Financial: PictureTel Posts Net Profit of 4 Cents Per Share in Third Quarter, First Quarterly Net Profit Since Q1 1997 - Company Financial Information

Edge: Work-Group Computing Report, Oct 26, 1998

PictureTel Corporation (Nasdaq:PCTL), the world leader in visual collaboration, Wednesday reported revenue of $102.1 million and net income of $1.6 million, or $0.04 per share, for its third quarter ended on September 27, 1998. This marks the first time since the first quarter of 1997 that PictureTel has posted a net profit. In the second quarter of 1998, the company had an operating profit excluding special charges.

Revenue was down approximately 7 percent from last year's third quarter, when the company had $110 million in revenue and a net loss of $16.7 million, or $0.44 per share, including charges of approximately $12.7 million after tax.

For the first nine months of 1998, PictureTel's revenue was $307.7 million, off 12 percent from a year earlier, and the company had a net loss of $7.2 million, or $0.19 per share, compared to a net loss of $19.6 million, or $0.52 per share, for the first nine months of last year.

"Without approximately $7.9 million of net special charges in the second quarter of 1998, PictureTel would be profitable, year to date," said Bruce R. Bond, PictureTel's chairman and CEO. "The company has made great strides and we have returned to profitability for the first time in more than a year. While we still have more work ahead of us, I believe we are on the road to sustained strong financial performance, our goal since I joined the company. In particular, we have made great progress in reducing operating expenses, which, along with a favorable product mix, helped us post a net profit in the third quarter."

Third-quarter Accomplishments Bond noted a number of important accomplishments during the quarter. For example, PictureTel announced its intent to purchase Starlight Networks, Inc., a leading provider of streaming-media solutions for enterprise communications, and expects to complete the acquisition in November. The company also added new features and functionality to its award-winning LiveLAN IP-based personal videoconferencing system, version 3.1, which includes higher-quality video with up to 30 frames per second -- the same transmission speed as broadcast television -- at network speeds of 384 Kbps and higher. In addition, PictureTel announced that its complete line of visual collaboration solutions, including videoconferencing clients, servers, gateways and management software, are year 2000 compliant. Year 2000 compliance is a key issue for businesses around the globe as the millennium approaches.

Executive Appointments PictureTel has added three new members to its executive management team. Gary Bond joined the company in October as group vice president of product management and engineering. He is responsible for the development, management and engineering of PictureTel's group, desktop and compact videoconferencing systems, peripherals and server products. The company's product management and engineering organizations report to him. Jim Finnegan also joined PictureTel this month as vice president of engineering, reporting to Gary Bond. And today, in a separate release, the company announced the appointment of Art Fatum as vice president and chief financial officer.

The Power of Visual Collaboration On October 20, PictureTel demonstrated the power of visual collaboration by conducting what it believes was the world's largest series of multi-network, multi-location conferences. More than 10,000 people at more than 250 sites around the world participated in the daylong global event.

Throughout the day, a total of seven conferences were conducted among sites on six continents using PictureTel visual collaboration systems operating over a variety of networks. During the event PictureTel introduced the world's first second-generation compact videoconferencing system, SwiftSite II, which has new features, functionality and flexibility and is even easier for customers to install and operate. SwiftSite II is the successor to the original SwiftSite, which has been the world's best-selling compact videoconferencing system since its introduction in 1996.

PictureTel Corporation is the world leader in developing, manufacturing and marketing a full range of visual and audio collaboration solutions. The company's systems meet customers' collaboration needs from the desktop to the boardroom. PictureTel also markets network conferencing servers and a comprehensive portfolio of enterprise-wide services. Additional PictureTel information is available on the Internet at www.picturetel.com. PictureTel collaboration products and services eliminate the barrier of distance, enabling people to be Anywhere Now.

                    PICTURETEL CORPORATION
                  CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS)
                                               9/27/98   12/31/97
                                             (Unaudited)
ASSETS
Current assets:
   Cash and marketable securities             $100,194    $82,011
   Accounts receivable, net                     92,975    108,729
   Inventories                                  30,793     44,901
   Deferred taxes, net                          16,490     15,615
   Other current assets                         10,420      6,803
     Total current assets                      250,872    258,059
Deferred taxes, net                             19,260     16,106
Property and equipment, net                     56,909     69,103
Capitalized software costs, net                  6,190      2,368
Other assets                                    11,507      9,415
     Total assets                             $344,738   $355,051
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Short-term borrowing                       $  2,594    $   186
   Accounts payable                             27,165     30,169
   Accrued expenses                             45,143     47,758
   Current portion of capital leases             2,946      3,426
   Deferred revenue                             22,865     23,547
     Total current liabilities                 100,713    105,086
Capital lease obligations                       20,167      2,000
Total liabilities                              120,880    127,086
Total stockholders' equity                     223,858    227,965
Total liabilities and stockholders' equity    $344,738   $355,051
Note: Period ended December 31, 1997 includes impact of financial
  restatements on all prior periods. All periods include the
  impact of Multilink, Inc., which was acquired on July 22, 1997,
  in a pooling of interests transaction.
                    PICTURETEL CORPORATION
             CONSOLIDATED STATEMENTS OF OPERATIONS
         BEFORE AND AFTER SPECIAL CHARGES (UNAUDITED)
             (IN THOUSANDS, EXCEPT PER SHARE DATA)
                          Nine Months Ended September 27, 1998
                                                       Without
                               As          Special     Special
                            Reported       Charges     Charges
Revenues                   $ 307,685    $    --      $ 307,685
Cost of revenues             175,765       (6,808)     168,957
Gross margin                 131,920       (6,808)     138,728
Operating expenses:
   Research and development   45,968         --         45,968
   Selling, general and
 administrative               99,207       (4,817)      94,390
     Total operating
   expenses                  145,175       (4,817)     140,358
Loss from operations         (13,255)     (11,625)      (1,630)
Other income, net              2,623         --          2,623
Income (loss) before taxes   (10,632)     (11,625)         993
Income tax expense (benefit)  (3,402)      (3,720)         318
Net income (loss)          $  (7,230)   $  (7,905)   $     675
Net income (loss)
  per common share - Basic $   (0.19)   $   (0.21)   $    0.02
Net income (loss)
  per common share - Diluted   $   (0.19)   $   (0.21)   $0.02
Weighted average number of
   common shares
     outstanding - Basic      38,259       38,259       38,259
Weighted average number of
   common shares
     outstanding - Diluted    38,259       38,259       38,546