 31, 2012		December 31, 2011
Foreign currency translation	$	2,896	$	1,841
Unrealized gains on investments		54		39
Unrealized gains on hedging securities		1,042		3,730

	$	3,992	$	5,610

The tax effects were not shown separately, as the impacts were not material.

11. STOCK-BASED EMPLOYEE BENEFIT PLANS

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense recorded for the three months ended March 31, 2012 and 2011 and its allocation within the condensed consolidated statements of operations (in thousands):


	Three Months Ended
	March 31, 2012		March 31, 2011
Cost of sales – product	$	1,019	$	642
Cost of sales – service		1,382		582

Stock-based compensation expense included in cost of sales		2,401		1,224

Sales and marketing		7,693		4,824
Research and development		4,775		2,400
General and administrative		3,277		1,807

Stock-based compensation expense included in operating expenses		15,745		9,031

Stock-based compensation related to employee equity awards and employee stock purchases		18,146		10,255
Tax benefit		3,108		267

Stock-based compensation expense related to employee equity awards and employee stock purchases, net of tax	$	15,038	$	9,988

Stock-based compensation expense is not allocated to segments because it is separately managed at the corporate level. No stock-based compensation was capitalized during the three months ended March 31, 2012 and 2011 due to these amounts being immaterial.

Valuation Assumptions

The Company did not grant any stock options during the three months ended March 31, 2012 and 2011. The weighted-average estimated fair value of employee stock purchase rights granted pursuant to the 2005 Employee Stock Purchase Plan during the three months ended March 31, 2012 and 2011 was $7.49 per share and $5.51 per share, respectively. The fair value of each employee stock purchase right grant is estimated on the date of grant using the Black-Scholes option valuation model and is recognized as expense using the graded vesting attribution approach using the following assumptions:


	Three Months Ended
	March 31, 2012			March 31, 2011
Expected volatility		48.27-60.42	%		35.97	%
Risk-free interest rate		0.06-0.23	%		0.18	%
Expected dividends		0.0	%		0.0	%
Expected life (yrs)		0.50 -2.00			0.49

The Company computed its expected volatility assumption based on blended volatility (50% historical volatility and 50% implied volatility). The selection of the blended volatility assumption was based upon the Company’s assessment that blended volatility is more representative of the Company’s future stock price trends as it weighs in the longer term historical volatility with the near term future implied volatility. Prior to the third quarter of 2011, the Company used the implied volatility for one-year traded options on the Company’s stock.

The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the Company’s employee stock options and employee stock purchases.

The dividend yield assumption is based on the Company’s history of not paying dividends and the resultant future expectation of dividend payouts.

The expected life of employee stock purchase rights represents the contractual terms of the underlying program.

As the stock-based compensation expense recognized in the condensed consolidated statements of operations for the three months ended March 31, 2012 and 2011 is based on awards ultimately expected to vest, such amounts have been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Performance Shares and Restricted Stock Units

The Compensation Committee of the Board of Directors may also grant performance shares and restricted stock units under the 2011 Equity Incentive Plan to officers, to non-employee directors and to certain other employees as a component of the Company’s broad-based equity compensation program. Performance shares represent a commitment by the Company to deliver shares of Polycom common stock at a future point in time, subject to the fulfillment by the Company of pre-defined performance criteria. Such awards will be earned only if performance goals over the performance periods established by or under the direction of the Compensation Committee are met. The number of performance shares subject to vesting is determined at the end of a given performance period. Generally, if the performance criteria are deemed achieved, performance shares will vest from one to three years from the anniversary of the grant date. Restricted stock units are time-based awards that generally vest over a period of one to three years from the date of grant.

Commencing in 2011, the Company granted performance shares which contain a market condition based on Total Shareholder Return (“TSR”) and which measure the Company’s relative performance against the NASDAQ Composite Index. The performance shares will be delivered in common stock at the end of the vesting period based on the Company’s actual performance compared to the target performance criteria and may equal from zero percent (0%) to one hundred fifty percent (150%) of the target award. During the three months ended March 31, 2012, the Company granted 996,826 performance shares to certain employees and executives whose TSR performance is measured against the NASDAQ Composite Index. The 2012 grants are generally divided evenly over three annual performance periods commencing with calendar year 2012, at a weighted average fair value of $23.23 per share.

Prior to 2011, the Company granted performance shares which contain a market condition based on TSR which measure the Company’s relative performance against the Russell 2000 Index. The performance shares will be delivered in common stock at the end of the vesting period based on the Company’s actual performance compared to the target performance criteria and may equal from zero percent (0%) to two hundred percent (200%) of the target award. The fair value of a performance share with a market condition is estimated on the date of award, using a Monte Carlo simulation model to estimate the total return ranking of the Company’s stock among the NASDAQ Composite Index or Russell 2000 Index companies, as applicable, over each performance period. During the three months ended March 31, 2011, the Company granted target performance shares of 635,994. The 2011 grants are evenly divided over three annual performance periods commencing with calendar 2011, at a weighted average fair value of $25.86 per share. Stock-based compensation expense for these performance shares is recognized using the graded vesting method over the three year service period.

The Company also granted restricted stock units (“RSU’s) during the three months ended March 31, 2012 and 2011. The fair value of restricted stock units is based on the closing market price of the Company’s common stock on the date of award. The awards generally vest over one to three years in equal annual installments on each anniversary of the date of grant and will be delivered in common stock at the end of each vesting period. Stock-based compensation expense for these restricted stock units is recognized using the graded vesting method. During the three months ended March 31, 2012 and 2011, the Company granted 2,049,759 and 1,426,142 restricted stock units at a weighted average fair value of $21.36 and $22.96 per share, respectively.

Non-employee directors currently receive annual awards of RSU’s. The RSU’s vest quarterly over one year from the date of grant. The fair value of these awards is the fair market value of the Company’s common stock on the date of grant. Stock-based compensation expense for these awards is generally amortized over six months from the date of grant due to voluntary termination provisions contained in the underlying agreements.

Employee Stock Purchase Plan

During the third quarter of 2011, the Company revised the administration of its Employee Stock Purchase Plan from a six-month offering and purchase period to a twenty four-month offering period with four 6-month purchase periods. Under the current Employee Stock Purchase Plan, the Company can grant stock purchase rights to all eligible employees during a two-year offering period with purchase dates at the end of each six-month purchase period (each January and July). Shares are purchased through employees’ payroll deductions, up to a maximum of 20% of employees’ compensation, at purchase prices equal to 85% of the lesser of the fair market value of the Company’s common stock at either the date of the employee’s entrance to the offering period or the purchase date. No participant may purchase more than $25,000 worth of common stock or 10,000 shares of common stock in any one calendar year period.

During the three months ended March 31, 2012 and 2011, 748,496 and 676,818 shares were purchased at average per share prices of $16.94 and $12.77, respectively. At March 31, 2012, there were 9,282,610 shares available to be issued under the employee stock purchase plan. The stock-based compensation cost recognized in connection with the employee stock purchase plan during the three months ended March 31, 2012 and 2011 was $5.2 million and $1.4 million, respectively. The Company also modified the terms of certain existing awards under its ESPP primarily as a result of the stock price as of the new offering period date being lower than it was on the initial enrollment date, which triggered the reset and rollover feature of the plan, and incurred a resultant $9.3 million of incremental expenses to be recognized over the vesting term. Approximately $1.2 million of the incremental expense was recognized in the three months ended March 31, 2012. There was no such modification in the three months ended March 31, 2011.

12. COMPUTATION OF NET INCOME PER SHARE

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of outstanding stock options. Potentially dilutive shares are excluded from the computation of diluted net income per share when their effect is antidilutive. A reconciliation of the numerator and denominator of basic and diluted net income per share is provided as follows (in thousands, except per share amounts):


	Three Months Ended
	March 31, 2012		March 31, 2011
Numerator—basic and diluted net income per share:
Net income	$	15,102	$	33,978

Denominator—basic and diluted net income per share:
Weighted average shares used to compute basic net income per share		177,427		175,056
Effect of dilutive common stock equivalents:
Stock options to purchase common stock		619		1,210
Restricted common stock awards and performance shares		2,442		4,334

Total shares used in calculation of diluted net income per share		180,488		180,600

Basic net income per share	$	0.09	$	0.19

Diluted net income per share	$	0.08	$	0.19

Diluted shares outstanding include the dilutive effect of in-the-money options which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of compensation cost for future services that the Company has not yet recognized, and the amount of tax benefit that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares. For the three months ended March 31, 2012 approximately 1.2 million shares relating to potentially dilutive securities, primarily from RSU’s and employee stock purchase plan, were excluded from the denominator in the computation of diluted net income per share because their inclusion would be anti-dilutive. There were no such shares being excluded for the three months ended March 31, 2011.

13. BUSINESS SEGMENT INFORMATION

Polycom is a global leader in unified communications (“UC”) solutions and the leading provider of telepresence, video, voice, and UC platform (formerly referred to as “network infrastructure”) solutions based on open standards. The Company conducts its business globally and is managed geographically in three segments: (1) Americas, which consist of North, Central and Latin Americas, (2) Europe, Middle East and Africa (“EMEA”) and (3) Asia Pacific (“APAC”). The segments are determined in accordance with how management views and evaluates the Company’s business and allocates its resources, and based on the criteria as outlined in the authoritative guidance.

Segment Revenue and Profit

Segment revenues are attributed to a theater based on the ordering location of the customer. A significant portion of each segment’s expenses arise from shared services and infrastructure that Polycom has historically allocated to the segments in order to realize economies of scale and to use resources efficiently. These expenses include information technology services, facilities and other infrastructure costs.

Segment Data

The results of the reportable segments are derived directly from Polycom’s management reporting system. The results are based on Polycom’s method of internal reporting and are not reported in conformity with accounting principles generally accepted in the United States. Management measures the performance of each segment based on several metrics, including contribution margin as defined below. For internal reporting purposes and determination of segment contribution margins, geographic segment revenues may differ slightly from actual geographic revenues due to internal revenue allocations between the Company’s segments.

Asset data, with the exception of gross accounts receivable, is not reviewed by management at the segment level.

Financial information for each reportable geographical segment as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011, based on the Company’s internal management reporting system and as utilized by the Company’s Chief Operating Decision Maker (“CODM”), is as follows (in thousands):


	Americas			EMEA			APAC			Total
2012:
Revenue	$	179,294		$	100,467		$	87,707		$	367,468
% of total revenue		49	%		27	%		24	%		100	%
Contribution margin		75,624			42,961			36,182			154,767
% of segment revenue		42	%		43	%		41	%		42	%
Gross accounts receivable		95,645			84,405			70,038			250,088
% of total gross accounts receivable		38	%		34	%		28	%		100	%
2011:
Revenue	$	175,751		$	86,077		$	82,337		$	344,165
% of total revenue		51	%		25	%		24	%		100	%
Contribution margin		72,234			33,064			40,598			145,896
% of segment revenue		41	%		38	%		49	%		42	%
Gross accounts receivable		102,973			82,259			72,003			257,235
% of total gross accounts receivable		40	%		32	%		28	%		100	%

Segment contribution margin includes all geographic segment revenues less the related cost of sales and direct sales and marketing expenses. Management allocates some infrastructure costs such as facilities and IT costs in determining segment contribution margin. Contribution margin is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated costs include corporate manufacturing costs, sales and marketing costs other than direct sales and marketing expenses, research and development expense, general and administrative costs, such as legal and accounting, stock-based compensation costs, acquisition-related costs, amortization of purchased intangible assets, restructuring costs and interest and other income (expense), net.

The reconciliation of segment information to Polycom consolidated totals is as follows (in thousands):


	Three Months Ended
	March 31, 2012			March 31, 2011
Segment contribution margin	$	154,767		$	145,896
Corporate and unallocated costs		(105,139	)		(89,771	)
Stock-based compensation		(18,146	)		(10,255	)
Effect of stock-based compensation cost on warranty expense		(188	)		(111	)
Acquisition-related costs		(1,914	)		(2,349	)
Amortization of purchased intangibles		(6,446	)		(4,668	)
Restructuring costs		(2,923	)		(2,578	)
Interest and other income (expense), net		(1,787	)		(1,279	)

Total income before provision for income taxes	$	18,224		$	34,885


	March 31, 2012			December 31, 2011
Gross accounts receivables	$	250,088		$	257,235
Returns and related reserves		(36,882	)		(35,946	)
Allowance for doubtful accounts		(2,017	)		(1,732	)

Total trade receivables, net	$	211,189		$	219,557

The following table summarizes the Company’s revenues by groups of similar products and services as follows (in thousands):


	Three Months Ended
	March 31, 2012		March 31, 2011
Net Revenues:
UC group systems	$	240,489	$	228,944
UC personal devices		67,210		62,067
UC platform		59,769		53,154

Total	$	367,468	$	344,165

During the three months ended March 31, 2012 and 2011, one customer from the Americas segment accounted for more than 10% of the Company’s revenues.

14. INCOME TAXES

The Company’s overall effective tax rate for the three months ended March 31, 2012 and 2011 was 17.1% and 2.6%, respectively, which resulted in a provision for income taxes of $3.1 million and $0.9 million, respectively. The increase in the effective tax rate for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily related to a discrete benefit recorded in the first quarter of 2011 for the release of $7.5 million in tax reserves inclusive of interest associated with the resolution of a multi-year income tax audit. Partially offsetting the effect of the benefit from the reserve releases was a relative increase in foreign earnings subject to lower tax rates in the quarter ending March 31, 2012 as compared to the same period in the prior year. In addition, for the three months ended March 31, 2011, the effective tax rate reflects the benefit of the federal research and development tax credit which was not reflected in the tax rate in the first quarter of 2012, due to the expiration of the federal research tax credit for amounts paid or incurred after December 31, 2011.

As of March 31, 2012, the Company has $32.4 million of unrecognized tax benefits. The Company anticipates that except for $3.6 million in uncertain tax positions that may be reduced related to the lapse of various statutes of limitation, there will be no material changes in uncertain tax positions in the next 12 months.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense. As of March 31, 2012 and 2011, the Company had approximately $2.2 million and $2.0 million, respectively, of accrued interest and penalties related to uncertain tax positions.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH OUR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES. EXCEPT FOR HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. WHEN USED IN THIS REPORT, THE WORDS “MAY,” “BELIEVE,” “COULD,” “ANTICIPATE,” “WOULD,” “MIGHT,” “PLAN,” “EXPECT,” “WILL,” “INTEND,” “POTENTIAL,” “OBJECTIVE,” “STRATEGY,” “GOAL,” “SHOULD,” “VISION,” “DESIGNED,”AND SIMILAR EXPRESSIONS OR THE NEGATIVE OF THESE TERMS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS, INCLUDING, AMONG OTHER THINGS, STATEMENTS REGARDING OUR ANTICIPATED PRODUCTS, CUSTOMER AND GEOGRAPHIC REVENUE LEVELS AND MIX, GROSS MARGINS, OPERATING COSTS AND EXPENSES AND OUR CHANNEL INVENTORY LEVELS, INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN THE FORWARD LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE FUTURE RESULTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN “RISK FACTORS” IN THIS DOCUMENT, AS WELL AS OTHER INFORMATION FOUND IN THE DOCUMENTS WE FILE FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2011.

Overview

We are a global leader in standards-based unified communications (“UC”) solutions and a leading provider of telepresence, video, voice and infrastructure solutions based on open standards. With Polycom^® RealPresence^® video and voice solutions, from infrastructure to endpoints, people all over the world can collaborate face-to-face without being in the same physical location. Individuals and teams can connect, solve, decide, and create through a high-definition visual experience from their desktops, meeting rooms, classrooms, mobile devices, web browsers, and specialized solutions such as video carts for bedside conferences in hospitals between patients and remote physicians. By removing the barriers of distance and time, connecting experts to where they are needed most, and creating greater trust and understanding through visual connection, we enable people to make better decisions faster and to increase their productivity while saving time and money and being environmentally responsible.

We sell our solutions globally through a high-touch sales model that leverages our broad network of channel partners, including distributors, value-added resellers, system integrators, leading communications services providers, and retailers. We manufacture our products through an outsourced model optimized for quality, reliability, and fulfillment agility.

We believe important drivers for the adoption of Polycom UC solutions include:

•

growth of video as a preferred method of communication everywhere, including major growth markets such as Brazil, Russia, India, and China,

•

increasing presence of video on the desktop,

•

growth of video-capable mobile devices (including tablets and smartphones),

•

expansion of social business tools with integrated web-based video collaboration,

•

adoption of UC by small and medium businesses and governments globally,

•

growth of the number of teleworkers globally,

•

emergence of Bring Your Own Device (BYOD) programs in businesses of all sizes,

•

demand of UC solutions for business-to-business communications and the move of consumer applications into the business space, and

•

continued commitment by organizations and individuals to reduce their carbon footprint and expenses by choosing remote connectivity over travel.

We have developed a 2012 strategic plan that is designed to capture the emerging network effect of UC adoption by enterprise, public sector, service providers, SMBs, mobile and remote employees, and social business users. We believe we are uniquely positioned as the UC ecosystem partner of choice through our strategic partnerships, support of open standards, innovative technology and customer-centric go-to-market capabilities. Central to our 2012 strategic plan are five strategic imperatives:

•

Cloud-Based UC Solutions;

•

Mobile UC Solutions;

•

Focused Ecosystem Partnerships;

•

Polycom^® RealPresence^® Platform (an expansion of our former UC Intelligent Core Platform); and

•

Growth Markets.

We expect these strategic imperatives to drive our key initiatives and spending in 2012.

Revenues for the three months ended March 31, 2012 were $367.5 million, an increase of $23.3 million, or 7%, over the same period of 2011. On a year-over-year basis, our product revenues decreased 3% while our service revenues increased 53%. The decrease in product revenues was primarily a result of lower sales of our UC group systems, which was partially offset by increased sales of our UC personal devices. Revenues from our UC platform (formerly referred to as network infrastructure) products were essentially flat year-over-year. The increase in services revenue was driven primarily by increased managed service revenues as a result of our acquisition of the Hewlett-Packard visual collaboration (“HPVC”) business in the third quarter of 2011. From a segment perspective, the Americas, EMEA and APAC segment revenues, accounted for 49%, 27% and 24%, respectively, of our revenues in the first quarter of 2012, and increased by 2%, 17% and 7% respectively, as compared to the first quarter of 2011, primarily as a result of increased service revenues in all our segments. Total product revenues declined year-over-year in the Americas and APAC segments, but grew in the EMEA segment. See Note 13 of Notes to Condensed Consolidated Financial Statements for further information on our segments, including a summary of our segment revenues, segment contribution margin and segment gross accounts receivable. The discussion of results of operations at the consolidated level is also followed by a discussion of results of operations by segment for the three months ended March 31, 2012 and 2011.

While we generally experience slower revenue growth in the first quarter, in the first quarter of 2012, we also experienced a slower revenue growth rate than planned and our lowest year-over-year revenue growth rate since the fourth quarter of 2009. We believe the slower revenue growth we experienced was due to several factors, including a company and industry transition from point products to solution selling which resulted in some customers requiring additional time to consider a more UC centric strategy versus point product or end point only deployments; lower productivity of our sales force, particularly in North America, where we have recently made a number of changes; and lower government spending in key geographies such as China, India, Australia and the United States.

Operating margins decreased by 6 percentage points in the three months ended March 31, 2012 as compared to the comparable period in 2011, primarily due to operating expenses increasing in absolute dollars by 15% year-over-year, while revenues increased only 7%. Operating expenses increased as a percentage of revenue to 54% in 2012 from 49% in 2011. The increases in operating expenses included increases in sales and marketing expense, research and development expense and, to a lesser extent, general and administrative expense, in continuing support of our key strategic initiatives and in anticipation of higher revenue growth.

During the three months ended March 31, 2012, we generated approximately $32.0 million in cash flow from operating activities which, after the impact of investing and financing activities described in further detail under “Liquidity and Capital Resources,” resulted in a $14.8 million net increase in our total cash and cash equivalents.

Results of Operations for the Three Months Ended March 31, 2012 and 2011

The following table sets forth, as a percentage of revenues, condensed consolidated statements of operations data for the periods indicated.


	Three Months Ended
	March 31, 2012			March 31, 2011
Revenues:
Product revenues		76	%		83	%
Service revenues		24	%		17	%

Total revenues		100	%		100	%
Cost of revenues:
Cost of product revenues as a % of product revenues		41	%		39	%
Cost of service revenues as a % of service revenues		41	%		45	%

Total cost of revenues		41	%		40	%

Gross profit		59	%		60	%

Operating expenses:
Sales and marketing		31	%		29	%
Research and development		14	%		13	%
General and administrative		6	%		5	%
Amortization of purchased intangibles		1	%		0	%
Restructuring costs		1	%		1	%
Acquisition related costs		1	%		1	%

Total operating expenses		54	%		49	%

Operating income		5	%		11	%
Interest and other income (expense), net		0	%		1	%

Income before provision for income taxes		5	%		10	%
Provision for income taxes		1	%		0	%

Net income		4	%		10	%

Revenues

We manage our business primarily on a geographic basis, organized into three geographic segments. Our net revenues, which include product and service revenues, for each segment are summarized in the following table:


	Three Months Ended
$ in thousands	March 31, 2012			March 31, 2011			Increase
Americas	$	179,294		$	175,751			2	%
% of revenues		49	%		51	%
EMEA	$	100,467		$	86,077			17	%
% of revenues		27	%		25	%
APAC	$	87,707		$	82,337			7	%
% of revenues		24	%		24	%

Total revenues	$	367,468		$	344,165			7	%

Total revenues for the three months ended March 31, 2012 were $367.5 million, an increase of $23.3 million, or 7%, over the same period of 2011. The increase in revenue was due to a $31.2 million, or 53% increase in service revenues, partially offset by a decrease in product revenues of $7.9 million, or 3%, when comparing the three months ended March 31, 2012 to the comparable period in 2011. The increase in service revenue was primarily due to increased managed service revenues as a result of the HPVC business acquisition that we completed in the third quarter of 2011, and to a lesser extent increased maintenance revenue on a larger installed base. The decrease in product revenues was primarily a result of lower sales of our UC group systems, which was partially offset by increased sales of our UC personal devices. Revenues from our UC platform products were essentially flat year-over-year.

All segments reflected increases in revenues in the three months ended March 31, 2012 when compared with the same period in 2011. Our Americas, EMEA and APAC segment revenues increased by $3.5 million, or 2%, $14.4 million, or 17%, and $5.4 million, or 7%, respectively, during the three months ended March 31, 2012 as compared to the same period in 2011. These increases were driven by increased revenues across many of our key geographic markets, including Russia, Germany, France, Turkey, Korea, Canada and China, partially offset by decreases in Brazil, Spain, and Australia. Service revenues increased year-over-year in all our segments, while product revenues grew year-over-year in the EMEA segment, but declined in the Americas and APAC segments.

In the three months ended March 31, 2012 and 2011, one channel partner in our Americas segment accounted for more than 10% of our total net revenues. We believe it is unlikely that the loss of any of our channel partners would have a long term material adverse effect on our consolidated net revenues or segment net revenues as we believe end-users would likely purchase our products from a different channel partner. However, a loss of any one of these channel partners could have a material adverse impact during the transition period.

In addition to the primary view on a geographic basis, we also track revenues by groups of similar products and services for various purposes. The following table presents revenues for groups of similar products and services:


	Three Months Ended
$ in thousands	March 31, 2012		March 31, 2011		Increase
UC group systems	$	240,489	$	228,944		5	%
UC personal devices		67,210		62,067		8	%
UC platform (formerly referred to as “network infrastructure”)		59,769		53,154		12	%

Total revenues	$	367,468	$	344,165		7	%

UC group systems include all immersive telepresence, group video and group voice systems products and the related service elements. The increase in UC group systems of $11.5 million, or 5%, in 2012 over 2011 was primarily driven by increases in sales of our immersive telepresence services in all our geographic segments as a result of the HPVC acquisition. UC group systems revenues also grew year-over-year primarily due to increases in sales of our group video products and related services in the EMEA segment and, to a lesser extent increases in sales of our group voice products and related services in both the EMEA and APAC segments. These increases were partially offset by a decrease in sales of our group video products and related services in our Americas and APAC segments. UC group systems product revenues decreased 7% year-over-year, primarily as a result of decreased sales of our group video products in our Americas and APAC segments.

UC personal devices include desktop video devices, desktop voice and wireless LAN products and the related service elements. The increase in UC personal devices of $5.1 million, or 8%, in 2012 over 2011 was primarily due to increased sales of our desktop voice products in all our geographic segments, driven by the continued adoption of VoIP technologies. The increase was partially offset by decreased desktop video revenues in all geographic segments, and decreased revenues from wireless products and related services in the Americas and EMEA segments.

UC platform, which we previously referred to as “network infrastructure”, includes our RealPresence^® Platform hardware and software products and the related service elements. The increase in UC platform of $6.6 million, or 12%, in 2012 over 2011 was driven by increased revenues from our UC platform related service elements in all our segments. UC platform product revenues were essentially flat in the first three months of 2012 as compared to the first three months of 2011.

Cost of Revenues and Gross Margins


	Three Months Ended
$ in thousands	March 31, 2012			March 31, 2011			Increase/ (Decrease)
Product Cost of Revenues	$	114,526		$	111,987			2	%
% of Product Revenues		41	%		39	%		2	pts
Product Gross Margins		59	%		61	%		(2	) pts
Service Cost of Revenues	$	37,293		$	26,424			41	%
% of Service Revenues		41	%		45	%		(4	) pts
Service Gross Margins		59	%		55	%		4	pts
Total Cost of Revenues	$	151,819		$	138,411			10	%
% of Total Revenues		41	%		40	%		1	pts
Total Gross Margins		59	%		60	%		(1	)pts

Cost of Product Revenues and Product Gross Margins

Cost of product revenues consists primarily of contract manufacturer costs, including material and direct labor, our manufacturing organization, tooling depreciation, warranty expense, freight expense, royalty payments, amortization of certain intangible assets, stock-based compensation costs and an allocation of overhead expenses, including facilities and IT costs. Cost of product revenues and product gross

margins included charges for stock-based compensation of $1.0 million and $0.6 million for the three months ended March 31, 2012 and 2011, respectively. Cost of product revenues at the segment level consists of the standard cost of product revenues and does not include items such as warranty expense, royalties, and the allocation of overhead expenses, including facilities and IT costs.

Overall, product gross margins decreased by 2 percentage points in the three months ended March 31, 2012 as compared to the same period in 2011, due to lower than expected product sales volumes, increased discounting and decreased use of ocean freight which increased the cost of product revenues. These decreases were partially offset by lower warranty expense recorded in the three months ended March 31, 2012. Overhead absorption costs and other cost of sales such as freight, warranty and royalties are not allocated to our segments. While product gross margins increased slightly in our Americas and EMEA segments, product gross margins decreased significantly in our APAC segment in the three months ended March 31, 2012, as compared to the same period in the prior year. The year-over-year decrease in the product gross margins of our APAC segment was primarily driven by the mix shift toward lower margin products in UC group systems, as well as an increase in discounting.

Cost of Service Revenues and Service Gross Margins

Cost of service revenues consists primarily of material and direct labor, including stock-based compensation costs, depreciation, and an allocation of overhead expenses, including facilities and IT costs. Cost of service revenues and service gross margins included charges for stock-based compensation of $1.4 million and $0.6 million for the three months ended March 31, 2012 and 2011, respectively.

Overall, service gross margins increased by 4 percentage points in the three months ended March 31, 2012 as compared to the same period in 2011, due to increased revenues from our maintenance services and decreased costs as a percentage of revenues associated with the delivery of services due to higher productivity of services employees. Services gross margins increased in our Americas segment, remained relatively flat in our EMEA segment and decreased in our APAC segment primarily due to the higher productivity of services employees, partially offset by the higher network circuit costs for providing managed services in APAC.

We expect gross margins to remain relatively flat in the near term. Forecasting future gross margin percentages is difficult, and there are a number of risks related to our ability to maintain or improve our current gross margin levels. Our cost of revenues as a percentage of revenue can vary significantly based upon a number of factors such as the following: uncertainties surrounding revenue levels, including future pricing and/or potential discounts as a result of the economy or in response to the strengthening of the U.S. dollar in our international markets, and related production level variances; competition; the extent to which new services sales accompany our product sales, as well as maintenance renewal rates; changes in technology; changes in product mix; variability of stock-based compensation costs; the potential of royalties to third parties; utilization of our professional services personnel as we develop our professional services practice and as we make investments to expand our professional services offerings; increasing costs for freight and repair costs; our ability to achieve greater efficiencies in the installations of our immersive telepresence products; manufacturing efficiencies of subcontractors; manufacturing and purchase price variances; warranty and recall costs and the timing of sales. In addition, we may experience higher prices on commodity components that are included in our products. In order to control expenses in any given quarter, we have taken actions to reduce costs such as imposing travel restrictions, postponing salary increases, requesting employees to use paid time off or implementing other cost control measures. Such actions may not be able to be implemented in a timely manner or may not be successful in completely offsetting the impact of lower-than-anticipated revenues.

Sales and Marketing Expenses


	Three Months Ended						Increase
$ in thousands	March 31, 2012			March 31, 2011			Increase
Expenses	$	113,679		$	100,621			13	%
% of Revenues		31	%		29	%		2	pts

Sales and marketing expenses consist primarily of salaries and commissions for our sales force, including stock-based compensation costs, advertising and promotional expenses, product marketing expenses, and an allocation of overhead expenses, including facilities and IT costs. Sales and marketing expenses, except for direct sales and marketing expenses, are not allocated to our segments. Sales and marketing expenses included charges for stock-based compensation of $7.7 million and $4.8 million for the three month periods ended March 31, 2012 and 2011, respectively.

Sales and marketing expenses increased by $13.1 million, or 13%, and increased by 2 percentage points as a percentage of revenues in 2012 as compared to 2011. The increase in sales and marketing expenses was due primarily to increased headcount and compensation-related costs, including commissions and stock-based compensation charges. Sales and marketing headcount increased by 9% in the first quarter of 2012 as compared to the same period in 2011. Depreciation and facilities allocations also increased as a result of headcount increases. Other factors contributing to the increase in sales and marketing expenses included increases in outside services, travel and entertainment expenses, recruitment and spending on marketing programs.

We expect our sales and marketing expenses to continue to increase modestly in absolute dollars in the near term as a result of incurring costs to recruit and hire new sales and marketing personnel, and expenses will also likely increase in the future as revenues increase. We will also make targeted investments in sales and marketing in order to extend our market reach and grow our business in support of our key strategic initiatives surrounding increasing our strategic partnerships as part of our UC ecosystem and developing and marketing cloud-based and mobile UC solutions, our RealPresence Platform and other innovations that are expected throughout 2012.

Forecasting sales and marketing expenses as a percentage of revenue is highly dependent on expected revenue levels and could vary significantly depending on actual revenues achieved in any given quarter. Marketing expenses will also fluctuate depending upon the timing and extent of marketing programs as we market new products and also depending upon the timing of trade shows. Sales and marketing expenses may also fluctuate due to increased international expenses and the impact of changes in foreign currency exchange rates.

Research and Development Expenses


	Three Months Ended						Increase
$ in thousands	March 31, 2012			March 31, 2011			Increase
Expenses	$	52,097		$	44,231			18	%
% of Revenues		14	%		13	%		1	pt

Research and development costs are expensed as incurred and consist primarily of compensation costs, including stock-based compensation costs, outside services, expensed materials, depreciation and an allocation of overhead expenses, including facilities and IT costs. Research and development costs are not allocated to our segments. Research and development expenses included charges for stock-based compensation of $4.8 million and $2.4 million for the three months ended March 31, 2012 and 2011, respectively.

Research and development expenses increased by $7.9 million, or 18%, and increased by 1 percentage point as a percentage of revenue during the three months ended March 31, 2012, as compared to the same period in 2011. The increase is primarily due to increased headcount and compensation-related costs, including stock-based compensation. Facilities allocations and depreciation also increased as a result of the increase in headcount. Research and development headcount increased by 20% at March 31, 2012, as compared to March 31, 2011.

We believe that innovation and technological leadership is critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies and products. We are also investing more heavily in research and development as a result of increased business opportunities with strategic partners, mobile and service provider customers as a result of our key strategic initiatives in these areas. We expect that research and development expenses in absolute dollars will remain relatively flat in the near term but will fluctuate depending on the timing and number of development activities in any given quarter. Research and development expenses as a percentage of revenue is highly dependent on expected revenue levels and could vary significantly depending on actual revenues achieved in any given quarter.

General and Administrative Expenses


	Three Months Ended						Increase
$ in thousands	March 31, 2012			March 31, 2011			Increase
Expenses	$	21,638		$	18,429			17	%
% of Revenues		6	%		5	%		1	pt

General and administrative expenses consist primarily of compensation costs, including stock-based compensation costs, professional service fees, allocation of overhead expenses, including facilities and IT costs, litigation costs and bad debt expense. General and administrative expenses are not allocated to our segments. General and administrative expenses included charges for stock-based compensation of $3.3 million and $1.8 million for the three months ended March 31, 2012 and 2011, respectively.

General and administrative expenses increased by $3.2 million or 17% and increased by 1 percentage point as a percentage of revenues during the three months ended March 31, 2012, as compared to the same period in 2011. The increase is primarily due to increased headcount of 12% as of March 31, 2012 as compared to March 31, 2011, and compensation-related costs, including stock-based compensation. The remaining increase in general and administrative expenses was due to an increase in legal and other administrative expenses, and to a lesser extent, increases in bad debt expense and in travel and training costs.

Significant future charges due to costs associated with litigation or uncollectability of our receivables could increase our general and administrative expenses and negatively affect our profitability in the quarter in which they are recorded. Additionally, predicting the timing of litigation and bad debt expense associated with uncollectible receivables is difficult. Future general and administrative expense increases or decreases in absolute dollars are difficult to predict due to the lack of visibility of certain costs, including legal costs associated with defending claims against us, as well as legal costs associated with asserting and enforcing our intellectual property portfolio and other factors.

We expect that our general and administrative expenses will remain relatively flat in absolute dollar amounts in the near term, but could fluctuate as we make investments in enhancements to our financial and operating systems and other costs related to supporting a larger company, increased costs associated with regulatory requirements, and our continued investments in international regions. General and administrative expenses may also increase as a result of additional investments required to support our key strategic initiatives.

Amortization of Purchased Intangibles

In the three months ended March 31, 2012 and 2011, we recorded $3.4 million and $1.4 million of amortization of purchased intangibles, respectively. The increase is primarily due to the amortization of purchased intangibles acquired from Accordent in the first quarter of 2011, from HPVC in the third quarter of 2011, and from ViVu in the fourth quarter of 2011. Purchased intangible assets are being amortized to expense over their estimated useful lives, which range from several months to eight years.

Restructuring

During the three months ended March 31, 2012, we recorded $2.9 million in restructuring charges related to a restructuring plan approved in the fourth quarter of 2011 which is designed to better align and allocate resources to more strategic growth areas of the business. The actions taken during the quarter ended March 31, 2012 were primarily related to the reorganization of our global go-to-market and other organizations. We currently expect to record additional restructuring charges of approximately $1.3 million in the second quarter of 2012 related to this action.

In addition, we have plans to consolidate and eliminate certain facilities in order to gain efficiencies, including the combination of our headquarters and San Jose and Santa Clara, California operations into one new location in San Jose, California. The restructuring plan that was committed to in 2011 was expected to result in restructuring charges related to idle facilities of approximately $12.0 million upon vacating of the facilities in the second quarter of 2012. During the three months ended March 31, 2012, we revised our estimate of restructuring charges related to idle facilities, and as a result, we expect to record approximately $8.7 million in additional restructuring charges related to idle facilities upon vacating these facilities in the second quarter of 2012.

During the three months ended March 31, 2011, we recorded $2.6 million in restructuring charges related to ongoing reorganizations under the then new leadership team, which resulted in the elimination of 51 positions worldwide and enabled the hiring of additional positions to better align with the execution of our strategic initiatives.

See Note 6 of Notes to Condensed Consolidated Financial Statements for further information on restructuring costs.

In the future, we may take additional restructuring actions to gain operating efficiencies or reduce our operating expenses, while simultaneously implementing additional cost containment measures and expense control programs. Such restructuring actions are subject to significant risks, including delays in implementing expense control programs or workforce reductions and the failure to meet operational targets due to the loss of employees or a decrease in employee morale, all of which would impair our ability to achieve anticipated cost reductions. If we do not achieve the anticipated cost reductions, our financial results could be negatively impacted.

Acquisition-related Costs

We expense all acquisition-related costs as incurred. These costs generally include outside services for legal and accounting fees and other integration services. In addition, it includes the amortization of cash merger consideration over the vesting term related to the ViVu acquisition. We have spent and will continue to spend significant resources identifying and acquiring businesses and pursuing other strategic business opportunities. During the three months ended March 31, 2012 and 2011, we recorded $1.9 million and $2.3 million of acquisition-related costs, respectively, related to these activities.

Interest and Other Income (Expense), Net

Interest and other income (expense), net, consists primarily of interest earned on our cash, cash equivalents and investments less bank charges resulting from the use of our bank accounts, gains and losses on investments, non-income related taxes and fees and foreign exchange related gains and losses. Interest and other income (expense) was a net expense of $1.8 million and $1.3 million during the three months ended March 31, 2012 and 2011, respectively.

The net expense increased in the three months ended March 31, 2012 compared to the same period in the prior year primarily due to a foreign exchange loss of $1.1 million recorded during the three months ended March 31, 2012 as compared to a foreign exchange gain of $0.2 million during the same period in 2011. This increase is partially offset by the $0.5 million recognized in the first quarter of 2011 related to investments that we considered to be other than temporarily impaired when no such impairment was recorded in the same period in 2012. The increase is also partially offset by a decrease of $0.4 million in non-income related taxes and fees.

Interest and other income (expense), net, will fluctuate due to changes in interest rates and returns on our cash and investments, any future impairment of investments, foreign currency rate fluctuations on un-hedged exposures, fluctuations in costs associated with our hedging program and timing of non-income related taxes and license fees. The cash balance could also decrease depending upon the amount of cash used in any future acquisitions, our stock repurchase activity and other factors, which would also impact our interest income.

Provision for Income Taxes

Our overall effective tax rate for the three months ended March 31, 2012 and 2011 was 17.1% and 2.6%, respectively, which resulted in a provision for income taxes of $3.1 million and $0.9 million, respectively. The increase in the effective tax rate for the three months ended March 31, 2012 as compared to the same period in 2011 was primarily related to a discrete benefit recorded in the first quarter of 2011 for the release of $7.5 million in tax reserves inclusive of interest associated with the resolution of a multi-year income tax audit. Partially offsetting

the effect of the benefit from the reserve releases was a relative increase in foreign earnings subject to lower tax rates in the quarter ending March 31, 2012 as compared to the same period in the prior year. In addition, for the three months ended March 31, 2011, the effective tax rate reflects the benefit of the federal research and development tax credit which was not reflected in the tax rate in the first quarter of 2012, due to the expiration of the federal research tax credit for amounts paid or incurred after December 31, 2011.

During the three months ended March 31, 2011, we released $6.8 million in tax reserves exclusive of interest and penalties. The reserve release was associated with the resolution of a multi-year tax audit. As of March 31, 2012, we have $32.4 million of unrecognized tax benefits. We anticipate that except for $3.6 million in uncertain tax positions that may be reduced related to the lapse of various statutes of limitation, there will be no material changes in uncertain tax positions in the next 12 months.

We recognize interest and/or penalties related to income tax matters in income tax expense. As of March 31, 2012 and 2011, we had approximately $2.2 million and $2.0 million, respectively, of accrued interest and penalties related to certain tax positions.

We are also subject to the periodic examination of our income tax returns by the Internal Revenue Service (“IRS”) and other tax authorities, and in some cases we have received additional tax assessments. The timing of the resolution of income tax examinations is highly uncertain and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. While it is reasonably possible that some issues in current on-going tax examinations could be resolved within the next 12 months, based on the current facts and circumstances, we cannot estimate the timing of such resolution or the range of potential changes as it relates to the unrecognized tax benefits that are recorded as part of our financial statements. We do not expect any material settlements in the next 12 months, but the outcome of the examinations is inherently uncertain.

Segment Information

A description of our products and services, as well as selected financial data, for each segment can be found in Note 13 to Condensed Consolidated Financial Statements. Future changes to our organizational structure or business may result in changes to the reportable segments disclosed. The discussions below include the results of each of our segments for the three months ended March 31, 2012 and 2011.

Segment contribution margin includes all segment revenues less the related cost of sales and direct marketing and sales expenses. Management allocates some infrastructure costs such as facilities and IT costs in determining segment contribution margin. Contribution margin is used, in part, to evaluate the performance of, and to allocate resources to, each of the segments. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated costs include corporate manufacturing costs, sales and marketing costs other than direct sales and marketing, stock-based compensation costs, research and development costs, general and administrative costs, such as legal and accounting costs, acquisition-related costs, amortization of purchased intangible assets, restructuring costs and interest and other income (expense), net.


	Three Months Ended
$ in thousands	March 31, 2012			March 31, 2011			Increase
Americas	$	179,294		$	175,751			2	%
% of revenues		49	%		51	%
EMEA	$	100,467		$	86,077			17	%
% of revenues		27	%		25	%
APAC	$	87,707		$	82,337			7	%
% of revenues		24	%		24	%

Total revenues	$	367,468		$	344,165			7	%

The following is a summary of the financial information for each of our segments for the three month periods ended March 31, 2012 and 2011 (in thousands):


	Americas			EMEA			APAC			Total
2012:
Revenue	$	179,294		$	100,467		$	87,707		$	367,468
% of total revenue		49	%		27	%		24	%		100	%
Contribution margin		75,624			42,961			36,182			154,767
% of segment revenue		42	%		43	%		41	%		42	%
2011:
Revenue	$	175,751		$	86,077		$	82,337		$	344,165
% of total revenue		51	%		25	%		24	%		100	%
Contribution margin		72,234			33,064			40,598			145,896
% of segment revenue		41	%		38	%		49	%		42	%

Americas


	Three Months Ended
$ in thousands	March 31, 2012			March 31, 2011			Increase
Revenue	$	179,294		$	175,751			2	%
Contribution margin	$	75,624		$	72,234			5	%
Contribution margin as % of Americas revenues		42	%		41	%		1	pt

Our Americas segment revenues increased by 2% in the three months ended March 31, 2012 as compared with 2011, primarily due to increased revenues in Canada, Argentina, Chile and Peru. The increases in these countries were partially offset by decreases in Brazil and Mexico. Revenues in the United States were essentially flat year-over-year. The increase in revenues was driven by increases in our UC personal devices and UC platform revenues partially offset by a decrease in UC group systems revenues. UC platform revenues growth was as a result of increased sales of our RealPresence Platform services. Increases in UC personal devices revenues in the Americas were primarily driven by increased desktop voice revenues resulting from continued adoption of VoIP technologies. Decreases in UC group systems revenues were primarily driven by decreased group video revenues, partially offset by an increase in immersive telepresence revenues as a result of increased managed services revenues due to the HPVC acquisition in the third quarter of 2011. While service revenues grew year-over-year in the Americas, product revenues declined by 7% year-over-year, due to a decrease in UC group product sales, which was only partially offset by increased sales of our UC personal products. Revenues from our UC platform products were essentially flat year-over-year.

In both the three months ended March 31, 2012 and 2011, one channel partner in our Americas segment accounted for 27% of our Americas net revenues. We believe it is unlikely that the loss of any of our channel partners would have a long term material adverse effect on our consolidated net revenues or segment net revenues as we believe end-users would likely purchase our products from a different channel partner. However, a loss of any one of these channel partners could have a material adverse impact during the transition period.

Contribution margin as a percentage of the Americas segment revenues was 42% and 41% for the three months ended March 31, 2012 and 2011, respectively. The contribution margin as a percentage of revenue increased due primarily to increased gross margins. The increase in gross margins was driven primarily by the increase in services gross margins in the Americas as a result of increased revenues from our maintenance services and deceased costs as a percentage of revenue. Direct sales and marketing expenses increased in absolute dollars but remained relatively flat as a percentage of revenues. The increases in absolute dollars were primarily due to increased headcount and headcount-related expenses. Contribution margin as a percentage of revenue will fluctuate in 2012 as we continue to take actions to optimize our North American sales organization.

EMEA


	Three Months Ended
$ in thousands	March 31, 2012			March 31, 2011			Increase
Revenue	$	100,467		$	86,077			17	%
Contribution margin	$	42,961		$	33,064			30	%
Contribution margin as % of EMEA revenues		43	%		38	%		5	pts

Our EMEA segment revenues increased by 17% in the three months ended March 31, 2012 as compared with the same period in 2011, due to broad-based growth throughout most of EMEA, being led by growth in Russia, Turkey, Germany, France and Benelux, partially offset by decreases in Spain and the Nordic countries. The overall increase in revenues was driven by increases in our UC group systems and UC personal devices revenues, and to a lesser extent UC platform revenues. Increases in UC group systems revenues in EMEA were primarily driven by increased group video revenues, increased immersive telepresence revenues and to a lesser extent, increased group voice revenues. Increases in UC personal devices revenues were primarily driven by increased desktop voice sales resulting from continued adoption of VoIP technologies, partially offset by decreases in wireless and desktop video revenues. UC platform revenues growth was a result of increased services related to our RealPresence Platform, which was partially offset by a year-over-year decrease in UC platform product revenues.

In both the three months ended March 31, 2012 and 2011, one channel partner in our EMEA segment accounted for 11% of our EMEA net revenues. We believe it is unlikely that the loss of any of our channel partners would have a long term material adverse effect on our consolidated net revenues or segment net revenues as we believe end-users would likely purchase our products from a different channel partner. However, a loss of any one of these channel partners could have a material adverse impact during the transition period.

Contribution margin as a percentage of EMEA segment revenues was 43% in the three months ended March 31, 2012 as compared to 38% in the three months ended March 31, 2011. The contribution margin as a percentage of revenue increased primarily due to higher gross margins and lower direct sales and marketing expenses as a percentage of revenues. The increase in gross margins was driven primarily by a mix shift toward revenues from higher margin products in UC group systems and lower overhead product costs. Direct sales and marketing expenses increased slightly in absolute dollars, but decreased as a percentage of revenues. The decrease in direct sales and marketing expenses as a percentage of revenue was due primarily to increased productivity of our sales force.

APAC


	Three Months Ended
$ in thousands	March 31, 2012			March 31, 2011			Increase/ (Decrease)
Revenue	$	87,707		$	82,337			7	%
Contribution margin	$	36,182		$	40,598			(11	%)
Contribution margin as % of APAC revenues		41	%		49	%		(8	)pts

Our APAC segment revenues increased by 7% in the three months ended March 31, 2012 as compared with the corresponding period in 2011. Increased revenues from Korea, China and India contributed to the growth in APAC. The overall increase in revenues was driven by increases in our UC group systems, UC platform, and to a lesser extent, UC personal devices revenues. Increases in UC group systems revenues were primarily driven by increased immersive telepresence revenues associated with our managed services acquired in the HPVC acquisition in the third quarter of 2011, and increased group voice revenues, partially offset by decreased group video revenues. UC platform revenues growth was a result of increased sales of the products and services that comprise our RealPresence^® Platform. Increases in UC personal devices revenues were primarily driven by increased desktop voice sales resulting from continued adoption of VoIP technologies, partially offset by a decrease in desktop video revenues. While service revenues grew year-over-year, APAC product revenues declined by 3% year-over-year, due to a decrease in UC group product sales, which was only partially offset by increased sales of our UC personal and UC platform products.

In the three months ended March 31, 2012, two channel partners in our APAC segment, in aggregate, accounted for 36% of our APAC net revenues. In the three months ended March 31, 2011, two channel partner in our APAC segment accounted for 33% of our APAC net revenues. We believe it is unlikely that the loss of any of our channel partners would have a long term material adverse effect on our consolidated net revenues or segment net revenues as we believe end-users would likely purchase our products from a different channel partner. However, a loss of any one of these channel partners could have a material adverse impact during the transition period.

Contribution margin as a percentage of APAC segment revenues was 41% in the three months ended March 31, 2012 as compared to 49% in the three months ended March 31, 2011. The contribution margin as a percentage of revenue decreased primarily due to lower gross margins and higher direct sales and marketing expenses as a percentage of revenues. The decrease in gross margin was primarily due to a mix shift toward lower margin products in UC group systems and the increased cost in maintaining the network circuits for our managed services offerings, as well as an increase in discounting. Direct sales and marketing expenses increased in absolute dollars in 2012 as compared to 2011 due to the continued investment in growing countries in APAC. Direct sales and marketing expenses increased as a percentage of revenues as a result of the lower than anticipated revenues.

Liquidity and Capital Resources

As of March 31, 2012, our principal sources of liquidity included cash and cash equivalents of $390.3 million, short-term investments of $173.9 million and long-term investments of $53.8 million. Substantially all of our short-term and long-term investments are comprised of U.S. government and agency securities and corporate debt securities. See Note 8 of Notes to our Condensed Consolidated Financial Statements for further information on our short-term and long-term investments. We also have outstanding letters of credit totaling approximately $3.9 million, the majority of which are in place to satisfy certain of our facility lease requirements.

Our total cash and cash equivalents and investments held in the United States totaled $216.6 million as of March 31, 2012, and the remaining $401.4 million was held by various foreign subsidiaries outside of the United States.

If we would need to access our cash and cash equivalents and investments held outside of the United States in order to fund acquisitions, share repurchases or our working capital needs, we may be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.

We generated cash from operating activities totaling $32.0 million in the three months ended March 31, 2012, compared to $45.6 million in the comparable period of 2011. The decrease in cash provided from operating activities for the three months ended March 31, 2012 was due primarily to decreased net income after adjustment of non-cash expenses, increased inventories and prepaid expenses and other assets, and a decrease in other accrued liabilities. Partially offsetting these negative effects were decreases in trade receivables, and deferred taxes, and an increase in taxes payable.

The total net change in cash and cash equivalents for the three months ended March 31, 2012 was an increase of $14.8 million. The primary sources of cash were $32.0 million from operating activities, $14.6 million associated with the exercise of stock options and purchases under the employee stock purchase plan and $4.9 million in excess tax benefits from stock-based compensation. The primary uses of cash during this period $15.8 million for purchases of property and equipment, $11.3 million of purchases of investments, net of proceeds from sales and maturities and $9.7 million for purchases of our common stock to satisfy tax withholding obligations as a result of the vesting of performance shares and restricted stock units. The positive cash from operating activities was primarily the result of net income, adjusted for non-cash expenses and other items (such as depreciation, amortization, inventory write-downs for excess and obsolescence, provision for doubtful accounts, loss on disposal of property and equipment and non-cash stock based compensation), decreases in trade receivables, and deferred taxes and an increase in taxes payable. Partially offsetting the positive effect of these items were increases in inventories, prepaid expenses and other assets and a decrease in other accrued liabilities.

Our days sales outstanding, or DSO, metric was 52 days at March 31, 2012 compared to 46 days at March 31, 2011. The increase in DSO is due in part to increased mix of international receivables, which typically have longer payment terms. We expect to continue to experience upward pressure on our DSO as a result of the increase in international receivables. DSO could vary as a result of a number of factors such as fluctuations in revenue linearity, a change in the mix of international receivables, and increases in receivables from service providers and government entities, which also have customarily longer payment terms. DSO could also be negatively impacted if our partners experience difficulty in financing purchases, which results in delays in payment to us.

Our March 31, 2012 inventory levels increased compared to the year ago period and our inventory turns were 5.0 turns at March 31, 2012 as compared to 4.8 turns at March 31, 2011. Inventory turns in the future will fluctuate depending on our ability to reduce lead times, as well as changes in product mix. Our inventory turns may also decrease in the future as a result of the flexibility required to respond to the increased demands of our business.

We enter into foreign currency forward contracts, which typically mature in one month, to hedge our exposure to foreign currency fluctuations of foreign currency-denominated receivables, payables, and cash balances. We record on the condensed consolidated balance sheet at each reporting period the fair value of our foreign currency forward contracts and record any fair value adjustments in results of operations. Gains and losses associated with currency rate changes on contracts are recorded as interest and other income (expense), net, offsetting transaction gains and losses on the related assets and liabilities. Additionally, our hedging costs can vary depending upon the size of our hedge program, whether we are purchasing or selling foreign currency relative to the U.S. dollar and interest rates spreads between the U.S. and other foreign markets.

Additionally, we also have a hedging program that uses foreign currency forward contracts to hedge a portion of anticipated revenues and operating expenses denominated in the Euro and British Pound as well as operating expenses denominated in Israeli Shekels. Our foreign exchange risk management program objective is to reduce volatility in our cash flows from unanticipated foreign currency fluctuations. At each reporting period, we record the fair value of our unrealized forward contracts on the condensed consolidated balance sheet with related unrealized gains and losses as a component of accumulated other comprehensive income, a separate element of stockholders’ equity. Realized gains and losses associated with the effective portion of the foreign currency forward contracts are recorded within revenue or operating expense, depending upon the underlying exposure being hedged. Any excluded and ineffective portions of a hedging instrument would be recorded as interest and other income (expense), net.

From time to time, the Board of Directors has approved plans to purchase shares of our common stock in the open market. During the three months ended March 31, 2012 and 2011, we did not purchase any shares of our common stock in the open market. As of March 31, 2012, the Company was authorized to purchase up to an additional $78.0 million of shares in the open market under the current share repurchase plan. See Note 10 of our Notes to Condensed Consolidated Financial Statements for a discussion of the accounting for our common stock repurchases and the related reduction to retained earnings included in stockholder’s equity in our condensed consolidated balance sheets.

At March 31, 2012, we had open purchase orders related to our contract manufacturers and other contractual obligations of approximately $226.1 million primarily related to inventory purchases. We also currently have commitments that consist of obligations under our operating leases. In the event that we decide to cease using a facility and seek to sublease such facility or terminate a lease obligation through a lease buyout or other means, we may incur a material cash outflow at the time of such transaction, which will negatively impact our operating results and overall cash flows. In addition, if facilities rental rates decrease or if it takes longer than expected to sublease these facilities, we could incur a significant further charge to operations and our operating and overall cash flows could be negatively impacted in the period that these changes or events occur.

These purchase commitments and lease obligations are reflected in our Condensed Consolidated Financial Statements once goods or services have been received or at such time that we are obligated to make payments related to these goods, services or leases. The table set forth below shows, as of March 31, 2012, the future minimum lease payments due under our current lease obligations. There was no sublease income netted in the amounts below. In addition to these minimum lease payments, we are contractually obligated under the majority of our operating leases to pay certain operating expenses during the term of the lease such as maintenance, taxes and insurance. Our contractual obligations as of March 31, 2012 are as follows (in thousands):


	Net Minimum Lease Payments		Projected Annual Operating Costs		Other Long-Term Liabilities		Purchase Commitments
Three months ending March 31,
Remainder of 2012	$	15,494	$	2,629	$	—	$	222,928
2013		23,100		3,141		1,298		3,210
2014		25,885		2,304		1,532		—
2015		21,567		1,652		1,422		—
2016		19,087		1,350		2,403		—
Thereafter		70,012		2,083		7,637		—

Total payments	$	175,145	$	13,159	$	14,292	$	226,138

As discussed in Note 14 of our Notes to Condensed Consolidated Financial Statements, at March 31, 2012, we have unrecognized tax benefits, including related interest, totaling $34.6 million, $3.6 million of which may be released in the next 12 months due to the lapse of certain statutes of limitation in the applicable tax jurisdictions. In addition, payments we make for income taxes may increase during 2012 as our available net operating losses and research and development tax credits are depleted.

We believe that our available cash, cash equivalents and investments will be sufficient to meet our operating expenses and capital requirements for the next 12 months based on our current business plans. However, we may require or desire additional funds to support our operating expenses and capital requirements or for other purposes, such as acquisitions, and may seek to raise such additional funds through public or private equity financing, debt financing or from other sources. We cannot assure you that additional financing will be available at all or that, if available, such financing will be obtainable on terms favorable to us and would not be dilutive. Our future liquidity and cash requirements will depend on numerous factors, including the introduction of new products and potential acquisitions of related businesses or technology.

Off-Balance Sheet Arrangements

As of March 31, 2012, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. We review the accounting policies used in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our process used to develop estimates, including those related to product returns, accounts receivable, inventories, investments, intangible assets, income taxes, warranty obligations, restructuring, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. These estimates and judgments are reviewed by management on an ongoing basis and by the Audit Committee at the end of each quarter prior to the public release of our financial results.

Our significant accounting policies were described in Note 1 to our audited Consolidated Financial Statements and under “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2011. There have been no significant changes to these policies or recent accounting pronouncements or changes in accounting pronouncements that are of potential significance to us during the three months ended March 31, 2012.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We generally invest excess cash in marketable debt instruments of the U.S. government and its agencies and high-quality corporate debt securities, and by policy, limit the amount of credit exposure to any one issuer.

The estimated fair value of our cash and cash equivalents approximates the principal amounts reflected in our condensed consolidated balance sheets based on the short maturities of these financial instruments. Short-term and long-term investments consist of U.S. government obligations and foreign and domestic public corporate debt securities. The valuation of our investment portfolio is subject to uncertainties that are difficult to predict, particularly in light of credit market instability. If the current market conditions deteriorate, or the anticipated recovery in market values does not occur, we may realize losses on the sale of our investments or we may incur further temporary impairment charges requiring us to record additional unrealized losses in cumulative other comprehensive income (loss). We could also incur additional other-than-temporary impairment charges resulting in realized losses in our condensed consolidated statements of operations, which would reduce net income. We consider various factors in determining whether we should recognize an impairment charge, including the length of time and extent to which the fair value has been less than our cost basis, the financial condition and near-term prospects of the security or issuer, and our intent and ability to hold the investment for a period of time sufficient to allow any anticipated recovery in the market value. Further, if we sell our investments prior to their maturity, we may incur a charge to operations in the period the sale takes place.

A sensitivity analysis was performed on our investment portfolio as of March 31, 2012. The modeling technique used measures the change in fair values arising from hypothetical parallel shifts in the yield curve of various magnitudes. This methodology assumes a more immediate change in interest rates to reflect the current economic environment.

The following table presents the hypothetical fair values of our securities, excluding cash and cash equivalents, held at March 31, 2012 that are sensitive to changes in interest rates. The modeling technique used measures the change in fair values arising from immediate parallel shifts in the yield curve of plus or minus 50 basis points (BPS), 100 BPS and 150 BPS (in thousands):

-150 BPS

-100 BPS

-50 BPS

Fair Value

3/31/2012

+50 BPS

+100 BPS

+150 BPS

$228,629

$228,330

$228,032

$227,734

$227,435

$227,137

$226,838

Foreign Currency Exchange Rate Risk

While the majority of our sales are denominated in United States dollars, we also sell our products and services in certain European regions in Euros and in British Pounds, which has increased our foreign currency exchange rate fluctuation risk.

While we do not hedge for speculative purposes, as a result of our exposure to foreign currency exchange rate fluctuations, we enter into forward exchange contracts to hedge our foreign currency exposure to the Euro, British Pound, Israeli Shekel, Brazilian Real, Japanese Yen, and Mexican Peso relative to the United States Dollar. We mitigate bank counterparty risk related to our foreign currency hedging program through our policy that requires us to execute hedge contracts with banks that are among the world’s largest 100 banks, as ranked by total assets in U.S. dollars.

As of March 31, 2012, we had outstanding forward exchange contracts to sell 7.2 million Euros at 1.34, sell 5.0 million British Pounds at 1.58, sell 6.8 million Israeli Shekels at 3.66, sell 5.8 million Mexican Pesos at 12.87, sell 2.7 million Brazilian Real at sell 1.77 and sell 136.9 million Japanese Yen at 83.51. These forward exchange contracts hedge our net position of foreign currency-denominated receivables, payables and cash balances and typically mature in 360 days or less. As of March 31, 2012, we also had net outstanding foreign exchange contracts to sell 23.3 million Euros at 1.37, sell 0.6 million British Pounds at 1.59 and buy 18.9 million Israeli Shekels at 3.53. These forward exchange contracts, carried at fair value, typically have maturities of more than 360 days.

We also have a cash flow hedging program under which we hedge a portion of anticipated revenues and operating expenses denominated in the Euro, British Pound and Israeli Shekels. As of March 31, 2012, we had net outstanding foreign exchange contracts to sell 0.7 million Euros at 1.47, buy 2.1 million British Pounds at 1.58 and buy 10.4 million Israeli Shekels at 3.76. These forward exchange contracts, carried at fair value, typically have maturities of less than 360 days. As of March 31, 2012, we also had net outstanding foreign exchange contracts to sell 45.7 million Euros at 1.36, sell 0.3 million British Pounds at 1.51 and buy 57.0 million Israeli Shekels at 3.68. These forward exchange contracts, carried at fair value, typically have maturities of more than 360 days.

Based on our overall currency rate exposure as of March 31, 2012, a near-term 10% appreciation or depreciation in the United States Dollar, relative to our foreign local currencies, would have an immaterial impact on our results of operations. We may also decide to expand the type of products we sell in foreign currencies or may, for specific customer situations, choose to sell in foreign currencies in our other regions, thereby further increasing our foreign exchange risk. See Note 9 of Notes to Condensed Consolidated Financial Statements for further information on our foreign exchange derivatives.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to Polycom’s management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures include components of our internal control over financial reporting. Management’s assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met.

Changes in internal control over financial reporting.

There was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

From time to time, we are involved in claims and legal proceedings that arise in the ordinary course of business. We expect that the number and significance of these matters will increase as our business expands. In particular, we expect to face an increasing number of patent and other intellectual property claims as the number of products and competitors in our industry grows and the functionality of video, voice, data and web conferencing products overlap. Any claims or proceedings against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, result in the diversion of significant operational resources, or require us to enter into royalty or licensing agreements which, if required, may not be available on terms favorable to us or at all. If management believes that a loss arising from these matters is probable and can be reasonably estimated, we record the amount of the loss. As additional information becomes available, any potential liability related to these matters is assessed and the estimates revised. Based on currently available information, management does not believe that the ultimate outcomes of these unresolved matters, individually and in the aggregate, are likely to have a material adverse effect on our financial position, liquidity or results of operations. However, litigation is subject to inherent uncertainties, and our view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on our financial position and results of operations or liquidity for the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.

ITEM 1A.

RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN INVESTMENT DECISION. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE. ADDITIONAL RISKS THAT WE ARE NOT PRESENTLY AWARE OF OR THAT WE CURRENTLY BELIEVE ARE IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. OUR BUSINESS COULD BE HARMED BY ANY OR ALL OF THESE RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE SIGNIFICANTLY DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. IN ASSESSING THESE RISKS, YOU SHOULD ALSO REFER TO THE OTHER INFORMATION CONTAINED IN OUR ANNUAL REPORT ON FORM 10-K, INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES.

Competition in each of our markets is intense, and our inability to compete effectively could significantly harm our business and results of operations.

Competition that we face in the Americas, EMEA, and Asia Pacific for our UC solutions and UC platform products is intense and it will likely intensify and could place increased pressure on average selling prices for our products. Some of our competitors compete with us in more than one geographic theater and across all of our product categories. Our major global competitor is Cisco Systems. Our other global competitors include Logitech, Avaya, RADVISION, which is being acquired by Avaya, Huawei, and Motorola, Inc. We also compete with other smaller or new industry entrants.

Our competitive landscape continues to rapidly evolve as we move into new markets for video collaboration such as mobile, social, and cloud-delivered video. Our competitors also continue to develop and introduce new technologies, sometimes proprietary, that represent threats through closed architecture such as Skype and Apple FaceTime. Other offerings such as Cisco Systems’ CIUS and Jabber, Avaya’s Flare-based ADVD, and Citrix Systems’ GoToMeeting with HD Faces also represent new competitive developments for Polycom. Many of these companies have substantial financial resources and production, marketing, engineering and other capabilities with which to develop, manufacture, market and sell their products, which may result in our having to lower our product prices and increase our spending on marketing, which will correspondingly have a negative impact on our revenues, operating margins, and our ability to effectively compete against these companies.

The principal competitive factors in the markets in which we presently compete and may compete in the future include the ability to:

•

provide and sell a broad range of UC solutions and services, including mobility and cloud-based solutions, and our ability to bring such products to market on a timely basis;

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appropriately and competitively price our products and solutions;

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provide competitive product performance;

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be successful in multiple markets with differing requirements, including, but not limited to, the enterprise, SMB, mobile video, social video, subscription-based video delivered from the cloud and service provider markets;

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introduce new products and solutions in a timely manner;

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reduce production and service costs;

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provide value-added features and functionality such as security, reliability, and investment protection through broad interoperability that provides backwards- and forwards-compatibility with other video systems and UC solutions;

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successfully integrate our products with, and operate our products on, existing customer platforms;

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gain market presence and brand recognition;

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extend credit to our partners;

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conform to open standards;

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successfully address disruptive technology shifts and new business models, such as cloud-based and software-based UC solutions and mobility and consumer solutions;

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successfully address the transition in the market from point product to solution selling; and

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implement our solutions in increasingly complex environments where our customers to integrate our UC solutions with third-party technology, such as Microsoft Lync.

Our competitive environment also differs by geography. Cisco Systems is our primary global competitor and is active in all theaters and categories in which we compete. In the Asia Pacific region, the competitive landscape also includes China-based competitors such as Huawei, ZTE Corporation, and other competitors in the region including Sony, Zylotech, ClearOne Communications, and Grandstream Communications.

We may not be able to compete successfully against our current or future competitors. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved performance characteristics. New product introductions by our current or future competitors, or our delay in bringing new products to market to compete with competitive products, could cause a significant decline in sales or loss of market acceptance of our existing products and future products. We believe that the possible effects from ongoing competition may be a reduction in the prices of our products and our competitors’ products, the introduction of additional lower priced competitive products or the introduction of new products or product platforms that render our existing products or technologies obsolete. We also believe we will face increasing competition from alternative UC solutions that employ new technologies or new combinations of technologies. Further, the commoditization of certain video conferencing products is leading to the availability of alternative, lower-cost UC products than ours, such as those offered by Google, Inc., Skype and others, and, accordingly, could drive down our sales prices and negatively impact our revenues.

Increased consolidation and the formation of strategic partnerships in our industry may lead to increased competition which could adversely affect our business and future results of operations.

Strategic partnerships and acquisitions are regularly being formed and announced by our competitors, which may increase competition and result in increased downward pressure on our product prices. For instance, we now compete against Cisco Systems due to its acquisition of Tandberg ASA, previously our largest independent competitor. As a result, we now compete with a larger combined company with significantly greater financial and sales and marketing resources than ours, an extensive channel network and an expanded video communications solutions product line. This product line may be sold in conjunction with Cisco Systems’ proprietary network equipment and technology as a complete solution, making it more difficult for us to compete against them or to ascertain pricing on competitive products. In addition, Cisco Systems may use its dominance in network equipment to foreclose competition in the telepresence and/or videoconferencing equipment market. Cisco Systems may also preclude our competitive products from being fully interoperable with Cisco Systems endpoints, video infrastructure and/or network products. Similarly, Avaya acquired Konftel, in January 2011 and LifeSize, which was acquired by Logitech, announced a partnership with Alcatel-Lucent in April 2010. Avaya also recently entered into a definitive agreement to acquire RADVISION. These consolidations and partnerships have resulted in increased competition and pricing pressure for our UC solutions, which could also negatively impact our future results of operations, as the newly-combined entities have greater financial resources, deeper mass market sales channels and greater pricing flexibility than the standalone entities. Any such acquisitions by a strategic partner could also limit the potential contribution of our strategic relationships to our business, restrict our ability to provide interoperable features in our products and restrict our ability to form strategic relationships with these companies in the future, any of which could result in decreases in both revenues and gross margins and harm our business.

It is possible that in the future, we will see increased competition in all of our geographic theaters and product lines to the extent that one or more of our competitors join together either through mutual agreement or acquisitions to form new partnerships to compete against us. Rumored or actual consolidation of our partners and competitors will likely cause uncertainty and disruption to our business and can cause our stock price to fluctuate.

Global economic conditions have adversely affected our business in the past and could adversely affect our revenues and harm our business in the future.

Adverse economic conditions worldwide have contributed to slowdowns in the communications and networking industries and have caused a negative impact on the specific segments and markets in which we operate. As our business has grown, we have become increasingly exposed to adverse changes in general global economic conditions, which can result in reductions in capital expenditures by end-user customers for our products, longer sales cycles, the deferral or delay of purchase commitments for our products and increased competition. These factors have adversely impacted our operating results in prior periods and could also impact us again in the future. Despite our growth in revenues in 2011 and the three months ended March 31, 2012 as compared to the same period in the prior year, global economic concerns such as the varying pace of global economic recovery and the recent sovereign debt crisis in Europe and domestic debt and budget issues continue to create uncertainty and unpredictability, have contributed to longer selling cycles and cause us to continue to be cautious about our future outlook. A global economic downturn would negatively impact technology spending for our products and services and could materially adversely affect our business, operating results and financial condition. Further, global economic conditions have resulted in a tightening in the credit markets, low liquidity levels in many financial markets, decrease in customer demand and ability to pay obligations, and extreme volatility in credit, equity, foreign currency and fixed income markets.

These adverse economic conditions negatively impact our business, particularly our revenue potential, losses on investments and the collectability of our accounts receivable, by causing the inability of our customers to obtain credit to finance purchases of our products and services, customer or partner insolvencies or bankruptcies, decreased customer confidence to make purchasing decisions resulting in delays in their purchasing decisions, decreased customer demand or demand for lower-end products, and decreased customer ability to pay their obligations when they become due to us.

Our quarterly operating results may fluctuate significantly and are not necessarily a good indicator of future performance.

Our quarterly operating results have fluctuated in the past and may vary significantly in the future as a result of a number of factors, many of which are out of our control or can be difficult to predict. These factors include, but are not limited to:

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the impact of global economic conditions, as described above;

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fluctuations in demand for our products and services, in part due to uncertain global economic conditions and increased competition, as well as transitions in the markets in which we sell products and services;

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our ability to execute on our strategic and operating plans, including improving the effectiveness of our North American sales organization and making proper investments that will positively impact our future financial results;

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changes to our global organization, especially recent changes impacting our leadership and organizational structure in North America;

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slowing sales or variations in sales rates by our channel partners to their customers;

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changes to our channel partner programs, contracts and strategy that could result in a reduction in the number of channel partners, could adversely impact our revenues and gross margins as we realign our discount and rebate programs for our channels, or could cause more of our channel partners to add our competitors’ products to their portfolio;

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the prices and performance of our products and those of our existing or potential new competitors, which can change rapidly due to technological innovations;

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the timing, size and mix of the orders for our products;

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the level and mix of inventory that we hold to meet future demand, including the impact of efforts to decrease inventory and improve inventory turns, which could negatively impact our gross margins as a result of under-absorption of our manufacturing costs in any given period;

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changes in effective tax rates which are difficult to predict due to, among other things, the timing and geographical mix of our earnings, the outcome of current or future tax audits and potential new rules and regulations;

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changes in the underlying factors and assumptions regarding a number of highly complex and subjective variables used in determining stock-based compensation which may result in significant variability in the stock-based compensation costs we record, making such amounts difficult to accurately predict;

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fluctuations in the level of international sales and our exposure to foreign currency fluctuations on both revenues and expenses;

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dependence on component suppliers and third party manufacturers, which includes outside development manufacturers, and the associated manufacturing costs;

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the impact of increasing costs of freight and components used in the manufacturing of our products and the potential negative impact on our gross margins;

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the magnitude of any costs that we must incur in the event of a product recall or of costs associated with product warranty claims;

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the impact of seasonality on our various product lines and geographic regions; and

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adverse outcomes in intellectual property litigation and other matters and the costs associated with asserting and enforcing our intellectual property portfolio.

As a result of these and potentially other factors, we believe that period-to-period comparisons of our historical results of operations are not necessarily a good predictor of our future performance. If our future operating results are below the expectations of stock market securities analysts or investors, or below any financial guidance we may provide to the market, our stock price will likely decline. Further, as the scale of our business increases, meeting financial guidance may become less predictable and more difficult to achieve. In addition, financial guidance beyond the current quarter is inherently subject to greater risk and uncertainty.

We face risks associated with the realignment of our North America sales organization.

Our year-over-year revenue growth rates in North America declined in 2011. For example, the revenues generated in North America in the fourth quarter of 2011 declined sequentially from the third quarter of 2011, and our year-over-year growth rates in North America were at the lowest level since the fourth quarter of 2009. We have made changes impacting the leadership and structure of our sales organization in North America that are intended to realign and optimize the performance of the region. While the intent of these changes is to replicate the model that we have successfully implemented in EMEA and APAC, there can be no assurance that these changes will positively impact our future revenue performance in North America. Further, such actions have caused disruptions to our business, which could impact our ability to execute successfully in the short-term and ultimately may not yield the intended benefits in the longer term. If the changes are not as successful as we have planned, our revenues and results of operations will be harmed.

We face risks associated with developing and marketing our products, including new product development and new product lines that require a more direct-touch sales model.

Our success depends on our ability to assimilate new technologies in our products and to properly train our channel partners, sales force and end-user customers in the use of those products.

The markets for our products are characterized by rapidly changing technology, such as the demand for HD video technology and lower cost video infrastructure products, the shift from premise-based equipment to cloud-based delivery models, evolving industry standards and frequent new product introductions, including an increased emphasis on software products. Historically, our focus has been on premise-based solutions for the enterprise and public sector, targeted at vertical markets, including finance, manufacturing, government, education and healthcare, and this continues to be a high-growth market as recognition of the mission-critical benefits of video collaboration in the enterprise continues to grow. In addition, in response to emerging market trends, and the network effect driven by business-to-business adoption of UC, we are expanding our focus to capture opportunities within emerging markets including mobile, SMBs, cloud-based delivery and the consumer markets. If we are unable to successfully capture these markets to the extent anticipated, or to develop the new technologies and partnerships required to successfully compete in these marketplaces, then our revenues may not grow as anticipated, we may devote significant financial and other resources to these areas, and our business may ultimately be harmed. For example, we recently launched Polycom^® RealPresence^® Mobile and are at the early stages of the formation of our relationships with Samsung, Motorola, and others with respect to defining our mobility product offerings. Given the competitive nature of the mobility industry, changing end user behaviors and other industry dynamics, these relationships may not evolve into fully-developed product offerings or translate into any future revenues. Further, we are sponsoring the OVCC to leverage a global consortium of network and managed service providers to deliver broad connectivity service for unified communications and enable better business-to-business communication. The OVCC may not be as successful as we have planned, which could negatively impact our ability to deliver solutions for these markets.

The success of our new products depends on several factors, including proper new product definition, product cost, services infrastructure for cloud-delivery, timely completion and introduction of new products, proper positioning of new products in relation to our total product portfolio and their relative pricing, our ability to price our products competitively while maintaining favorable product margins, differentiation of new products from those of our competitors, market acceptance of these products and the ability to sell our products to customers as comprehensive UC solutions Other factors that may affect our success include properly addressing the complexities associated with compatibility issues, channel partner and sales force training, technical and sales support, and field support.

In addition, we are making additional investments in developing our immersive telepresence solutions and other product innovations as part of our key strategic initiatives to deliver cloud-based and mobile UC solutions. Ultimately, it is possible that our increased investments in these areas may not yield the financial results that we plan to achieve from such investments as quickly as anticipated, or at all. In addition, in our high-end UC solutions, such as telepresence, that typically require direct high touch sales involvement with potential customers, we compete directly with large, multi-national corporations, such as Cisco Systems, who have substantially greater financial, technical and executive resources than we do, as well as greater name recognition and market presence with many potential customers. We and our channel partners must also effectively educate our potential end-user customers about the benefits of unified communication solutions and the products that we offer and the features available over those of our competitors.

We also need to continually educate and train our channel partners to avoid any confusion as to the desirability of new product offerings and solutions compared to our existing product offerings and to be able to articulate the value of new offerings as the market evolves. During the last few years, we launched several new product offerings, such as our mobility and cloud-based solutions, and there is a risk that these new products could cause confusion among our channel partners and end-users, thereby causing them to delay purchases of any product until they determine if these products are more desirable products than our other products, or as they consider a more UC centric strategy versus point product or endpoint only deployments. Any delays in future purchases could adversely affect our revenues, gross margins and operating results in the period of the delay. In addition, the introduction of new products may have an unintended negative impact on sales of and corresponding revenues associated with other products.

The shift in communications from circuit-switched to IP-based and other new technologies over time may require us to add new channel partners, enter new markets and gain new core technological competencies. We are attempting to address these needs and the need to develop new products through our internal development efforts, through joint developments with other companies and through acquisitions. However, we may not identify successful new product opportunities and develop and bring products to market in a timely manner. Further, as we introduce new products that can or will render existing products obsolete, these product transition cycles may not go smoothly, causing an increased risk of inventory obsolescence and relationship issues with our end-user customers and channel partners. The failure of our new product development efforts, any inability to service or maintain the necessary third-party interoperability licenses, our inability to properly manage product transitions or to anticipate new product demand, or our inability to enter new markets would harm our business and results of operations.

We may experience delays in product introductions and availability, and our products may contain defects which could seriously harm our results of operations.

We have experienced delays in the introduction of certain new products and enhancements in the past. The delays in product release dates that we experienced in the past have been due to factors such as unforeseen technology issues, manufacturing ramping issues and other factors, which we believe negatively impacted our sales revenue in the relevant periods. Any of these or other factors may occur again and delay our future product releases.

Our product development groups are dispersed throughout the United States and other international locations such as China, Denmark, India and Israel. Our need to manage large and geographically dispersed product development groups in our product lines results in certain inefficiencies and increased product development costs and creates an increased risk of delays in new product introductions.

We produce highly complex communications equipment, which includes both hardware and software and incorporates new technologies and component parts from different suppliers. Resolving product defect and technology and quality issues could cause delays in new product introduction. Component part shortages, such as those we experienced in the first half of 2010, could also cause delays in product delivery to our customers and lead to increased costs as we are required to expedite shipping to meet our product order requests. Further, some defects may not be detected or cured prior to a new product launch, or may be detected after a product has already been launched and may be incurable or result in a product recall. The occurrence of any of these events has resulted and could in the future result in the failure of a partial or entire product line or a temporary or permanent withdrawal of a product from the market. We may also have to invest significant capital and other resources to correct these problems, including product reengineering expenses and inventory, warranty and replacement costs. These problems might also result in claims against us by our customers or others and could harm our reputation and adversely affect future sales of our products.

Any delays in the future for new product offerings currently under development, such as product offerings for mobile, cloud-based delivery, software delivery and consumer markets, any product shipment delays or any product quality issues, product defect issues or product recalls could adversely affect the market acceptance of these products (and correspondingly result in loss of market share), our ability to compete effectively in the market, and our reputation and the satisfaction of our customers, and therefore could lead to decreased product sales and could seriously harm our results of operations. We may also experience cancellation of orders, difficulty in collecting accounts receivable, increased service and warranty costs in excess of our estimates, diversion of resources and increased insurance costs and other losses to our business or to end-user customers.

Product obsolescence or discontinuance and excess inventory can negatively affect our results of operations.

We operate in a high technology industry which is subject to rapid and frequent technology and market demand changes. The pace of change in technology development and in the release of new products has increased and is expected to continue to increase, which can often render existing or developing technologies obsolete. In addition, the introduction of new products and any related actions to discontinue existing products can cause existing inventory to become obsolete. These obsolescence issues, or any failure by us to properly anticipate product life cycles, can require write-downs in inventory value when it is determined that the recorded value of existing inventory is greater than its fair market value. If sales of one of these products has an unplanned negative effect on sales of another of our products, it could significantly increase the inventory levels of the negatively impacted product. For each of our products, the potential exists for new products to render existing products obsolete, cause inventories of existing products to increase, cause us to discontinue a product or reduce the demand for existing products.

Further, we continually evaluate our product lines both strategically and in terms of potential growth rates and margins. Such evaluations could result in the discontinuance or divestiture of those products in the future, which could be disruptive and costly and may not yield the intended benefits.

We face risks related to the adoption rate of new technologies.

We have invested significant resources developing products that are dependent on the adoption rate of new technologies. For example, our Polycom RealPresence Mobile solution is dependent on enterprise adoption of video technology and cloud-based delivery solutions on mobile devices. If the mobile video market does not grow as we anticipate, or if our strategy for addressing the market, or execution of such strategy, is not successful, our business and results of operations could be harmed. In addition, we develop new products or product enhancements based upon anticipated demand for new features and functionality, such as next generation HD video resolution technology and scalable video codec capabilities. We may not be able to sell certain of our products in significant volumes and our business may be harmed if the use of new technologies that our future products are based on does not occur; if we do not anticipate shifts in technology appropriately or rapidly enough; if the development of suitable sales channels does not occur, or occurs more slowly than expected; if our products that incorporate new technologies are not priced competitively or are not readily adopted; or if the adoption rates of such new technologies do not drive demand for our other products as we anticipate. For example, although we believe increased sales of UC solutions will drive increased demand for our UC platform products, such increased demand may not occur or we may not benefit to the same extent as our competitors. We also may not be successful in creating demand in our installed customer base for products that we develop that incorporate new technologies or features. Conversely, as we see the adoption rate of new technologies increase, product sales of our legacy products may be negatively impacted.

Lower than expected market acceptance of our products, price competition and other price changes would negatively impact our business.

If the market does not accept our products, particularly our new product offerings on which we are relying on for future revenues, such as product offerings for the mobile market, software delivery and cloud-based delivery, our profitability would be harmed. Further, revenues relating to new product offerings are unpredictable, and new products typically have lower gross margins for a period of time after their introduction. As we introduce new products, they could increasingly become a higher percentage of our revenues. Our profitability could also be negatively affected in the future as a result of continuing competitive price pressures in the sale of UC solutions equipment and UC platform products, which could cause us to reduce the prices for any of our product offerings or discontinue one or more of our products with the intent of simplifying our product offering and enhancing sales of a similar product. Further, we have reduced prices in the past in order to expand the market for our products, and in the future, we may further reduce prices, introduce new products that carry lower margins in order to expand the market or stimulate demand for our products, or discontinue existing products as a means of stimulating growth in a similar product.

Finally, if we do not fully anticipate, understand and fulfill the needs of end-user customers in the vertical markets that we serve, we may not be able to fully capitalize on product sales into those vertical markets and our revenues may, accordingly, fail to grow as anticipated or may be adversely impacted. We face similar risks as we expand and focus our business on the SMB and service provider markets.

Failure to adequately service and support our product offerings could harm our results of operations.

Our products are becoming increasingly more complex and are incorporating more complex technologies, such as those included in our UC platform, UC solutions and software products. This has increased the need for enhanced product warranty and service capabilities. In order to meet the demand for these enhanced service requirements, including integration services, we may need to internally develop or acquire additional advanced service capabilities, which may require additional investments. If we cannot adequately develop and train our internal support organization or maintain our relationships with our outside technical support providers, it could adversely affect our business.

In addition, sales of our immersive telepresence solutions are more complex sales transactions than our other product lines, and the end-user customer in such transactions typically purchases an enhanced level of support service from us so that it can ensure that this significant investment can be fully operational and satisfy the end-user’s requirements. This requires an advanced services capability and project management from us in terms of resources and technical knowledge of an end-user customer’s telecommunication network. If we are unable to provide the proper level of support on a cost beneficial basis, it may cause damage to our reputation in this emerging market and may, as a result, harm our business and results of operations.

Impairment of our goodwill or other assets would negatively affect our results of operations.

In addition to our historical acquisitions, we have acquired a number of new businesses including most recently, ViVu, the assets of HPVC and Accordent in 2011. As of March 31, 2012, our goodwill was valued at approximately $585.0 million and other purchased intangible assets was valued at approximately $72.4 million, which together represent a significant portion of the assets recorded on our consolidated balance sheets. Goodwill and indefinite lived intangible assets are reviewed for impairment at least annually or sooner under certain circumstances. Other intangible assets that are deemed to have finite useful lives will continue to be amortized over their useful lives but must be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Screening for and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including market conditions, operating fundamentals, competition and general economic conditions, requires significant judgment. Therefore, we cannot assure you that a charge to operations will not occur as a result of future goodwill and intangible asset impairment tests. The decreases in revenue and stock price that have occurred and may occur in the future as a result of global economic factors make such impairment more likely to result. If impairment is deemed to exist, we would write-down the recorded value of these intangible assets to their fair values. If and when these write-downs do occur, they could harm our business and results of operations.

In addition, we have made investments in private companies which we classify as “Other assets” on our consolidated balance sheets. The value of these investments is influenced by many factors, including the operating effectiveness of these companies, the overall health of these companies’ industries, the strength of the private equity markets and general market conditions. As of December 31, 2011, our investments in private companies were valued at $2.0 million. We recorded $0.1 million in impairment charges, net of recoveries, during the year ended December 31, 2011 in interest and other income/(expense), net. We may make additional investments in private companies which would be subject to similar impairment risks, and these impairment risks may cause us to write-down the recorded value of any such investments. Further, we cannot assure you that future inventory, investment, license, fixed asset or other asset write-downs will not happen. If future write-downs do occur, they could harm our business and results of operations.

Difficulties in identifying and integrating our acquisitions or implementing restructuring plans could adversely impact our business.

Difficulties in identifying and integrating acquisitions could adversely affect our business.

The process of identifying suitable candidates and integrating acquired companies into our operations requires significant resources and is time-consuming, expensive and disruptive to our business. Failure to achieve the anticipated benefits of any acquisitions, to retain key personnel, or to successfully integrate the operations of these companies could harm our business, results of operations and cash flows. We may not realize the benefits we anticipate from our acquisitions because of the following significant challenges:

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incorporating the acquired company’s technology and products and services into our current and future product lines, including providing new services for us such as the managed services business that was acquired in the HPVC acquisition;

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potential deterioration of the acquired company’s product sales and corresponding revenues due to integration activities and management distraction;

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managing integration issues including, in the case of our acquisition of HPVC, the continuing provisioning of transition services by HP to us;

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potentially creating confusion in the marketplace by ineffectively distinguishing or marketing the product offerings of the newly acquired company with our existing product lines, including the impact of competing products on acquired product and services revenue streams;

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entering new businesses or product lines;

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potentially incompatible cultural differences between the two companies;

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geographic dispersion of operations;

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interruption of manufacturing operations as we transition an acquired company’s manufacturing to our outsourced manufacturing model;

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generating marketing demand for an expanded product line;

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distraction of the existing and acquired sales force during the integration of the companies;

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distraction of and potential conflict with the acquired company’s products in regards to our existing channel partners;

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the difficulty in leveraging the acquired company’s and our combined technologies and capabilities across all product lines and customer bases; and

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our inability to retain previous customers or employees of an acquired company.

We have spent and will continue to spend significant resources identifying and acquiring businesses. Any of our acquisitions involve numerous risks, including difficulties in identifying targets with strategic synergies which yield an acceptable level of return on investment, financing strategic transactions and integrating the operations, technologies and products of the acquired companies, the diversion of our management’s attention from other business concerns, particularly when dealing with the integration of large and complex organizations, and the potential loss of key employees of the acquired companies. Failure to achieve the anticipated benefits of these and any future acquisitions or to successfully integrate the operations of the companies we acquire could also harm our business, results of operations and cash flows. Additionally, we cannot assure you that we will not incur material charges in future quarters to reflect additional costs associated with any future acquisitions we may make.

Our failure to successfully implement restructuring plans related to vacant and redundant facilities could adversely impact our business.

We have in the past, and may in the future, as part of acquiring a company or as part of restructuring actions taken to streamline the business, identify redundant facilities. If we identify redundant facilities, we would develop a plan to exit as part of the integration of the businesses or as part of the implementation of the restructuring plan. Any reserve would be net of estimated sublease income we expect to generate. Our estimate of sublease income is based on current comparable rates for leases in the respective markets. If actual sublease income is lower than our estimates for any reason, if it takes us longer than we estimated to sublease these facilities, or if the associated cost of subleasing or terminating our lease obligations for these facilities is greater than we estimated, we would incur additional charges to operations which

would harm our business, results of operations and cash flows. To the extent that any such cash outflows or additional costs exceed the amount of our recorded liability related to the sublease or termination of these lease obligations, we could incur a charge to operations, which would harm our business and adversely impact our results of operations.

We experience seasonal demand for our products and services, which may adversely impact our results of operations during certain periods.

Sales of some of our products have experienced seasonal fluctuations which have affected sequential growth rates for these products, particularly in our first and third quarters. For example, the first quarter of the year is typically the least predictable quarter of the year for us and there is generally a slowdown for sales of our products in the European region in the third quarter of each year. Further, the timing of fiscal year ends for our government and enterprise customers may result in significant fluctuations from quarter to quarter. Seasonal fluctuations could negatively affect our business, which could cause our operating results to fall short of anticipated results for such quarters.

Our operating results are hard to predict as a significant amount of our sales may occur at the end of a quarter and certain of our service provider contracts include contractual acceptance provisions.

The timing of our channel partner orders and product shipments and our inability to reduce expenses quickly may adversely impact our operating results.

Our quarterly revenues and operating results depend in large part upon the volume and timing of channel partner orders received during a given quarter and the percentage of each order that we are able to ship and recognize as revenue during each quarter, each of which is extremely difficult to forecast. We have experienced longer sales cycles in connection with our high-end UC solutions, which could also increase the level of unpredictability and fluctuation in the timing of orders. Further, depending upon the complexity of these solutions, such as telepresence and some UC platform products, and the underlying contractual terms, revenue may not be recognized until the product has been accepted by the end-user, resulting in further revenue unpredictability.

Our expectations for both short and long-term future revenues are based almost exclusively on our own estimate of future demand and not on firm channel partner orders. Our expense levels are based largely on these estimates. In addition, a significant portion of our product orders are received in the last month of a quarter, typically the last few weeks of that quarter; thus, the unpredictability of the receipt of these orders could negatively impact our future results. For instance, since the second quarter of 2011, we have experienced a higher percentage of our bookings and resulting revenue in the third month of the quarter than in comparable periods in 2010. For example, in the first quarter of 2012, approximately 50% of our quarterly revenues were recognized in the third month of the quarter, as compared to 46% in the third month of the first quarter of 2011. Accordingly, if for any reason orders and revenues do not meet our expectations in a particular period, we will be limited in our ability to reduce expenses quickly, and any significant shortfall in demand for our products in relation to our expectations would have an adverse impact on our operating results.

Delays in receiving contractual acceptance will cause delays in our ability to recognize revenue and may impact our quarterly revenues, depending upon the timing and shipment of orders under such contracts.

Certain of our sales contracts include product acceptance provisions which vary depending upon the type of product and individual terms of the contract. In addition, acceptance criteria may be required in other contracts in the future, depending upon the size and complexity of the sale and the type of products ordered. As we increase our focus on growing our service provider business, it is likely that an increased amount of our revenue will be subject to such contractual acceptance terms and we may introduce new revenue models that could result in less revenue being recognized upfront. Accordingly, we defer revenue until the underlying acceptance criteria in any given contract have been met. Depending upon the acceptance terms, the timing of the receipt and subsequent shipment of an order may result in acceptance delays, may reduce the predictability of our revenues, and, consequently, may adversely impact our revenues and results of operations in any particular quarter.

We face risks related to our dependence on channel partners to sell our products.

Conflicts and competition with our channel partners and strategic partners could hurt sales of our products.

We have various OEM agreements with major telecommunications equipment manufacturers, such as Avaya and Cisco Systems, whereby we manufacture our products to work with the equipment of the OEM. These relationships can create conflicts with our other channel partners who directly compete with our OEM partners, or could create conflicts among our OEM partners who compete with each other, which could adversely affect revenues from these other channel partners or our OEM partners. Conflicts among our OEM partners could also make continued partnering with these OEM partners increasingly difficult. Our OEM partners, including large competitors such as Cisco Systems, may decide to enter into a new OEM partnership with a company other than us or develop products of their own, or acquire such products through acquisition, that compete with ours in the future, which could adversely affect our revenues and results of operations. Because many of our channel partners also sell equipment that competes with our products, these channel partners could devote more attention to these other products which could harm our business. Further, as a result of our more direct-touch sales model, we may alienate some of our channel partners or cause a shift in product sales from our traditional channel model as these traditional relationships evolve over time. Due to these and other factors, channel conflicts could arise which cause channel partners to devote resources to other non-Polycom communications equipment, or to offer new products from our new and existing competitors, which would negatively affect our business or results of operations.

As part of our key strategic initiatives, we are focusing on our strategic partnerships with HP, IBM, Microsoft and Apple. For example, in conjunction with our acquisition of HPVC, we have entered into a strategic relationship with HP in which we will serve as an exclusive partner to HP for certain video unified communications solutions for both resale and internal HP deployments. This exclusivity is limited to the Polycom telepresence, group video systems, and UC platform product offerings available at the applicable time during the exclusivity period and does not preclude the purchase or resale of Microsoft products sold and developed in these categories. Defining, managing and developing these partnerships is expensive and time consuming and may not come to fruition or yield the desired results, impacting our ability to effectively compete in the unified communications market and to take advantage of anticipated future market growth. For example, our key strategic relationship with Microsoft in which we are jointly developing and marketing a unified communications solution that leverages the demand for Microsoft’s next generation UC server could negatively impact our ability to compete effectively in the UC marketplace if we are unsuccessful. Our mobile UC solutions initiative is also dependent on our ability to successfully partner with mobile device manufacturers.

In addition, as we enter into agreements with these strategic partners to enable us to continue to expand our relationships with these partners, we may undertake additional obligations which could trigger unintended penalty or other provisions in the event that we fail to fully perform our contractual commitments or could result in additional costs beyond those that are planned in order to meet these contractual obligations.

As we continue to build strategic partnerships with companies, conflicts between our strategic partners could arise which could harm our business.

Some of our current and future products are directly competitive with the products sold by both our channel and strategic partners. As a consequence of these conflicts, there is the potential for our channel and strategic partners to compete head-to-head with us and to significantly reduce or eliminate their orders of our products or design our technology out of their products. Further, some of our products are reliant on strategic partnerships with call manager providers and wireless UC platform providers. These partnerships result in interoperable features between products to deliver a total solution to our mutual end-user customers. Competition with our partners in all of the markets in which we operate is likely to increase, potentially resulting in strains on our existing relationships with these companies.

We are subject to risks associated with our channel partners’ sales reporting, product inventories and product sell-through.

We sell a significant amount of our products to channel partners who maintain their own inventory of our products for sale to dealers and end-users. Our revenue estimates associated with products stocked by some of our channel partners are based largely on end-user sales reports that our channel partners provide to us on a monthly basis. To date, we believe this data has been generally accurate. To the extent that this sales-out and channel inventory data is inaccurate or not received timely, we may not be able to make revenue estimates for future periods. Further, if these channel partners are unable to sell an adequate amount of their inventory of our products in a given quarter to dealers and end-users or if channel partners decide to decrease their inventories for any reason, such as a recurrence of global economic uncertainty and downturn in technology spending, the volume of our sales to these channel partners and our revenues would be negatively affected. In addition, we also face the risk that some of our channel partners have inventory levels in excess of future anticipated sales. If such sales do not occur in the time frame anticipated by these channel partners for any reason, these channel partners may substantially decrease the amount of product they order from us in subsequent periods, or product returns may exceed historical or predicted levels, which would harm our business and create unexpected variations in our financial results.

Potential changes to our channel partner programs or channel partner contracts may not be favorably received and as a result our channel partner relationships and results of operations may be adversely impacted.

Our channel partners are eligible to participate in various incentive programs, depending upon their contractual arrangements with us. As part of these arrangements, we have the right to make changes in our programs and launch new programs as business conditions warrant. Further, from time to time, we may make changes to our channel partner contracts. These changes could upset our channel partners to the extent that they could add competitive products to their portfolios, delay advertising or sales of our products, or shift more emphasis to selling our competitors’ products, if not appropriately handled. There can be no assurance that our channel partners will be receptive to future changes or that we will receive the positive benefits that we are anticipating in making any program and contractual changes.

Consolidation of our channel partners and strategic partners may result in changes to our overall business relationships, less favorable contractual terms and disruption to our business.

We have seen consolidation among certain of our existing channel partners and strategic partners. In such instances, we may experience changes to our overall business and operational relationships due to dealing with a larger combined entity. Further, our ability to maintain such relationships on favorable contractual terms may be limited. For instance, the combined entity may be successful in negotiating the most favorable contractual terms out of each of their respective contracts, including terms such as credit and acceptance, which are less favorable than those in our existing contracts with each channel partner. Depending on the extent of these changes and other disruptions caused to the combined businesses during the integration period, the timing and extent of revenue from these channel partners may be adversely affected.

We are subject to risks associated with the success of the businesses of our channel partners and our financing program.

Many of our channel partners that carry multiple Polycom products, and from whom we derive significant revenues, are thinly capitalized. Although we perform ongoing evaluations of the creditworthiness of our channel partners, the failure of these businesses to establish and sustain profitability, obtain financing or adequately fund capital expenditures could have a significant negative effect on our future

revenue levels and profitability and our ability to collect our receivables. As we have grown our revenues and our customer base, our exposure to credit risk has increased. In addition, global economic uncertainty, a downturn in technology spending in the United States and other countries, and the financial services crisis have restricted the availability of capital, which may delay our collections from our channel partners beyond our historical experience or may cause companies to file for bankruptcy, jeopardizing the collectability of our revenues from such channel partners and negatively impacting our future results as they reorganize or go out of business. Further, we intend to increase our channel partner and end-user financing programs to support our business, which will also increase our credit risk. Efforts to develop these programs will require significant resources that may not generate the revenue we anticipate or yield intended benefits.

Our channel partner contracts are typically short-term and early termination of these contracts may harm our results of operations.

We do not typically enter into long-term contracts with our channel partners, and we cannot be certain as to future order levels from our channel partners. When we do enter into a long-term contract, the contract is generally terminable at the convenience of the channel partner. In the event of an early termination by one of our major channel partners, we believe that the end-user customer would likely purchase from another one of our channel partners. If this did not occur and we were unable to rapidly replace that revenue source, its loss would harm our results of operations.

International sales and expenses represent a significant portion of our revenues and operating expenses and risks inherent in international operations could harm our business.

International sales and expenses represent a significant portion of our revenues and operating expenses, and we anticipate that international sales will continue to increase and to account for a significant portion of our revenues for the foreseeable future and that international operating expenses will continue to increase. For example, in the first quarter of 2012, international revenues represented 59% of our total revenues. International sales and expenses are subject to certain inherent risks, which would be amplified if our international business grows as anticipated, including the following:

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adverse economic conditions in international markets, including the restricted credit environment and sovereign credit concerns in EMEA;

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potential foreign currency exchange rate fluctuations, including the recent volatility of the U.S. dollar, and the impact of our underlying hedging programs;

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environmental and trade protection measures and other legal and regulatory requirements, some of which may affect our ability to import our products, to export our products from, or sell our products in various countries;

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unexpected changes in regulatory requirements and tariffs;

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longer payment cycles;

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potentially adverse tax consequences;

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the near and long-term impact of the instability in the Middle East or other hostilities; and

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adverse economic impact of terrorist attacks and incidents and any military response to those attacks.

International revenues may fluctuate as a percentage of total revenues in the future as we introduce new products. These fluctuations are primarily the result of our practice of introducing new products in North America first and the additional time and costs required for product homologation and regulatory approvals of new products in international markets. To the extent we are unable to expand international sales in a timely and cost-effective manner, our business could be harmed. We cannot assure you that we will be able to maintain or increase international market demand for our products.

Although to date, a substantial majority of our international sales have been denominated in U.S. currency, we expect that a growing number of sales will be denominated in non-U.S. currencies as more international customers request billing in their currency. In particular, with the acquisition of HPVC, a number of the customer contracts that we assumed provided for local currency billings. We maintain local currency pricing in the European Union and the United Kingdom whereby we price and invoice our products and services in Euros and British Pounds. In addition, some of our competitors currently invoice in foreign currency, which could be a disadvantage to us in those markets where we do not. Our international operating expenses are primarily denominated in foreign currency with no offsetting revenues in those currencies except for the Euro and British Pound. As a result of these factors, we expect our business will be vulnerable to currency fluctuations, which could adversely impact our margins. In addition, significant adverse changes in currency exchange rates could cause our products to become relatively more expensive to customers in a particular country, leading to a reduction in revenue or profitability in that country, as discounts may be temporarily or permanently affected. We will continue to evaluate whether it is necessary to denominate sales in local currencies other than the Euro and the British Pound, depending on customer requirements.

While we do not hedge for speculative purposes, as a result of our increased exposure to currency fluctuations, such as we have seen in the Euro and British Pound in 2010, we typically engage in currency hedging activities to mitigate currency fluctuation exposure. As a result, our hedging costs can vary depending upon the size of our hedge program, whether we are purchasing or selling foreign currency relative to the U.S.

dollar and interest rates spreads between the U.S. and other foreign markets. As a result, interest and other income (expense), net has become less predictable and more difficult to forecast. Due to the denomination of our European product sales in Euros and of our United Kingdom product sales in British Pounds, we have increased our hedging activity. The impact in any given quarter of our hedging programs is dependent upon a number of factors, including the actual level of foreign currency denominated revenues, the percentage of actual revenues covered by our hedge contracts, the exchange rate in our underlying hedge contracts and the actual exchange rate during the quarter. For example, as a result of our program, in the first, second and third quarters of 2011, we reduced operating income by $0.5 million, $2.4 million, and $0.3 million, respectively, as compared to increasing operating income in the first quarter of 2012 and the fourth quarter of 2011, by $1.1 million and $0.3 million respectively.

Difficulties we may encounter managing a substantially larger business could adversely affect our operating results.

If we fail to successfully attract and retain highly qualified management personnel, our business will be harmed.

Our future success will depend in part on our continued ability to hire, assimilate and retain highly qualified senior executives and other key management personnel. For example, we recently made changes impacting our sales leadership and organizational structure in North America. In addition, we recently announced the retirement of our Chief Financial Officer and the appointment of a new Chief Operating Officer and Chief Financial Officer effective February 21, 2012. As these new executives and sales leaders assess their areas of responsibilities and define their organizations, it will likely result in disruption to the business and additional organizational changes or restructuring actions and charges. Future changes to our executive and senior management teams, including new executive hires or departures, or other organizational changes implemented by our executive leadership team, could cause disruption to the business and have an impact on our ability to execute successfully in future periods, particularly with respect to the execution of our go-to-market strategy and the expected resulting revenues, while these operational areas are in transition. Competition for qualified executive and other management personnel is intense, and we may not be successful in attracting or retaining such personnel, which could harm our business.

We have experienced significant growth in our business and operations due to internal expansion and business acquisitions, and if we do not appropriately manage this growth and any future growth, our operating results may be negatively affected.

Our business has grown in recent years through internal expansion and business acquisitions and we announced several key strategic imperatives for 2012 that we are undertaking to further grow our business, including developing our cloud-based UC solutions, delivering our UC solutions to mobile platforms, focusing our strategic R&D and go-to-market investments on Microsoft, IBM, HP, and Apple, growing the RealPresence Platform, and leveraging growth market opportunities. Our execution against our strategic imperatives may cause strain on our organizational resources and may not ultimately result in the return on investment that is anticipated. Further, continued growth in general, which may include growth through business acquisitions, such as our acquisitions in 2011, may continue to cause a significant strain on our infrastructure, internal systems and managerial resources. To manage our growth effectively, we must continue to improve and expand our infrastructure, including information technology and processes, financial operating and administrative systems and controls, and continue managing headcount and capital in an efficient manner. For example, our information technology systems may not grow at a sufficient rate to keep up with the processing and information demands placed on them by a much larger company. We plan to upgrade and expand our information technology systems and underlying business processes, which will be costly and disruptive to our business. Our inability to do so could harm our business. Similarly, revenues may not grow at a sufficient rate to absorb the costs associated with a larger overall headcount. In addition, we must continue to evolve our processes, such as the process we use for collecting customer information, to take advantage of automation tools as the size of our business grows, or the processes that we developed when we were a smaller company may not be sustainable and could cause harm to our business. We also may be less able to predict and effectively control our operating expenses due to the growth and increasing complexity of our business.

We have a Shared Services Center (“SSC”) in Beijing, China, where we perform certain accounting, order entry and other functions previously performed in regional headquarter locations and we may expand our SSC operations in the future. Efforts to globalize these shared functions into one location may not yield the intended benefits and could result in higher turnover than planned, which could have an adverse effect on these functions during the transition. In addition, if the controls we put in place with respect to the SSC fail to operate effectively, our business and results of operations could be harmed.

We have in the past, and we may again in the future, implement restructuring plans to eliminate or relocate positions in order to reallocate resources to more strategic growth areas of the business or to reduce our operating costs. Such restructuring actions resulted in charges to operations of $9.4 million and $8.1 million that we recorded as restructuring costs during the years ended December 31, 2011 and 2010, respectively. Any organizational disruptions associated with restructuring activities would require increased management attention and financial expenditures, or we may discover we terminated the wrong personnel or cut too deeply, which may impact our operations. If we are unable to manage our growth effectively, if we experience a shortfall in resources or if we must take additional restructuring charges, our results of operations will be harmed.

We have limited supply sources for some key components of our products and services and for the outside development and manufacture of certain of our products, and our operations could be harmed by supply or service interruptions, component defects or unavailability of these components or products.

Some key components used in our products are currently available from only one source and others are available from only a limited number of sources, including some key integrated circuits and optical elements. Because of such limited sources for component parts, we may have little or no ability to procure these parts on favorable pricing terms. We also obtain certain plastic housings, metal castings, batteries, and other components from suppliers located in China, Japan, and certain Southeast Asia countries, and any political or economic instability in that region in the future, natural disasters, quarantines or other disruptions associated with infectious diseases, or future import restrictions, may cause delays or an inability to obtain these supplies. Further, we have suppliers in Israel and the military action in Iraq, Libya, Afghanistan or war with other Middle Eastern countries perceived as a threat by the United States government may cause delays or an inability to obtain supplies for our UC platform products.

We have no raw material supply commitments from our suppliers and generally purchase components on a purchase order basis either directly or through our contract manufacturers. Some of the components included in our products, such as microprocessors and other integrated circuits, have from time to time been subject to limited allocations by suppliers. In addition, companies with limited or uncertain financial resources manufacture some of these components. Further, we do not always have direct control over the supply chain, as many of our component parts are procured for us by our contract manufacturers. In the event that we, or our contract manufacturers, are unable to obtain sufficient supplies of components, develop alternative sources as needed, or companies with limited financial resources go out of business, our operating results could be seriously harmed. For example, the recent flooding in Thailand has affected certain of our suppliers, which could negatively impact the supply of components for some of our products. In addition, we may incur additional costs to resolve these supply shortages, which would negatively impact our gross margins, as we have seen in recent quarters.

Moreover, we have strategic relationships with third parties to develop and manufacture certain products for us. The loss of any such strategic relationship due to competitive reasons, our inability to resolve any contractual disputes that may arise between us, the financial instability of a strategic partner or a supplier or their inability to obtain any financing necessary to adequately fund their operations, particularly in light of the unpredictable economic environment, or other factors, could have a negative impact on our ability to produce and sell certain products and product lines and, consequently, may adversely affect our revenues and results of operations.

For example, we are dependent upon third party suppliers for our managed services. In the event that any such supplier is acquired by a competitor or faces financial difficulty, such event creates a risk of managed service discontinuity for our customers while we search for a replacement provider and may materially adversely affect our ability to sell our telepresence products.

Additionally, our HDX solutions and network system products are designed based on digital signal processors and integrated circuits produced by Texas Instruments and cameras produced by JVC. If we could no longer obtain integrated circuits or cameras from these suppliers, we would incur substantial expense and take substantial time in redesigning our products to be compatible with components from other manufacturers, and we cannot assure you that we would be successful in obtaining these components from alternative sources in a timely or cost-effective manner. The failure to obtain adequate supplies of vital components could prevent or delay product shipments, which could harm our business. We also rely on the introduction schedules of some key components in the development or launch of new products. Any delays in the availability of these key components could harm our business.

Finally, our operating results would be seriously harmed by receipt of a significant number of defective components or components that fail to fully comply with environmental or other regulatory requirements, an increase in component prices, such as the price increases for components as a result of increased transportation and manufacturing costs of our suppliers, or our inability to obtain lower component prices in response to competitive price reductions.

If we experience manufacturing disruptions or capacity constraints or our manufacturers fail to comply with laws or standards, our business would be harmed.

We subcontract the manufacture of most of our products to Celestica, Askey, Flextronics, Foxconn and VTech, which are all third-party contract manufacturers. We use Celestica’s facilities in Thailand and China, Flextronics’ facilities in Mexico and Askey’s, Foxconn’s, and VTech’s facilities in China and should there be any disruption in services due to natural disaster, terrorist acts, quarantines or other disruptions associated with infectious diseases, or economic or political difficulties in any of these countries or Asia or for any other reason, such disruption would harm our business and results of operations. While we have begun to develop secondary manufacturing sources for certain products, Celestica’s facilities are currently the manufacturer for substantially all of these products, which means we are essentially sole-sourced for the manufacturing of such products, and if Celestica experiences an interruption in operations, suffers from capacity constraints, which may include constraints based on production demands from us as we grow our business, or is otherwise unable to meet our current or future production requirements we would experience a delay or inability to ship our products, which would have an immediate negative impact on our revenues. Moreover, any incapacitation of any of our or our subcontractors’ manufacturing sites due to destruction, natural disaster or similar events could result in a loss of product inventory. As a result of any of the foregoing, we may not be able to meet demand for our products, which could negatively affect revenues in the quarter of the disruption or longer depending upon the magnitude of the event, and could harm our reputation. In addition, operating in the international environment exposes us to certain inherent risks, including unexpected changes in regulatory requirements and tariffs, difficulties in staffing and managing foreign operations and potentially adverse tax consequences, all of which could harm our business and results of operations.

Finally, certain of our thinly capitalized subcontractors may fail or be detrimentally harmed in the unpredictable economic environment, which could have a materially adverse impact on our results of operations.

In addition, we expect our contractors to meet certain standards of conduct, including standards related to the environment, health and safety and general working conditions. Significant or continuing noncompliance of such standards or local laws could harm our reputation or cause us to experience disruptions that could harm our business and results of operations.

We face risks relating to changes in rules and regulations of the FCC and other regulatory agencies.

Our products and services are subject to various federal, state, local, and foreign laws and regulations. Compliance with current laws and regulations has not had a material adverse effect on our financial condition. However, new laws and regulations or new or different interpretations of existing laws and regulations could deny or delay our access to certain markets or require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our financial condition and results of operations.

The telecommunications industry is regulated by the Federal Communications Commission (“FCC”) in the United States and similar government agencies in other countries and is subject to changing political, economic, and regulatory influences. Changes in telecommunications requirements, or regulatory requirements in other industries in which we operate now or in the future, in the United States or other countries could materially adversely affect our business, operating results, and financial condition, including our newly acquired managed services offering. Further, changes in the regulation of our activities, such as increased or decreased regulation affecting prices, could also have a material adverse effect upon our business and results of operations.

If we have insufficient proprietary rights or if we fail to protect those rights we have, our business could be materially impaired.

We rely on third-party license agreements and termination or impairment of these agreements may cause delays or reductions in product introductions or shipments which could harm our business.

We have licensing agreements with various suppliers for software incorporated into our products. In addition, certain of our products are developed and manufactured based largely or solely on third-party technology. These third-party software licenses and arrangements may not continue to be available to us on commercially reasonable or competitive terms, if at all. The termination or impairment of these licenses could result in delays or reductions in new product introductions or current product shipments until equivalent software could be developed, licensed and integrated, if at all possible, which could harm our business and results of operations. Further, if we are unable to obtain necessary technology licenses on commercially reasonable or competitive terms, we could be prohibited from marketing our products, forced to market products without certain features, or incur substantial costs to redesign our products, defend legal actions, or pay damages. In addition, some of our products may include “open source” software. Our ability to commercialize products or technologies incorporating open source software may be restricted because, among other factors, open source license terms may be unclear and may result in unanticipated obligations regarding our product offerings.

We rely on patents, trademarks, copyrights and trade secrets to protect our proprietary rights which may not be sufficient to protect our intellectual property.

We rely on a combination of patent, copyright, trademark and trade secret laws and confidentiality procedures to protect our proprietary rights. Others may independently develop similar proprietary information and techniques or gain access to our intellectual property rights or disclose such technology. In addition, we cannot assure you that any patent or registered trademark owned by us will not be invalidated, circumvented or challenged in the U.S. or foreign countries or that the rights granted thereunder will provide competitive advantages to us or that any of our pending or future patent applications will be issued with the scope of the claims sought by us, if at all. Furthermore, others may develop similar products, duplicate our products or design around our patents. In addition, foreign intellectual property laws may not protect our intellectual property rights. Litigation may be necessary to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity of and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Litigation could result in substantial costs and diversion of resources which could harm our business, and we could ultimately be unsuccessful in protecting our intellectual property rights. Further, our intellectual property protection controls across our global operations may not be adequate to fully protect us from the theft or misappropriation of our intellectual property, which could adversely harm our business.

We face intellectual property infringement claims and other litigation claims that might be costly to resolve and, if resolved adversely, may harm our operating results or financial condition.

We are a party to lawsuits (patent-related and otherwise) in the normal course of our business. The results of, and costs associated with, complex litigation matters are difficult to predict, and the uncertainty associated with substantial unresolved lawsuits could harm our business, financial condition, and reputation. Negative developments with respect to pending lawsuits could cause our stock price to decline, and an unfavorable resolution of any particular lawsuit could have an adverse and possibly material effect on our business and results of operations. In addition, we may become involved in matters such as regulatory investigations or other governmental or private legal proceedings, which could result in requests for information from us that could be distracting, expensive and time consuming for us while we comply with such requests, and, if public, may also cause our stock price to be negatively impacted. We expect that the number and significance of claims and legal proceedings that assert patent infringement claims or other intellectual property rights covering our products, either directly against us or against our customers, will increase as our business expands. Any claims or proceedings against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, result in the diversion of significant operational resources, or require us to enter into royalty or licensing agreements or pay amounts to third parties pursuant to contractual indemnity provisions. Royalty or licensing agreements, if required, may not be available on terms favorable to us or at all. An unfavorable outcome in any such claim or proceeding could have a material adverse impact on our financial position and results of operations for the period in which the unfavorable outcome occurs, and potentially in future periods. Further, any settlement announced by us may expose us to further claims against us by third parties seeking monetary or other damages which, even if unsuccessful, would divert management attention from the business and cause us to incur costs, possibly material, to defend such matters.

If we fail to manage our exposure to the volatility and economic uncertainty in the global financial marketplace successfully, our operating results could be adversely impacted.

We are exposed to financial risk associated with the global financial markets, which includes volatility in interest rates, uncertainty in the credit markets and the recent instability in the foreign currency exchange market.

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. The primary objectives of our investment activities are to preserve principal, maintain adequate liquidity and portfolio diversification while at the same time maximizing yields without significantly increasing risk. To achieve these objectives, a majority of our marketable investments include debt instruments of the U.S. government and its agencies, investment-grade corporate debt securities, bank certificates of deposit and money market instruments denominated in U.S. dollars.

The valuation of our investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact its valuation include changes to credit ratings or quality of the securities, interest rate changes, the ongoing strength and quality of the global credit market and liquidity. All of the securities in our investment portfolio are investment-grade rated, but the instability of the credit market could impact those ratings and our decision to hold these securities, if they do not meet our minimum credit rating requirements. If we should decide to sell such securities, we may suffer losses in principal value that have significantly declined in value due to the declining credit rating of the securities and the ongoing strength and the global financial markets as a whole. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write-down the value of our investments. For the quarter ended March 31, 2012, we did not recognize any other-than-temporary impairment or losses on our investments.

With the instability in the financial markets, we could incur significant realized or other than temporary impairment losses associated with certain of our investments which would reduce our net income. We may also incur further temporary impairment charges requiring us to record additional unrealized loss in accumulated other comprehensive income. A significant portion of our net revenue and expenses are transacted in U.S. dollars. However, some of these activities are conducted in other currencies, primarily currencies in Europe and Asia. As a response to the risks of changes in value of foreign currency denominated transactions, we may enter into foreign currency forward contracts or other instruments to mitigate these risks. Our foreign currency forward contracts reduce, but do not eliminate, the impact of currency exchange rate movements. For example, we do not execute forward contracts in all currencies in which we conduct business or hedge the full amount of each exposure identified. The translation of these foreign currency denominated transactions will impact net revenues, operating expenses and net income as a result of fluctuations in the U.S. dollar against foreign currencies. Accordingly, such amounts denominated in foreign currencies may fluctuate in value and produce significant earnings and cash flow volatility. For example, as a result of our cash flow hedging program, in the first, second, and third quarters of 2011, we reduced operating income by $0.5 million, $2.4 million, and $0.3 million, respectively, as compared to increasing operating income in the first quarter of 2012 and the fourth quarter of 2011 by $1.1 million and $0.3 million, respectively.

Delays or loss of government contracts or failure to obtain required government certifications could have a material adverse effect on our business.

We sell our products indirectly and provide services to governmental entities in accordance with certain regulated contractual arrangements. While reporting and compliance with government contracts is both our responsibility and the responsibility of our partner, our or our partner’s lack of reporting or compliance could have an impact on the sales of our products to government agencies. Further, the United States Federal government has certain certification and product requirements for products sold to them. If we are unable to meet applicable certification or other requirements within the timeframes specified by the United States Federal government, or if our competitors have certifications for competitive products for which we are not yet certified, our revenues and results of operations would be adversely impacted.

We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), we are required to furnish a report by our management on our internal control over financial reporting. Such report contains, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. While we were able to assert in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, that our internal control over financial reporting was effective as of December 31, 2011, we must continue to monitor and assess our internal control over financial reporting. In addition, our control framework may suffer if we are unable to adapt our control framework appropriately as we continue to grow our business. If we are unable to assert in any future reporting period that our internal control over financial reporting is effective (or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls), we could lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our stock price.

Changing laws and increasingly complex corporate governance and public disclosure requirements could have an adverse effect on our business and operating results.

Changing laws, regulations and standards, including those relating to corporate governance, anticorruption and public disclosure such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, the UK Anti-Bribery Act, and newly enacted SEC regulations, have created additional compliance requirements for companies such as ours. Our efforts to comply with these requirements have resulted in, and are likely to continue to result in, an increase in expenses and a diversion of management’s time from other business activities. While we believe we are compliant with laws and regulations in jurisdictions where we do business, we must continue to monitor and assess our compliance in the future. In addition, given the growth and expansion of our business, we must continue to expand our compliance procedures. Any failures in these procedures in the future could result in time consuming and costly activities, potential fines and penalties, and diversion of management time, all of which could hurt our business.

Changes in existing financial accounting standards or practices may adversely affect our results of operations.

Changes in existing accounting rules or practices, new accounting pronouncements, or varying interpretations of current accounting pronouncements could have a significant adverse effect on our results of operations or result in changes to our business operations in support of such changes. Further, such changes could potentially affect our reporting of transactions completed before such changes are effective.

Changes in our tax rates could adversely affect our future results.

We are a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax rates, which are difficult to predict, could be unfavorably affected by changes in, or interpretation of, tax rules and regulations in the jurisdictions in which we do business, by unanticipated decreases in the amount of revenue or earnings in countries with low statutory tax rates, by lapses of the availability of the U.S. research and development tax credit which has occurred for 2012, or by changes in the valuation of our deferred tax assets and liabilities. Further, the accounting for stock compensation expense in accordance with ASC 718 and uncertain tax positions in accordance with ASC 740 could result in more unpredictability and variability to our future effective tax rates.

We are also subject to the periodic examination of our income tax returns by the Internal Revenue Service and other tax authorities, and in some cases, we have received additional tax assessments. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. We may underestimate the outcome of such examinations which, if significant, would have a material adverse effect on our results of operations and financial condition.

Business interruptions could adversely affect our operations.

Our operations are vulnerable to interruption by fire, earthquake, or other natural disaster, quarantines or other disruptions associated with infectious diseases, national catastrophe, terrorist activities, war, ongoing disturbances in the Middle East, an attack on Israel, disruptions in our computing and communications infrastructure due to power loss, telecommunications failure, human error, physical or electronic security breaches and computer viruses (which could leave us vulnerable to the loss of our intellectual property or the confidential information of our customers, disruption of our business activities and potential litigation), and other events beyond our control. We have a business continuity program that is based on enterprise risk assessment which addresses the impact of natural, technological, man-made and geopolitical disasters on our critical business functions. This plan helps facilitate the continuation of critical business activities in the event of a disaster but may not prove to be sufficient. In addition, our business interruption insurance may not be sufficient to compensate us for losses that may occur, and any losses or damages incurred by us could have a material adverse effect on our business and results of operations.

In the case of our managed services business, any circuit failure or downtime could affect a significant portion of our customers. Since our ability to attract and retain customers depends on our ability to provide customers with highly reliable service, even minor interruptions could harm our reputation or cause us to miss contractual obligations, which could have a material adverse effect on our operating results and our business.

Our cash flow could fluctuate due to the potential difficulty of collecting our receivables and managing our inventories.

Over the past few years, we have made significant investments in EMEA and Asia to expand our business in these regions. In EMEA and Asia, as with other international regions, credit terms are typically longer than in the United States. Therefore, as Europe, Asia and other international regions have grown as a percentage of our revenues, accounts receivable balances have increased as compared to previous years, and we expect this trend to continue. As a result, we have seen our days sales outstanding increase. For example, our days sales outstanding in the first quarter of 2012 was 52 days as compared to 46 days in the first quarter of 2011. Although from time to time we have been able to largely offset the effects of these influences through additional incentives offered to channel partners at the end of each quarter in the form of prepay discounts, these additional incentives have lowered our profitability. In addition, economic uncertainty or a downturn in technology spending in the United States and other countries could restrict the availability of capital, which may delay our collections from our channel partners beyond our historical experience or may cause companies to file for bankruptcy. Either a delay in collections or bankruptcy would harm our cash flow and days sales outstanding performance.

In addition, as we manage our business and focus on shorter shipment lead times for certain of our products and implement freight cost reduction programs, our inventory levels may increase, resulting in decreased inventory turns that could negatively impact our cash flow. We believe inventory turns will continue to fluctuate depending upon our ability to reduce lead times, as well as due to changes in anticipated product demand and product mix and a greater mix of ocean freight versus air freight to reduce freight costs.

Our stock price fluctuates as a result of the conduct of our business and stock market fluctuations and may be extremely volatile.

The market price of our common stock has from time to time experienced significant fluctuations. The market price of our common stock may be significantly affected by a variety of factors, including:

•

statements or changes in opinions, ratings or earnings estimates made by brokerage firms or industry analysts relating to the market in which we do business, including competitors, partners, suppliers or telecommunications industry leaders or relating to us specifically;

•

the announcement of new products, product enhancements or acquisitions by us or by our competitors;

•

technological innovations by us or our competitors;

•

quarterly variations in our results of operations;

•

failure of our future operating results to meet expectations of stock market analysts or investors or any financial guidance we may provide to the market, which is inherently subject to greater risk and uncertainty as expectations increase;

•

general market conditions or market conditions specific to technology industries; and

•

domestic and international macroeconomic factors.

In addition, the stock market has in the past experienced significant price and volume fluctuations related to general economic, political and market conditions. These fluctuations have had a substantial effect on the market prices for many high technology companies like us and are often unrelated to the operating performance of the specific companies. As with the stock of many other public companies, the market price of our common stock continues to be volatile. This excessive volatility in our stock price is unpredictable and may continue for an indefinite period of time.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Repurchase Program

The following table provides a month-to-month summary of the stock purchase activity during the quarter ended March 31, 2012:


Period	Total Number of Shares Purchased(1)(2)		Average Price Paid per Share(1)(2)		Total Number of Shares Purchased as Part of Publicly Announced Plan(2)		Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan(2)
1/1/12 to 1/31/12		640	$	17.45		—	$	78,053,000
2/1/21 to 2/29/12		464,816	$	21.27		—	$	78,053,000
3/1/21 to 3/31/12		534	$	19.63		—	$	78,053,000

Total		465,990	$	21.26		—

(1)	All of the shares repurchased in January through March 2012 were to satisfy tax withholding obligations as a result of the vesting of performance shares and restricted stock units.

(2)

In May 2008, we announced that our Board of Directors approved a share repurchase plan under which Polycom at its discretion may purchase shares in the open market from time to time with an aggregate value of up to $300.0 million (“the 2008 share repurchase plan”). As of March 31, 2011, the Company was authorized to purchase up to approximately $78.0 million in the open market under the 2008 share repurchase plan. These shares of common stock have been retired and reclassified as authorized and unissued shares. The 2008 share repurchase plan does not have an expiration date but is limited by the dollar amount authorized.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

Item 4.

MINE SAFETY DISCLOSURES

Not Applicable.

Item 5.

OTHER INFORMATION

Not Applicable.

Item 6.

EXHIBITS


Exhibit No.		Description

10.1(1)*		Offer Letter with Eric F. Brown, effective February 3, 2012.

10.2(1)*		Separation Agreement with Michael R. Kourey, dated February 8, 2012.

31.1(1)		Certification of the President and Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(c) and 15d-14(a).

31.2(1)		Certification of the Executive Vice President, Finance and Administration and Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(c) and 15d-14(a).

32.1(1)		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema Linkbase Document

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**		XBRL Taxonomy Extension Label Linkbase Document

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

*	Indicates management contract or compensatory plan or arrangement.

XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Exchange Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

(1)	Filed herewith.

SIGNATURE

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, thereunto duly authorized.

Dated: May 1, 2012

POLYCOM, INC.

/S/ ANDREW M. MILLER

Andrew M. Miller

President and Chief Executive Officer

(Principal Executive Officer)

/S/ ERIC F. BROWN

Eric F. Brown

Chief Operating Officer, Chief Financial Officer, and

Executive Vice President

(Principal Financial Officer)

/S/ LAURA J. DURR

Laura J. Durr

Senior Vice President and Worldwide Controller

(Principal Accounting Officer)

EXHIBIT INDEX


Exhibit No.		Description

10.1(1)*		Offer Letter with Eric F. Brown, effective February 3, 2012.

10.2(1)*		Separation Agreement with Michael R. Kourey, dated February 8, 2012.

31.1(1)		Certification of the President and Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(c) and 15d-14(a).

31.2(1)		Certification of the Executive Vice President, Finance and Administration and Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(c) and 15d-14(a).

32.1(1)		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema Linkbase Document

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**		XBRL Taxonomy Extension Label Linkbase Document

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

*	Indicates management contract or compensatory plan or arrangement.

(1)	Filed herewith.