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 September 30, 2015
or
¨	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)	
 
6001 America Center Drive, San Jose, CA	 	 
95002	
(Address of principal executive offices)	 	(Zip Code)	
(408) 586-6000
(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.
 
Large accelerated filer	 	x	  	Accelerated filer	 	¨	
 	 	 	 	
Non-accelerated filer	 	¨  (Do not check if a smaller reporting company)	  	Smaller reporting company	 	¨	
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 132,449,350 shares of the Company’s Common Stock, par value $0.0005, outstanding on October 23, 2015.

 

 
POLYCOM, INC.
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2015
PART I FINANCIAL INFORMATION
 
Item 1 Financial Statements (unaudited):	 	3	
 
Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	 	3	
 
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014	 	4	
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014	 	5	
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014	 	6	
 
Notes to Condensed Consolidated Financial Statements	 	7	
 
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	27	
 
Item 3 Quantitative and Qualitative Disclosures About Market Risk	 	41	
 
Item 4 Controls and Procedures	 	43	
 
PART II OTHER INFORMATION	
 
Item 1—Legal Proceedings	 	44	
 
Item 1A—Risk Factors	 	45	
 
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	 	62	
 
Item 3—Defaults Upon Senior Securities	 	62	
 
Item 4—Mine Safety Disclosures	 	62	
 
Item 5—Other Information	 	62	
 
Item 6—Exhibits	 	63	
 
SIGNATURES	 	64	

 
2

PART I – FINANCIAL INFORMATION

 Item 1. FINANCIAL STATEMENTS
POLYCOM, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
 
 	September 30,
2015	 	 	December 31,
2014	 	
ASSETS	 	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	 	
Cash and cash equivalents	$	412,453	 	 	$	443,132	 	
Short-term investments	 	198,155	 	 	 	185,783	 	
Trade receivables, net of allowance for doubtful accounts of $3,031 and $3,040
   at September 30, 2015 and December 31, 2014, respectively	 	156,075	 	 	 	169,400	 	
Inventories	 	99,904	 	 	 	100,328	 	
Deferred taxes	 	37,404	 	 	 	38,805	 	
Prepaid expenses and other current assets	 	48,706	 	 	 	61,072	 	
Total current assets	 	952,697	 	 	 	998,520	 	
Property and equipment, net	 	107,646	 	 	 	109,195	 	
Long-term investments	 	44,428	 	 	 	59,197	 	
Goodwill	 	559,034	 	 	 	559,231	 	
Purchased intangibles, net	 	16,427	 	 	 	24,567	 	
Deferred taxes	 	49,753	 	 	 	54,019	 	
Other assets	 	24,400	 	 	 	26,493	 	
Total assets	$	1,754,385	 	 	$	1,831,222	 	
LIABILITIES AND STOCKHOLDERS' EQUITY	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	
Accounts payable	$	85,743	 	 	$	108,172	 	
Accrued payroll and related liabilities	 	32,442	 	 	 	42,901	 	
Taxes payable	 	5,913	 	 	 	4,056	 	
Deferred revenue	 	172,465	 	 	 	173,532	 	
Current portion of long-term debt	 	6,250	 	 	 	6,250	 	
Other accrued liabilities	 	68,721	 	 	 	86,193	 	
Total current liabilities	 	371,534	 	 	 	421,104	 	
Long-term deferred revenue	 	81,224	 	 	 	89,366	 	
Taxes payable	 	9,644	 	 	 	11,719	 	
Deferred taxes	 	115	 	 	 	173	 	
Long-term debt	 	231,250	 	 	 	235,938	 	
Other non-current liabilities	 	30,940	 	 	 	49,189	 	
Total liabilities	 	724,707	 	 	 	807,489	 	
Commitments and contingencies (Note 8)	 	 	 	 	 	 	 	
Stockholders' equity	 	 	 	 	 	 	 	
Common stock, $0.0005 par value; Authorized: 350,000,000 shares; Issued and
   outstanding: 132,443,968 shares at September 30, 2015 and 135,204,948 shares at
   December 31, 2014	 	66	 	 	 	68	 	
Additional paid-in capital	 	1,157,425	 	 	 	1,155,829	 	
Accumulated deficit	 	(128,912	)	 	 	(136,275	)	
Accumulated other comprehensive income	 	1,099	 	 	 	4,111	 	
Total stockholders' equity	 	1,029,678	 	 	 	1,023,733	 	
Total liabilities and stockholders' equity	$	1,754,385	 	 	$	1,831,222	 	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
3

POLYCOM, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	 	September 30,
2015	 	 	September 30,
2014	 	
Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Product revenues	$	211,318	 	 	$	240,059	 	 	$	666,901	 	 	$	708,133	 	
Service revenues	 	91,792	 	 	 	95,627	 	 	 	283,484	 	 	 	288,096	 	
Total revenues	 	303,110	 	 	 	335,686	 	 	 	950,385	 	 	 	996,229	 	
Cost of revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost of product revenues	 	91,272	 	 	 	101,399	 	 	 	288,293	 	 	 	296,745	 	
Cost of service revenues	 	32,948	 	 	 	37,617	 	 	 	104,457	 	 	 	115,607	 	
Total cost of revenues	 	124,220	 	 	 	139,016	 	 	 	392,750	 	 	 	412,352	 	
Gross profit	 	178,890	 	 	 	196,670	 	 	 	557,635	 	 	 	583,877	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and marketing	 	86,915	 	 	 	97,953	 	 	 	267,207	 	 	 	289,757	 	
Research and development	 	46,744	 	 	 	51,024	 	 	 	142,626	 	 	 	148,202	 	
General and administrative	 	22,720	 	 	 	25,746	 	 	 	66,156	 	 	 	74,175	 	
Amortization of purchased intangibles	 	2,399	 	 	 	2,435	 	 	 	7,233	 	 	 	7,363	 	
Restructuring costs	 	213	 	 	 	(2,631	)	 	 	580	 	 	 	36,887	 	
Litigation reserves and payments	 	—	 	 	 	3,130	 	 	 	—	 	 	 	3,130	 	
Transaction-related costs	 	—	 	 	—	 	 	 	—	 	 	 	156	 	
Total operating expenses	 	158,991	 	 	 	177,657	 	 	 	483,802	 	 	 	559,670	 	
Operating income	 	19,899	 	 	 	19,013	 	 	 	73,833	 	 	 	24,207	 	
Interest and other income (expense), net:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	(1,538	)	 	 	(1,470	)	 	 	(4,545	)	 	 	(4,404	)	
Other income (expense), net	 	969	 	 	 	1,285	 	 	 	2,336	 	 	 	1,828	 	
Interest and other income (expense), net	 	(569	)	 	 	(185	)	 	 	(2,209	)	 	 	(2,576	)	
Income before provision for income taxes	 	19,330	 	 	 	18,828	 	 	 	71,624	 	 	 	21,631	 	
Provision for income taxes	 	5,757	 	 	 	1,817	 	 	 	17,206	 	 	 	54	 	
Net income	$	13,573	 	 	$	17,011	 	 	$	54,418	 	 	$	21,577	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic net income per share	$	0.10	 	 	$	0.12	 	 	$	0.41	 	 	$	0.16	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted net income per share	$	0.10	 	 	$	0.12	 	 	$	0.40	 	 	$	0.15	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Number of shares used in computation of net income per share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	132,944	 	 	 	136,606	 	 	 	133,926	 	 	 	137,139	 	
Diluted	 	135,792	 	 	 	142,176	 	 	 	137,458	 	 	 	142,406	 	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
4

POLYCOM, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	 	September 30,
2015	 	 	September 30,
2014	 	
Net income	$	13,573	 	 	$	17,011	 	 	$	54,418	 	 	$	21,577	 	
Other comprehensive income (loss), net of tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency translation adjustments	 	(1,708	)	 	 	179	 	 	 	(1,517	)	 	 	(907	)	
Unrealized gains/losses on investments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized holding gains (losses) arising during the period	 	56	 	 	 	(43	)	 	 	118	 	 	 	(43	)	
Net losses reclassified into earnings	 	(1	)	 	 	(7	)	 	 	(5	)	 	 	(9	)	
Net unrealized gains (losses) on investments	 	55	 	 	 	(50	)	 	 	113	 	 	 	(52	)	
Unrealized gains/losses on hedging securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized hedge gains (losses) arising during the period	 	(787	)	 	 	2,573	 	 	 	3,788	 	 	 	2,574	 	
Net (gains) losses reclassified into earnings for revenue
   hedges	 	(2,450	)	 	 	(1,222	)	 	 	(12,715	)	 	 	3,052	 	
Net (gains) losses reclassified into earnings for expense
   hedges	 	1,039	 	 	 	(120	)	 	 	7,319	 	 	 	(3,837	)	
Net unrealized gains/(losses) on hedging securities	 	(2,198	)	 	 	1,231	 	 	 	(1,608	)	 	 	1,789	 	
Other comprehensive income (loss)	 	(3,851	)	 	 	1,360	 	 	 	(3,012	)	 	 	830	 	
Comprehensive income	$	9,722	 	 	$	18,371	 	 	$	51,406	 	 	$	22,407	 	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
5

POLYCOM, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	
Cash flows from operating activities:	 	 	 	 	 	 	 	
Net income	$	54,418	 	 	$	21,577	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	
Depreciation and amortization	 	39,462	 	 	 	43,201	 	
Amortization of purchased intangibles	 	8,140	 	 	 	9,724	 	
Amortization of capitalized software development costs for products to be sold	 	2,174	 	 	 	1,269	 	
Amortization of debt issuance costs	 	399	 	 	 	400	 	
Amortization of discounts and premiums on investments, net	 	1,617	 	 	 	1,440	 	
Provision for doubtful accounts	 	—	 	 	 	600	 	
Write-down of excess and obsolete inventories	 	9,697	 	 	 	3,682	 	
Stock-based compensation expense	 	32,902	 	 	 	34,178	 	
Excess tax benefits from stock-based compensation expense	 	(4,068	)	 	 	(2,595	)	
Loss on disposal of property and equipment	 	562	 	 	 	4,987	 	
Changes in assets and liabilities:	 	 	 	 	 	 	 	
Trade receivables	 	13,325	 	 	 	1,432	 	
Inventories	 	(9,731	)	 	 	1,678	 	
Deferred taxes	 	(2,494	)	 	 	(7,705	)	
Prepaid expenses and other assets	 	11,726	 	 	 	(11,974	)	
Accounts payable	 	(25,492	)	 	 	8,867	 	
Taxes payable	 	11,030	 	 	 	7,178	 	
Other accrued liabilities and deferred revenue	 	(54,622	)	 	 	(3,290	)	
Net cash provided by operating activities	 	89,045	 	 	 	114,649	 	
Cash flows from investing activities:	 	 	 	 	 	 	 	
Purchases of property and equipment	 	(34,389	)	 	 	(36,847	)	
Capitalized software development costs for products to be sold	 	(3,845	)	 	 	(3,069	)	
Purchases of investments	 	(176,594	)	 	 	(220,575	)	
Proceeds from sales of investments	 	11,168	 	 	 	40,709	 	
Proceeds from maturities of investments	 	166,340	 	 	 	132,753	 	
Net cash used in investing activities	 	(37,320	)	 	 	(87,029	)	
Cash flows from financing activities:	 	 	 	 	 	 	 	
Proceeds from issuance of common stock under employee option and stock
   purchase plans	 	21,683	 	 	 	23,407	 	
Payments on debt	 	(4,687	)	 	 	(4,688	)	
Purchase and retirement of common stock under share repurchase plan	 	(89,953	)	 	 	(25,000	)	
Purchase and retirement of common stock for tax withholdings on vesting
   of employee stock-based awards	 	(13,515	)	 	 	(10,240	)	
Excess tax benefits from stock-based compensation expense	 	4,068	 	 	 	2,595	 	
Net cash used in financing activities	 	(82,404	)	 	 	(13,926	)	
Net (decrease) increase in cash and cash equivalents	 	(30,679	)	 	 	13,694	 	
Cash and cash equivalents, beginning of period	 	443,132	 	 	 	392,629	 	
Cash and cash equivalents, end of period	$	412,453	 	 	$	406,323	 	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
6

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 September 30, 2015, the condensed consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014, the condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2015 and 2014, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2015 and 2014, have been prepared in accordance with accounting principles generally accepted in the United States of America in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. In addition, the condensed consolidated balance sheet at December 31, 2014 has been derived from the audited consolidated financial statements as of that date. Accordingly, these condensed consolidated financial statements do not include all of the information and notes typically found in the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of Polycom, Inc. and its subsidiaries (the “Company”). In the opinion of management, the accompanying unaudited financial statements have been prepared on a basis consistent with the Company’s December 31, 2014 audited financial statements and all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement have been included. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
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 and nine months ended September 30, 2015 and are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
 
2. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2015, the FASB issued an accounting standard update which requires an entity measuring inventory other than last-in, first-out (LIFO) or the retail inventory method to measure inventory at the lower of cost and net realizable value. When evidence exists that the net realizable value of inventory is lower than its costs, the difference will be recognized as a loss in the statement of operations. The standard is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The Company is evaluating the impact of adopting this standard on its Consolidated Financial Statements and disclosures.
In April 2015, the FASB issued an accounting standard update which provides guidance on whether a cloud computing arrangement includes a software license to a customer of such an arrangement. If a cloud computing arrangement includes a software license, a customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses, otherwise the customer should account for the arrangement as a service contract. The standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The standard can be applied prospectively to all arrangements entered into or materially modified after the effective date, or retrospectively. The Company is evaluating the impact of adopting this standard on its Consolidated Financial Statements and disclosures.
In April 2015, the FASB issued an accounting standard update which requires an entity to present debt issuance costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. The standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The standard will be applied retrospectively to each prior period presented. The accounting standard update is a change in balance sheet presentation only and is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In May 2014, the FASB issued an accounting standard update which provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services . In August 2015, the FASB issued an accounting standard update to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. Companies may use either a full retrospective or a modified retrospective approach to adopt the standard. The Company is evaluating the potential effects of the adoption of this standard on its Consolidated Financial Statements.
 
7

3. DISCONTINUED OPERATIONS
On December 4, 2012, the Company completed the disposition of the net assets of its enterprise wireless voice solutions (“EWS”) business to Mobile Devices Holdings, LLC, a Delaware limited liability corporation. Additional cash consideration of up to $25.0 million is payable to Polycom over the next two years subject to certain conditions, including meeting certain agreed-upon EBITDA-based milestones for the fiscal years ending December 31, 2015 and 2016. These conditions were not met for the fiscal years ended December 31, 2013 and 2014. Such additional cash consideration will be accounted for as a gain on sale of discontinued operations, net of taxes, when it is realized or realizable. For the nine months ended September 30, 2015 and 2014, there were no realized gains on sale of discontinued operations.
 
4. ACCOUNTS RECEIVABLE FINANCING
The Company has a financing agreement with an unrelated third party financing company (the “Financing Agreement”) whereby the Company offers distributors and resellers’ direct or indirect financing on their purchases of the Company’s products and services. In return, the Company agrees to pay the financing company a fee based on a defined percentage of the transaction amount financed. In certain instances, these financing arrangements result in a transfer of its receivables, without recourse, to the financing company. If the transaction meets the applicable criteria under Accounting Standards Codification (“ASC”) 860 and is accounted for as a sale of financial assets, the accounts receivable are excluded from the balance sheet upon the third party financing company’s payment remittance to the Company. In certain legal jurisdictions, the arrangement fees that involve maintenance services or products bundled with maintenance at one price do not qualify as a sale of financial assets in accordance with the authoritative guidance. Accordingly, accounts receivable related to these arrangements are accounted for as a secured borrowing in accordance with ASC 860, and the Company records a liability for any cash received, while maintaining the associated accounts receivable balance until the distributor or reseller remits payment to the third-party financing company.
In the three and nine months ended September 30, 2015, total transactions entered into pursuant to the terms of the Financing Agreement were approximately $55.6 million and $173.1 million, respectively, of which $33.8 million and $106.8 million, respectively, were related to the transfer of the financial assets arrangement. In the three and nine months ended September 30, 2014, total transactions entered were approximately $48.8 million and $132.6 million, respectively, of which $29.4 million and $98.1 million, respectively, were related to the transfer of the financial assets arrangement. The financing of these receivables accelerated the collection of the Company’s cash and reduced its credit exposure. The amount due from the financing company as of September 30, 2015 and December 31, 2014 was approximately $32.9 million and $28.5 million, respectively, of which $18.5 million and $20.2 million, respectively, was related to the accounts receivable transferred, and is included in “Trade receivables” in the Company’s condensed consolidated balance sheets. Fees incurred pursuant to the Financing Agreement were approximately $0.8 million and $0.7 million for the three months ended September 30, 2015 and 2014, respectively, and were approximately $2.5 million and $1.8 million for the nine months ended September 30, 2015 and 2014 respectively. Those fees were recorded as reductions to revenues.
 
5. GOODWILL, PURCHASED INTANGIBLES, AND SOFTWARE DEVELOPMENT COSTS
Goodwill
The following table presents the changes to the Company’s goodwill by segment during the nine months ended September 30, 2015 (in thousands):
 
 	Americas	 	 	EMEA	 	 	APAC	 	 	Total	 	
Balance at December 31, 2014	$	308,159	 	 	$	101,882	 	 	$	149,190	 	 	$	559,231	 	
Foreign currency translation	 	—	 	 	 	—	 	 	 	(197	)	 	 	(197	)	
Balance at September 30, 2015	$	308,159	 	 	$	101,882	 	 	$	148,993	 	 	$	559,034	 	
 
8

Purchased Intangible Assets and Software Development Costs
The following table presents details of the Company’s total purchased intangible assets and capitalized software development costs for products to be sold as of the following periods (in thousands):
 
 	September 30, 2015	 	 	December 31, 2014	 	
 	Gross
Value	 	 	Accumulated
Amortization
&   Impairment	 	 	Net Value	 	 	Gross
Value	 	 	Accumulated
Amortization
& Impairment	 	 	Net Value	 	
Core and developed technology	$	81,178	 	 	$	(80,845	)	 	$	333	 	 	$	81,178	 	 	$	(79,986	)	 	$	1,192	 	
Customer and partner relationships	 	79,525	 	 	 	(64,665	)	 	 	14,860	 	 	 	79,525	 	 	 	(57,983	)	 	 	21,542	 	
Non-compete agreements	 	1,800	 	 	 	(1,550	)	 	 	250	 	 	 	1,800	 	 	 	(1,100	)	 	 	700	 	
Trade name	 	3,400	 	 	 	(3,334	)	 	 	66	 	 	 	3,400	 	 	 	(3,229	)	 	 	171	 	
Other	 	4,462	 	 	 	(4,462	)	 	 	—	 	 	 	4,462	 	 	 	(4,418	)	 	 	44	 	
Finite-lived intangible assets	 	170,365	 	 	 	(154,856	)	 	 	15,509	 	 	 	170,365	 	 	 	(146,716	)	 	 	23,649	 	
Indefinite-lived trade name	 	918	 	 	 	—	 	 	 	918	 	 	 	918	 	 	 	—	 	 	 	918	 	
Total acquired intangible assets	$	171,283	 	 	$	(154,856	)	 	$	16,427	 	 	$	171,283	 	 	$	(146,716	)	 	$	24,567	 	
Capitalized software development costs for
   products to be sold	$	11,582	 	 	$	(4,074	)	 	$	7,508	 	 	$	7,416	 	 	$	(1,900	)	 	$	5,516	 	
 
Purchased intangibles include a purchased trade name of $0.9 million 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.
The following table summarizes the amortization expenses recorded in the following periods (in thousands):
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	 	September 30,
2015	 	 	September 30,
2014	 	
Amortization of purchased intangibles in revenues	$	13	 	 	$	19	 	 	$	51	 	 	$	57	 	
Amortization of purchased intangibles in cost of product
   revenues	 	99	 	 	 	732	 	 	 	856	 	 	 	2,304	 	
Amortization of purchased intangibles in operating
   expenses	 	2,399	 	 	 	2,435	 	 	 	7,233	 	 	 	7,363	 	
Total amortization expenses of purchased intangibles	$	2,511	 	 	$	3,186	 	 	$	8,140	 	 	$	9,724	 	
 
Amortization of purchased intangibles is not allocated to the Company’s segments.
The estimated future amortization expense as of September 30, 2015 is as follows (in thousands):
 
Year ending December 31,	 	Amount	 	
Remainder of 2015	 	$	2,356	 	
2016	 	 	8,484	 	
2017	 	 	4,669	 	
Total	 	$	15,509	 	
 
In the nine months ended September 30, 2015 and 2014, the Company capitalized approximately $4.2 million and $3.2 million of software development costs, respectively, for internally developed software products to be marketed and sold to customers after the point that technological feasibility has been reached and before the products are available for general release. The capitalized costs are being amortized over the estimated product useful life, generally three years, beginning when the products are available for general release. Management expects that the capitalized software development costs are recoverable from future gross profits generated by these products and services.
 
6. RESTRUCTURING COSTS
 The Company recorded $0.2 million of net restructuring charges and $2.6 million of net restructuring credits during the three months ended September 30, 2015 and 2014, respectively. The Company recorded $0.6 million and $36.9 million of net restructuring charges during the nine months ended September 30, 2015 and 2014, respectively. The restructuring charges during the three and nine
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months ended September 30, 2015 were primarily due to accruals for severance payments for certain employees who were notified during this period, and adjustments related to changes in assumptions used in its facilities-related restru cturing estimates.
Restructuring costs primarily related to certain actions announced in January 2014 which included reduction of approximately six percent of the global workforce and the reduction or elimination of certain leased facilities, and certain discrete follow-on actions that were not material. These actions were designed to better align expenses to the Company’s revenue and gross margin profile and position the Company for improved operating performance.
The Company has recorded a cumulative amount of $40.9 million in restructuring costs (net of adjustments related to the assumptions used in the estimate of the related liabilities reserves) as of September 30, 2015 in connection with these actions, and does not expect any remaining charges to be material.
The following table summarizes the changes in the Company’s restructuring reserves during the nine months ended September 30, 2015 (in thousands):
 
 	Severance/Other	 	 	Facilities	 	 	Total	 	
Balance at December 31, 2014	$	664	 	 	$	40,909	 	 	$	41,573	 	
Additions to the reserve, net	 	4,590	 	 	 	(5,266	)	 	 	(676	)	
Interest accretion	 	—	 	 	 	1,284	 	 	 	1,284	 	
Non-cash adjustments	 	—	 	 	 	(570	)	 	 	(570	)	
Cash payments	 	(4,374	)	 	 	(16,126	)	 	 	(20,500	)	
Balance at September 30, 2015	$	880	 	 	$	20,231	 	 	$	21,111	 	
 
As of September 30, 2015, the restructuring reserve was primarily comprised of facilities-related liabilities. At the time the reserve is initially set up, the Company calculates the fair value of its facilities-related liabilities based on the discounted future lease payments less sublease assumptions. This fair value measurement is classified as a Level 3 measurement under ASC 820. The key assumptions used in the valuation model include discount rates, cash flow projections, and estimated sublease income. These assumptions involve significant judgment, are based on management’s estimate of current and forecasted market conditions and are sensitive and susceptible to change. To the extent that actual sublease income, the timing of subleasing the facility, or the associated cost of, or the recorded liability related to subleasing or terminating the Company’s lease obligations for these facilities is different than initial estimates, the Company adjusts its restructuring reserves in the period during which such information becomes known.
 
7. BALANCE SHEET DETAILS
Trade receivables, net consist of the following (in thousands):
 
 	September 30,
2015	 	 	December 31,
2014	 	
Gross accounts receivables	$	213,254	 	 	$	214,664	 	
Returns and related reserves	 	(54,148	)	 	 	(42,224	)	
Allowance for doubtful accounts	 	(3,031	)	 	 	(3,040	)	
Total	$	156,075	 	 	$	169,400	 	
 
Inventories consist of the following (in thousands):
 
 	September 30,
2015	 	 	December 31,
2014	 	
Raw materials	$	1,432	 	 	$	1,496	 	
Work in process	 	383	 	 	 	545	 	
Finished goods	 	98,089	 	 	 	98,287	 	
Total	$	99,904	 	 	$	100,328	 	
 
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Prepaid expenses and other current assets consist of the following (in thousands):
 
 	September 30,
2015	 	 	December 31,
2014	 	
Non-trade receivables	$	7,020	 	 	$	6,547	 	
Prepaid expenses	 	33,179	 	 	 	37,385	 	
Derivative assets	 	6,309	 	 	 	14,342	 	
Other current assets	 	2,198	 	 	 	2,798	 	
Total	$	48,706	 	 	$	61,072	 	
 
Deferred revenue consists of the following (in thousands):
 
 	September 30,
2015	 	 	December 31,
2014	 	
Short-term:	 	 	 	 	 	 	 	
Service	$	169,785	 	 	$	171,355	 	
Product	 	—	 	 	 	94	 	
License	 	2,680	 	 	 	2,083	 	
Total	$	172,465	 	 	$	173,532	 	
Long-term:	 	 	 	 	 	 	 	
Service	$	77,281	 	 	$	85,925	 	
License	 	3,943	 	 	 	3,441	 	
Total	$	81,224	 	 	$	89,366	 	
 
Changes in the deferred service revenue during the nine month period ended September 30, 2015 and 2014 are as follows (in thousands):
 
 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	
Balance at beginning of period	$	257,280	 	 	$	253,793	 	
Additions to deferred service revenue	 	242,950	 	 	 	255,705	 	
Amortization of deferred service revenue	 	(253,164	)	 	 	(257,636	)	
Balance at end of period	$	247,066	 	 	$	251,862	 	
 
Other accrued liabilities consist of the following (in thousands):
 
 	September 30,
2015	 	 	December 31,
2014	 	
Accrued expenses	$	27,305	 	 	$	27,523	 	
Accrued co-op expenses	 	2,954	 	 	 	4,102	 	
Restructuring reserves	 	8,441	 	 	 	12,207	 	
Warranty obligations	 	10,648	 	 	 	11,613	 	
Derivative liabilities	 	3,371	 	 	 	8,175	 	
Employee stock purchase plan withholdings	 	4,563	 	 	 	10,658	 	
Other accrued liabilities	 	11,439	 	 	 	11,915	 	
Total	$	68,721	 	 	$	86,193	 	
 
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Changes in the warranty obligation during the nine month period ended September 30, 2015 and 2014 are as follows (in thousands):
 
 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	
Balance at beginning of period	$	11,613	 	 	$	9,475	 	
Accruals for warranties issued during the period	 	9,681	 	 	 	11,977	 	
Actual charges against warranty reserve during the period	 	(10,646	)	 	 	(10,686	)	
Balance at end of period	$	10,648	 	 	$	10,766	 	

8. COMMITMENTS AND CONTINGENCIES
Litigation and SEC Investigation
From time to time, the Company is involved in claims and legal proceedings that arise in the ordinary course of business. The Company expects that the number and significance of these matters will increase as its business expands. In particular, the Company faces an increasing number of patent and other intellectual property claims as the number of products and competitors in Polycom’s industry grows and the functionality of video, voice, data and web conferencing products overlap. Any claims or proceedings against the Company, 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 the Company to enter into royalty or licensing agreements which, if required, may not be available on terms favorable to the Company or at all. If management believes that a loss arising from these matters is probable and can be reasonably estimated, the Company will record a reserve for 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 the Company’s financial position, liquidity or results of operations. However, litigation is subject to inherent uncertainties, and the Company’s 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 the Company’s 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.
On July 23, 2013, the Company announced that Andrew M. Miller had resigned from the positions of Chief Executive Officer and President of Polycom and from Polycom’s Board of Directors. The Company disclosed that Mr. Miller’s resignation came after a review by the Audit Committee of certain expense submissions by Mr. Miller, where the Audit Committee found certain irregularities in the submissions, for which Mr. Miller had accepted responsibility. Specifically, the Audit Committee determined that Mr. Miller improperly submitted personal expenses to Polycom for payment as business expenses and, in doing so, submitted to Polycom false information about the nature and purpose of expenses.
SEC Investigation . As previously disclosed, the Company has been cooperating with the Enforcement Staff of the Securities and Exchange Commission (“SEC”) in connection with its investigation focused on Mr. Miller's expenses and his resignation. On March 31, 2015 the Company entered into a settlement with the SEC. Under the terms of the settlement in which the Company did not admit or deny the SEC’s findings, the Company paid $750,000 in a civil penalty, and agreed not to commit or cause any violations of certain provisions of the Securities Exchange Act of 1934 and related rules.  
Class Action Lawsuit . On July 26, 2013, a purported shareholder class action, initially captioned Neal v. Polycom Inc., et al ., Case No. 3:13-cv-03476-SC, and presently captioned Nathanson v. Polycom, Inc. , et al ., Case No. 3:13-cv-03476-SC, was filed in the United States District Court for the Northern District of California against the Company and certain of its current and former officers and directors. On December 13, 2013, the Court appointed a lead plaintiff and approved lead and liaison counsel. On February 24, 2014, the lead plaintiff filed a first amended complaint. The amended complaint alleged that, between January 20, 2011 and July 23, 2013, the Company issued materially false and misleading statements or failed to disclose information regarding the Company’s business, operational and compliance policies, including with respect to its former Chief Executive Officer’s expense submissions and the Company’s internal controls. The lawsuit further alleged that the Company’s financial statements were materially false and misleading. The amended complaint alleged violations of the federal securities laws and sought unspecified compensatory damages and other relief. On April 3, 2015, the Court dismissed all claims against Polycom and granted plaintiffs leave to amend. The lead plaintiff filed a second complaint on May 4, 2015. Polycom and the individual defendants moved to dismiss the second amended complaint on June 26, 2015. Those motions are pending. At this time, the Company is unable to estimate any range of reasonably possible loss relating to the securities class action lawsuit.
 Derivative Lawsuits . On August 21, 2013 and October 16, 2013, two purported shareholder derivative suits, captioned Saraceni v. Miller, et al. , Case No. 5:13-cv-03880, and Donnelly v. Miller, et al ., Case No. 5:13-cv-04810, respectively, were filed in the United States District Court for the Northern District of California against certain of the Company’s current and former officers and directors.
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On October 31, 2013, these two federal derivative actions were consolidated into In re Polycom, Inc. Derivative Litigation , Lead Case No. 3:13-cv-03880. On January 13, 2015, the Court dismissed the operative comp laint and granted plaintiffs leave to amend . On April 3, 2015, the Court approved a stipulation dismissing the action with prejudice and entering judgment in favor of defendants .
On November 22, 2013 and December 13, 2013, two purported shareholder derivative suits, captioned Ware v. Miller, et al. , Case No. 1-13-cv-256608, and Clem v. Miller, et al ., Case No. 1-13-cv-257664, respectively, were filed in the Superior Court of California, County of Santa Clara, against certain of the Company’s current and former officers and directors. On January 31, 2014, these two California state derivative actions were consolidated into In re Polycom, Inc. Derivative Shareholder Litigation , Lead Case No. 1-13-cv-256608. The Court has stayed the California state derivative litigation pending resolution of both the federal derivative lawsuit and the federal securities class action.
The California state consolidated derivative lawsuit purports to assert claims on behalf of the Company, which is named as a nominal defendant in the actions. The original California state complaints allege claims for breach of fiduciary duty, unjust enrichment, and corporate waste, and allege certain defendants failed to maintain adequate internal controls and issued, or authorized the issuance of, materially false and misleading statements, including with respect to the Company’s former Chief Executive Officer’s expense submissions and the Company’s internal controls. The complaints further allege that certain defendants approved an unjustified separation agreement and caused the Company to repurchase its own stock at artificially inflated prices. The complaints seek unspecified compensatory damages, corporate governance reforms, and other relief. At this time, the Company is unable to estimate any range of reasonably possible loss relating to the derivative actions.
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 United States, 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.
 
9. DEBT
In September 2013, the Company entered into a Credit Agreement (the “Credit Agreement”) that provides for a $250.0 million term loan (the “Term Loan”) maturing on September 13, 2018 (the “Maturity Date”), which bears interest at the Company’s option at either a base rate plus a spread of 0.50% to 1.00%, or a reserve adjusted LIBOR rate plus a spread of 1.50% to 2.00% based on the Company’s consolidated leverage ratio for the preceding four fiscal quarters.
The Company entered into the Credit Agreement in conjunction with and for purposes of funding purchases of the Company’s common stock pursuant to a $250.0 million modified “Dutch Auction” self-tender offer announced in September 2013. The Term Loan is payable in quarterly installments of principal equal to $1.6 million which began on December 31, 2013, with the remaining outstanding principal amount of the Term Loan being due and payable on the Maturity Date. The Company may prepay the Term Loan, in whole or in part, at any time without premium or penalty. Amounts repaid or prepaid may not be reborrowed. The Term Loan is secured by substantially all the assets of the Company and of certain domestic subsidiaries of the Company that are guarantors under the Credit Agreement, subject to certain exceptions and limitations.
 The Credit Agreement contains customary affirmative and negative covenants, and financial covenants consisting of a consolidated fixed charge coverage ratio and a consolidated secured leverage ratio. The Company was in compliance with these covenants as of September 30, 2015. The Credit Agreement also includes customary events of default, the occurrence of which could result in the acceleration of the obligations under the Credit Agreement. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the Credit Agreement at a per annum rate equal to 2.00% above the
13

applicable interest rate for any overdue principal and 2.00% above the rate applicable for base rate loans for any other overdue amounts.
At September 30, 2015, the weighted average interest rate on the Term Loan was 2.23%, the accrued interest on the Term Loan was $0.6 million, and the current and non-current portion of the outstanding Term Loan was $6.3 million and $231.3 million, respectively.
The following table sets forth total interest expense recognized on the Term Loan (in thousands):
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	 	September 30,
2015	 	 	September 30,
2014	 	
Contractual interest expense	$	1,328	 	 	$	1,233	 	 	$	3,878	 	 	$	3,687	 	
Amortization of debt issuance costs	 	133	 	 	 	133	 	 	 	399	 	 	 	400	 	
Total	$	1,461	 	 	$	1,366	 	 	$	4,277	 	 	$	4,087	 	

10. INVESTMENTS
The Company had cash and cash equivalents of $412.5 million and $443.1 million at September 30, 2015 and December 31, 2014, respectively. Cash and cash equivalents generally consist of cash in banks, as well as highly liquid investments in money market funds, time deposits, savings accounts, commercial paper, and corporate debt securities.
The Company’s U.S. government securities are mostly comprised of direct U.S. Treasury obligations that are guaranteed by the U.S. government and U.S. government agency securities are mostly comprised of U.S. government agency instruments, including mortgage-backed securities. The Company’s non-U.S. government securities are mostly comprised of non-U.S. government instruments, mainly state, municipal and foreign government 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.
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 investments are in instruments that meet high quality credit rating standards, as specified in the Company’s investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issuer or type of instrument.
At September 30, 2015, the Company’s long-term investments had contractual maturities of one to two years.
14

In addition, the Company has short-term and long-term investments in debt securities which are summarized as follows (in thousands):
 
 	Cost Basis	 	 	Unrealized
Gains	 	 	Unrealized
Losses	 	 	Fair Value	 	
Balances at September 30, 2015:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments-Short-term:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. government securities	$	40,428	 	 	$	27	 	 	$	(1	)	 	$	40,454	 	
U.S. government agency securities	 	74,131	 	 	 	28	 	 	 	(2	)	 	 	74,157	 	
Non-U.S. government securities	 	9,942	 	 	 	4	 	 	 	—	 	 	 	9,946	 	
Corporate debt securities	 	73,598	 	 	 	16	 	 	 	(16	)	 	 	73,598	 	
Total investments - short-term	$	198,099	 	 	$	75	 	 	$	(19	)	 	$	198,155	 	
Investments-Long-term:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. government securities	$	9,563	 	 	$	12	 	 	$	—	 	 	$	9,575	 	
U.S. government agency securities	 	18,572	 	 	 	15	 	 	 	(1	)	 	 	18,586	 	
Corporate debt securities	 	16,277	 	 	 	12	 	 	 	(22	)	 	 	16,267	 	
Total investments - long-term	$	44,412	 	 	$	39	 	 	$	(23	)	 	$	44,428	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balances at December 31, 2014:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments-Short-term:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. government securities	$	26,930	 	 	$	7	 	 	$	(2	)	 	$	26,935	 	
U.S. government agency securities	 	59,336	 	 	 	7	 	 	 	(6	)	 	 	59,337	 	
Non-U.S. government securities	 	8,764	 	 	 	2	 	 	 	—	 	 	 	8,766	 	
Corporate debt securities	 	90,782	 	 	 	10	 	 	 	(47	)	 	 	90,745	 	
Total investments - short-term	$	185,812	 	 	$	26	 	 	$	(55	)	 	$	185,783	 	
Investments-Long-term:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. government securities	$	25,320	 	 	$	4	 	 	$	(10	)	 	$	25,314	 	
U.S. government agency securities	 	17,369	 	 	 	1	 	 	 	(14	)	 	 	17,356	 	
Corporate debt securities	 	16,540	 	 	 	2	 	 	 	(15	)	 	 	16,527	 	
Total investments - long-term	$	59,229	 	 	$	7	 	 	$	(39	)	 	$	59,197	 	
 
Unrealized Losses
The following table summarizes the fair value and gross unrealized losses of the Company’s investments, including investments 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 (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	 	
September 30, 2015:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. government securities	$	9,006	 	 	$	(1	)	 	$	—	 	 	$	—	 	 	$	9,006	 	 	$	(1	)	
U.S. government agency securities	 	11,697	 	 	 	(3	)	 	 	—	 	 	 	—	 	 	 	11,697	 	 	 	(3	)	
Non-U.S. government securities	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Corporate debt securities	 	39,447	 	 	 	(38	)	 	 	—	 	 	 	—	 	 	 	39,447	 	 	 	(38	)	
Total investments	$	60,150	 	 	$	(42	)	 	$	—	 	 	$	—	 	 	$	60,150	 	 	$	(42	)	
December 31, 2014:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. government  securities	$	22,355	 	 	$	(12	)	 	$	—	 	 	$	—	 	 	$	22,355	 	 	$	(12	)	
U.S. government agency securities	 	27,348	 	 	 	(20	)	 	 	—	 	 	 	—	 	 	 	27,348	 	 	 	(20	)	
Corporate debt securities	 	59,667	 	 	 	(62	)	 	 	—	 	 	 	—	 	 	 	59,667	 	 	 	(62	)	
Total investments	$	109,370	 	 	$	(94	)	 	$	—	 	 	$	—	 	 	$	109,370	 	 	$	(94	)	
 
During the nine months ended September 30, 2015 and 2014, there were no investments in the Company’s portfolio that were other-than temporarily impaired and the Company did not incur any material realized net gains or losses.
 
15

1 1 . FAIR VALUE MEASUREMENTS
 
The tables below set forth the Company’s recurring fair value measurements (in thousands):
 
 	 	 	 	 	 	Fair Value Measurements at
September 30, 2015 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	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 	 	 	 	 	 	 	 	 	 	 	
Money market funds	 	$	7,876	 	 	$	7,876	 	 	$	—	 	
U.S. government agency securities	 	 	—	 	 	 	—	 	 	 	—	 	
Non-U.S. government securities	 	 	—	 	 	 	—	 	 	 	—	 	
Corporate debt securities	 	 	11,488	 	 	 	—	 	 	 	11,488	 	
Short-term investments	 	 	198,155	 	 	 	—	 	 	 	198,155	 	
Long-term investments	 	 	44,428	 	 	 	—	 	 	 	44,428	 	
Total fixed income available-for-sale
   securities	 	$	261,947	 	 	$	7,876	 	 	$	254,071	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency forward contracts (a)	 	$	6,309	 	 	$	—	 	 	$	6,309	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency forward contracts (b)	 	$	3,371	 	 	$	—	 	 	$	3,371	 	
 
 	 	 	 	 	 	Fair Value Measurements at
December 31, 2014 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	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 	 	 	 	 	 	 	 	 	 	 	
Money market funds	 	$	1,395	 	 	$	1,395	 	 	$	—	 	
Commercial paper	 	 	7,549	 	 	 	—	 	 	 	7,549	 	
Short-term investments	 	 	185,783	 	 	 	—	 	 	 	185,783	 	
Long-term investments	 	 	59,197	 	 	 	—	 	 	 	59,197	 	
Total fixed income available-for-sale
   securities	 	$	253,924	 	 	$	1,395	 	 	$	252,529	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency forward contracts (a)	 	$	14,342	 	 	$	—	 	 	$	14,342	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency forward contracts (b)	 	$	8,175	 	 	$	—	 	 	$	8,175	 	
 
( a )	Included in short-term derivative assets as “Prepaid expenses and other current assets” in the condensed consolidated balance sheets.	
( b )	Included in short-term derivative liabilities as “Other accrued liabilities” in the condensed consolidated balance sheets.	
There have been no transfers between Level 1 and Level 2 in the three and nine months ended September 30, 2015 and 2014. There were no investments classified as Level 3 as of September 30, 2015 and December 31, 2014.
In addition, the Company has facilities-related liabilities related to restructuring which were calculated based on the discounted future lease payments less sublease assumptions. This non-recurring fair value measurement is classified as a Level 3 measurement under ASC 820. See Note 6 for further details.
 The fair value of the Company’s Term Loan under its Credit Agreement is measured using Level 2 inputs as the borrowings are not actively traded and have a variable interest rate structure based upon market rates currently available to the Company for debt with similar terms and maturities. The Company has elected not to record its Term Loan at fair value, but has measured it at fair value for
16

disclosure purposes. At September 30, 2015 and December 31, 2014, the estimated fair value of the Term Loan was approximately $ 232.8 . million and $234.9 million, respectively, using observable market inputs. See Note 9 for further details.
 
12. 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 receivables and payables 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 in “Interest and other income (expense), net” on the condensed consolidated statements of operations. 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 Reals, Chinese Yuan, Japanese Yen and Mexican Pesos.
The following table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent of the outstanding non-designated hedges at September 30, 2015 (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	 	23,029	 	 	$	5,797	 	 	Buy	 	 	 	—	 	 	$	—	 	 	—	
Brazilian Real	 	43,600	 	 	$	11,381	 	 	Sell	 	 	 	—	 	 	$	—	 	 	—	
Chinese Yuan	 	—	 	 	$	—	 	 	 	—	 	 	 	44,971	 	 	$	7,026	 	 	Buy	
Chinese Yuan	 	42,574	 	 	$	6,639	 	 	Sell	 	 	 	—	 	 	$	—	 	 	—	
Euro	 	9,410	 	 	$	10,512	 	 	Buy	 	 	 	9,063	 	 	$	11,163	 	 	Buy	
Euro	 	19,469	 	 	$	21,795	 	 	Sell	 	 	 	30,575	 	 	$	37,662	 	 	Sell	
British Pound	 	1,004	 	 	$	1,535	 	 	Buy	 	 	 	11,980	 	 	$	18,657	 	 	Buy	
British Pound	 	720	 	 	$	1,101	 	 	Sell	 	 	 	14,502	 	 	$	22,586	 	 	Sell	
Israeli Shekel	 	21,905	 	 	$	5,577	 	 	Buy	 	 	 	37,500	 	 	$	9,653	 	 	Buy	
Israeli Shekel	 	53,017	 	 	$	13,493	 	 	Sell	 	 	 	—	 	 	$	—	 	 	—	
Japanese Yen	 	108,585	 	 	$	907	 	 	Sell	 	 	 	—	 	 	$	—	 	 	—	
Mexican Peso	 	15,802	 	 	$	932	 	 	Buy	 	 	 	—	 	 	$	—	 	 	—	
Mexican Peso	 	34,459	 	 	$	2,034	 	 	Sell	 	 	 	—	 	 	$	—	 	 	—	
 
The following table shows the effect of the Company’s non-designated hedges in the condensed consolidated statements of operations (in thousands):
 
Derivatives Not Designated as
Hedging Instruments	 	Location of Gain or (Loss)
Recognized in Income on Derivative	 	Amount of Gain or (Loss)
Recognized in Income on Derivative	 	
 	 	 	 	Three Months Ended	 	
 	 	 	 	September 30,
2015	 	 	September 30,
2014	 	
Foreign exchange contracts	 	Interest and other income (expense), net	 	$	1,165	 	 	$	3,991	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Nine Months Ended	 	
 	 	 	 	September 30,
2015	 	 	September 30,
2014	 	
Foreign exchange contracts	 	Interest and other income (expense), net	 	$	4,782	 	 	$	4,290	 	
 
17

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 Chinese Yuan, Euros, British Pounds and Israeli Shekels. All foreign exchange contracts are carried at fair value on the condensed consolidated balance sheets and the maximum duration of foreign exchange forward contracts does not exceed 13 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 accumulated other comprehensive income until they are reclassified to revenue, cost of revenue 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 table summarizes the Company’s notional position by currency, and approximate U.S. dollar equivalent of the outstanding cash flow hedges at September 30, 2015 (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	
Chinese Yuan	 	 	—	 	 	$	—	 	 	 	—	 	 	 	139,129	 	 	$	21,569	 	 	Buy	
Euro	 	 	—	 	 	$	—	 	 	 	—	 	 	 	26,537	 	 	$	29,991	 	 	Buy	
Euro	 	 	—	 	 	$	—	 	 	 	—	 	 	 	71,125	 	 	$	80,267	 	 	Sell	
British Pound	 	 	—	 	 	$	—	 	 	 	—	 	 	 	25,320	 	 	$	38,670	 	 	Buy	
British Pound	 	 	—	 	 	$	—	 	 	 	—	 	 	 	30,898	 	 	$	47,087	 	 	Sell	
Israeli Shekel	 	 	—	 	 	$	—	 	 	 	—	 	 	 	38,500	 	 	$	9,823	 	 	Buy	
 
18

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 following periods (in thousands):
 
 	 	Gain or (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 Gain or
(Loss) Recognized-
Ineffective Portion and
Amount Excluded from
Effectiveness Testing	 	Gain or (Loss)
Recognized-Ineffective
Portion and Amount
Excluded from
Effectiveness
Testing (a)	 	
 	 	Three Months Ended	 	 	 	 	Three Months Ended	 	 	 	 	Three Months Ended	 	
 	 	September 30,
2015	 	 	September 30,
2014	 	 	 	 	September 30,
2015	 	 	September 30,
2014	 	 	 	 	September 30,
2015	 	 	September 30,
2014	 	
Foreign
   exchange
   contracts	 	$	(787	)	 	$	2,573	 	 	Product revenues	 	$	2,450	 	 	$	1,222	 	 	Interest and other
   income (expense),
   net	 	$	68	 	 	$	49	 	
 	 	 	 	 	 	 	 	 	 	Cost of revenues	 	 	(257	)	 	 	17	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Sales and marketing	 	 	(657	)	 	 	(60	)	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Research and
   development	 	 	90	 	 	 	3	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	General and
   administrative	 	 	(215	)	 	 	160	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	(787	)	 	$	2,573	 	 	 	 	$	1,411	 	 	$	1,342	 	 	 	 	$	68	 	 	$	49	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Nine Months Ended	 	 	 	 	Nine Months Ended	 	 	 	 	Nine Months Ended	 	
 	 	September 30,
2015	 	 	September 30,
2014	 	 	 	 	September 30,
2015	 	 	September 30,
2014	 	 	 	 	September 30,
2015	 	 	September 30,
2014	 	
Foreign
   exchange
   contracts	 	$	3,788	 	 	$	2,574	 	 	Product revenues	 	$	12,715	 	 	$	(3,052	)	 	Interest and other
   income (expense),
   net	 	$	394	 	 	$	(3	)	
 	 	 	 	 	 	 	 	 	 	Cost of revenues	 	 	(1,589	)	 	 	879	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Sales and marketing	 	 	(3,451	)	 	 	1,737	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Research and
   development	 	 	(893	)	 	 	695	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	General and
   administrative	 	 	(1,386	)	 	 	526	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	3,788	 	 	$	2,574	 	 	 	 	$	5,396	 	 	$	785	 	 	 	 	$	394	 	 	$	(3	)	

(a)	There were no gains or losses recognized in income due to ineffectiveness in the periods presented.	
As of September 30, 2015, the Company estimated that all values reported in accumulated other comprehensive income will be reclassified to income within the next twelve months.
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 nine months ended September 30, 2015 and 2014, there were no such gains or losses.
The estimates of fair value are based on applicable and commonly quoted prices and prevailing financial market information as of September 30, 2015 and December 31, 2014. See Note 11 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.
19

The following table shows the Company’s derivative instruments measu red at gross fair value as reflected in the condensed consolidated balance sheets (in thousands):
 
 	Fair Value of
Derivatives Designated
as Hedge Instruments	 	 	Fair Value of Derivatives
Not Designated as Hedge
Instruments	 	
 	September 30,
2015	 	 	December 31,
2014	 	 	September 30,
2015	 	 	December 31,
2014	 	
Derivative assets (a):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign exchange contracts	$	1,641	 	 	$	5,501	 	 	$	4,668	 	 	$	8,841	 	
Derivative liabilities (b):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign exchange contracts	$	1,646	 	 	$	4,041	 	 	$	1,725	 	 	$	4,134	 	

(a)	All derivative assets are recorded in “Prepaid and other current assets” in the condensed consolidated balance sheets.	
(b)	All derivative liabilities are recorded in “Other accrued liabilities” in the condensed consolidated balance sheets.	
Offsetting Derivative Assets and Liabilities
The Company has entered into master netting arrangements with each of its derivative counterparties. These arrangements afford the right to net derivative assets against liabilities with the same counterparty. Under certain default provisions, the Company has the right to set off any other amounts payable to the payee whether or not arising under this agreement. As a result of the netting provisions, the Company’s maximum amount of loss under derivative transactions due to credit risk is limited to the net amounts due from the counterparties under the derivative contracts. Although netting is permitted, it is currently the Company’s policy and practice to record all derivative assets and liabilities on a gross basis in the condensed consolidated balance sheets.
The following table sets forth the offsetting of derivative assets (in thousands):
 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Gross Amounts Not Offset in the
Condensed Consolidated Balance Sheets	 	
 	 	Gross
Amounts of
Recognized Assets	 	 	Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheets	 	 	Net Amounts of
Assets Presented in
the Condensed
Consolidated
Balance Sheets	 	 	Financial
Instruments	 	 	Cash
Collateral
Pledged	 	 	Net
Amount	 	
As of September 30, 2015:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign exchange contracts	 	$	6,309	 	 	$	—	 	 	$	6,309	 	 	$	(3,024	)	 	$	—	 	 	$	3,285	 	
As of December 31, 2014:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign exchange contracts	 	$	14,342	 	 	$	—	 	 	$	14,342	 	 	$	(8,175	)	 	$	—	 	 	$	6,167	 	

The following table sets forth the offsetting of derivative liabilities (in thousands):
 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Gross Amounts Not Offset in the
Condensed Consolidated Balance Sheets	 	
 	 	Gross
Amounts of
Recognized Liabilities	 	 	Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheets	 	 	Net Amounts of
Liabilities Presented
in the Condensed
Consolidated
Balance Sheets	 	 	Financial
Instruments	 	 	Cash
Collateral
Pledged	 	 	Net
Amount	 	
As of September 30, 2015:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign exchange contracts	 	$	3,371	 	 	$	—	 	 	$	3,371	 	 	$	(3,024	)	 	$	—	 	 	$	347	 	
As of December 31, 2014:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign exchange contracts	 	$	8,175	 	 	$	—	 	 	$	8,175	 	 	$	(8,175	)	 	$	—	 	 	$	—	 	

13. 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 or via privately negotiated transactions. In July 2014, the Company announced that its Board of Directors had approved a share repurchase plan (the “2014 repurchase plan”) under which the Company may at its discretion purchase shares in the open market with an aggregate value of up to $200.0 million. The Company expects to execute this new authorization through the end of June 2016 and to fund the share repurchases through cash on hand and future cash
20

f low from operations. During the three and nine months ended September 30, 2015, the Company purchased approximately 2 . 2 million and 7 .0 million shares of common stock, respectively, in the open market for approximately $ 25.0 million and $ 90 .0 million, resp ectively. During the three months ended September 30, 2014, the Company purchased approximately 1.9 million shares of common stock in the open market for $25 million. During the six months ended June 30, 2014, the Company did not purchase any shares of com mon stock in the open market. However, the Company received 1.5 million shares in June 2014 under its accelerated share repurchase program as discussed below. The purchase price for the shares of the Company’s stock repurchased is recorded as a reduction t o stockholders’ equity. The excess of the cost of treasury stock that is retired over its par value and the portion allocated to additional paid-in capital based on the calculated average price in equity is recorded as a charge to retained earnings. The re purchased shares of common stock have been retired and reclassified as authorized and unissued shares. As of September 30, 2015, the Company had a remaining authorization to purchase up to an additional $ 6 0.0 million of shares in the open market under the 2014 repurchase plan.
Accelerated Share Repurchase Agreements
On December 4, 2013, the Company entered into separate accelerated share repurchase (“ASR”) agreements with two financial institutions to repurchase an aggregate of $114.6 million of common stock as part of the last phase of the Company’s $400.0 million Return of Capital Program. Under the terms of the ASR agreements, the Company paid an aggregate $114.6 million of cash and received an initial delivery of approximately 8.0 million shares in December 2013. The ASR contracts were settled in June 2014, whereby the Company received an additional 1.5 million shares upon settlement. The aggregate 9.5 million shares ultimately purchased under the ASR program was determined based on the Company’s volume-weighted average stock price (“VWAP”) less an agreed upon discount during the term of the transactions. Total shares repurchased were immediately retired upon delivery and accounted for as a reduction to stockholders’ equity. The costs associated with the ASR transactions were recorded as an adjustment to the stockholders’ equity. Additionally, the Company accounted for the ASR transactions as repurchases of common stock for the purpose of calculating its earnings per share when the shares were received.
Accumulated Other Comprehensive Income
The following table summarizes the changes in accumulated other comprehensive income, net of tax, by component (in thousands). The tax effects were not shown separately, as the impacts were not material.
 
Nine Months Ended September 30, 2015	 	Unrealized
Gains and
Losses on
Cash Flow
Hedges	 	 	Unrealized Gains
and Losses on
Available-for-
Sale Securities	 	 	Foreign   Currency
Translation	 	 	Total	 	
Balance as of December 31, 2014	 	$	1,366	 	 	$	(52	)	 	$	2,797	 	 	$	4,111	 	
Other comprehensive income before
   reclassifications	 	 	3,788	 	 	 	118	 	 	 	(1,517	)	 	 	2,389	 	
Amounts reclassified from accumulated
   other comprehensive income (a)	 	 	(5,396	)	 	 	(5	)	 	 	—	 	 	 	(5,401	)	
Net current-period other comprehensive income	 	 	(1,608	)	 	 	113	 	 	 	(1,517	)	 	 	(3,012	)	
Balance as of September 30, 2015	 	$	(242	)	 	$	61	 	 	$	1,280	 	 	$	1,099	 	

(a)	See Note 12 for details of gains and losses, net of taxes, reclassified out of accumulated other comprehensive income into net income related to cash flow hedges and each line item of net income affected by the reclassification. Gains and losses related to available-for-sale securities were reclassified into “Interest and other income (expense), net” in the condensed consolidated statement of operations for the nine months ended September 30, 2015, net of taxes.	
 
21

1 4 . STOCK-BASED COMPENSATION
The following table summarizes stock-based compensation expense recorded for the periods presented and its allocation within the condensed consolidated statements of operations (in thousands):
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	 	September 30,
2015	 	 	September 30,
2014	 	
Cost of  product revenues	$	731	 	 	$	668	 	 	$	2,191	 	 	$	1,828	 	
Cost of service revenues	 	1,255	 	 	 	1,102	 	 	 	3,440	 	 	 	3,164	 	
Stock-based compensation expense included in cost
   of revenues	 	1,986	 	 	 	1,770	 	 	 	5,631	 	 	 	4,992	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sales and marketing	 	4,217	 	 	 	4,673	 	 	 	9,528	 	 	 	10,397	 	
Research and development	 	2,725	 	 	 	3,203	 	 	 	7,213	 	 	 	7,304	 	
General and administrative	 	5,031	 	 	 	5,122	 	 	 	10,530	 	 	 	11,485	 	
Stock-based compensation expense included in
   operating expenses	 	11,973	 	 	 	12,998	 	 	 	27,271	 	 	 	29,186	 	
Stock-based compensation expense related to
   employee equity awards and employee stock
   purchases	 	13,959	 	 	 	14,768	 	 	 	32,902	 	 	 	34,178	 	
Tax benefit	 	2,584	 	 	 	3,016	 	 	 	5,810	 	 	 	6,778	 	
Stock-based compensation expense related to
   employee equity awards and employee stock
   purchases, net of tax	$	11,375	 	 	$	11,752	 	 	$	27,092	 	 	$	27,400	 	
 
Stock-based compensation expense is not allocated to segments because it is centrally managed at the corporate level.
Stock Options
There were no stock options granted in the nine months ended September 30, 2015 and 2014.
Performance Shares and Restricted Stock Units
During the nine months ended September 30, 2015 and 2014, the Company granted 972,112 and 659,416 performance shares to certain employees and executives, at a weighted average fair value of $14.04 and $13.81 per share, respectively. The 2015 and 2014 grants are generally divided evenly over three annual performance periods commencing with calendar year 2015 and 2014, respectively, and will vest on the first, second and third anniversary of the grant date.
During the nine months ended September 30, 2015 and 2014, the Company granted 3,058,643 and 2,847,979 restricted stock units to certain employees, at a weighted average fair value of $13.53 and $12.96 per share, respectively.
During the nine months ended September 30, 2015 and 2014, the Company granted 135,000 and 140,000, restricted stock units to non-employee directors at a weighted average fair value of $12.90 and $12.87 per share, respectively.
Employee Stock Purchase Plan
During the nine months ended September 30, 2015 and 2014, 2,150,586 and 2,944,069 shares were purchased under the Company’s employee stock purchase plan (“ESPP”), respectively. As of September 30, 2015, there were 9,164,481 shares available to be issued under the ESPP.
Valuation Assumptions
For purchase rights granted pursuant to the ESPP, the estimated fair value per share of employee stock purchase rights for the two-year offering period commencing on August 3, 2015 ranged from $2.56 to $3.45, compared to the estimated fair value per share from $2.80 to $4.10 for the two-year offering period commencing on August 1, 2014. The estimated fair value per share of employee stock purchase rights for the two year offering period commencing on February 2, 2015 ranged from $3.09 to $4.27, compared to the estimated fair value per share from $2.82 to $4.48 for the two-year offering period commencing on February 3, 2014.
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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 method using the following assumptions:
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	 	September 30,
2015	 	 	September 30,
2014	 	
Expected volatility	28.60-29.76%	 	 	26.47-32.18%	 	 	28.08-30.73%	 	 	26.47-42.11%	 	
Risk-free interest rate	0.17-0.68%	 	 	0.05-0.47%	 	 	0.07-0.68%	 	 	0.05-0.47%	 	
Expected dividends	 	0.0%	 	 	 	0.0%	 	 	 	0.0%	 	 	 	0.0%	 	
Expected life (years)	0.5-1.99	 	 	0.5-2.0	 	 	0.49-2.0	 	 	0.5-2.0	 	
 
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.
The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the Company’s employee stock purchases.
The dividend yield assumption is based on the Company’s history of not paying dividends and no future expectation of dividend payouts.
The expected life of employee stock purchase rights represents the contractual terms of the underlying program.

15. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share (in thousands, except for per share amounts):
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	 	September 30,
2015	 	 	September 30,
2014	 	
Numerator	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	$	13,573	 	 	$	17,011	 	 	$	54,418	 	 	$	21,577	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Denominator	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding, basic	 	132,944	 	 	 	136,606	 	 	 	133,926	 	 	 	137,139	 	
Effect of dilutive potential common shares	 	2,848	 	 	 	5,570	 	 	 	3,532	 	 	 	5,267	 	
Weighted average shares outstanding, diluted	 	135,792	 	 	 	142,176	 	 	 	137,458	 	 	 	142,406	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic net income per share	$	0.10	 	 	$	0.12	 	 	$	0.41	 	 	$	0.16	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted net income per share	$	0.10	 	 	$	0.12	 	 	$	0.40	 	 	$	0.15	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Antidilutive employee stock-based awards, excluded	 	811	 	 	 	136	 	 	 	592	 	 	 	288	 	
 
Diluted shares outstanding include the dilutive effect of in-the-money employee equity share options, unvested performance shares, restricted stock units, and stock purchase rights under the ESPP. The dilutive effect of such equity awards is calculated based on the average share price for each fiscal period using the treasury stock method. Potentially dilutive shares are excluded from the computation of diluted net income per share when their effect is antidilutive.
 
16. BUSINESS SEGMENT INFORMATION
The Company conducts its business globally and is managed geographically in three segments: (1) Americas, which consists of North America and Caribbean and Latin America (“CALA”) reporting units, (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 are based on the criteria as outlined in the authoritative guidance.
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Segment Revenue and Profit
Segment revenues consist of product and service revenues. Product revenues are attributed to a segment based on the ordering location of the customer. For internal reporting purposes and determination of segment contribution margins, geographic segment product revenues may differ slightly from actual geographic revenues due to internal revenue allocations between the Company’s segments. Service revenues are generally attributed to a segment based on the end-user’s location where services are performed. A significant portion of each segment’s expenses arises 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.
Segment contribution margin includes all geographic segment revenues less the related cost of sales and direct revenues and marketing expenses. Cost of revenues consists of the standard cost of revenues and does not include items such as warranty expense, royalties, and the allocation of overhead expenses, including facilities and IT costs, as well as stock-based compensation costs and amortization of purchased intangible assets. Management allocates some infrastructure costs, such as facilities and IT costs, in determining segment contribution margins. 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 expenses, general and administrative costs, such as legal and accounting, stock-based compensation costs, transaction-related costs, amortization of purchased intangibles, restructuring costs and interest and other income (expense), net.
Segment Data
The results of the reportable segments are derived directly from Polycom’s management reporting system. Management measures the performance of each segment based on several metrics, including contribution margin as defined above. 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 September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014, based on the Company’s internal management reporting system and as utilized by the Company’s Chief Operating Decision Maker (“CODM”), its Chief Executive Officer, is as follows (in thousands):
 
 	Americas	 	 	EMEA	 	 	APAC	 	 	Total	 	
For the three months ended September 30, 2015:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	$	148,157	 	 	$	77,274	 	 	$	77,679	 	 	$	303,110	 	
% of total revenue	 	49	%	 	 	25	%	 	 	26	%	 	 	100	%	
Contribution margin	$	55,032	 	 	$	32,260	 	 	$	37,392	 	 	$	124,684	 	
% of segment revenue	 	37	%	 	 	42	%	 	 	48	%	 	 	41	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the three months ended September 30, 2014:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	$	166,354	 	 	$	83,995	 	 	$	85,337	 	 	$	335,686	 	
% of total revenue	 	50	%	 	 	25	%	 	 	25	%	 	 	100	%	
Contribution margin	$	66,993	 	 	$	36,686	 	 	$	35,965	 	 	$	139,644	 	
% of segment revenue	 	40	%	 	 	44	%	 	 	42	%	 	 	42	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the nine months ended September 30, 2015:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	$	463,844	 	 	$	251,988	 	 	$	234,553	 	 	$	950,385	 	
% of total revenue	 	49	%	 	 	26	%	 	 	25	%	 	 	100	%	
Contribution margin	$	176,648	 	 	$	107,024	 	 	$	109,480	 	 	$	393,152	 	
% of segment revenue	 	38	%	 	 	42	%	 	 	47	%	 	 	41	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the nine months ended September 30, 2014:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	$	497,229	 	 	$	256,099	 	 	$	242,901	 	 	$	996,229	 	
% of total revenue	 	50	%	 	 	26	%	 	 	24	%	 	 	100	%	
Contribution margin	$	206,121	 	 	$	109,460	 	 	$	100,985	 	 	$	416,566	 	
% of segment revenue	 	41	%	 	 	43	%	 	 	42	%	 	 	42	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As of September 30, 2015: Gross accounts receivable	$	99,248	 	 	$	53,673	 	 	$	60,333	 	 	$	213,254	 	
% of total gross accounts receivable	 	47	%	 	 	25	%	 	 	28	%	 	 	100	%	
As of December 31, 2014: Gross accounts receivable	$	88,316	 	 	$	62,540	 	 	$	63,808	 	 	$	214,664	 	
% of total gross accounts receivable	 	41	%	 	 	29	%	 	 	30	%	 	 	100	%	
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During the three months ended September 30, 2015, two customers, ScanSource Communications (“ScanSource”) and Westcon Group Inc (“Westcon”), accounted for 19% and 10%, respectively, of the Company’s revenues. During the three months ended September 30, 2014, two customers, ScanSource and Westcon, accounted for 16% and 10%, respectively, of the Company’s revenues. During the nine months ended September 30, 2015 and 2014, ScanSource accounted for 19% and 17%, respectively, of the Company’s revenues. ScanSource accounted for 21% and 19%, respectively, of total gross accounts receivable at September 30, 2015 and December 31, 2014.
The reconciliation of segment information to Polycom consolidated totals is as follows (in thousands):
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	 	September 30,
2015	 	 	September 30,
2014	 	
Segment contribution margin	$	124,684	 	 	$	139,644	 	 	$	393,152	 	 	$	416,566	 	
Corporate and unallocated costs	 	(88,019	)	 	 	(101,993	)	 	 	(277,519	)	 	 	(307,931	)	
Stock-based compensation	 	(13,959	)	 	 	(14,768	)	 	 	(32,902	)	 	 	(34,178	)	
Effect of stock-based compensation cost on warranty
   expense	 	(96	)	 	 	(204	)	 	 	(229	)	 	 	(410	)	
Amortization of purchased intangibles	 	(2,498	)	 	 	(3,167	)	 	 	(8,089	)	 	 	(9,667	)	
Restructuring costs	 	(213	)	 	 	2,631	 	 	 	(580	)	 	 	(36,887	)	
Litigation reserve and payments	 	—	 	 	 	(3,130	)	 	 	—	 	 	 	(3,130	)	
Transaction-related costs	 	—	 	 	 	—	 	 	 	—	 	 	 	(156	)	
Interest and other income (expense), net	 	(569	)	 	 	(185	)	 	 	(2,209	)	 	 	(2,576	)	
Income before provision for income taxes	$	19,330	 	 	$	18,828	 	 	$	71,624	 	 	$	21,631	 	
 
The following table summarizes the Company’s revenues by groups of similar products and services as follows (in thousands):
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	 	September 30,
2015	 	 	September 30,
2014	 	
Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
UC group systems	$	184,861	 	 	$	217,256	 	 	$	584,681	 	 	$	649,076	 	
UC personal devices	 	63,290	 	 	 	60,113	 	 	 	197,557	 	 	 	170,226	 	
UC platform	 	54,959	 	 	 	58,317	 	 	 	168,147	 	 	 	176,927	 	
Total	$	303,110	 	 	$	335,686	 	 	$	950,385	 	 	$	996,229	 	

17. INCOME TAXES
The following table presents the income tax expense and the effective tax rates (in thousands):
 
 	Three Months Ended	 	 	Nine Months Ended	 	
 	September 30,
2015	 	 	September 30,
2014	 	 	September 30,
2015	 	 	September 30,
2014	 	
Provision for income taxes	$	5,757	 	 	$	1,817	 	 	$	17,206	 	 	$	54	 	
Effective tax rate	 	29.8	%	 	 	9.7	%	 	 	24.0	%	 	 	0.2	%	
 
 The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions, and the effective tax rate reflects the applicable tax rates in effect in the various tax jurisdictions around the world where income is earned. The effective tax rate for the three and nine months ended September 30, 2015 and 2014 differs from the U.S. federal statutory rate of 35% primarily due to impacts associated with proportional earnings from the Company’s operations in lower tax jurisdictions, recurring permanent adjustments, and discrete items recorded during the period presented. A significant portion of pretax income is earned and taxed outside the U.S. The impacts on the tax provision due to lower statutory tax rates in foreign jurisdictions were benefits of approximately $4.1 million and $15.1 million for the three and nine months ended September 30, 2015, respectively, and benefits of approximately $7.2 million and $8.3 million for the three and nine months ended September 30, 2014, respectively. As noted above, the effective income tax rate can be impacted each period by discrete factors or events. For the three and nine months ended September 30, 2015 and 2014, discrete benefits of $0.2 million and $0.9 million and $0.7 million and $2.2 million, respectively, were recorded for tax benefits realized on disqualifying dispositions of stock from the Company’s employee stock purchase plan. For the three months ended September 30, 2015 and 2014, the tax rate included discrete benefits of $0.9 million and $0.8 million, respectively,
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related to the expiration of certain statutes. For the three months ended September 30, 2015, a discrete charge of $2.2 million for a valuation allowance was recorded on deferred taxes in a foreign jurisdiction and for the nine months ended September 30, 2014 , a $0.9 million discrete tax benefit was recorded related to stock-based compensation expense adjustments for certain terminated employees .
As of September 30, 2015, the amount of gross unrecognized tax benefits was $19.7 million, all of which would affect the Company’s effective tax rate if realized. The Company recognizes interest income and interest expense and penalties on tax overpayments and underpayments within income tax expense. As of September 30, 2015 and December 31, 2014, the Company had approximately $1.5 million and $1.6 million, respectively, of accrued interest and penalties related to uncertain tax positions. The Company anticipates that, except for $1.3 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 is a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions, and has entered into agreements with the local governments in certain foreign jurisdictions where it has significant operations to provide it with favorable tax rates in those jurisdictions if certain criteria are met. The tax benefit realized from favorable tax rates for the three and nine months ended September 30, 2015 was estimated to be $3.2 million ($0.02 per share).  Favorable tax rates for the three and nine months ended September 30, 2014 were not material in the aggregate and did not have a material impact on earnings per share.
The Company regularly assesses the ability to realize deferred tax assets recorded in all entities based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income. If the Company’s future business profits do not support the realization of deferred tax assets, an addition to the valuation allowance could be recorded. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.  
On July 27, 2015, the United States Tax Court (the “Court”) issued a taxpayer-favorable opinion with respect to Altera Corporation (“Altera”)’s litigation with the Internal Revenue Service (“IRS”). The litigation relates to the treatment of share-based compensation expense in an inter-company cost-sharing arrangement with the taxpayer’s foreign subsidiary for fiscal years 2004 through 2007. In its opinion, the Court accepted Altera’s position of excluding share-based compensation in its cost sharing arrangement and concluded that the related IRS Regulations were invalid. The Court has yet to issue its decision, the timing of which is uncertain. Once the Court’s decision is issued, the IRS has 90 days to decide whether to appeal the Court’s decision. As such, no adjustment to the consolidated financial statement is recorded at this time. The Company is monitoring this case for any material impact to our consolidated financial statement and its potential favorable implications to the Company’s cost-sharing arrangement.

 
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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,” “SHOULD,” “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 UNIQUE POSITION AND PRODUCTS, IMPORTANT DRIVERS, 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 MATERIALLY 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, 2014.
Overview
We are a global leader in open, standards-based unified communications and collaboration (“UC&C”) solutions for voice, video and content sharing and offer a comprehensive line of support and service solutions to ensure customer success. Our solutions are powered by the Polycom® RealPresence® Platform, a flexible and comprehensive infrastructure offering with broad application programming interfaces (“APIs”) that can be deployed via software and/or hardware, on-premises or in the cloud, or in hybrid implementations. The RealPresence Platform interoperates with a broad set of communication, business, mobile, cloud applications and devices to deliver secure face-to-face collaboration across different environments. With RealPresence collaboration solutions, from infrastructure to endpoints for all environments, people all over the world can connect and collaborate naturally without being in the same physical location. Individuals and teams can communicate and collaborate with High Definition (“HD”) voice, video and content experiences from their desktops, meeting rooms, classrooms, home offices, mobile devices, web browsers, and specialized solutions such as video carts for healthcare applications and RealPresence Video Protect 500 solutions for government agencies and judicial applications.
We sell our solutions globally through a high-touch sales model that leverages our broad network of channel partners, including distributors, value-added resellers, and 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 collaboration solutions include:
 	·	growth of video as a preferred method of communication;	
 	·	increasing presence of video on desktop and laptop devices;	
 	·	growth of video-capable mobile devices (including tablets and smartphones);	
 	·	growth of Skype for Business (formerly Microsoft® Lync®) in the corporate environment and the resulting impact on sales of Polycom’s Skype for Business-compatible voice and video devices;	
 	·	expansion of business applications with integrated web-based video and content collaboration;	
 	·	virtualization and the move to private, public, and hybrid clouds;	
 	·	adoption of UC&C solutions by small and medium businesses (“SMBs”);	
 	·	growth of the number of teleworkers globally;	
 	·	new pricing models and options for video delivery, including subscription-based software pricing and as-a-service offerings;	
 	·	emergence of Bring Your Own Device (“BYOD”) programs in businesses of all sizes, across all regions;	
27

 	·	demand for UC&C solutions for business to business (“ B2B ”) and business to consumer (“ B2C ”) communications and the move of consumer applications (“Bring Your Own Apps”) into the business space; and  	
 	·	continued commitment by organizations and individuals to reduce their carbon footprint and expenses by choosing voice, video and content collaboration over travel.	
We believe we are uniquely positioned as the UC&C ecosystem partner of choice through our strategic partnerships, support of open standards, innovative technology, multiple delivery modes, and customer-centric go-to-market capabilities.
Revenues for the three and nine months ended September 30, 2015 were $303.1 million and $950.4 million, respectively, a decrease of $32.6 million, or 10%, and $45.8 million, or 5%, respectively, from the same periods in 2014. Both total product and service revenues declined on a year-over-year basis during the three and nine months ended September 30, 2015. The overall decreases in product revenues were primarily due to lower revenue from our UC group systems and, to a lesser extent, UC platform products, partially offset by increased UC personal devices revenue driven by the increase in desktop voice sales. With the exception of the fourth quarter of 2014 for UC group systems, both our UC group system and UC platform product revenues have declined year-over-year since the first quarter of 2012.  This is primarily due to lower group video product revenues, and, to a lesser extent, decreased sales of our UC group voice products and RealPresence Platform hardware and software products. We expect this trend to continue at least in the near term. Service revenues decreased slightly during these periods as a result of a decrease in Halo related managed service revenues, and lower new maintenance service revenues due to the decrease in UC group systems and UC platform products revenues, offset by an increase in service revenues related to maintenance renewals. Halo related managed services resulted from the Hewlett-Packard visual collaboration business we acquired in 2011. Revenue from these services has decreased as the managed services contracts expire and some customers elect to purchase other Polycom product solutions rather than renew their managed services contracts.
From a segment perspective, our Americas, EMEA, and APAC segment revenues accounted for 49%, 25%, and 26%, respectively, of our total revenues in the three months ended September 30, 2015. Our Americas, EMEA and APAC segment revenues for the three months ended September 30, 2015 decreased by 11%, 8% and 9%, respectively, compared to the same period in 20 14. During the nine months ended September 30, 2015, our Americas, EMEA, and APAC segment revenues accounted for 49%, 26%, and 25%, respectively, of our total revenues. Our Americas, EMEA and APAC segment revenues for the nine months ended September 30, 2015 decreased by 7%, 2%, and 3%, respectively, compared to the same period in 2014. Year-over-year, product revenues declined across all of our geographical segments in the three and nine months ended September 30, 2015. Service revenues declined in our Americas and EMEA segments and increased in our APAC segment in the three and nine months ended September 30, 2015.
Operating margins for the three and nine months ended September 30, 2015 increased by approximately 1 percentage point and 6 percentage points, respectively, as compared to the same periods in 2014. The increase in operating margins was primarily driven by decreased operating expenses resulting from lower headcount-related costs including compensation and commission costs and lower facilities-related costs . The increase in operating margins for the nine months ended September 30, 2015 is also due to lower restructuring costs. Overall, our decreases in operating expenses were a result of our continued focus on optimizing our cost structure and improving operating margins.
During the nine months ended September 30, 2015, we generated $89.0 million in cash flow from operating activities. Operating cash inflows were offset by the impact of investing and financing activities, which are described in detail under “Liquidity and Capital Resources,” resulting in a $30.7 million net decrease in our total cash and cash equivalents from December 31, 2014.
28

Results of Operations for the Three and Nine Months Ended September 30 , 2015 and 2014
Revenues
We manage our business primarily on a geographic basis, organized into three geographic segments. Our revenues, which include product and service revenues, for each segment are summarized in the following table:
 
 	 	Three Months Ended	 	 	 	 	 	 	Nine Months Ended	 	 	 	 	 	
$ in thousands	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	
Americas	 	$	148,157	 	 	$	166,354	 	 	 	(11	)%	 	$	463,844	 	 	$	497,229	 	 	 	(7	)%	
% of revenues	 	 	49	%	 	 	50	%	 	 	 	 	 	 	49	%	 	 	50	%	 	 	 	 	
EMEA	 	$	77,274	 	 	$	83,995	 	 	 	(8	)%	 	$	251,988	 	 	$	256,099	 	 	 	(2	)%	
% of revenues	 	 	25	%	 	 	25	%	 	 	 	 	 	 	26	%	 	 	26	%	 	 	 	 	
APAC	 	$	77,679	 	 	$	85,337	 	 	 	(9	)%	 	$	234,553	 	 	$	242,901	 	 	 	(3	)%	
% of revenues	 	 	26	%	 	 	25	%	 	 	 	 	 	 	25	%	 	 	24	%	 	 	 	 	
Total revenues	 	$	303,110	 	 	$	335,686	 	 	 	(10	)%	 	$	950,385	 	 	$	996,229	 	 	 	(5	)%	
 
Revenues decreased across all of our geographical segments in the three and nine months ended September 30, 2015 as compared to the same periods in 2014 primarily driven by decreased revenues across several of our key geographic markets, primarily in the United States, Australia, and Russia, partially offset by year-over-year growth in Germany, India and the United Kingdom. Revenues in China for the nine months ended September 30, 2015 also grew year-over-year. On a year-over-year basis, our product revenues decreased across all of our segments and service revenues decreased in our Americas and EMEA segments and increased in our APAC segment.
The overall decrease in revenues in the three and nine months ended September 30, 2015, as compared to the same periods in 2014, was primarily due to a decrease in product revenues which decreased by $28.7 million and $41.2 million, respectively, and to a lesser extent, service revenues which decreased by $3.8 million and $4.6 million, respectively due to a decrease in Halo related managed service revenues, and lower new maintenance service revenues, offset by an increase in service revenues related to maintenance renewals. As a result of declines in product revenues, as well as a greater mix of UC personal devices revenues which have lower service attach rates as compared to our UC group systems and UC platform products, with the exception of the third quarter of 2015, service revenues from new maintenance contracts have declined over the last several quarters and this trend is likely to continue.
During the three months ended September 30, 2015 and 2014, two channel partners, ScanSource Communications (“ScanSource”) and Westcon Group, Inc (“Westcon”), located in our Americas segment, together accounted for 19% and 10%, and 16% and 10%, respectively, of our total revenues. During the nine months ended September 30, 2015 and 2014, ScanSource accounted for 19% and 17%, respectively, of our total 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 revenues or segment 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 short-term material adverse impact.
The following table presents revenues for groups of similar products and services:
 
 	 	Three Months Ended	 	 	 	 	 	 	Nine Months Ended	 	 	 	 	 	
$ in thousands	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	
UC group systems	 	$	184,861	 	 	$	217,256	 	 	 	(15	)%	 	$	584,681	 	 	$	649,076	 	 	 	(10	)%	
As a percent of total revenues	 	 	61	%	 	 	65	%	 	 	 	 	 	 	62	%	 	 	65	%	 	 	 	 	
UC personal devices	 	$	63,290	 	 	$	60,113	 	 	 	5	%	 	$	197,557	 	 	$	170,226	 	 	 	16	%	
As a percent of total revenues	 	 	21	%	 	 	18	%	 	 	 	 	 	 	21	%	 	 	17	%	 	 	 	 	
UC platform	 	$	54,959	 	 	$	58,317	 	 	 	(6	)%	 	$	168,147	 	 	$	176,927	 	 	 	(5	)%	
As a percent of total revenues	 	 	18	%	 	 	17	%	 	 	 	 	 	 	18	%	 	 	18	%	 	 	 	 	
Total revenues	 	$	303,110	 	 	$	335,686	 	 	 	(10	)%	 	$	950,385	 	 	$	996,229	 	 	 	(5	)%	
 
 UC group systems include all immersive telepresence, group video and group voice systems products and the related service elements. The decrease in UC group systems revenue for the three and nine months ended September 30, 2015 compared to the same periods in 2014 was primarily driven by decreased sales of our UC group video products and related services across our three
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geographic segments and, to a lesser extent, decreased sales of our UC group voice products and related services primarily from our Americas segment .
UC personal devices include desktop video devices and desktop voice products. The increase in UC personal devices revenue for the three and nine months ended September 30, 2015 compared to the same periods in 2014 was primarily due to increased sales of our desktop voice products in our Americas and EMEA segments. Overall, the increase in UC personal devices revenues was due in part to the continued adoption of VoIP technologies and increased demand for our Skype for Business-compatible solutions.
UC platform includes our RealPresence Platform hardware and software products and the related service elements. The decrease in UC platform products and related services for the three and nine months ended September 30, 2015 compared to the same periods in 2014 was primarily driven by decreased sales in our Americas and EMEA segments, partially offset by the increased sales in our APAC segment.  
Cost of Revenues and Gross Margins
 
 	 	Three Months Ended	 	 	 	 	 	 	Nine Months Ended	 	 	 	 	 	
$ in thousands	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	
Product Cost of Revenues	 	$	91,272	 	 	$	101,399	 	 	 	(10	)%	 	$	288,293	 	 	$	296,745	 	 	 	(3	)%	
% of Product Revenues	 	 	43	%	 	 	42	%	 	 	 	 	 	 	43	%	 	 	42	%	 	 	 	 	
Product Gross Margins	 	 	57	%	 	 	58	%	 	 	 	 	 	 	57	%	 	 	58	%	 	 	 	 	
Service Cost of Revenues	 	$	32,948	 	 	$	37,617	 	 	 	(12	)%	 	$	104,457	 	 	$	115,607	 	 	 	(10	)%	
% of Service Revenues	 	 	36	%	 	 	39	%	 	 	 	 	 	 	37	%	 	 	40	%	 	 	 	 	
Service Gross Margins	 	 	64	%	 	 	61	%	 	 	 	 	 	 	63	%	 	 	60	%	 	 	 	 	
Total Cost of Revenues	 	$	124,220	 	 	$	139,016	 	 	 	(11	)%	 	$	392,750	 	 	$	412,352	 	 	 	(5	)%	
% of Total Revenues	 	 	41	%	 	 	41	%	 	 	 	 	 	 	41	%	 	 	41	%	 	 	 	 	
Total Gross Margins	 	 	59	%	 	 	59	%	 	 	 	 	 	 	59	%	 	 	59	%	 	 	 	 	
 
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 costs, 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 $0.7 million for both the three months ended September 30, 2015 and 2014, and $2.2 million and $1.8 million for the nine months ended September 30, 2015 and 2014, respectively.
For the three and nine months ended September 30, 2015, the decrease in product gross margins was primarily due to changes in product mix toward lower margin UC personal devices. The decrease in product gross margin in the nine months ended September 30, 2015 is also due in part to higher reserves for excess and obsolete inventories on a year-over-year basis. 
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 expense of $1.3 million and $1.1 million for the three months ended September 30, 2015 and 2014, respectively, and $3.4 million and $3.2 million for the nine months ended September 30, 2015 and 2014, respectively.
For the three and nine months ended September 30, 2015, the increase in service gross margins was primarily due to decreased cost of services primarily driven by decreased spending on outside services, lower compensation costs, and decreased facilities and IT costs.
Total Cost of Revenues and Total Gross Margins
Total gross margins in the three and nine months ended September 30, 2015 remained relatively flat compared to the same periods in 2014 primarily due to an increase in service gross margins, offset by decreased product gross margins as a percentage of revenues, as discussed above.
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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 revenues 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 relat ed production level variances; the impact of foreign currency rate fluctuations; 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; variabilit y of stock-based compensation costs; royalties to third parties; utilization of our professional services personnel as we develop our professional services practice and make investments to expand our professional services offerings; fluctuations in 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; changes in prices on commodity components; warranty and recall costs; and the timing of sales.
Sales and Marketing Expenses
 
 	 	Three Months Ended	 	 	 	 	 	 	Nine Months Ended	 	 	 	 	 	
$ in thousands	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	
Sales and marketing	 	$	86,915	 	 	$	97,953	 	 	 	(11	)%	 	$	267,207	 	 	$	289,757	 	 	 	(8	)%	
% of Revenues	 	 	29	%	 	 	29	%	 	 	 	 	 	 	28	%	 	 	29	%	 	 	 	 	
 
Sales and marketing expenses consist primarily of salaries and commissions for our sales force, 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 expense of $4.2 million and $4.7 million for the three months ended September 30, 2015 and 2014, respectively, and $9.5 million and $10.4 million for the nine months ended September 30, 2015 and 2014, respectively.
During the three and nine months ended September 30, 2015, sales and marketing expenses decreased compared to the same periods in 2014 primarily due to lower headcount-related costs, including compensation and commission expenses, stock-based compensation expense, lower headcount-based allocations, and decreased facilities and IT costs as well as decreased spending on outside services. Sales and marketing headcount at September 30, 2015 was flat compared to the same period in 2014. The overall decreases in sales and marketing expenses are in line with our plans to improve operating performance.
We expect our sales and marketing expenses to remain relatively flat in absolute dollars in the near term. Expenses will fluctuate depending on revenue levels achieved as certain expenses, such as commissions, are determined based upon the revenues achieved. Forecasting sales and marketing expenses as a percentage of revenues is highly dependent on expected revenue levels and could vary significantly depending on actual revenues achieved in any given quarter and the timing of stock-based compensation expense. Marketing expenses will also fluctuate depending upon the timing and extent of marketing programs as we market new products.
Research and Development Expenses
 
 	 	Three Months Ended	 	 	 	 	 	 	Nine Months Ended	 	 	 	 	 	
$ in thousands	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	
Research and development	 	$	46,744	 	 	$	51,024	 	 	 	(8	)%	 	$	142,626	 	 	$	148,202	 	 	 	(4	)%	
% of Revenues	 	 	15	%	 	 	15	%	 	 	 	 	 	 	15	%	 	 	15	%	 	 	 	 	
 
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 expense of $2.7 million and $3.2 million for the three months ended September 30, 2015 and 2014, respectively, and $7.2 million and $7.3 million for the nine months ended September 30, 2015 and 2014, respectively.
 During the three and nine months ended September 30, 2015, research and development expenses decreased compared to the same periods in 2014 primarily due to lower headcount-related costs, primarily compensation and related benefits, stock-based compensation expense, lower program expenses, and decreased facilities and IT costs partially offset by increased spending on expensed materials. Headcount-related costs decreased despite research and development headcount increasing slightly at September 30, 2015 compared to the same period in 2014 due to a shift of research and development to lower cost locations. The overall
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decreases in research and development expenses are in line with our plans to improve operating performance , while investing in accretive areas and development of new produ cts .
We believe that innovation and technological leadership are critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies and products to combat competitive pressures. We are also investing in research and development projects designed to further our key strategic initiatives with our strategic partners and service provider customers. Research and development expenses as a percentage of revenues are highly dependent on expected revenue levels and could vary significantly depending on actual revenues achieved, the timing of stock-based compensation expense and the number of development activities in any given quarter. We expect our research and development costs to remain relatively flat in absolute dollars in the near term.
General and Administrative Expenses
 
 	 	Three Months Ended	 	 	 	 	 	 	Nine Months Ended	 	 	 	 	 	
$ in thousands	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	
General and administrative	 	$	22,720	 	 	$	25,746	 	 	 	(12	)%	 	$	66,156	 	 	$	74,175	 	 	 	(11	)%	
% of Revenues	 	 	7	%	 	 	8	%	 	 	 	 	 	 	7	%	 	 	7	%	 	 	 	 	
 
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 expense of $5.0 million and $5.1 million for the three months ended September 30, 2015 and 2014, respectively, and $10.5 million and $11.5 million for the nine months ended September 30, 2015 and 2014, respectively.
During the three and nine months ended September 30, 2015, general and administrative expenses decreased compared to the same periods in 2014 primarily due to lower headcount-related costs, primarily compensation and related benefits, stock-based compensation expense, and decreased facilities and IT costs. General and administrative headcount decreased at September 30, 2015 compared to same period in 2014. The overall decreases in general and administrative expenses are in line with our plans to improve operating performance.
Significant future charges due to costs associated with litigation or un-collectability 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 our general and administrative expenses to remain relatively flat in absolute dollars in the near term but they could fluctuate depending on the level and timing of stock-based compensation expense and expenditures associated with litigation.
Amortization of Purchased Intangibles
During the three months ended September 30, 2015 and 2014, we recorded approximately $2.4 million in operating expenses in both periods and $0.1 million and $0.7 million, respectively, in cost of product revenues for amortization of purchased intangibles related to acquisitions. During the nine months ended September 30, 2015 and 2014, we recorded approximately $7.2 million and $7.4 million, respectively, in operating expenses and $0.9 million and $2.3 million, respectively, in cost of product revenues for amortization of purchased intangibles related to acquisitions. The year-over-year decreases in amortization expenses were primarily due to certain intangible assets acquired in prior years being fully amortized.
Restructuring Costs
During the three months ended September 30, 2015, we recorded net restructuring charges of $0.2 million, as compared to $2.6 million of net restructuring credits in the same period of 2014. During the nine months ended September 30, 2015 and 2014, we recorded net restructuring costs of $0.6 million and $36.9 million, respectively.
 Restructuring costs primarily related to certain actions announced in January 2014 including reduction of approximately six percent of the global workforce and the reduction or elimination of certain leased facilities, and certain discrete follow-on actions that were not material. These actions were designed to better align expenses to our revenue and gross margin, and position us for improved operating performance. Our facilities-related restructuring reserves are recorded net of estimated sublease income that we expect to
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generate based upon current comparable leases in the respective markets. To the extent that actual sublease income, the timing of subleasing the facility, or the associated cost of, or the recorded liabili ty related to subleasing or terminating our lease obligations for these facilities is different from initial estimates, we a djust our restructuring reserves in the period during which such information becomes known
The restructuring charges during the three and nine months ended September 30, 2015 include accruals for severance payments for certain employees who were notified during this period, and adjustments related to a change in assumptions used in our facilities-related restructuring reserves estimate. See Note 6 of Notes to Condensed Consolidated Financial Statements for further information on restructuring.
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, 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.  
Litigation Reserves and Payments
We did not incur any litigation reserves and payments related to on-going litigation matters during the three and nine months ended September 30, 2015. During the three months ended September 30, 2014, we recorded $3.1 million in litigation reserves and payments related to on-going litigation matters which had not yet been settled. We are also subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. These matters are subject to inherent uncertainties and management’s view of these matters may change in the future and could result in charges that would have a material adverse impact on our financial positions, our results of operations, or cash flow. See Note 8 of Notes to Condensed Consolidated Financial Statements for further information.
Transaction-related Costs
We did not incur any transaction-related costs during the three and nine months ended September 30, 2015. There were no transaction-related costs incurred during the three months ended September 30, 2014, and less than $0.2 million in transaction-related costs for the nine months ended September 30, 2014. We expense all acquisition-related and other transaction-related costs as incurred. These costs generally include legal and accounting fees and other integration services. We have spent, and may in the future, spend significant resources identifying and acquiring businesses.
Interest and Other Income (Expense), Net
 
 	 	Three Months Ended	 	 	Nine Months Ended	 	
$ in thousands	 	September 30,
2015	 	 	September 30,
2014	 	 	September 30,
2015	 	 	September 30,
2014	 	
Interest expense	 	$	(1,538	)	 	$	(1,470	)	 	$	(4,545	)	 	$	(4,404	)	
Other income (expense)	 	 	969	 	 	 	1,285	 	 	 	2,336	 	 	 	1,828	 	
Interest and other income (expense), net	 	$	(569	)	 	$	(185	)	 	$	(2,209	)	 	$	(2,576	)	
 
Interest expense consists primarily of interest on our borrowings under the Credit Agreement entered into in September 2013 and imputed interest related to certain long-term obligations. Other income (expense), net consists primarily of foreign exchange related gains and losses, interest earned on our cash, cash equivalents and investments less bank charges resulting from the use of our bank accounts, realized gains and losses on investments and non-income based taxes and fees.
We expect interest expense to remain relatively flat in the near term. Interest expense will fluctuate due to changes in interest rates and outstanding debt balances or other long-term obligations for which we record imputed interest.
The decrease in net other income during the three months ended September 30, 2015 compared to same period in 2014 was primarily due to higher non-income based taxes and fees, partially offset by higher interest income.
The increase in net other income during the nine months ended September 30, 2015, compared to same period in 2014 was primarily due to foreign exchange related gains and higher interest income, partially offset by higher non-income based taxes and fees. The foreign exchange related gains were primarily as a result of the unrealized gains on remeasurement of monetary assets and liabilities.
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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 based taxes and license fees. The balance of cash and investments could decrease depending upon the amount of cash used in our stock repurchase activity, any future acquisitions, and other factors, which wo uld also impact our interest income.
Provision for Income Taxes
 
 	 	Three Months Ended	 	 	Nine Months Ended	 	
$ in thousands	 	September 30,
2015	 	 	September 30,
2014	 	 	September 30,
2015	 	 	September 30,
2014	 	
Provision for income taxes	 	$	5,757	 	 	$	1,817	 	 	$	17,206	 	 	$	54	 	
Effective tax rate	 	 	29.8	%	 	 	9.7	%	 	 	24.0	%	 	 	0.2	%	
 
We are subject to income taxes in the U.S. and numerous foreign jurisdictions, and the effective tax rate reflects the applicable tax rates in effect in the various tax jurisdictions around the world where income is earned. Our effective tax rate for the three and nine months ended September 30, 2015 and 2014 differs from the U.S. federal statutory rate of 35% primarily due to impacts associated with proportional earnings from our operations in lower tax jurisdictions, recurring permanent adjustments, and discrete items recorded during the period presented. A significant portion of pretax income is earned and taxed outside the U.S. The impacts on our tax provision due to lower statutory tax rates in foreign jurisdictions were benefits of approximately $4.1 million and $15.1 million for the three and nine months ended September 30, 2015, respectively, and benefits of approximately $7.2 million and $8.3 million for the three and nine months ended September 30, 2014, respectively. As noted above, our effective income tax rate can be impacted each period by discrete factors or events. For the three and nine months ended September 30, 2015 and 2014, discrete benefits of $0.2 million and $0.9 million and $0.7 million and $2.2 million, respectively, were recorded for tax benefits realized on disqualifying dispositions of stock from our employee stock purchase plan. For the three months ended September 30, 2015 and 2014, our tax rate included discrete benefits of $0.9 million and $0.8 million, respectively, related to the expiration of certain statutes. For the three months ended September 30, 2015, a discrete charge of $2.2 million for a valuation allowance was recorded on deferred taxes in a foreign jurisdiction and for the nine months ended September 30, 2014, a $0.9 million discrete tax benefit was recorded related to stock-based compensation expense adjustments for certain terminated employees.
As of September 30, 2015, the amount of gross unrecognized tax benefits was $19.7 million, all of which would affect our effective tax rate if realized. We recognize interest income and interest expense and penalties on tax overpayments and underpayments within income tax expense. As of September 30, 2015 and December 31, 2014, we had approximately $1.5 million and $1.6 million, respectively, of accrued interest and penalties related to uncertain tax positions. We anticipate that, except for $1.3 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 are a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions, and have entered into agreements with the local governments in certain foreign jurisdictions where we have significant operations to provide us with favorable tax rates in those jurisdictions if certain criteria are met. The tax benefit realized from favorable tax rates for the three and nine months ended September 30, 2015 was estimated to be $3.2 million ($0.02 per share). Favorable tax rates for the three and nine months ended September 30, 2014 were not material in the aggregate and did not have a material impact on earnings per share.
We regularly assess the ability to realize deferred tax assets recorded in all entities based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income. If our future business profits do not support the realization of deferred tax assets, an addition to the valuation allowance may be required. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust the valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.  
On July 27, 2015, the United States Tax Court (the “Court”) issued a taxpayer-favorable opinion with respect to Altera Corporation (“Altera”)’s litigation with the Internal Revenue Service (“IRS”). The litigation relates to the treatment of share-based compensation expense in an inter-company cost-sharing arrangement with the taxpayer’s foreign subsidiary for fiscal years 2004 through 2007. In its opinion, the Court accepted Altera’s position of excluding share-based compensation in its cost sharing arrangement and concluded that the related IRS Regulations were invalid. The Court has yet to issue its decision, the timing of which is uncertain. Once the Court’s decision is issued, the IRS has 90 days to decide whether to appeal the Court’s decision. As such, no adjustment to the consolidated financial statement is recorded at this time. The Company is monitoring this case for any material impact to our consolidated financial statement and its potential favorable implications to the Company’s cost-sharing arrangement.
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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 jur isdictions 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, 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. 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 outcomes of these examinations are inherently uncertain. For further discussion of our income tax provision, see Note 17 of the Notes to Condensed Consolidated Financial Statements.
 
Segment Information
Our business is conducted globally and managed geographically in three segments: (1) Americas, which consists of North America and Caribbean and Latin America (“CALA”) reporting units, (2) Europe, Middle East and Africa (“EMEA”) and (3) Asia Pacific (“APAC”). The segments are determined in accordance with how management views and evaluates its business and allocates its resources, and based on the criteria as outlined in the authoritative guidance.
A description of our products and services as well as selected financial data for each segment can be found in Note 16 of the Notes to Condensed Consolidated Financial Statements. Future changes to our organizational structure or business may result in changes to the reportable segments disclosed.
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The following is a summary of the financial information for each of our segments as of the dates and for the periods indicated (in thous ands):
 
 	Americas	 	 	EMEA	 	 	APAC	 	 	Total	 	
For the three months ended September 30, 2015:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues	$	148,157	 	 	$	77,274	 	 	$	77,679	 	 	$	303,110	 	
% of total revenues	 	49	%	 	 	25	%	 	 	26	%	 	 	100	%	
Contribution margin	$	55,032	 	 	$	32,260	 	 	$	37,392	 	 	$	124,684	 	
% of segment revenues	 	37	%	 	 	42	%	 	 	48	%	 	 	41	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the three months ended September 30, 2014:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues	$	166,354	 	 	$	83,995	 	 	$	85,337	 	 	$	335,686	 	
% of total revenues	 	50	%	 	 	25	%	 	 	25	%	 	 	100	%	
Contribution margin	$	66,993	 	 	$	36,686	 	 	$	35,965	 	 	$	139,644	 	
% of segment revenues	 	40	%	 	 	44	%	 	 	42	%	 	 	42	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the nine months ended September 30, 2015:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues	$	463,844	 	 	$	251,988	 	 	$	234,553	 	 	$	950,385	 	
% of total revenues	 	49	%	 	 	26	%	 	 	25	%	 	 	100	%	
Contribution margin	$	176,648	 	 	$	107,024	 	 	$	109,480	 	 	$	393,152	 	
% of segment revenues	 	38	%	 	 	42	%	 	 	47	%	 	 	41	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the nine months ended September 30, 2014:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues	$	497,229	 	 	$	256,099	 	 	$	242,901	 	 	$	996,229	 	
% of total revenues	 	50	%	 	 	26	%	 	 	24	%	 	 	100	%	
Contribution margin	$	206,121	 	 	$	109,460	 	 	$	100,985	 	 	$	416,566	 	
% of segment revenues	 	41	%	 	 	43	%	 	 	42	%	 	 	42	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As of September 30, 2015: Gross accounts receivable	$	99,248	 	 	$	53,673	 	 	$	60,333	 	 	$	213,254	 	
% of total gross accounts receivable	 	47	%	 	 	25	%	 	 	28	%	 	 	100	%	
As of December 31, 2014: Gross accounts receivable	$	88,316	 	 	$	62,540	 	 	$	63,808	 	 	$	214,664	 	
% of total gross accounts receivable	 	41	%	 	 	29	%	 	 	30	%	 	 	100	%	
 
Americas
 
 	 	Three Months Ended	 	 	 	 	 	 	Nine Months Ended	 	 	 	 	 	
$ in thousands	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	
Revenues	 	$	148,157	 	 	$	166,354	 	 	 	(11	)%	 	$	463,844	 	 	$	497,229	 	 	 	(7	)%	
Contribution margin	 	$	55,032	 	 	$	66,993	 	 	 	(18	)%	 	$	176,648	 	 	$	206,121	 	 	 	(14	)%	
Contribution margin (as a % of
   Americas revenues)	 	 	37	%	 	 	40	%	 	 	 	 	 	 	38	%	 	 	41	%	 	 	 	 	
 
On a year-over-year basis, product and service revenues decreased in our Americas segment in the three and nine months ended September 30, 2015. The decrease in the Americas segment revenues in the three and nine months ended September 30, 2015 as compared to the same period in 2014 was driven primarily by decreased revenues in the United States, Brazil and the rest of CALA, partially offset by increased revenues in Canada. The decrease in Americas segment revenues in the three and nine months ended September 30, 2015 was primarily driven by decreased revenues from UC group systems and the related services as a result of decreased sales of UC group video and UC group voice and to a lesser extent, decreased revenues from UC platform products and the related services, partially offset by increased revenues from UC personal devices products, primarily due to increased desktop voice sales as a result of the continued adoption of VoIP and increased demand for our Skype for Business-compatible solutions.
 In the three months ended September 30, 2015, three channel partners in our Americas segment, accounted for 39%, 14%, and 11%, respectively, of our Americas revenues. In the nine months ended September 30, 2015, three channel partners in our Americas segment, accounted for 39%, 12%, and 11%, respectively, of our Americas revenues. In the three months ended September 30, 2014, three channel partners in our Americas segment, accounted for 32%, 12%, and 10%, respectively, of our Americas revenues. In the nine months ended September 30, 2014, two channel partners in our Americas segment, accounted for 34% and 10%, respectively, of
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our Americas revenues . We believe it is unli kely that the loss of any of our channel partners would have a long term material adverse effect on our consolidated revenues or segment revenues as we believe end-users would likely purchase our products from a different channel partner. However, a loss o f any one of these channel partners could have a short-term material adverse impact.
The decrease in contribution margin as a percentage of Americas segment revenues for the three and nine months ended September 30, 2015 compared to the same periods in 2014 was primarily due to lower gross margins, as well as increased direct sales and marketing expenses as a percentage of revenues. The decrease in gross margins was primarily driven by lower product gross margins due to lower product revenues, as well as a mix shift toward lower margin UC personal devices.
EMEA
 
 	 	Three Months Ended	 	 	 	 	 	 	Nine Months Ended	 	 	 	 	 	
$ in thousands	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	
Revenues	 	$	77,274	 	 	$	83,995	 	 	 	(8	)%	 	$	251,988	 	 	$	256,099	 	 	 	(2	)%	
Contribution margin	 	$	32,260	 	 	$	36,686	 	 	 	(12	)%	 	$	107,024	 	 	$	109,460	 	 	 	(2	)%	
Contribution margin (as a % of
   EMEA revenues)	 	 	42	%	 	 	44	%	 	 	 	 	 	 	42	%	 	 	43	%	 	 	 	 	
 
On a year-over-year basis, product and service revenues decreased in our EMEA segment in the three and nine months ended September 30, 2015. The decrease in our EMEA segment revenues in the three months ended September 30, 2015 as compared to the same period in 2014 was primarily due to decreased revenues in the Middle East and Africa region, Russia, Austria, Switzerland and Italy, partially offset by increased revenues in Spain, Germany and the United Kingdom. The overall decrease was primarily driven by decreased sales of UC group systems product and related services as a result of decreased sales of UC group video and, to a lesser extent, decreased revenues from UC platform products and the related services, partially offset by the increased revenues from UC personal devices product and the related services primarily due to increased desktop voice sales. Year-over-year, EMEA segment revenues decreased slightly in the nine months ended September 30, 2015 primarily due to decreased revenues in Austria, Switzerland, Russia, and Nordic countries, partially offset by increased revenues in Germany and the United Kingdom. The overall decrease was primarily driven by decreased sales of UC group systems and the related services as a result of decreased sales of immersive telepresence products and decreased sales of UC platform products and the related services, partially offset by the increased revenues from UC personal devices products and the related services primarily due to increased desktop voice sales.  
In the three months ended September 30, 2015, two channel partners in our EMEA segment, accounted for 15% and 10%, respectively, of our EMEA revenues. In the nine months ended September 30, 2015, one channel partner in our EMEA segment accounted for 16% of our EMEA revenues. In the three and nine months ended September 30, 2014, one channel partner in our EMEA segment accounted for 15% and 14%, respectively, of our EMEA 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 revenues or segment 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 short-term material adverse impact.
The decrease in contribution margin as a percentage of EMEA segment revenues for the three and nine months ended September 30, 2015 was primarily due to lower gross margins, offset in part by decreased direct sales and marketing expenses in absolute dollars and as a percentage of revenues. The decrease in gross margin was primarily driven by lower product gross margin resulting from a product mix shift away from higher margin UC platform products toward lower margin UC personal devices products and the unfavorable impact of foreign currency exchange rates. The decrease in sales and marketing expenses were primarily due to lower headcount-related costs as a result of decrease in headcount.
APAC
 
 	 	Three Months Ended	 	 	 	 	 	 	Nine Months Ended	 	 	 	 	 	
$ in thousands	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	 	September 30,
2015	 	 	September 30,
2014	 	 	Increase
(Decrease)	 	
Revenues	 	$	77,679	 	 	$	85,337	 	 	 	(9	)%	 	$	234,553	 	 	$	242,901	 	 	 	(3	)%	
Contribution margin	 	$	37,392	 	 	$	35,965	 	 	 	4	%	 	$	109,480	 	 	$	100,985	 	 	 	8	%	
Contribution margin (as a % of
   APAC revenues)	 	 	48	%	 	 	42	%	 	 	 	 	 	 	47	%	 	 	42	%	 	 	 	 	
 
 On a year-over-year basis, product revenues decreased and services revenues increased in our APAC segment in the three and nine months ended September 30, 2015.The decrease in our APAC segment revenues in the three months ended September 30, 2015
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compared to the same period in 2014 was primarily due to decreased revenues in Australia, partially offset by growth in India. The overall decrease was primarily dr iven by decreased sales of UC group systems products and related services and to a lesser extend decreased sales of UC personal devices, offset in part by increased revenues from UC platform products and related services. The APAC segment revenues for the nine months ended September 30, 2015 decreased year-over-year primarily due to decreased revenues in Australia and Japan, offset by increased revenues in China and India. For the nine months ended September 30, 2015, sales of UC group systems products and related services and UC personal devices declined, largely offset by the increased revenues from UC platform and related services.
In the three months ended September 30, 2015, three channel partners in our APAC segment, accounted for 17%, 16%, and 10%, respectively, of our APAC revenues. In the nine months ended September 30, 2015, three channel partners in our APAC segment, accounted for 16%, 16%, and 10%, respectively, of our APAC revenues. In the three months ended September, 2014, three channel partners in our APAC segment, accounted for 16%, 15%, and 10%, respectively, of our APAC revenues. In the nine months ended September 30, 2014, three channel partners in our APAC segment, accounted for 15%, 14%, and 10%, respectively, of our APAC 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 revenues or segment 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 short-term material adverse impact.
The increase in contribution margin as a percentage of APAC segment revenues for the three and nine months ended September 30, 2015 was primarily due to higher gross margins, as well as decreased direct sales and marketing expenses both in absolute dollars and as a percentage of revenues. The increase in gross margin was primarily driven by increased service gross margin due to higher service revenues and decreased cost of services as a result of lower outside services and headcount-related costs. The decrease in direct sales and marketing expenses was driven by lower headcount-related costs, including lower compensation and commission expenses, as well as decreased spending on marketing programs.  
 
Liquidity and Capital Resources
Cash, Cash Equivalents and Investments
Our principal sources of liquidity include cash, cash equivalents, investments and cash provided by operating activities.  Substantially all of our investments are comprised of corporate debt securities, U.S. government securities and agency securities and non-U.S. government securities, which include state, municipal and foreign government securities. See Note 10 of the Notes to Condensed Consolidated Financial Statements for further information on our investments.
The following table presents our cash, cash equivalents, short-term investments, and long-term investments held by the United States and by foreign subsidiaries outside of the United States (in thousands):
 
 	 	September 30, 2015	 	
 	 	United States	 	 	Foreign	 	 	Total	 	
Assets	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	71,313	 	 	$	341,140	 	 	$	412,453	 	
Short-term investments	 	 	98,648	 	 	 	99,507	 	 	 	198,155	 	
Long-term investments	 	 	36,345	 	 	 	8,083	 	 	 	44,428	 	
Total cash, cash equivalents and investments	 	$	206,306	 	 	$	448,730	 	 	$	655,036	 	
 
Our cash and cash equivalents and investments as of September 30, 2015 held by the United States totaled $206.3 million, and the remaining $448.7 million was held by various foreign subsidiaries outside of the United States. If we 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. Our current intent is to permanently reinvest all earnings of our foreign operations as we have appropriate operational needs for this cash in our international business. Further, our current operating plans do not demonstrate a need to repatriate foreign earnings to fund our U.S. operations.
 
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Cash Flows
The following table summarizes the condensed consolidated cash flow information (in thousands):
 
 	 	Nine Months Ended	 	 	 	 	 	
 	 	September 30,
2015	 	 	September 30,
2014	 	 	Change	 	
Net cash provided by operating activities	 	$	89,045	 	 	$	114,649	 	 	$	(25,604	)	
Net cash used in investing activities	 	 	(37,320	)	 	 	(87,029	)	 	 	49,709	 	
Net cash used in financing activities	 	 	(82,404	)	 	 	(13,926	)	 	 	(68,478	)	
Net (decrease) increase in cash and cash equivalents	 	$	(30,679	)	 	$	13,694	 	 	$	(44,373	)	
 
Operating Activities
The decrease in net cash provided by operating activities was primarily due to higher cash outflows due to decreases in accounts payable and accrued liabilities during the nine months ended September 30, 2015, as compared to the same period in 2014, which was driven by lower restructuring liabilities and the timing of payments. These decreases were partially offset by the year-over-year increase in net income as adjusted for non-cash items and lower cash outflows related to prepaid expenses in the nine months ended September 30, 2015 compared to the same period in 2014.
Our days-sales-outstanding (“DSO”) metric was 47 days and 49 days at September 30, 2015 and 2014, respectively. DSO could vary as a result of a number of factors such as fluctuations in revenue linearity, an increase in international receivables, and increases in receivables from service providers and government entities, which have customarily longer payment terms. DSO could also be negatively impacted in the current economic environment if our partners experience difficulty in financing purchases, which results in delays in payment to us.
Inventory turns were 4.9 turns at September 30, 2015 as compared to 5.7 turns at September 30, 2014. We believe inventory turns will fluctuate depending on our ability to reduce lead times, as well as due to changes in anticipated product demand and product mix and the mix of ocean freight versus air freight. Our inventory turns may also decrease in the future as a result of the flexibility required to respond to customer demands.
Investing Activities
The decrease in net cash used in investing activities during the nine months ended September 30, 2015, as compared to the same period in 2014, was primarily due lower purchases of investments, net of sales and maturities.
Net cash used in investing activities includes purchases of property and equipment of $34.4 million for the nine months ended September 30, 2105 as compared to $36.8 million in the same period in 2014.  
Financing Activities
The increase in net cash used in financing activities during the nine months ended September 30, 2015 was primarily due to $90.0 million of shares repurchased under the current share repurchase program as compared to $25.0 million in the same period in 2014.
Debt
In September 2013, we entered into a Credit Agreement (the “Credit Agreement”) which provides for a $250.0 million term loan (the “Term Loan”) that matures on September 13, 2018 (the “Maturity Date”). The Term Loan bears interest at our option under either a base rate formula or a LIBOR-based formula, each as set forth in the Credit Agreement. The Term Loan is payable in quarterly installments of principal equal to approximately $1.6 million that began on December 31, 2013, with the remaining outstanding principal amount of the Term Loan being due and payable on the Maturity Date. The Credit Agreement contains certain customary affirmative and negative covenants, and we are also required to maintain compliance with a consolidated fixed charge coverage ratio and a consolidated secured leverage ratio. We entered into the Credit Agreement in conjunction with and for the purposes of funding any purchase of our common stock, up to $250.0 million in value, pursuant to the share repurchase authorization announced in September 2013. As of September 30, 2015, a total of $237.5 million Term Loan was outstanding and we were in compliance with all debt covenants. See Note 9 of the Notes to Condensed Consolidated Financial Statements for further details.
We also have outstanding letters of credit totaling approximately $1.5 million, which are in place to satisfy certain of our facility lease requirements, as well as other legal, tax, and insurance obligations.
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Foreign Currency
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 the fair value of our foreign currency forward contracts on the condensed consolidated balance sheet at each reporting period and record any fair value adjustments in the condensed consolidated statement of operations. Gains and losses associated with currency rate changes on contracts are recorded in “Interest and other income (expense), net” in the condensed consolidated statement of operations, offsetting remeasurement gains and losses on the related assets and liabilities. Additionally, our hedging costs can vary depending on the size of our hedging program, on whether we are purchasing or selling foreign currency relative to the U.S. dollar and on 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 the Chinese Yuan and Israeli Shekel. 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 revenues or operating expenses depending upon the underlying exposure being hedged. Any excluded and ineffective portions of a hedging instrument would be recorded in “Interest and other income (expense), net”.
Share Repurchases
From time to time, the Board of Directors has approved plans for us to purchase shares of our common stock in the open market or through privately negotiated transactions. In July 2014, our Board of Directors approved a new share repurchase plan (“the 2014 repurchase plan”) under which we may at our discretion purchase shares in the open market with an aggregate value of up to $200.0 million. During the nine months ended September 30, 2015, we purchased 7.0 million shares of common stock in the open market for $90.0 million under the 2014 repurchase plan. As of September 30, 2015, $60.1 million remained authorized under the 2014 repurchase plan. See Note 13 of the Notes to Condensed Consolidated Financial Statements for further details.  
Contractual Obligations and Other Commitments
At September 30, 2015, we had open purchase orders related to our contract manufacturers and other contractual obligations of approximately $197.2 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. In addition, our banks have issued letters of credit totaling approximately $1.5 million, which are used to secure the leases on some of our offices as well as other legal, tax, and insurance obligations. The table set forth below shows, as of September 30, 2015, the future minimum lease payments due under our current lease obligations. The table below excludes approximately $7.1 million related to the current portion of minimum lease payments associated with leased space that was restructured. The non-current portion of future minimum lease payments associated with leased space that was restructured is included in other long-term liabilities in the table 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.
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Our contractual obligations as of September 30, 2015 are as follows (in thousands):
 
 	Minimum
Lease
Payments	 	 	Projected
Annual
Operating
Lease Costs	 	 	Other
Long-
Term
Liabilities	 	 	Purchase
Commitments	 	 	Debt	 	 	Interest
Payments (1)	 	 	Total	 	
Remainder of 2015	$	5,933	 	 	$	1,089	 	 	$	284	 	 	$	154,603	 	 	$	1,563	 	 	$	1,400	 	 	$	164,872	 	
2016	 	19,998	 	 	 	3,677	 	 	 	1,593	 	 	 	41,666	 	 	 	6,250	 	 	 	6,081	 	 	 	79,265	 	
2017	 	17,168	 	 	 	3,016	 	 	 	3,333	 	 	 	392	 	 	 	6,250	 	 	 	6,968	 	 	 	37,127	 	
2018	 	12,709	 	 	 	1,851	 	 	 	2,792	 	 	 	523	 	 	 	223,437	 	 	 	5,343	 	 	 	246,655	 	
2019	 	11,157	 	 	 	1,645	 	 	 	3,633	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	16,435	 	
Thereafter	 	20,551	 	 	 	2,808	 	 	 	19,305	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	42,664	 	
Total payments	$	87,516	 	 	$	14,086	 	 	$	30,940	 	 	$	197,184	 	 	$	237,500	 	 	$	19,792	 	 	$	587,018	 	
 
(1)	The estimated future interest payments are calculated based on the assumptions that (a) there are no other principal repayments beyond the required quarterly principal amortization and (b) the borrowings are made under LIBOR tranches and bear interest at forecasted LIBOR rates at September 30, 2015 plus a spread of 1.75%.	
As discussed in Note 17 of the Notes to Condensed Consolidated Financial Statements, at September 30, 2015, we had unrecognized tax benefits, including related interest, totaling $21.2 million, $1.5 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 2015 as our available net operating losses and research and development tax credits are depleted.
We believe that our available cash, cash equivalents and investments and continuing cash flows from operations will be sufficient to meet our operating expenses and capital requirements for at least 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.
Off-Balance Sheet Arrangements
As of September 30, 2015, 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 significant accounting policies were described in Note 1 to our audited Consolidated Financial Statements and under “Critical Accounting Policies and Estimates” in Part II, Item 7. “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, 2014. There have been no changes to our critical accounting estimates during the nine months ended September 30, 2015.
Recent Accounting Pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see Note 2 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.
 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. Treasury obligations and other government agency instruments, corporate debt securities , non-U.S. government securities and money market funds. The valuation of our investment portfolio is subject to uncertainties that are difficult to predict. If current market
41

conditions deteriorate, we may realize losses on the sale of our investments or we may incur temporary impairment charges requiring us to record unrealized losses in accumula ted other comprehensive income. 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 determ ining 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 realized loss in our condensed consolidated statement of operations i n the period the sale takes place.
A sensitivity analysis was performed on our investment portfolio as of September 30, 2015. The modeling technique used measures the change in fair values arising from hypothetical parallel shifts in the yield curve of various magnitudes.
The following table presents the hypothetical fair values of our securities, excluding cash and cash equivalents, held at September 30, 2015 that are sensitive to changes in interest rates (in thousands).
 
-150 BPS	 	 	-100 BPS	 	 	-50 BPS	 	 	Fair Value
9/30/2015	 	 	+50 BPS	 	 	+100 BPS	 	 	+150 BPS	 	
$	243,222	 	 	$	243,209	 	 	$	243,071	 	 	$	242,583	 	 	$	241,944	 	 	$	241,304	 	 	$	240,663	 	
 
In September 2013, we entered into a Credit Agreement which provides for a $250.0 million Term Loan which matures in September 2018 and bears interest at our option of either a base rate plus a spread of 0.50% to 1.00% or a reserve adjusted LIBOR rate as defined in the Credit Agreement plus a spread of 1.50% to 2.00%. Interest is due and payable in arrears quarterly for loans bearing interest at the base rate and at the end of an interest period (or at each three month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the reserve adjusted LIBOR rate. The Term Loan is payable in quarterly installments of principal equal to $1.6 million that began on December 31, 2013, with the remaining outstanding principal amount of the Term Loan being due and payable on the Maturity Date. By entering into the Credit Agreement, we have assumed risks associated with variable interest rates based upon a variable base rate or LIBOR. As of September 30, 2015, the weighted average interest rate on the Term Loan was 2.23%. The effect of an immediate 10% change in interest rates would not have a significant impact on our results of operations.
Foreign Currency Exchange Rate Risk
While the majority of our sales are denominated in U.S. 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 Brazilian Real, Chinese Yuan, Euro, British Pound, Israeli Shekel, 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.
The following table summarizes the Company’s notional position by currency and average rate of the outstanding non-designated hedges at September 30, 2015 (in thousands):
 
 	 	Original Maturities of 360 days or Less	 	 	Original Maturities of Greater than 360 days	 	
Amounts in thousands	 	Position	 	Foreign
Currency	 	 	Average
rate	 	 	Position	 	Foreign
Currency	 	 	Average
rate	 	
Brazilian Real	 	Sell	 	 	20,571	 	 	 	4.00	 	 	—	 	 	—	 	 	 	—	 	
Chinese Yuan	 	Sell	 	 	42,574	 	 	 	6.41	 	 	Buy	 	 	44,971	 	 	 	6.40	 	
Euro	 	Sell	 	 	10,059	 	 	 	1.12	 	 	Sell	 	 	21,512	 	 	 	1.23	 	
British Pound	 	Buy	 	 	284	 	 	 	1.53	 	 	Sell	 	 	2,522	 	 	 	1.56	 	
Israeli Shekel	 	Sell	 	 	31,112	 	 	 	3.93	 	 	Buy	 	 	37,500	 	 	 	3.88	 	
Japanese Yen	 	Sell	 	 	108,585	 	 	 	119.67	 	 	Sell	 	 	—	 	 	 	—	 	
Mexican Peso	 	Sell	 	 	18,657	 	 	 	16.93	 	 	Sell	 	 	—	 	 	 	—	 	
 
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The following table summarizes the Company’s notional position by currency and average rate of the outstanding cash flow hedges at September 30, 2015 (in thousands):
 
 	 	Original Maturities of 360 Days or Less	 	 	Original Maturities of Greater than 360 Days	 	
Amounts in thousands	 	Position	 	 	Foreign
Currency	 	 	Average
Rate	 	 	Position	 	Foreign
Currency	 	 	Average
Rate	 	
Chinese Yuan	 	 	—	 	 	 	—	 	 	 	—	 	 	Buy	 	 	139,129	 	 	 	6.45	 	
Euro	 	 	—	 	 	 	—	 	 	 	—	 	 	Sell	 	 	44,588	 	 	 	1.13	 	
British Pound	 	 	—	 	 	 	—	 	 	 	—	 	 	Sell	 	 	5,578	 	 	 	1.51	 	
Israeli Shekel	 	 	—	 	 	 	—	 	 	 	—	 	 	Buy	 	 	38,500	 	 	 	3.92	 	
 
Based on our overall currency rate exposure as of September 30, 2015, 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 12 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 provide reasonable assurance 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.
Changes in internal control over financial reporting.
There was no change in our internal control over financial reporting that occurred during the three months ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
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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 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. 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.
Litigation and SEC Investigation
On July 23, 2013, we announced that Andrew M. Miller had resigned from the positions of Chief Executive Officer and President of Polycom and from Polycom’s Board of Directors. We disclosed that Mr. Miller’s resignation came after a review by the Audit Committee of certain expense submissions by Mr. Miller, where the Audit Committee found certain irregularities in the submissions, for which Mr. Miller had accepted responsibility. Specifically, the Audit Committee determined that Mr. Miller improperly submitted personal expenses to Polycom for payment as business expenses and, in doing so, submitted to Polycom false information about the nature and purpose of expenses.  
SEC Investigation . As previously disclosed, we have been cooperating with the Enforcement Staff of the Securities and Exchange Commission (“SEC”) in connection with its investigation focused on Mr. Miller's expenses and his resignation. On March 31, 2015, we entered into a settlement with the SEC. Under the terms of the settlement, in which we did not admit or deny the SEC’s findings, we paid $750,000 in a civil penalty, and agreed not to commit or cause any violations of certain provisions of the Securities Exchange Act of 1934 and related rules.  
Class Action Lawsuit . On July 26, 2013, a purported shareholder class action, initially captioned Neal v. Polycom Inc., et al., Case No. 3:13-cv-03476-SC, and presently captioned Nathanson v. Polycom, Inc. , et al. , Case No. 3:13-cv-03476-SC, was filed in the United States District Court for the Northern District of California against us and certain of our current and former officers and directors. On December 13, 2013, the Court appointed a lead plaintiff and approved lead and liaison counsel. On February 24, 2014, the lead plaintiff filed a first amended complaint. The amended complaint alleged that, between January 20, 2011 and July 23, 2013, we issued materially false and misleading statements or failed to disclose information regarding our business, operational and compliance policies, including with respect to our former Chief Executive Officer’s expense submissions and our internal controls. The lawsuit further alleged that our financial statements were materially false and misleading. The amended complaint alleged violations of the federal securities laws and sought unspecified compensatory damages and other relief. On April 3, 2015, the Court dismissed all claims against Polycom and granted plaintiffs leave to amend. The lead plaintiff filed a second amended complaint on May 4, 2015. Polycom and the individual defendants moved to dismiss the second amended complaint on June 26, 2015. Those motions are pending. At this time, we are unable to estimate any range of reasonably possible loss relating to the securities class action lawsuit.
Derivative Lawsuits . On August 21, 2013 and October 16, 2013, two purported shareholder derivative suits, captioned Saraceni v. Miller, et al. , Case No. 5:13-cv-03880, and Donnelly v. Miller, et al ., Case No. 5:13-cv-04810, respectively, were filed in the United States District Court for the Northern District of California against certain of our current and former officers and directors. On October 31, 2013, these two federal derivative actions were consolidated into In re Polycom, Inc. Derivative Litigation , Lead Case No. 3:13-cv-03880. On January 13, 2015, the Court dismissed the operative complaint and granted plaintiffs leave to amend. On April 3, 2015, the Court approved a stipulation dismissing the action with prejudice and entering judgment in favor of defendants.
On November 22, 2013 and December 13, 2013, two purported shareholder derivative suits, captioned Ware v. Miller, et al. , Case No. 1-13-cv-256608, and Clem v. Miller, et al ., Case No. 1-13-cv-257664, respectively, were filed in the Superior Court of California, County of Santa Clara, against certain of our current and former officers and directors. On January 31, 2014, these two California state derivative actions were consolidated into In re Polycom, Inc. Derivative Shareholder Litigation , Lead Case No. 1-13-cv-256608. The Court has stayed the California state derivative litigation pending resolution of both the federal derivative lawsuit and the federal securities class action lawsuit.
 The California state consolidated derivative lawsuit purports to assert claims on behalf of Polycom, which is named as a nominal defendant in the action. The original California state complaints allege claims for breach of fiduciary duty, unjust enrichment,
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and corporate waste, and allege certain defendants failed to maintain adequate internal controls and issued, or authorized the issuance of, materially false and misleading statements, including with respect to our former Chief Executive Off icer’s expense submissions and our internal controls. The complaints further allege that certain defendants approved an unjustified separation agreement and caused us to repurchase our own stock at artificially inflated prices. The complaints seek unspecif ied compensatory damages, corporate governance reforms, and other relief. At this time, we are unable to estimate any range of reasonably possible loss relating to the derivative actions.
 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 OR INCORPORATED BY REFERENCE 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.
We face intense competition in the Americas, EMEA, and APAC for our UC&C solutions, which can place 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 Acano, Avaya Inc., Blue Jeans Network, ClearOne Communications, Inc., Huawei Technologies Co. Ltd., Logitech International S.A./LifeSize, PexIP AS, Snom Technology AG, Vidyo, Inc., Yamaha Corporation/Revolabs, Inc., Yealink, ZTE Corporation and others.
Our competitive landscape continues to rapidly evolve as we move into new markets for collaboration such as mobile, browser-based, and cloud-delivered collaboration offerings. Competitors in these markets also continue to develop and introduce new technologies, sometimes proprietary, that represent threats through closed architectures. We also compete with other offerings such as Cisco Systems’ Jabber and WebEx and Citrix Systems’ GoToMeeting with HD Faces. 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 sales and marketing, which would correspondingly have a negative impact on our revenues and operating margins.
Our principal competitive factors in the markets and categories in which we presently compete and may compete include the ability to:
 	●	provide and sell a broad range of UC&C solutions and services, including mobile and cloud-based solutions, and our ability to bring new products to market on a timely basis;	
 	●	competitively price our products and solutions;	
 	●	provide competitive product performance;	
 	●	compete successfully in multiple markets with differing requirements, including, but not limited to, the enterprise, SMB, mobile video, social video, browser-based video, subscription-based video delivered from the cloud and service provider markets;  	
 	●	reduce production and service costs;	
 	●	provide required functionality such as security, reliability, and scalability;	
 	●	ensure investment protection through broad interoperability and backwards- and forwards-compatibility with other UC&C systems and solutions;	
 	●	successfully integrate our products with, and operate our products on, existing customer platforms and consumer devices;	
 	●	gain market presence and brand recognition;	
 	●	extend credit to our partners;	
 	●	conform to open standards;	
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 	●	successfully address disr uptive technology shifts and new business models, such as cloud-based and software-based UC&C solutions and mobility and consumer solutions ; and  	
 	●	successfully address the transition in the market from point product to solution selling.	
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. New product introductions by our current or future competitors, or our delay in bringing new products to market, could cause a significant decline in sales or loss of market acceptance of our products. We believe that ongoing competitive pressure may result in a reduction in the prices of our products and our competitors’ products. In addition, the introduction of additional lower priced competitive products or of new products or product platforms could render our existing products or technologies obsolete. We also believe we will face increasing competition from alternative UC&C 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&C products than ours that are targeted to consumers and small businesses, such as Skype, Google Talk/Hangouts, Apple FaceTime and others, which 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 being formed and announced by our competitors on a regular basis, which increases competition and often results in increased downward pressure on our product prices. For instance, since Cisco Systems acquired Tandberg ASA, previously our largest independent competitor, we have had to compete with a larger combined company with significantly greater financial and sales and marketing resources, an extensive channel network and an expanded video communications solutions product line. This product line is often 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 UC&C solutions market. Cisco Systems may also preclude our competitive products from being fully interoperable with Cisco Systems endpoints, video infrastructure and/or network products. These consolidations and partnerships have resulted in increased competition and pricing pressure, as the newly-combined entities have greater financial resources, deeper mass market sales channels and greater pricing flexibility than we do. Acquisitions or partnerships made by one of our strategic partners could also limit the potential contribution of our strategic relationships to our business and restrict our ability to form strategic relationships with these companies in the future and, as a result, harm our business. 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. Adverse changes in general global economic conditions 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. Global economic concerns, such as the varying pace of global economic recovery and European and domestic debt and budget issues, continue to create uncertainty and unpredictability that have contributed to longer selling cycles and cause us to continue to be cautious about our future outlook, including our near-term revenue and profitability outlook. For example, we have seen weakening demand and longer sales cycles in the public sector, which includes federal, state and local governments, as well as healthcare and education, which we believe were due in large part to budget constraints, as well as political issues. A global economic downturn would negatively impact technology spending for our products and services and would materially adversely affect our business, operating results and financial condition. Further, we have seen slower growth compared to prior years in China, Brazil, and other growth markets, which we believe is due in part to macro-economic factors. 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 could negatively impact our business, particularly our revenue potential, losses on investments and the collectability of our accounts receivable, due to 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, and decreased customer demand or demand for lower-end products.
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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:
 	●	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;	
 	●	our ability to execute on our strategic and operating plans;	
 	●	slowing sales or variations in sales rates by our channel partners to their customers;	
 	●	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;	
 	●	the prices and performance of our products and those of our existing or potential new competitors;	
 	●	the timing, size and mix of the orders for our products;	
 	●	the level and mix of inventory that we hold to meet future demand;	
 	●	changes to our global organization and retention of key personnel;	
 	●	our expectations for both short and long-term future revenues, which are based almost exclusively on our own estimate of future demand and not on firm channel partner orders;	
 	●	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;	
 	●	changes in the underlying factors and assumptions used in determining stock-based compensation;	
 	●	fluctuations in the level of international sales and our exposure to foreign currency fluctuations on both revenues and expenses;	
 	●	dependence on component suppliers and third party manufacturers, which includes outside development manufacturers, and the associated manufacturing costs;	
 	●	the impact of changing costs of freight and components used in the manufacturing of our products and the potential negative impact on our gross margins;	
 	●	the magnitude of any costs that we must incur in the event of a product recall or of costs associated with product warranty claims;	
 	●	the impact of seasonality on our various product lines and geographic regions; and	
 	●	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. Financial guidance beyond the current quarter is inherently subject to greater risk and uncertainty, and if the transitions in our markets accelerate, our ability to forecast becomes more difficult.
We face risks associated with developing and marketing our products, including new product development and new product lines.
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 on premise-based equipment to a mix of solutions that includes hardware and software and the option for customers to have video delivered as a service from the cloud or through a browser, evolving industry standards and frequent new product introductions, including an increased emphasis on software products and new, lower cost hardware 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. In addition, in response to emerging market trends, and the network effect driven by business-to-business and business-to-consumer adoption of UC&C, we are expanding our focus to capture opportunities within emerging markets including mobile, small and medium businesses (“SMBs”), and cloud-based delivery.
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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 markets, then our revenues may not grow as anticipated and our business may ultimately be harmed. Given the competitive nature of the mobile industry, changing e nd user behaviors and other industry dynamics, these relationships may not evolve into fully-developed product offerings or translate into any future revenues.
The success of our new products depends on several factors, including proper new product definition, product cost, infrastructure for services and cloud delivery, timely completion and introduction of new products, proper positioning and pricing of new products in relation to our total product portfolio and their relative pricing, differentiation of new products from those of our competitors and other products in our own portfolio, market acceptance of these products and the ability to sell our products to customers as comprehensive UC&C 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. As a result, it is possible that investments that we are making in developing new products and technologies may not yield the planned financial results. For example, in October 2015 we announced several new products which may not yield the financial results we expect.
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 and differentiate the value of new offerings over those of our competitors. As the market evolves, our distribution model and channel partners may change as well. During the last few years, we have announced and launched several new product offerings, both independently and jointly with our strategic partners, including new software, hardware and cloud-based solutions, and these new products could cause confusion among our channel partners and end-users, thereby causing them to delay purchases of our new products until they determine their market acceptance, or as they consider a more comprehensive UC&C 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.
The communications market shift to fully integrated solutions, cloud-based/hybrid offerings and new business models 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, 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, India and Israel. As such, disruption due to geopolitical conflicts could create 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 could also cause delays in product delivery and lead to increased costs. 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 could result in the failure of a partial or entire product line or a 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 for new product offerings recently announced or currently under development, including product offerings for mobile, cloud-based delivery, software delivery or any product quality issues, product defect issues or product recalls could adversely affect the market acceptance of these products, our ability to compete effectively in the market, and our reputation with our customers, and therefore could lead to decreased product sales and could harm our business. 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.
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Product obsolescence or discontinuance and excess inventory can negatively affect our results of operations.
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. 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 ® One and Polycom ® RealPresence ® Virtual Edition platform software solutions are dependent on enterprise adoption of software-based video bridging applications. If the software related video bridging 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 make product enhancements based upon anticipated demand for new features and functionality. Our business and revenues 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 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&C solutions will drive increased demand for our UC hardware and software 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, which could materially impact our revenues and results of operations.
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 platform software, new hardware products and cloud-based delivery, our business and operating results 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 and higher marketing and sales costs. 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&C solutions equipment and UC platform products. Further, in the past we have reduced prices 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 new 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.
The increasing complexity of our products and associated technologies has increased the need for enhanced product warranty and service capabilities, including integration services, which may require us to develop or acquire additional advanced service capabilities and make 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 complex sales transactions, and the end-user customer typically purchases an enhanced level of support service from us so as to ensure that its significant investment can be fully operational and realized. This requires us to provide advanced services and project management in terms of resources and technical knowledge of the customer’s telecommunication network. If we are unable to provide the proper level of support on a cost efficient basis, it may cause damage to our reputation in this market and may harm our business and results of operations.
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If we fail to successfully attract and retain highly qualified management personnel and key employees, our business may 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. As new hires assess their areas of responsibilities and define their organizations, disruption to the business and additional organizational changes or restructuring actions and charges could occur. Since 2013, we have had turnover in a number of senior executive positions, including our chief executive officer, chief financial officer, head of worldwide engineering, head of human resources and our heads of theater sales and channel sales. Most recently, we hired a new head of Americas Sales in the third quarter of 2015. These transitions, along with any future changes to our executive and senior management teams, including new executive hires or departures, could cause further disruption to the business and have a negative impact on our operating performance, 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.
We face risks related to our dependence on channel partners to sell our products.
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, such as the new Global Partner Program that was launched in the second quarter of 2015, beginning in North America. Further, from time to time, we may make changes to our channel partner contracts or realign our discount and rebate programs. These changes could upset our channel partners which could cause them to add competitive products to their portfolios, delay advertising or sales of our products, or shift more emphasis to selling our competitors’ products. Our channel partners may not be receptive to future changes, and we may not receive the positive benefits that we anticipate in making any program and contractual changes. For example, in the second quarter of 2015, we believe our results of operations were adversely impacted by changes we made to our partner program in North America.
Our strategic partnerships with companies may not yield the desired results which could harm our business.
We are focusing on our strategic partnerships and alliances with Microsoft, BroadSoft and IBM. 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 market and to take advantage of anticipated future market growth. For example, we recently announced with Microsoft a new series of video collaboration solutions built for Skype for Business that may not produce the desired results in the desired timeframe. Our mobile solutions are 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, such as development efforts, 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.
Conflicts between our channel partners and 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 result of these conflicts, there is the potential for our channel and strategic partners to compete head-to-head with us or to significantly reduce or eliminate their orders of our products or design our technology out of their products. 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. Due to these and other factors, channel conflicts could arise which cause channel partners to devote resources to non-Polycom communications equipment, or to offer new products from our competitors, which would negatively affect our business and results of operations.
In addition, some of our products are reliant on strategic partnerships with call manager providers and wireless UC&C 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, which would adversely affect our revenues and could potentially strain 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 forecasts associated with products stocked by some of our channel partners are based largely on
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end-user sales reports that our channel partners pro vide to us on a monthly basis. Even though 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, our revenue forecasts for future periods may be less reliable. F urther, if these channel partners are unable to sell an adequate amount of their inventory of our products in a given quarter or if channel partners decide to decrease their inventories for any reason, such as a recurrence of global economic uncertainty an d 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 s ales. 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 histori cal or predicted levels, which would harm our business and create unexpected variations in our financial results.
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, and our ability to maintain such relationships on favorable contractual terms may be limited. 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.
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 grow our revenues and our customer base, our exposure to credit risk increases. In addition, global economic uncertainty, reductions in technology spending in the United States and other countries, and the ongoing challenges in the financial services industry have restricted the availability of capital, which may delay collections from our channel partners beyond our historical experience or may cause companies to file for bankruptcy, jeopardizing the collectability of our receivables from such channel partners and negatively impacting our future results.
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. In the event of a termination of one of our major channel partners, we believe that the end-user customer would likely purchase from another one of our channel partners, but if this did not occur and we were unable to rapidly replace that revenue source, its loss would harm our results of operations.
If our channel partners fail to comply with laws or standards, our business could be harmed.
We expect our channel partners to meet certain standards of conduct and to comply with applicable laws, such as global anticorruption laws. Noncompliance with standards or laws could harm our reputation and could result in harm to our business and results of operations in the event we were to become involved in an investigation due to noncompliance by a channel partner.
We continue to look for ways to improve and streamline our infrastructure, including implementing a new integrated financial information system and other information technology and processes, and if we do not appropriately manage these implementations, our operating results may be negatively affected.
 To manage our business effectively, we must continue to improve and streamline our infrastructure, including information technology and processes, financial operating and administrative systems and controls in an efficient manner. We plan to continue to improve our information technology systems and underlying business processes, which will require significant management time, support and cost. Moreover, there are inherent risks associated with implementing new systems that may affect our ability to manage our data. If we do not successfully implement, improve or maintain these systems, our operations may be disrupted and our operating results could be harmed. In addition, these systems or their functionality may not operate as we expect them to, and we may be required to expend significant resources to correct problems or find alternative sources for performing these functions, which makes our ability to forecast and effectively control our operating expenses more challenging. For example, as part of our effort to improve efficiencies throughout our worldwide organization, we have been in the process of implementing a new integrated financial information system. Implementation of certain financial accounting processes was completed in the third quarter of 2014. The second phase of the implementation was completed in October 2015. The successful conversion from our legacy financial systems to a new integrated financial information system entailed a number of risks due to the complexity of the conversion and implementation process. There can be no assurance following the conversion to, and the implementation of, the new financial information system,
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especially in the initial period after the cutover, that our ability t o receive and process channel partner orders, orde r components and finished goods, plan and execute appropriate manufacturing plans, receive and ship finished goods and accurately and timely prepare, analyze and report the financial data we use in making operating decisions and which form the basis of the financial information we include in the periodic reports we file with the SEC , will not be adversely impacted .
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 and cash flows 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 sales 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 a particular quarter, which is extremely difficult to forecast. We have experienced longer sales cycles in connection with our high-end UC&C 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 immersive 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. Historically, we have experienced a high percentage of our bookings and resulting revenues in the third month of the quarter. For example, in the last four quarters, the percentage of our quarterly revenues that were recognized in the third month of the quarter ranged from approximately 46% to 55%. 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 could have an adverse impact on our operating results. Further, receiving a large number of product orders in the last few weeks of a quarter may cause our financial information systems to experience delays that impede our ability to receive, process and ship orders in a timely manner, which may adversely impact our revenues and operating results in any particular quarter.
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 and cloud and managed services, it is likely that an increased amount of our revenue will be subject to such contractual acceptance terms and milestones, 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.
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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 and operating expenses will continue to increase. In 2014, international revenues represented 58% 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:
 	●	adverse economic conditions in international markets, such as the restricted credit environment and sovereign credit concerns in EMEA and the reduced government spending and elongated sales cycles we have seen in China;	
 	●	information security, environmental and trade protection measures or sanctions 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;	
 	●	recent economic sanctions imposed, and the potential for additional economic sanctions, by the European Union and the U.S. on Russia and certain individuals and entities in Russia, as well as Russia’s potential response to such sanctions, some of which may affect our ability to sell or import our products to Russia;	
 	●	the impact of government-led initiatives to encourage the purchase of products from domestic vendors, as we have seen in China, which can affect the willingness of customers in those countries to purchase products from companies headquartered in the United States;	
 	●	compliance with global anticorruption laws;	
 	●	foreign currency exchange rate fluctuations, including the recent volatility of the U.S. dollar, and the impact of our underlying hedging programs;	
 	●	unexpected changes in regulatory requirements and tariffs;	
 	●	longer payment cycles;	
 	●	cash repatriation restrictions, which could have an adverse impact on us, including adverse tax consequences, in the event we need to access cash and cash equivalents and investments held outside the U.S. to fund acquisitions, share repurchases or our working capital needs;	
 	●	potentially adverse tax consequences; and	
 	●	the impact of instability in the Middle East or military action or other hostilities on foreign markets, such as the recent events in Russia and the Ukraine.	
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 may not be able to maintain or increase international market demand for our products.
To date, a substantial majority of our international sales have been denominated in U.S. dollar, however, 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 revenues and margins. 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.
We do not hedge for speculative purposes. As a result of our increased exposure to currency fluctuations, we typically engage in currency hedging activities to mitigate currency fluctuation exposure. 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. 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 exchange rate in our underlying hedge contracts and the actual exchange rate during the quarter. As a result of our cash flow hedging program, we increased operating income by $2.3 million in both fiscal year 2014 and 2013. For further information on our hedging program, see the section entitled “Quantitative and Qualitative Disclosures About Market Risk.”
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Impairment of our goodwill or other asse ts would negatively affect our results of operations.
As of September 30, 2015, our goodwill was approximately $559.0 million and other purchased intangible assets were approximately $16.4 million, which together represent a significant portion of the assets recorded on our consolidated balance sheet. 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 requires significant judgment. Therefore, we may be required to take a charge to operations as a result of future goodwill and intangible asset impairment tests. The decreases in revenue and stock price that have occurred 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 and these write-downs could harm our business and results of operations. 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.
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 components from suppliers in China, Japan, and certain Southeast Asia countries, and any political or economic instability in these regions in the future, natural disasters, 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 any military action 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 Polycom ® RealPresence ® 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 been subject to limited allocations by suppliers. Intellectual property infringement claims against component suppliers could also impact the availability of necessary components for our products. Component manufacturers may also announce the end of production of certain components that we require for our products necessitating the redesign and end of life purchases on our part. 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. In addition, we may incur additional costs to resolve these supply shortages, which would negatively impact our gross margins.
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, contractual disputes, litigation, the financial instability of a strategic partner or their inability to obtain any financing necessary to adequately fund their operations, could have a negative impact on our ability to produce and sell certain products and product lines and, consequently, would adversely affect our revenues and results of operations. For example, increasing labor costs in China has increased the risk of bankruptcy for suppliers with operations in China, and has led to higher manufacturing costs for us and the need to identify alternate suppliers. We are also dependent upon third parties to provide our managed services for our immersive telepresence products. Any disruption in our managed services for our customers may materially adversely affect our ability to sell our immersive telepresence products and impact our relationship with the end users.
Additionally, our Polycom ® RealPresence ® Group Series and Polycom ® HDX ® video solutions and network system products are designed based on digital signal processors and integrated circuits produced by Texas Instruments Incorporated, cameras produced by JVC and processors built by Broadcom Corporation. If we could no longer obtain digital signal processors, 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 might not 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 would 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.
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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 comp onent prices, 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 voice, video and network system products to Celestica, Askey, Foxconn and VTech, which are all third-party contract manufacturers. We use Celestica’s facilities in Thailand and China and Askey’s, Foxconn’s, and VTech’s facilities in China. Should there be any disruption in the ability of these third party manufacturers to conduct business for any reason, our business and results of operations would be harmed. While we have begun to develop secondary manufacturing sources for certain products, Celestica’s facilities are currently the manufacturer for substantially all of our video products, and if Celestica experiences an interruption in operations, suffers from capacity constraints, 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’ current manufacturing sites or sites that we may plan to use in the future 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.
In addition, we expect our contractors to meet certain standards of conduct, including standards related to the environment, health and safety, general working conditions, and compliance with laws. Significant or continuing noncompliance of such standards or applicable laws could harm our reputation or cause us to experience disruptions that could harm our business and results of operations. For example, the SEC has adopted rules imposing diligence and disclosure requirements around the use of “conflict minerals” in the products we have manufactured. These rules have resulted in additional time and cost to diligence our contractors and comply with the disclosure requirements and they may also affect the sourcing and availability of minerals we use in our products. Although we do not anticipate any material adverse effects based on these rules, we will need to ensure that our contractors comply with them.
If we experience disruptions or capacity constraints in air or ocean transportation, our business would be harmed.
We produce most of our subassemblies and finished goods for voice, video and network system products in China and Thailand, and we rely on third parties to transport these subassemblies and finished goods to our global distribution centers and final assembly sites. The incapacitation of any of our freight providers, or any transportation interruption due to airline strikes, dock workers strikes or management lockouts, could negatively affect revenues in the quarter of the disruption or longer, depending on the magnitude of the event.
Our business could be negatively affected as a result of stockholder activism, and such stockholder activism could impact the trading price and volatility of our common stock.   
An activist investor, Elliott Associates, L.P., and its affiliates, recently took an ownership position in our common stock and initiated communications with us regarding our future direction. Responding to actions by an activist stockholder can be costly and time-consuming, disrupt our operations and divert the attention of management and our employees. Additionally, perceived uncertainties as to our future direction may be exploited by our competitors, cause concern to our current or potential customers and partners, and make it more difficult to attract and retain qualified personnel. Such uncertainties may adversely impact our business and future financial results. In addition, our stock price may experience periods of increased volatility as a result of stockholder activism.
Cyber attacks on our networks, actual or perceived security vulnerabilities in our products and services, and loss of critical data and proprietary information could have a material adverse impact on our business and results of operations.
In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, state-sponsored intrusions, industrial espionage, employee malfeasance, and human or technological error. Computer hackers and others routinely attempt to breach the security of technology products, services, and systems such as ours, and those of customers, third-parties contractors and vendors, and some of those attempts may be successful. We are not immune to these types of intrusions. 
 Our products, services, network systems, and servers may store, process or transmit proprietary information and sensitive or confidential data, including valuable intellectual property and personal information, of ours and of our employees, customers and other third parties. Our customers rely on our technologies for the secure transmission of such sensitive and confidential information in the
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conduct of their business.  We are also subject to existing and proposed laws and regulations, as well as government policies and practices, related to cybersecuri ty, privacy and data protection worldwide.
Although we take cybersecurity seriously and devote significant resources and deploy protective network security tools and devices, data encryption and other security measures to prevent unwanted intrusions and to protect our systems, products and data, we have and will continue to experience cyber attacks of varying degrees in the conduct of our business. As a result, our network is subject to unauthorized access, viruses, embedded malware and other malicious software programs. Such intrusions may result in unauthorized access to or disclosure, modification, misuse, loss, or destruction of company, customer, or other third party data or systems, the theft of sensitive or confidential data including intellectual property and business and personal information, system disruptions, access to our financial reporting systems, operational interruptions, product or shipment disruptions or delays, and delays in or cessation of the services we offer.
Any such breaches or unauthorized access to our networks or to our products or services could ultimately result in significant legal and financial exposure, litigation, regulatory and enforcement action, and loss of valuable company intellectual property. Such breaches could also cause damage to our reputation, impact the market’s perception of us and of the products and services that we offer, and cause an overall loss of confidence in the security of our products and services, resulting in a potentially material adverse effect on our business, revenues and results of operations, as well as customer attrition.
In addition, the cost and operational consequences of investigating, remediating, eliminating and putting in place additional information technology tools and devices designed to prevent actual or perceived security breaches, as well as the costs to comply with any notification obligations resulting from such a breach, could be significant. Further, due to the growing sophistication of the techniques used to obtain unauthorized access to or to sabotage networks and systems, which change frequently and often are not detected immediately by existing antivirus and other detection tools, we may be unable to anticipate these techniques or to implement adequate preventative measures. We can make no assurance that we will be able to detect, prevent, timely and adequately address or mitigate such cyber attacks or security breaches.
Other risks that may result from interruptions to our business due to cyber attacks are discussed in the risk factor entitled “Business interruptions could adversely affect our operations.”
We have outstanding borrowings under our credit facility, and may incur additional debt in the future, which may adversely affect our financial condition and future financial results.
As of September 30, 2015, we had $237.5 million in term loans outstanding under our credit agreement (the “Credit Agreement”). Our indebtedness could have important consequences to our business; for example, it could:
 	●	require us to dedicate a significant portion of our cash flow to payments on our indebtedness, thereby reducing the availability of cash flow to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes;	
 	●	limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate;	
 	●	limit, along with the restrictive covenants contained in the credit agreement, our ability to borrow additional funds or to borrow funds at rates or on other terms we find acceptable;	
 	●	place us at a competitive disadvantage to our competitors that have less debt; and	
 	●	increase our vulnerability to adverse economic, financial, industry or competitive conditions, including increases in interest rates.	
In addition, it is possible that we may need to incur additional indebtedness in the future in the ordinary course of business. If new debt is added to current debt levels, the risks described above could intensify.
Our credit facility contains covenants which may adversely impact our business, and the failure to comply with such covenants could cause our outstanding debt to become immediately payable.
 The Credit Agreement includes a number of customary affirmative and negative covenants, including covenants that limit or restrict us and our subsidiaries’ ability to, among other things, grant liens, make investments, incur indebtedness, merge or consolidate, dispose of assets, make acquisitions, pay dividends or make distributions, repurchase stock, enter into transactions with affiliates and enter into restrictive agreements, in each case subject to customary exceptions for a credit facility of this size and type. We are also required to maintain compliance with a consolidated fixed charge coverage ratio and a consolidated secured leverage ratio. Collectively, these covenants could constrain our ability to grow our business through acquisition or engage in other transactions. In addition, the Credit Agreement includes customary events of default that include, among other things, non-payment
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defaults, covenant defaults, inaccuracy of representations and warranties, cross default to material indebtedness, bankruptcy and insolvency defaults, material judgment defaults, ERISA defaults and a change of c ontrol default. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement, which could have a material adverse effect on our liquidity and ability to conduct our business.
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 acquired business 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, or our recorded liability related to, 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.
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, social/environmental responsibility, import and export requirements, data privacy, global anticorruption and public disclosure and newly enacted SEC regulations, have created additional compliance requirements for us. Our efforts to comply with these requirements have resulted 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, and we must also continue to expand our compliance procedures. For example, although we implement policies and procedures designed to facilitate compliance with global anticorruption laws, our employees, channel partners, contractors and agents, as well as those companies to which we outsource certain of our business operations, may take actions in violation of our policies. Any failures in these procedures in the future, even if prohibited by our policies, could result in time-consuming and costly activities, potential fines and penalties, and diversion of management time, all of which could hurt our business.
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 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 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, 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.
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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 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 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 effect on our business and results of operations. In addition, we may become involved in regulatory investigations or other governmental or private legal proceedings, which could be distracting, expensive and time consuming for us, 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. In addition, we expect that we may face legal proceedings for matters unrelated to intellectual property. For example, in 2013 a purported shareholder class action suit and shareholder derivative lawsuits were filed against us and certain of our current and former officers and directors. Such shareholder activities or lawsuits, and any related publicity, may result in substantial costs and, among other things, divert the attention of management and our employees. An unfavorable outcome in any claim or proceeding against us 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.
Difficulties in identifying and integrating acquisitions could adversely affect our business.
We have spent and may spend in the future, significant resources identifying and acquiring businesses. 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 could harm our business, results of operations and cash flows. Additionally, we may incur material charges in future quarters to reflect additional costs associated with any future acquisition we may make. We may not realize the benefits we anticipate from our acquisitions because of the following significant challenges:
 	●	incorporating the acquired company’s technology and products and services into our current and future product lines, including providing services that are new for us;	
 	●	potential deterioration of the acquired company’s product sales and revenues due to integration activities and management distraction;	
 	●	managing integration issues;	
 	●	potentially creating confusion in the marketplace by ineffectively distinguishing or marketing the product and services offerings of the newly acquired company with our existing product and services lines;	
 	●	entering new businesses or product lines;	
 	●	potentially incompatible cultural differences between the two companies;	
58

 	●	geographic dispersion of operations;  	
 	●	interruption of manufacturing operations as we transition an acquired company’s manufacturing to our outsourced manufacturing model;	
 	●	generating marketing demand for an expanded product line;	
 	●	distraction of the existing and acquired sales force during the integration of the companies;	
 	●	distraction of and potential conflict with the acquired company’s products and services in regards to our existing channel partners;	
 	●	the difficulty in leveraging the combined technologies and capabilities across all product lines and customer bases; and	
 	●	retaining the customers or employees of an acquired company.	
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 instability in the foreign currency exchange market. Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio and our term loan debt facility. 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. 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 temporary impairment charges requiring us to record an unrealized loss in accumulated other comprehensive income. The interest rate on our term loan debt facility is based upon LIBOR and to the extent that LIBOR interest rates increase, our annual interest expense on this term loan debt will increase. For more information regarding the sensitivity of and risks associated with the market value of portfolio investments and interest rates, see the section entitled “Quantitative and Qualitative Disclosures About Market Risk.”
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, a lack of reporting or compliance by us or our partners 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.
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, or by lapses of the availability of the U.S. research and development tax credit, which occurred for 2014 but was reinstated on December 19, 2014 as part of the "Tax Increase Prevention Act of 2014." Further, the accounting for stock-based 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 currently are under examination in a few foreign jurisdictions. 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.
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Business inte rruptions 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. Further, given our linearity, any interruption of our business, business processes or systems late in a fiscal quarter could potentially negatively impact our financial results or financial reporting for such period.
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, require that we incur additional expense to acquire alternative telecommunications capacity, 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 APAC to expand our business in these regions. In EMEA and APAC, as with other international regions, credit terms are typically longer than in the United States. Therefore, as EMEA, APAC and other international regions grow as a percentage of our revenues, accounts receivable balances increase and our days-sales-outstanding increase. 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 accounts receivable day’s outstanding performance.
In addition, as we manage our business and focus on more cost effective 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 the mix of ocean freight versus air freight.
Our stock price is volatile and fluctuates as a result of the conduct of our business and stock market.
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;	
 	●	changes in our executive team or speculation in the press or the investment community about changes;	
 	●	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, which is inherently subject to greater risk and uncertainty as expectations increase, or any financial guidance we may provide to the market;	
 	●	general market conditions or market conditions specific to technology industries; and	
 	●	domestic and international macroeconomic factors.	
 We have experienced volatility in our stock price, which sometimes results in attempts by shareholders to involve themselves in the governance and strategic direction of a company above and apart from normal interactions between shareholders and management.
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In addition, class action litigation is sometimes instituted following periods of volatility. Such shareholder activities or laws uits, and any related publicity, may result in substantial costs and, among other things, divert the attention of management and our employees.
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, 2014, that our internal control over financial reporting was effective as of December 31, 2014, 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.

 
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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of unregistered securities during the nine months ended September 30, 2015.
Issuer Purchases of Equity Securities
The following table provides a month-to-month summary of the stock purchase activity during the three months ended September 30, 2015:
 
Period	 	Total Number of
Shares
Purchased(1)	 	 	Average Price Paid
per Share(1)	 	 	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)	 	
7/1/15 to 7/31/15	 	 	10,042	 	 	$	11.28	 	 	 	—	 	 	$	85,000,000	 	
8/1/15 to 8/31/15	 	 	2,383,191	 	 	$	11.16	 	 	 	2,234,118	 	 	$	60,100,000	 	
9/1/15 to 9/30/15	 	 	—	 	 	$	—	 	 	 	—	 	 	$	60,100,000	 	
Total	 	 	2,393,233	 	 	 	 	 	 	 	2,234,118	 	 	 	 	 	

(1)	Includes a total of 159,115 shares repurchased in July and August 2015 to satisfy tax withholding obligations as a result of the vesting of performance shares and restricted stock units.	
(2)	In July 2014, we announced that our Board of Directors had approved a new share repurchase plan (the “2014 repurchase plan”) under which we may at our discretion purchase shares in the open market with an aggregate value of up to $200.0 million. We expect to execute this new authorization through the end of June 2016 and to fund the share repurchases through cash on hand and future cash flow from operations. As of September 30, 2015, we had a remaining authorization to purchase up to an additional $60.1 million of shares in the open market under the 2014 repurchase plan. The repurchased shares of common stock have been retired and reclassified as authorized and unissued shares.    	
 Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
 Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
 Item 5. OTHER INFORMATION
Not Applicable.

 
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Item 6. EXHIBITS
 
Exhibit
No.	 	Description	
    3.1	 	Amended and Restated Bylaws of Polycom, Inc., as amended effective August 5, 2015 (which is incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on August 6, 2015).	
 
  10.1(1)*	 	 
Form of Amended and Restated Change of Control Severance Agreement, as amended effective August 5, 2015.	
 
  10.2(1)*	 	 
Amended and Restated Change of Control Severance Agreement with Peter A. Leav, as amended effective August 6, 2015.	
 
  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, Chief Accounting Officer 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 Calculation 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.	
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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: October 29, 2015
 
POLYCOM, INC.	
 
/s/ P ETER A. L EAV	
Peter A. Leav	
Chief Executive Officer, President and Director
(Principal Executive Officer)	
 
/s/ L AURA J. D URR	
Laura J. Durr	
Chief Financial Officer, Chief Accounting Officer, and Executive Vice President	
(Principal Financial Officer
and Principal Accounting Officer)	
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EXHIBIT INDEX
 
Exhibit
No.	 	Description	
    3.1	 	Amended and Restated Bylaws of Polycom, Inc., as amended effective August 5, 2015 (which is incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on August 6, 2015).	
 
  10.1(1)*	 	 
Form of Amended and Restated Change of Control Severance Agreement, as amended effective August 5, 2015.	
 
  10.2(1)*	 	 
Amended and Restated Change of Control Severance Agreement with Peter A. Leav, as amended effective August 6, 2015.	
 
  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, Chief Accounting Officer 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 Calculation 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.	

65

Exhibit 10.1
 
POLYCOM, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
 This amended and restated Change of Control Severance Agreement (the “Agreement”) is made and entered into by and between [NAME] (the “Employee”) and Polycom, Inc., a Delaware corporation (the “Company”), effective as of [DATE] (the “Effective Date”).
RECITALS
1. It is expected that the Company from time to time will consider the possibility of an acquisition by another company or other change of control transaction. The Board of Directors of the Company (the “Board”) recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a “Change of Control” (as defined herein) of the Company.
2. The Board believes that it is in the best interests of the Company and its stockholders to provide the Employee with an incentive to continue his or her employment and to motivate the Employee to maximize the value of the Company upon a Change of Control for the benefit of its stockholders.
3. The Board believes that it is imperative to provide the Employee with certain severance benefits upon the Employee’s termination of employment following a Change of Control. These benefits will provide the Employee with enhanced financial security and incentive and encouragement to remain with the Company notwithstanding the possibility of a Change of Control.
 4. Certain capitalized terms used in the Agreement are defined in Section 7 below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
1. Term of Agreement . This Agreement shall terminate upon the date that all of the obligations of the parties hereto with respect to this Agreement have been satisfied.
2. At-Will Employment . The Company and the Employee acknowledge that the Employee’s employment is and shall continue to be at-will, as defined under applicable law, except as may otherwise be specifically provided under the terms of any written formal employment agreement between the Company and the Employee (an “Employment Agreement”). If the Employee’s employment terminates for any reason, including (without limitation) any termination prior to a Change of Control, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement or under his or her Employment Agreement.
3. Agreement to Remain with the Company for 6 Months Following a Change of Control . Employee agrees to remain employed with the Company (or its successor corporation) for a period of six (6) months following a Change of Control unless his or her employment terminates due to Employee’s death, “Disability” (as defined herein), for “Good Reason” (as defined herein), or is terminated involuntarily by the Company during such six (6) month period.
 4. Termination of Employment  . In the event Employee’s employment with the Company terminates for any reason governed by this Agreement, Employee will be entitled to any: (a) unpaid base salary accrued up to the effective date of termination, (b) unpaid, but earned and accrued annual incentive for any completed fiscal year as of his or her termination of employment, (c) pay for accrued but unused vacation, (d) benefits or compensation as provided under the terms of any employee benefit and compensation agreements or plans applicable to Employee, (e) unreimbursed business expenses required to be reimbursed to Employee, and (f) rights to indemnification Employee may have under the Company’s Articles of Incorporation, Bylaws, or separate indemnification agreement, as applicable.  In addition, if the termination is by the Company other than for “Cause” (as defined herein), Employee terminates his or her employment with the Company (or any parent or subsidiary of the

 
 
 Company) for Good Reason or Employee dies or terminates employment due to Disability, Employee may be entitled to the amounts and benefits specified in Section 5 .  
 5. Severance Benefits .
 (a)  Involuntary Termination Other than for Cause or Voluntary Termination for Good Reason Following a Change of Control . If within [NUMBER (XX)  ] months following a Change of Control (i) the Employee terminates his or her employment with the Company (or any parent or subsidiary of the Company) for Good Reason or (ii) the Company (or any parent or subsidiary of the Company) terminates the Employee’s employment for other than Cause, or (iii) the Employee dies or terminates employment due to Disability, then the Employee shall receive from the Company the severance payments and benefits described in this Section  5  (a), subject to the Employee signing and not revoking  a standard release of claims with the Company in a form reasonably acceptable to the Company (“Release”) within the period required by the  Release and in no event later than sixty (60) days following the Employee’s termination of employment, inclusive of any revocation period set forth in the release of claims (collectively, the “Release Deadline Date  ”), provided that the Release shall not be required in the event of Employee’s death. If the Release does not become effective by the Release Deadline Date, the Employee will forfeit any rights to severance payments and benefits in  Section 5  (a) and under this Agreement.  No severance will be paid or provided until the Release becomes effective .  The Company must provide the form of Release  to the Employee in a reasonable period of time following termination of employment so that the Employee has a reasonable opportunity to have the Release become effective before the Release Deadline Date.
(i)  Severance Payment . The Employee shall be entitled to receive a lump-sum severance payment (less applicable withholding taxes) equal to [PERCENT]% of the Employee’s annual base salary (as in effect immediately prior to (A) the Change of Control, or (B) the Employee’s termination, whichever is greater) plus [PERCENT]% of the Employee’s target bonus for the fiscal year in which the Change of Control or the Employee’s termination occurs, whichever is greater.
(ii)  Options; Restricted Stock . All of the Employee’s then outstanding options to purchase shares of the Company’s Common Stock (the “Options”) shall immediately vest and became exercisable. Additionally, all of the shares of the Company’s Common Stock then held by the Employee subject to a Company repurchase right (the “Restricted Stock”) shall immediately vest and the Company’s right of repurchase with respect to such shares of Restricted Stock shall lapse. The Options shall remain exercisable following the termination for the period prescribed in the respective option agreements.
(iii) Performance Shares . The Employee will vest in one hundred percent (100%) of the performance shares subject to his or her performance share awards, if any, and the payment of such vested performance shares shall be made as soon as practicable following the date of termination in accordance with the provisions of the applicable performance share award, except as otherwise provided herein. For this purpose, if the Change of Control occurs during the performance period applicable to a performance share award, the “performance shares subject to his or her performance share awards” shall be deemed to be one hundred percent (100%) of the Target Number of Performance Shares (as set forth in the applicable performance share award). Notwithstanding any provision in this Agreement or the applicable performance share award to the contrary and to the extent required to avoid imposition of any additional tax or income recognition under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), prior to actual payment to the Employee, the performance shares for which the vesting would not have otherwise been accelerated under the terms of the applicable performance share award shall be paid at the same time or times as if such performance shares had vested in accordance with the vesting schedule and provisions set forth in the applicable performance share award.
 (iv) Other Awards . With  respect to outstanding awards issued under the Company’s stock plans other than award types addressed in Sections 5  (a)(ii) and (iii) above, the Employee will immediately vest in and have the right to exercise such awards, all restrictions will lapse, and all performance goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met. Such awards will be paid or otherwise settled as soon as administratively practicable following the date of termination or, if later, the date of exercise. Notwithstanding the foregoing, to the extent required to avoid imposition of any additional tax or income recognition under Section 409A of the Code, such awards shall be paid or settled at the same time or times that the awards otherwise would have been paid or settled in the absence of this Section 5(a)(iv).

 
 
(v)  Additional Cash Payment . The Employee shall be entitled to receive an additional lump-sum severance payment (less applicable withholding taxes) equal to the result of (A) times (B).  For this purpose, “A” will equal 24, and “B” will equal the amount of the monthly premium that would be required for the first month of coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended and all applicable regulations (referred to collectively as “COBRA”), with the premium calculated on the assumption that the Employee in fact elects coverage for himself or herself, and any eligible spouse and/or dependents of the Employee that were enrolled in the applicable Company health plan immediately prior to the Change of Control.  However, the Employee will be eligible for this taxable payment without regard to whether he or she actually elects COBRA continuation coverage.
 (b)  Timing of Severance Payments  . If the Release  required by Section 5  (a) becomes effective by the Release Deadline Date, severance payments and benefits under this Agreement will be paid in a lump sum payment (less any applicable withholding taxes) on the first business day after the Release Deadline Date, but in no event later than March 15th of the calendar year immediately following the calendar year of the Employee’s termination of employment, except as required by Section 5  (f).  If the Employee should die before all amounts have been paid, such unpaid amounts shall be paid in a lump sum payment (less any applicable withholding taxes) to the Employee’s designated beneficiary, if living, or otherwise to the personal representative of the Employee’s estate, as described in Section 5(f) below.
(c)  Voluntary Resignation; Termination for Cause . If the Employee’s employment with the Company terminates (i) voluntarily by the Employee other than for Good Reason or due to Disability or (ii) for Cause by the Company, then the Employee shall not be entitled to receive severance or other benefits except for those (if any) as may then be established under the Company’s then existing severance and benefits plans and practices or pursuant to other written agreements with the Company, including, without limitation, any Employment Agreement.
(d)  Termination Apart from Change of Control . In the event the Employee’s employment is terminated for any reason, either prior to the occurrence of a Change of Control or after the [NUMBER (XX)]–month period following a Change of Control, then the Employee shall be entitled to receive severance and any other benefits only as may then be established under the Company’s existing written severance and benefits plans and practices or pursuant to other written agreements with the Company, including, without limitation, any Employment Agreement.
 (e)  Exclusive Remedy  . In the event of a termination of Employee’s employment within [NUMBER (XX)] months following a Change of Control, the provisions of this Section 5  are intended to be and are exclusive and in lieu of any other rights or remedies to which the Employee or the Company may otherwise be entitled, whether at law, tort or contract, in equity, or under this Agreement. The Employee shall be entitled to no benefits, compensation or other payments or rights upon termination of employment following a Change in Control other than those benefits expressly set forth in this Section 5.
(f) Section 409A .
 (i) Six-Month Delay . Notwithstanding anything to the contrary in this Agreement, no Deferred Compensation Separation Benefits (as defined below) payable under this Agreement will be considered due or payable until the Employee has incurred a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and the final regulations and any guidance promulgated thereunder (together, “Section 409A”).  In addition, if the Employee is a “specified employee” within the meaning of Section 409A at the time of the Employee’s separation from service (other than due to death), then the severance benefits payable to the Employee under this Agreement, if any, and any other severance payments or separation benefits that may be considered deferred compensation under Section 409A (together, the “Deferred Compensation Separation Benefits”) otherwise due to the Employee on or within the six (6) month period following the Employee’s separation from service will accrue during such six (6) month period and will become payable in a lump sum payment (less any applicable withholding taxes) on the date six (6) months and one (1) day following the date of the Employee’s separation from service. All subsequent payments, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. In no event will the Employee have discretion to determine the taxable year of payment of any Deferred Compensation Separation Benefits. Notwithstanding anything herein to the contrary, if the Employee dies following his or her separation from service but prior to the six (6) month anniversary of his or her

 
 
date of separation, then any payments delayed in accordance with this paragraph will be payable in a lump sum (less any applicable withholding taxes) to the Employee’s estate as soon as administratively practicable after the date of the Employee’s death and all other Deferred Compensation Separation Benefits will be payable in accordance with the payment schedule applicable to each payment or benefit.
 (ii) Amendments to this Agreement to Comply with Section 409A . This provision is intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. Each payment and benefit payable under this Agreement is intended to constitute a separate payment under Section 1.409A-2(b)(2) of the Treasury Regulations. The Company and the Employee agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions, which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to the Employee under Section 409A. In no event will the Company reimburse the Employee for any taxes that may be imposed on the Employee  as a result of Section 409A.
 6. Limitation on Payments . In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Employee (a) constitute “parachute payments”  within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (b) but for this Section 6  , would be subject to the excise tax imposed by Section 4999 of the Code, then the Employee’s severance benefits under Section 5(a) or other benefits shall be either:
(i) delivered in full, or
(ii) delivered as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits and other benefits may be taxable under Section 4999 of the Code. 
 
 In the event of a reduction in  accordance with Section 6(ii), the reduction will occur, with respect to such severance and other benefits considered “parachute payments” within the meaning of Section 280G of the Code, in the following order:
 
 	·	 First, stock options or stock appreciation rights that meet all of the following: (i) the grant of which is treated as “contingent” (see definition below in this Section 6  ) under Section 280G of the Code, (ii) are assumed or substituted by the surviving corporation or its parent, and (iii) are “underwater” or “at-the-money” (see definitions below in this Section 6);	
 	·	 Second, stock options or stock appreciation rights that meet all of the following: (i) the grant of which is not treated as “contingent” under Section 280G of the Code, (ii) accelerate vesting under Section 5(a) above or otherwise, (iii) are assumed or substituted by the surviving corporation or its parent, and (iv) are “underwater” or “at-the-money”;	
 	·	 Third, stock options or stock appreciation rights that meet all of the following: (i) the grant of which is treated as “contingent” under Section 280G of the Code, (ii) are assumed or substituted by the surviving corporation or its parent, and (iii) are “in-the-money” (see definition below in this Section 6);	
 	·	 Fourth, restricted stock, restricted stock units, performance shares or other outstanding equity awards (other than stock options or stock appreciation rights) that meet all of the following: (i) the grant of which is treated as “contingent” under Section 280G of the Code and (ii) either are assumed or substituted by the surviving corporation or its parent or “cashed-out” (see definition below in this Section 6) in connection with the Change of Control;	
 	·	Fifth, stock options or stock appreciation rights that meet all of the following: (i) the grant of which is treated as “contingent” under Section 280G of the Code and (ii) are “cashed-out” in connection with the Change of Control;	

 
 
 	·	Sixth, cash sev  erance, bonus, retention and other similar pay (including such cash severance pay provided pursuant to Sections 5  (a)(i) and 5 (a)(v) above) that are treated as “contingent” under Section 280G of the Code;  	
 	·	 Seventh, stock options or stock appreciation rights that meet all of the following: (i) the grant of which is not treated as “contingent” under Section 280G of the Code, (ii) accelerate vesting under Section 5(a) above or otherwise, (iii) are assumed or substituted by the surviving corporation or its parent, and (iv) are “in-the-money”;	
 	·	 Eighth, stock options or stock appreciation rights that meet all of the following: (i) the grant of which is not treated as “contingent” under Section 280G of the Code, (ii) accelerate vesting under Section 5(a) above or otherwise, (iii) are “cashed-out” in connection with the Change of Control, and (iv) are “in-the-money”;	
 	·	 Ninth, restricted stock, restricted stock units, performance shares or other outstanding equity awards (other than stock options or stock appreciation rights) that meet all of the following: (i) the grant of which is not treated as “contingent” under Section 280G of the Code, (ii) accelerate vesting under Section 5(a) above or otherwise, and (iii) either are assumed or substituted by the surviving corporation or its parent or “cashed-out” in connection with the Change of Control;	
 	·	Tenth, the acceleration in the timing of any “vested” payment in cash or in kind.  For this purpose, a payment will be considered “vested” if the payment is vested at the time the payment acceleration occurs and any vesting of the payment that has occurred is not considered "contingent" under Section 280G of the Code;	
 	·	Eleventh, Company-paid coverage under the long-term disability and life insurance plans and any other taxable benefits provided or paid for by the Company; and	
 	·	Twelfth, Company-paid coverage under the health, dental, and vision plans and any other tax-free benefits provided or paid for by the Company.	
 
 For purposes of this Section 6, the following rules will apply:
 	·	In the first and second categories above, if there are multiple grants of stock options or stock appreciation rights, the most “underwater” award will be reduced first with each subsequent reduction applying to the next most “underwater” award;	
 	·	In the third and seventh categories above, if there are multiple grants of stock options or stock appreciation rights, the least “in-the-money” award will be reduced first with each subsequent reduction applying to the next most “in-the-money” award;	
 	·	In the fourth, fifth, eighth, and ninth categories, if there are multiple grants of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares or other equity awards, each grant within each category will be reduced on a pro-rata basis; and	
 	·	In the sixth and tenth categories, if there are multiple types of cash or in-kind payments, each payment within each category will be reduced on a pro-rata basis.	
 
For clarification purposes, these rules do not change the order described above but rather provide ordering rules that apply within each category in the event of multiple equity grants or payments.
 
 For purposes of this Section 6, the following terms used herein will mean:
 
 	·	Whether an equity award will be treated as “contingent” will be determined in accordance with Treasury Regulation Section 1.280G-1 A-22.	
 	·	An equity award will be “cashed-out” in connection with a Change of Control if the award is cancelled after payment to the Employee of an amount in cash or cash equivalents equal to (A) the fair market value of the shares of Company Common Stock subject to the equity award at the time of the Change of Control (as determined in accordance with the applicable equity award agreement) minus (B) the exercise or purchase price, if any, of the shares of Company Common Stock subject to the equity award at the time of the Change of Control.	
 	·	A stock option or stock appreciation right will be considered “underwater” if: (A) the award accelerates or is valued for purposes of Section 280G on the date of the Change of Control and the per share exercise price of the award is greater than the per share consideration provided to holders of shares of Company Common Stock pursuant to the Change of Control, or (B) the award accelerates or is valued for purposes of Section 280G of the Code on any date after the Change of Control and the per share exercise price of the	

 
 
 		award, as adjusted pursuant to the Change of Control, is greater than the fair market value of a share of common stock with respect to which the award may be exercised.  	
 	·	A stock option or stock appreciation right will be considered “at-the-money” if: (A) the award accelerates or is valued for purposes of Section 280G on the date of the Change of Control and the per share exercise price of the award is equal to the per share consideration provided to holders of shares of Company Common Stock pursuant to the Change of Control, or (B) the award accelerates or is valued for purposes of Section 280G of the Code on any date after the Change of Control and the per share exercise price of the award, as adjusted pursuant to the Change of Control, is equal to the fair market value of a share of common stock with respect to which the award may be exercised.	
 	·	A stock option or stock appreciation right will be considered “in-the-money” if: (A) the award accelerates or is valued for purposes of Section 280G on the date of the Change of Control and the per share exercise price of the award is less than the per share consideration provided to holders of shares of Company Common Stock pursuant to the Change of Control, or (B) the award accelerates or is valued for purposes of Section 280G of the Code on any date after the Change of Control and the per share exercise price of the award, as adjusted pursuant to the Change of Control, is less than the fair market value of a share of common stock with respect to which the award may be exercised.	
 Unless the Company and the Employee otherwise agree in writing, any determination required under this Section 6  shall be made in writing by a nationally recognized accounting or valuation firm selected by the Company (the “Accountants”), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes.  For purposes of making the calculations required by this Section 6  , the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code.  The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 6  .  The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 6.
 7. Definition of Terms . The following terms referred to in this Agreement shall have the following meanings:
(a)  Cause . “Cause” shall mean (i) an act of personal dishonesty taken by the Employee in connection with his or her responsibilities as an employee and intended to result in substantial personal enrichment of the Employee, (ii) Employee being convicted of a felony, (iii) a willful act by the Employee which constitutes gross misconduct and which is injurious to the Company, or (iv) following delivery to the Employee of a written demand for performance from the Company which describes the basis for the Company’s reasonable belief that the Employee has not substantially performed his or her duties, continued violations by the Employee of the Employee’s obligations to the Company which are demonstrably willful and deliberate on the Employee’s part.
 (b)  Change of Control . “Change of Control” means the occurrence of any of the following:
(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined in Rule 13d–3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or
(ii) Any action or event occurring within a two–year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or
(iii) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least sixty percent (60%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or

 
 
(iv) The consummation of the sale, lease or other disposition by the Company of all or substantially all the Company’s assets.
(c)  Disability . “Disability” shall mean that the Employee has been unable to perform his or her Company duties as the result of his or her incapacity due to physical or mental illness, and such inability, at least twenty-six (26) weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee’s legal representative (such determination as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least thirty (30) days’ written notice by the Company of its intention to terminate the Employee’s employment. In the event that the Employee resumes the performance of substantially all of his or her duties hereunder before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked.
(d)  Good Reason . “Good Reason” means without the Employee’s express written consent (i) a material reduction of the Employee’s duties, title, authority or responsibilities, relative to the Employee’s duties, title, authority or responsibilities as in effect immediately prior to such reduction, or the assignment to Employee of such reduced duties, title, authority or responsibilities; (ii) a substantial reduction of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) a reduction by the Company in the base compensation or target annual bonus opportunity of the Employee as in effect immediately prior to such reduction; (iv) a material reduction by the Company in the kind or level of benefits to which the Employee was entitled immediately prior to such reduction with the result that such Employee’s overall benefits package is significantly reduced; or (v) the relocation of the Employee to a facility or a location more than thirty-five (35) miles from such Employee’s then present location.  
 8. Successors .
 (a)  The Company’s Successors   . Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations  under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers an agreement pursuant to a purchase, merger, consolidation, liquidation or otherwise as described in this Section 8(a) or which becomes bound by the terms of this Agreement by operation of law.
(b) The Employee’s Successors . The terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
 9. Notice .
(a)  General . All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (i) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (ii) upon delivery, if delivered by hand, (iii) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (iv) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (A) if to Employee, at his or her last known residential address and (B) if to the Company, at the address of its principal corporate offices (attention: Secretary), or in any such case at such other address as a party may designate by ten (10) days’ advance written notice to the other party pursuant to the provisions above.
 (b)  Notice of Termination . Any termination by the Company for Cause or by the Employee for Good Reason or due to Disability or as a result of any voluntary resignation shall be communicated by a notice of termination to the other party hereto given in accordance with this  Section 9(b) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date (which shall be not more than thirty (30) days after the giving of such notice). The failure by the Employee to include in the notice any fact or circumstance which contributes to a

 
 
showing of Good Reason or Disability shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance in enforcing his or her rights hereunder.
10. Miscellaneous Provisions .
(a)  No Duty to Mitigate . The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other source.
(b)  Waiver . No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(c)  Headings . All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.
(d)  Entire Agreement . This Agreement, together with any equity award agreement, constitutes the entire agreement of the parties hereto and supersedes in their entirety all prior representations, understandings, undertakings or agreements (whether oral or written and whether expressed or implied) of the parties with respect to the subject matter hereof. With respect to equity awards granted on or after the date hereof, the acceleration of vesting provided herein will apply to such awards except to the extent otherwise explicitly provided in the applicable equity award agreement.
(e)  Choice of Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have exclusive jurisdiction and venue over all controversies in connection with this Agreement.
(f)  Severability . The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.
(g)  Withholding . All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.
(h)  Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

 

 
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year set forth below.
COMPANY POLYCOM, INC.
By:  
[NAME]
Title:  
Date:  
 
EMPLOYEE By:  
[NAME]
Title:  
Date:  

 

 

 
Exhibit 10.2
POLYCOM, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
 This amended and restated Change of Control Severance Agreement (the “Agreement”) is made and entered into by and between Peter Leav (the “Employee”) and Polycom, Inc., a Delaware corporation (the “Company”), effective as of  August 6, 2015 (the “Effective Date”).
RECITALS
1. It is expected that the Company from time to time will consider the possibility of an acquisition by another company or other change of control transaction. The Board of Directors of the Company (the “Board”) recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities. The Board has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a “Change of Control” (as defined herein) of the Company.
2. The Board believes that it is in the best interests of the Company and its stockholders to provide the Employee with an incentive to continue his or her employment and to motivate the Employee to maximize the value of the Company upon a Change of Control for the benefit of its stockholders.
3. The Board believes that it is imperative to provide the Employee with certain severance benefits upon the Employee’s termination of employment following a Change of Control. These benefits will provide the Employee with enhanced financial security and incentive and encouragement to remain with the Company notwithstanding the possibility of a Change of Control.
 4. Certain capitalized terms used in the Agreement are defined in  Section 7 below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
1. Term of Agreement . This Agreement shall terminate upon the date that all of the obligations of the parties hereto with respect to this Agreement have been satisfied.
2. At-Will Employment . The Company and the Employee acknowledge that the Employee’s employment is and shall continue to be at-will, as defined under applicable law, except as may otherwise be specifically provided under the terms of any written formal employment agreement between the Company and the Employee (an “Employment Agreement”). If the Employee’s employment terminates for any reason, including (without limitation) any termination prior to a Change of Control, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement or under his or her Employment Agreement.
3. Agreement to Remain with the Company for 6 Months Following a Change of Control . Employee agrees to remain employed with the Company (or its successor corporation) for a period of six (6) months following a Change of Control unless his or her employment terminates due to Employee’s death, “Disability” (as defined herein), for “Good Reason” (as defined herein), or is terminated involuntarily by the Company during such six (6) month period.
 4. Termination of Employment  . In the event Employee’s employment with the Company terminates for any reason governed by this Agreement, Employee will be entitled to any: (a) unpaid base salary accrued up to the effective date of termination, (b) unpaid, but earned and accrued annual incentive for any completed fiscal year as of his or her termination of employment, (c) pay for accrued but unused vacation, (d) benefits or compensation as provided under the terms of any employee benefit and compensation agreements or plans applicable to Employee, (e) unreimbursed business expenses required to be reimbursed to Employee, and (f) rights to indemnification Employee may have under the Company’s Articles of Incorporation, Bylaws, or separate indemnification agreement, as applicable.  In addition, if the termination is by the Company other than for “Cause” (as defined herein), Employee terminates his or her employment with the Company (or any parent or subsidiary of the

 
 
Company) for Good Reason or Employee dies or terminates employment due to Disability, Employee may be entitled to the amounts and benefits specified in  Section 5 .  
 5. Severance Benefits .
 (a)  Involuntary Termination Other than for Cause or Voluntary Termination for Good Reason Following a Change of Control  . If within twenty-four (24) months following a Change of Control (i) the Employee terminates his or her employment with the Company (or any parent or subsidiary of the Company) for Good Reason or (ii) the Company (or any parent or subsidiary of the Company) terminates the Employee’s employment for other than Cause, or (iii) the Employee dies or terminates employment due to Disability,  then the Employee shall receive from the Company the severance payments and benefits described in this Section 5  (a), subject to the Employee signing and not revoking  a standard release of claims with the Company in a form reasonably acceptable to the Company (“Release”)  within the period required by the Release  and in no event later than sixty (60) days following the Employee’s termination of employment, inclusive of any revocation period set forth in the release of claims (collectively, the “Release Deadline Date”), provided that the Release shall not be required in the event of Employee’s death. If the Release  does not become effective by the Release Deadline Date, the Employee will forfeit any rights to severance payments and benefits in Section 5  (a) and under this Agreement.  No severance will be paid or provided until the Release becomes effective .  The Company must provide the form of Release  to the Employee in a reasonable period of time following termination of employment so that the Employee has a reasonable opportunity to have the Release become effective before the Release Deadline Date.
(i)  Severance Payment . The Employee shall be entitled to receive a lump-sum severance payment (less applicable withholding taxes) equal to 200% of the Employee’s annual base salary (as in effect immediately prior to (A) the Change of Control, or (B) the Employee’s termination, whichever is greater) plus 200% of the Employee’s target bonus for the fiscal year in which the Change of Control or the Employee’s termination occurs, whichever is greater.
(ii)  Options; Restricted Stock . All of the Employee’s then outstanding options to purchase shares of the Company’s Common Stock (the “Options”) shall immediately vest and became exercisable. Additionally, all of the shares of the Company’s Common Stock then held by the Employee subject to a Company repurchase right (the “Restricted Stock”) shall immediately vest and the Company’s right of repurchase with respect to such shares of Restricted Stock shall lapse. The Options shall remain exercisable following the termination for the period prescribed in the respective option agreements.
(iii) Performance Shares . The Employee will vest in one hundred percent (100%) of the performance shares subject to his or her performance share awards, if any, and the payment of such vested performance shares shall be made as soon as practicable following the date of termination in accordance with the provisions of the applicable performance share award, except as otherwise provided herein. For this purpose, if the Change of Control occurs during the performance period applicable to a performance share award, the “performance shares subject to his or her performance share awards” shall be deemed to be one hundred percent (100%) of the Target Number of Performance Shares (as set forth in the applicable performance share award). Notwithstanding any provision in this Agreement or the applicable performance share award to the contrary and to the extent required to avoid imposition of any additional tax or income recognition under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), prior to actual payment to the Employee, the performance shares for which the vesting would not have otherwise been accelerated under the terms of the applicable performance share award shall be paid at the same time or times as if such performance shares had vested in accordance with the vesting schedule and provisions set forth in the applicable performance share award.
 (iv) Other Awards  . With respect to outstanding awards issued under the Company’s stock plans other than award types addressed in Sections 5(a)(ii) and (iii) above, the Employee will immediately vest in and have the right to exercise such awards, all restrictions will lapse, and all performance goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met. Such awards will be paid or otherwise settled as soon as administratively practicable following the date of termination or, if later, the date of exercise. Notwithstanding the foregoing, to the extent required to avoid imposition of any additional tax or income recognition under Section 409A of the Code, such awards shall be paid or settled at the same time or times that the awards otherwise would have been paid or settled in the absence of this Section   5(a)(iv).

 
 
(v)  Additional Cash Payment . The Employee shall be entitled to receive an additional lump-sum severance payment (less applicable withholding taxes) equal to the result of (A) times (B).  For this purpose, “A” will equal 24, and “B” will equal the amount of the monthly premium that would be required for the first month of coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended and all applicable regulations (referred to collectively as “COBRA”), with the premium calculated on the assumption that the Employee in fact elects coverage for himself or herself, and any eligible spouse and/or dependents of the Employee that were enrolled in the applicable Company health plan immediately prior to the Change of Control.  However, the Employee will be eligible for this taxable payment without regard to whether he or she actually elects COBRA continuation coverage.
 (b)  Timing of Severance Payments  . If the Release  required by Section 5  (a) becomes effective by the Release Deadline Date, severance payments and benefits under this Agreement will be paid in a lump sum payment (less any applicable withholding taxes) on the first business day after the Release Deadline Date, but in no event later than March 15th of the calendar  year immediately  following the calendar  year of the Employee’s termination of employment, except as required by Section 5  (f).  If the Employee should die before all amounts have been paid, such unpaid amounts shall be paid in a lump sum payment (less any applicable withholding taxes) to the Employee’s designated beneficiary, if living, or otherwise to the personal representative of the Employee’s estate, as described in Section 5(f) below.
(c)  Voluntary Resignation; Termination for Cause . If the Employee’s employment with the Company terminates (i) voluntarily by the Employee other than for Good Reason or due to Disability or (ii) for Cause by the Company, then the Employee shall not be entitled to receive severance or other benefits except for those (if any) as may then be established under the Company’s then existing severance and benefits plans and practices or pursuant to other written agreements with the Company, including, without limitation, any Employment Agreement.
(d)  Termination Apart from Change of Control . In the event the Employee’s employment is terminated for any reason, either prior to the occurrence of a Change of Control or after the twenty-four (24)–month period following a Change of Control, then the Employee shall be entitled to receive severance and any other benefits only as may then be established under the Company’s existing written severance and benefits plans and practices or pursuant to other written agreements with the Company, including, without limitation, any Employment Agreement.
 (e)  Exclusive Remedy . In the event of a termination of Employee’s employment within twenty-four (24) months following a Change of Control, the provisions of this  Section 5  are intended to be and are exclusive and in lieu of any other rights or remedies to which the Employee or the Company may otherwise be entitled, whether at law, tort or contract, in equity, or under this Agreement. The Employee shall be entitled to no benefits, compensation or other payments or rights upon termination of employment following a Change in Control other than those benefits expressly set forth in this Section 5.
(f) Section 409A .
 (i) Six-Month Delay . Notwithstanding anything to the contrary in this Agreement, no Deferred Compensation Separation Benefits (as defined below) payable under this Agreement will be considered due or payable until the Employee has incurred a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and the final regulations and any guidance promulgated thereunder (together, “Section 409A”).  In addition, if the Employee is a “specified employee” within the meaning of Section 409A at the time of the Employee’s separation from service (other than due to death), then the severance benefits payable to the Employee under this Agreement, if any, and any other severance payments or separation benefits that may be considered deferred compensation under Section 409A (together, the “Deferred Compensation Separation Benefits”) otherwise due to the Employee on or within the six (6) month period following the Employee’s separation from service will accrue during such six (6) month period and will become payable in a lump sum payment (less any applicable withholding taxes) on the date six (6) months and one (1) day following the date of the Employee’s separation from service. All subsequent payments, if any, will be payable in accordance with the payment schedule applicable to  each payment or benefit. In no event will the Employee have discretion to determine the taxable year of payment of any Deferred Compensation Separation Benefits.  Notwithstanding anything herein to the contrary, if the Employee dies following his or her separation from service but prior to the six (6) month anniversary of his or her

 
 
date of separation, then any payments delayed in accordance with this paragraph will be payable in a lump sum (less any applicable withholding taxes) to the Employee’s estate as soon as administratively practicable after the date of the Employee’s death and all other Deferred Compensation Separation Benefits will be payable in accordance with the payment schedule applicable to each payment or benefit.
 (ii) Amendments to this Agreement to Comply with Section 409A . This provision is intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply  . Each payment and benefit payable under this Agreement is intended to constitute a separate payment under Section 1.409A‑2(b)(2) of the Treasury Regulations. The Company and the Employee agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions, which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to the Employee under Section 409A.
 6. Limitation on Payments . In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Employee (a) constitute “parachute pay  ments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (b) but for this Section 6  , would be subject to the excise tax imposed by Section 4999 of the Code, then the Employee’s severance benefits under Section 5  (a) or other benefits shall be either:
(i) delivered in full, or
 (ii) delivered as to such lesser extent which would result in no portion of such severance benefits being subject to excise tax under Section 4999 of the Code,
 whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Employee on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits and other benefits may be taxable under Section 4999 of the Code. 
 
 In the event of a reduction in accordance with  Section 6(ii), the reduction will occur, with respect to such severance and other benefits considered “parachute payments” within the meaning of Section 280G of the Code, in the following order:
 
 	·	First, stock options or stock appreciation rights that meet all of the following: (i) the grant of which is treated as “  contingent”  (see definition below in this Section 6  )  under Section 280G of the Code, (ii) are assumed or substituted by the surviving corporation or its parent, and (iii) are “underwater” or “at-the-money”  (see definitions below in this Section 6  );	
 	·	Second, stock options or stock appreciation rights that meet all of the following: (i) the grant of which is not treated as “contingent” under Section 280G of the Code, (ii) accelerate vesting under  Section 5(a) above or otherwise, (iii) are assumed or substituted by the surviving corporation or its parent, and (iv) are “underwater” or “at-the-money”;	
 	·	Third, stock options or stock appreciation rights that meet all of the following: (i) the grant of which is treated as “contingent” under Section 280G of the Code, (ii) are assumed or substituted by the surviving corporation or its parent, and (iii) are “in-the-  money”  (see definition below in this Section 6  );	
 	·	 Fourth, restricted stock, restricted stock units, performance shares or other outstanding equity awards (other than stock options or stock appreciation rights) that meet all of the following: (i) the grant of which is treated as “contingent” under Section 280G of the Code and (ii) either are assumed or substituted by the surviving corporation or its parent or “cashed-out”  (see definition below in this Section 6  ) in connection with the Change of Control;	
 	·	Fifth, stock options or stock appreciation rights that meet all of the following: (i) the grant of which is treated as “contingent” under Section 280G of the Code and (ii) are “cashed-out” in connection with the Change of Control;	
 	·	Sixth,  cash severance, bonus, retention and other similar pay (including such cash severance pay provided pursuant to  Sections 5  (a)(i)  and 5  (a)(v) above) that are treated as “contingent” under Section 280G of the Code;	

 
 
 	·	Seventh, stock options or stock appreciation rights that meet all of the following: (i) the grant of which is not treated as “contingent” under Section 280G of the Code, (ii) accelerate vesting under  Section 5 (a) above or otherwise, (iii) are assumed or substituted by the surviving corporation or its parent, and (iv) are “in-the-money”;  	
 	·	 Eighth, stock options or stock appreciation rights that meet all of the following: (i) the grant of which is not treated as “contingent” under Section 280G of the Code, (ii) accelerate vesting under Section 5(a) above or otherwise, (iii) are “cashed-out” in connection with the Change of Control, and (iv) are “in-the-money”;	
 	·	 Ninth, restricted stock, restricted stock units, performance shares or other outstanding equity awards (other than stock options or stock appreciation rights) that meet all of the following: (i) the grant of which is not treated as “contingent” under Section 280G of the Code, (ii) accelerate vesting under Section 5(a) above or otherwise, and (iii) either are assumed or substituted by the surviving corporation or its parent or “cashed-out” in connection with the Change of Control;	
 	·	Tenth, the acceleration in the timing of any “vested” payment in cash or in kind.  For this purpose, a payment will be considered “vested” if the payment is vested at the time the payment acceleration occurs and any vesting of the payment that has occurred is not considered "contingent" under Section 280G of the Code;	
 	·	 Eleventh, Company-paid coverage under the long-term disability and life insurance plans and any other taxable benefits provided or paid for by the Company; and	
 	·	 Twelfth, Company-paid coverage under the health, dental, and vision plans and any other tax-free benefits provided or paid for by the Company.	
 
 For purposes of this  Section 6, the following rules will apply:
 	·	In the first and second categories above, if there are multiple grants of stock options or stock appreciation rights, the most “underwater” award will be reduced first with each subsequent reduction applying to the next most “underwater” award;	
 	·	In the third and seventh categories above, if there are multiple grants of stock options or stock appreciation rights, the least “in-the-money” award will be reduced first with each subsequent reduction applying to the next most “in-the-money” award;	
 	·	In the fourth, fifth, eighth, and ninth categories, if there are multiple grants of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares or other equity awards, each grant within each category will be reduced on a pro-rata basis; and	
 	·	In the sixth and tenth categories, if there are multiple types of cash or in-kind payments, each payment within each category will be reduced on a pro-rata basis.	
 
For clarification purposes, these rules do not change the order described above but rather provide ordering rules that apply within each category in the event of multiple equity grants or payments.
 
 For purposes of this  Section 6, the following terms used herein will mean:
 
 	·	Whether an equity award will be treated as “contingent” will be determined in accordance with Treasury Regulation Section 1.280G-1 A-22.	
 	·	An equity award will be “cashed-out” in connection with a Change of Control if the award is cancelled after payment to the Employee of an amount in cash or cash equivalents equal to (A) the fair market value of the shares of Company Common Stock subject to the equity award at the time of the Change of Control (as determined in accordance with the applicable equity award agreement) minus (B) the exercise or purchase price, if any, of the shares of Company Common Stock subject to the equity award at the time of the Change of Control.	
 	·	A stock option or stock appreciation right will be considered “underwater” if: (A) the award accelerates or is valued for purposes of Section 280G on the date of the Change of Control and the per share exercise price of the award is greater than the per share consideration provided to holders of shares of Company Common Stock pursuant to the Change of Control, or (B) the award accelerates or is valued for purposes of Section 280G of the Code on any date after the Change of Control and the per share exercise price of the award, as adjusted pursuant to the Change of Control, is greater than the fair market value of a share of common stock with respect to which the award may be exercised.	

 
 
 	·	A stock option or stock appreciation right will be considered “at-the-money” if: (A) the award accelerates or is valued for purposes of Section 280G on the date of the Change of Control and the per share exercise price of the award is equal to the per share consideration provided to holders of shares of Company Common Stock pursuant to the Change of Control, or (B) the award accelerates or is valued for purposes of Section 280G of the Code on any date after the Change of Control and the per share exercise price of the award, as adjusted pursuant to the Change of Control, is equal to the fair market value of a share of common stock with respect to which the award may be exercised.  	
A stock option or stock appreciation right will be considered “in-the-money” if: (A) the award accelerates or is valued for purposes of Section 280G on the date of the Change of Control and the per share exercise price of the award is less than the per share consideration provided to holders of shares of Company Common Stock pursuant to the Change of Control, or (B) the award accelerates or is valued for purposes of Section 280G of the Code on any date after the Change of Control and the per share exercise price of the award, as adjusted pursuant to the Change of Control, is less than the fair market value of a share of common stock with respect to which the award may be exercised.
 Unless the Company and the Employee otherwise agree in writing, any determination required under this  Section 6  shall be made in writing by a nationally recognized accounting or valuation firm selected by the Company  (the “Accountants”), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes.  For purposes of making the calculations required by this Section 6  , the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code.  The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 6  .  The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 6.
 7. Definition of Terms . The following terms referred to in this Agreement shall have the following meanings:
(a)  Cause . “Cause” shall mean (i) an act of personal dishonesty taken by the Employee in connection with his or her responsibilities as an employee and intended to result in substantial personal enrichment of the Employee, (ii) Employee being convicted of a felony, (iii) a willful act by the Employee which constitutes gross misconduct and which is injurious to the Company, or (iv) following delivery to the Employee of a written demand for performance from the Company which describes the basis for the Company’s reasonable belief that the Employee has not substantially performed his or her duties, continued violations by the Employee of the Employee’s obligations to the Company which are demonstrably willful and deliberate on the Employee’s part.
 (b)  Change of Control . “Change of Control” means the occurrence of any of the following:
(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined in Rule 13d–3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or
(ii) Any action or event occurring within a two–year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or
(iii) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least sixty percent (60%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or

 
 
(iv) The consummation of the sale, lease or other disposition by the Company of all or substantially all the Company’s assets.
(c)  Disability . “Disability” shall mean that the Employee has been unable to perform his or her Company duties as the result of his or her incapacity due to physical or mental illness, and such inability, at least twenty-six (26) weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee’s legal representative (such determination as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least thirty (30) days’ written notice by the Company of its intention to terminate the Employee’s employment. In the event that the Employee resumes the performance of substantially all of his or her duties hereunder before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked.
 (d)  Good Reason  . “Good Reason” means without the Employee’s express written consent: (i) a material reduction of the Employee’s duties, title, authority or responsibilities, relative to the Employee’s duties, title, authority or responsibilities as in effect immediately prior to such reduction, or the assignment to Employee of such reduced duties, title, authority or responsibilities; (ii) a substantial reduction of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) a reduction by the Company in the base compensation or target annual bonus opportunity of the Employee as in effect immediately prior to such reduction; (iv) a material reduction by the Company in the kind or level of benefits to which the Employee was entitled immediately prior to such reduction with the result that such Employee’s overall benefits package is significantly reduced; or (v) the relocation of the Employee to a facility or a location more than thirty-five (35) miles from such Employee’s then present location.
 8. Successors .
 (a)  The Company’s Successors   . Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers an agreement pursuant to a purchase, merger, consolidation, liquidation or otherwise as described in this  Section 8(a) or which becomes bound by the terms of this Agreement by operation of law.
(b)  The Employee’s Successors . The terms of this Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
 9. Notice .
(a)  General . All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (i) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (ii) upon delivery, if delivered by hand, (iii) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (iv) one (1) business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (A) if to Employee, at his or her last known residential address and (B) if to the Company, at the address of its principal corporate offices (attention: Secretary), or in any such case at such other address as a party may designate by ten (10) days’ advance written notice to the other party pursuant to the provisions above.
 (b)  Notice of Termination . Any termination by the Company for Cause or by the Employee for Good Reason or due to Disability or as a result of any voluntary resignation shall be communicated by a notice of termination to the other party hereto given in accordance with this  Section 9(b) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date (which shall be not more than thirty (30) days after the giving of such notice). The failure by the Employee to include in the notice any fact or circumstance which contributes to a

 
 
showing of Good Reason or Disability shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance in enforcing his or her rights hereunder.
10. Miscellaneous Provisions .
(a)  No Duty to Mitigate . The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other source.
(b)  Waiver . No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(c)  Headings . All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.
(d)  Entire Agreement . This Agreement, together with any equity award agreement, constitutes the entire agreement of the parties hereto and supersedes in their entirety all prior representations, understandings, undertakings or agreements (whether oral or written and whether expressed or implied) of the parties with respect to the subject matter hereof. With respect to equity awards granted on or after the date hereof, the acceleration of vesting provided herein will apply to such awards except to the extent otherwise explicitly provided in the applicable equity award agreement.
(e)  Choice of Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have exclusive jurisdiction and venue over all controversies in connection with this Agreement.
(f)  Severability . The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.
(g)  Withholding . All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.
(h)  Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

 

 
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year set forth below.

 	 	 	 	 	 	 	 	 	
COMPANY	 	 	 	POLYCOM, INC.		
 	 	 	 	 		
 	 	 	 	 	 	By:	 	  /s/ Sayed M. Darwish	
 	 	 	 	  Sayed M. Darwish		
 	 	 	 	 	 	 
Title:	 	 
Chief Legal Officer and Executive Vice President, Corporate Development	
 	 	 	 	 	 	Date:	 	 10/28/15	

EMPLOYEE	 	 	 	 
By:	 	/s/ Peter Leav	
 	 	 	 	  Peter Leav		
 	 	 	 	 	 	 
Title:	 	 
President and Chief Executive Officer	
 	 	 	 	 	 	Date:	  	10/28/15	

 

Exhibit 31.1
CERTIFICATION
I, Peter A. Leav, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Polycom, Inc.;	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
October 29, 2015	 	By:	 	/s/ P ETER A. L EAV	
 	 	Name:	 	Peter A. Leav	
 	 	Title:	 	Chief Executive Officer, President and Director	

 
Exhibit 31.2
CERTIFICATIONS
I, Laura J. Durr, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Polycom, Inc.;	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
October 29, 2015	 	By:	 	/s/ L AURA J. D URR	
 	 	Name:	 	Laura J. Durr	
 	 	Title:	 	Chief Financial Officer, Chief Accounting Officer, and Executive Vice President	

 
Exhibit 32.1
Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Peter A. Leav, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Polycom, Inc. on Form 10-Q for the three months ended September 30, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Polycom, Inc.
 
October 29, 2015	By:	 	/s/ P ETER A. L EAV	
 	Name:	 	Peter A. Leav	
 	Title:	 	Chief Executive Officer, President and Director	
Certification of the Chief Financial Officer, Executive Vice President, and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Laura J. Durr, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Polycom, Inc. on Form 10-Q for the three months ended September 30, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Polycom, Inc.
 
October 29, 2015	By:	 	/s/ L AURA J. D URR	
 	Name:	 	Laura J. Durr	
 	Title:	 	Chief Financial Officer, Chief Accounting Officer, and Executive Vice President