PictureTel Third-Quarter Financial Results - Company Financial Information

Edge: Work-Group Computing Report, Oct 25, 1999

PictureTel Corporation (Nasdaq: PCTL), the world leader in visual collaboration, Monday reported a net loss applicable to common shareholders of $11.9 million, or $0.29 per diluted share, on sales of $78.8 million for its third quarter ended October 3, 1999. In the third quarter of 1998 the company had net income applicable to common shareholders of $1.6 million on revenue of $102.1 million, or $0.04 per share.

The loss in the third quarter of 1999 included a significant one-time gain offset in part by one-time charges related to executive severance. The one-time gain of approximately $8.5 million represents income associated with the sale of RealNetworks stock obtained through an investment in a company later acquired by RealNetworks. Excluding these items, the company's net loss applicable to common shareholders would have been $19.5 million, or $0.48 per share.

"In the seven weeks I have been back at PictureTel, my short-term priorities have been to enunciate a clear and simple strategy; reduce expenses; and focus the organization to better align our business to meet the needs of the marketplace," said Dr. Norman E. Gaut, PictureTel's chairman and CEO. "Each of our business units - conferencing products, services, MultiLink audioconferencing and eVideo products - is focusing on being the number-one supplier of its core products or services in their segment of the market. In the past few weeks, we have taken actions to further reduce our annual run rate for expenses by more than $40 million. Combined with actions taken earlier this year, we will have reduced our headcount by 25 percent by the end of 1999, compared with the end of 1998."

Gaut said that PictureTel's strategic direction is sound, but that the company must successfully execute on the strategy.

"We call our strategy Visual Collaboration for the Net, which is the unification of several collaboration techniques into a seamless environment that our customers can use over any network - ISDN, Internet Protocol (IP), POTS, or any combination," Gaut said. "Under the VCN umbrella, we are developing a new generation of products that will enable our customers to successfully integrate video, audio and data over their network. At the same time, we are making great strides in the delivery of eVideo products and services that complement our videoconferencing solutions. Together, these solutions enable customers to conduct both real-time videoconferencing events as well as real-time and on-demand streaming-video presentations and briefings to any PC that is connected to an IP network. All of our new products and services will take advantage of broadband IP networks that are being deployed around the world."

PictureTel is currently marketing its initial eVideo services based on the company's eVideo products, which will be available later this year. PictureTel's new generation of videoconferencing systems will debut in the first half of 2000.

MultiLink, PictureTel's audioconferencing business unit, recently introduced a powerful new product, the System 700, which is the largest fully featured audioconferencing solution available in the marketplace. The System 700 is currently in beta and is expected to begin shipping later this quarter.

PictureTel Corporation is the world leader in developing, manufacturing and marketing a full range of visual- and audio-collaboration and streaming-video 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 at www.picturetel.com. PictureTel collaboration products and services eliminate the barrier of distance, enabling people to be Anywhere Now.

                                                    Exhibit A
                    PICTURETEL CORPORATION
             CONSOLIDATED STATEMENTS OF OPERATIONS
             (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                              Three Months Ended
                                               10/3/99     9/27/98

Revenues                                       $78,818    $102,058
Cost of revenues                                53,884      56,297
Gross margin                                    24,934      45,761
Operating expenses:
 Research and development                       15,659      14,451
 Selling, general and administrative            28,501      30,214
  Total operating expenses                      44,160      44,665
Income (loss) from operations                  (19,226)      1,096
Other income, net                                9,304       1,293
Income (loss) before taxes                      (9,922)      2,389
Income tax expense                                 640         765
Net income (loss)                              (10,562)      1,624
Preferred stock accretion                        1,341           0
Net income (loss) applicable to
 common shareholders                          $(11,903)     $1,624
Net income (loss) per common share - Basic      $(0.29)      $0.04
Net income (loss) per common share - Diluted    $(0.29)      $0.04
Weighted average number of
 common shares outstanding - Basic              40,426      38,376
Weighted average number of
 common shares outstanding - Diluted            40,426      38,693

                                                        Exhibit B
                    PICTURETEL CORPORATION
             CONSOLIDATED STATEMENTS OF OPERATIONS
             (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                               Nine Months Ended

                                             10/3/99      9/27/98
Revenues                                    $240,969     $307,685
Cost of revenues                             164,792      175,765
Gross margin                                  76,177      131,920
Operating expenses:
 Research and development                     51,530       45,968
 Selling, general and administrative         100,348       99,207
  Total operating expenses                   151,878      145,175
Loss from operations                         (75,701)     (13,255)
Other income, net                             10,030        2,623
Loss before taxes                            (65,671)     (10,632)
Income tax expense (benefit)                   2,698       (3,402)
Net loss                                     (68,369)      (7,230)
Preferred stock accretion                      5,612            0
Net loss applicable to common shareholders  $(73,981)     $(7,230)
Net loss per common share - Basic             $(1.83)      $(0.19)
Net loss per common share - Diluted           $(1.83)      $(0.19)
Weighted average number of
 common shares outstanding - Basic            40,326       38,259
Weighted average number of
 common shares outstanding - Diluted          40,326       38,259

                                                        Exhibit C
                    PICTURETEL CORPORATION
                  CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS)

                                               10/3/99    12/31/98
ASSETS
Current assets:
 Cash and marketable securities                $73,034    $100,720
 Accounts receivable, net                       69,548      78,995
 Inventories                                    35,425      30,256
 Other current assets                           14,024       8,692
  Total current assets                         192,031     218,663
Property and equipment, net                     89,098      95,655
Capitalized software costs, net                 13,627      20,484
Goodwill                                         4,515       5,336
Other assets                                    10,124      12,856
  Total assets                                $309,395    $352,994
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Short-term borrowing                            $--          $881
 Accounts payable                               20,050      32,777
 Accrued expenses                               48,828      46,530
 Current portion of capital leases               1,786       3,537
 Deferred revenue                               26,351      22,616
  Total current liabilities                     97,015     106,341
Capital lease obligations                       55,059      56,411
Total liabilities                              152,074     162,752
Total stockholders' equity                     157,321     190,242
Total liabilities and stockholders' equity    $309,395    $352,994