<PAGE>   1
 
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-Q
 
 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
                                      1934
 
(MARK ONE)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 (AMENDED)
 
                 FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1998
 
                                       OR
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
 
        FOR THE TRANSITION PERIOD FROM               TO
 
                      FOR THE QUARTER ENDED MARCH 29, 1998
 
                         COMMISSION FILE NUMBER 1-9434
 
                             PICTURETEL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                                  <C>
                     DELAWARE                                            04-2835972
          (STATE OR OTHER JURISDICTION OF                             (I.R.S. EMPLOYER
          INCORPORATION OR ORGANIZATION)                             IDENTIFICATION NO.)
  
        100 MINUTEMAN ROAD, ANDOVER, MA.                                   01810
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                            (ZIP CODE)
</TABLE>
 
                  REGISTRANT'S TELEPHONE NUMBER:  978-292-5000
 
     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 last 90 days.  Yes [X]     No [ ]
 
     Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practical date.
 
     As of May 5, 1998, there were issued and outstanding 38,313,321 shares of
common stock of the registrant.
================================================================================
<PAGE>   2
 
                             PICTURETEL CORPORATION
 
                                   FORM 10-Q
 
                                     INDEX
 
<TABLE>
<S>          <C>                                                                                            <C>
PART I.  CONSOLIDATED FINANCIAL INFORMATION
  Item 1.    Consolidated Financial Statements:
             Consolidated Balance Sheets
               March 29, 1998 and December 31, 1997.......................................................          2
             Consolidated Statements of Operations
               Three months ended March 29, 1998 and March 29, 1997.......................................          3
             Consolidated Statements of Cash Flows
               Three months ended March 29, 1998 and March 29, 1997.......................................          4
             Notes to Consolidated Financial Statements...................................................        5-9
  Item 2.    Management's Discussion and Analysis of Financial Condition and
               Results of Operations......................................................................      10-16
 
PART II.  OTHER INFORMATION
  Item 1.    Legal Proceedings............................................................................         17
  Item 6.    Exhibits and Reports on Form 8-K.............................................................         18
  Signatures..............................................................................................         19
</TABLE>
 
                                        1
<PAGE>   3
 
                             PICTURETEL CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                              MARCH 29,    DECEMBER 31,
                                                                1998           1997
                                                              ---------    ------------
<S>                                                           <C>          <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 38,913       $ 49,859
  Marketable securities.....................................    43,546         32,152
  Accounts receivable less allowance for doubtful accounts
     of $7,573 and $6,315 in 1998 and 1997, respectively....   101,545        108,729
  Inventories, net (Note 3).................................    43,074         44,901
  Deferred taxes, net.......................................    16,499         15,615
  Other current assets......................................     7,995          6,803
                                                              --------       --------
          Total current assets..............................   251,572        258,059
  Deferred taxes, net.......................................    16,106         16,106
  Property and equipment, net...............................    68,421         69,103
  Capitalized software costs, net...........................     3,387          2,368
  Other assets..............................................     9,514          9,415
                                                              --------       --------
          Total assets......................................  $349,000       $355,051
                                                              ========       ========
              LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term borrowings (Note 7)............................  $    934       $    186
  Accounts payable..........................................    27,750         30,169
  Accrued compensation and benefits.........................    10,871         10,551
  Accrued expenses..........................................    36,572         37,207
  Current portion of capital lease obligations..............     3,665          3,426
  Deferred revenue..........................................    22,106         23,547
                                                              --------       --------
          Total current liabilities.........................   101,898        105,086
  Capital lease obligations.................................    21,343         22,000
 
Commitments and contingencies (Notes 6 and 7)...............
Stockholders' equity:
Preference stock, $.01 par value; 15,000,000 shares
  authorized; none issued...................................        --             --
Common stock, $.01 par value; 80,000,000 shares authorized;
  38,271,702 and 38,040,363 shares issued and outstanding in
  1998 and 1997, respectively...............................       382            380
Additional paid-in capital..................................   205,742        204,242
Retained earnings...........................................    23,260         25,425
Cumulative translation adjustment...........................    (3,621)        (2,077)
Unrealized loss on marketable securities, net...............        (4)            (5)
                                                              --------       --------
          Total stockholders' equity........................   225,759        227,965
                                                              --------       --------
          Total liabilities and stockholders' equity........  $349,000       $355,051
                                                              ========       ========
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                        2
<PAGE>   4
 
                             PICTURETEL CORPORATION
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                              -----------------------
                                                              MARCH 29,    MARCH 29,
                                                                1998          1997
                                                              ---------    ----------
                                                                           (RESTATED)
<S>                                                           <C>          <C>
Revenues:
  Product revenues..........................................  $ 86,940      $110,398
  Service revenues..........................................    14,105        11,537
                                                              --------      --------
          Total revenues....................................  $101,045      $121,935
Cost of revenues:
  Product cost of revenues..................................    43,348        54,072
  Service cost of revenues..................................    11,810         9,126
                                                              --------      --------
          Total cost of revenues............................    55,158        63,198
                                                              --------      --------
Gross margin................................................    45,887        58,737
Operating expenses:
  Selling, general and administrative.......................    32,810        36,265
  Research and development..................................    16,899        20,934
                                                              --------      --------
          Total operating expenses..........................    49,709        57,199
                                                              --------      --------
Income (loss) from operations...............................    (3,822)        1,538
Interest income, net........................................       448           891
Other income, net...........................................       325           404
                                                              --------      --------
Income (loss) before income tax expense (benefit)...........    (3,049)        2,833
Income tax expense (benefit)................................      (884)          822
                                                              --------      --------
Net income (loss)...........................................  $ (2,165)     $  2,011
                                                              ========      ========
Net income (loss) per common share -- basic:................  $  (0.06)     $   0.05
                                                              ========      ========
Net income (loss) per common share -- diluted:..............  $  (0.06)     $   0.05
                                                              ========      ========
Weighted average shares outstanding -- basic:...............    38,092        37,265
                                                              ========      ========
Weighted average shares outstanding -- diluted:.............    38,092        39,178
                                                              ========      ========
</TABLE>
 
    The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                        3
<PAGE>   5
 
                             PICTURETEL CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                              -----------------------
                                                              MARCH 29,    MARCH 29,
                                                                1998          1997
                                                              ---------    ----------
                                                                           (RESTATED)
<S>                                                           <C>          <C>
Cash flows from operating activities:
  Net income (loss).........................................  $ (2,165)     $  2,011
  Adjustments to reconcile net income to net cash provided
     by (used in) operating activities:
     Depreciation and amortization..........................     5,741         6,809
     Other non-cash items...................................       616          (833)
  Changes in operating assets and liabilities:
     Accounts receivable....................................     7,184         8,008
     Inventories............................................       327       (15,457)
     Other current assets...................................    (1,192)       (9,441)
     Accounts payable.......................................    (2,419)       (6,484)
     Accrued compensation and benefits and accrued
      expenses..............................................      (315)        4,467
     Deferred revenue.......................................    (1,441)          626
                                                              --------      --------
Net cash provided by (used in) operating activities.........     6,336       (10,294)
Cash flows from investing activities:
  Purchase of marketable securities.........................   (36,615)      (10,253)
  Proceeds from marketable securities.......................    25,221         3,425
  Additions to property and equipment.......................    (4,620)       (5,076)
  Capitalized software costs................................    (1,457)       (1,840)
  Purchase of other assets..................................       (99)         (345)
                                                              --------      --------
Net cash used in investing activities.......................   (17,570)      (14,089)
Cash flows from financing activities:
  Net proceeds from foreign lines of credit.................       748         3,003
  Payments on long-term borrowings..........................        --        (4,684)
  Principal payments under capital lease obligations........      (418)       (1,269)
  Proceeds from exercise of stock options...................       624           397
  Proceeds from stock purchase plan.........................       878         1,587
                                                              --------      --------
Net cash provided by (used in) financing activities.........     1,832          (966)
Adjustment to conform fiscal year of MultiLink..............        --           394
Effect of exchange rate changes on cash.....................    (1,544)       (1,075)
                                                              --------      --------
Net decrease in cash and cash equivalents...................   (10,946)      (26,030)
Cash and cash equivalents at beginning of period............    49,859        63,333
                                                              --------      --------
Cash and cash equivalents at end of period..................  $ 38,913      $ 37,303
                                                              ========      ========
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                        4
<PAGE>   6
 
                             PICTURETEL CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  MANAGEMENT'S REPRESENTATION
 
     As permitted by the rules of the Securities and Exchange Commission
applicable to Quarterly Reports on Form 10-Q, these notes are condensed and do
not contain all the disclosures required by generally accepted accounting
principles. Reference should be made to the consolidated financial statements
and related notes included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, as filed with the Securities and Exchange
Commission on March 31, 1998.
 
     In the opinion of the management of PictureTel Corporation, the
accompanying unaudited consolidated financial statements contain all adjustments
(consisting of normal, recurring adjustments, except as discussed in Note 2 to
Notes to Consolidated Financial Statements) necessary to present fairly the
Company's financial position at March 29, 1998 and the results of operations and
changes in cash flows for the three months ended March 29, 1998.
 
     The results disclosed in the Consolidated Balance Sheets at March 29,1998
and the Consolidated Statements of Operations and Consolidated Statements of
Cash Flows for the three months ended March 29, 1998 are not necessarily
indicative of the results to be expected for the full year.
 
     The preparation of financial statements in conformity with generally
accepted accounting principles 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
reporting period. As a result of the ongoing evaluation of the business and
future spending levels, the financial statements include significant estimates
of the net realizable value of accounts receivable, inventory and capitalized
software as well as the future tax benefit of deferred tax assets and the amount
of certain contingent liabilities. Actual results could differ from those
estimates.
 
     The financial statements and footnotes included in this Form 10-Q reflect
the restatement of financial results described in Note 2 to Notes to
Consolidated Financial Statements.
 
2.  RESTATEMENT OF FINANCIAL STATEMENTS
 
     On September 19, 1997, after the Company's reexamination (with assistance
from its outside auditors) of leasing and other indirect channel transactions,
the Company announced that it would reverse revenue related to certain of these
transactions and, as a result, the Company intended to restate its financial
statements for the third and fourth quarters of 1996 and the first quarter of
1997. On November 13, 1997, after completion of its reexamination, the Company
announced that it would also restate the second quarter of 1997. The
restatements were required to reverse product sales recorded which contained
rights of return, contingent liabilities, payment contingencies, payment
uncertainties or product sales for which delivery did not occur at the end of
the period. The restatements were also required to record such product sales in
the period in which the rights of return lapsed, contingencies or uncertainties
were resolved, or delivery was completed. Certain transactions which were
reversed have not been re-recorded as revenues in later periods. The financial
statements and related notes to consolidated financial statements set forth in
this Form 10-Q reflect the restatements that were made on Form 10-Q/A for the
three month period ended March 29, 1997 as filed with
 
                                        5
<PAGE>   7
                             PICTURETEL CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
the Securities and Exchange Commission on January 13, 1998. A summary of the
impact of the restatements for the three months ended March 29, 1997 is as
follows:
 
<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED
                                                             MARCH 29, 1997
                                                         ----------------------
                                                         PREVIOUSLY       AS
                                                          REPORTED     RESTATED
                                                         ----------    --------
                                                                ($000'S)
<S>                                                      <C>           <C>
Revenues...............................................   $123,618     $121,935
Gross margin...........................................     59,267       58,737
Income before taxes....................................      3,764        2,833
Income tax expense.....................................      1,270          822
Net income.............................................      2,494        2,011
Net income per common and common equivalent share......   $   0.06     $   0.05
Total assets...........................................   $388,911     $384,852
Total liabilities......................................   $116,480     $117,067
Total stockholders' equity.............................   $272,431     $267,785
</TABLE>
 
3.  INVENTORIES
 
     Inventories consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                       MARCH 29,    DECEMBER 31,
                                                         1998           1997
                                                       ---------    ------------
<S>                                                    <C>          <C>
Purchased Parts......................................   $ 4,110       $ 2,983
Work in Process......................................     3,398         2,128
Finished Goods.......................................    35,566        39,790
                                                        -------       -------
                                                        $43,074       $44,901
                                                        =======       =======
</TABLE>
 
4.  EARNINGS PER SHARE
 
     The following table reconciles the numerator and the denominators of the
basic and diluted EPS computations shown on the Consolidated Statements of
Operations (in thousands, except per share data):
 
<TABLE>
<CAPTION>
                                                          FOR THE THREE MONTHS
                                                                  ENDED
                                                                MARCH 29,
                                                          ---------------------
                                                           1998         1997
                                                          -------    ----------
                                                                     (RESTATED)
<S>                                                       <C>        <C>
BASIC EPS COMPUTATION:
Numerator:
  Net income (loss).....................................  ($2,165)    $ 2,011
                                                          =======     =======
Denominator:
  Weighted average common shares outstanding............   38,092      37,265
Basic EPS...............................................  $ (0.06)    $  0.05
                                                          =======     =======
</TABLE>
 
                                        6
<PAGE>   8
                             PICTURETEL CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                          FOR THE THREE MONTHS
                                                                  ENDED
                                                                MARCH 29,
                                                          ---------------------
                                                           1998         1997
                                                          -------    ----------
                                                                     (RESTATED)
<S>                                                       <C>        <C>
DILUTED EPS COMPUTATION:
Numerator:
  Net income (loss).....................................  ($2,165)    $ 2,011
                                                          =======     =======
Denominator:
  Weighted average common shares outstanding............   38,092      37,265
  Stock options.........................................       --       1,913
                                                          -------     -------
  Total Shares..........................................   38,092      39,178
                                                          =======     =======
Diluted EPS.............................................  $ (0.06)    $  0.05
                                                          =======     =======
</TABLE>
 
     Options to purchase shares of the Company's common stock at March 29, 1998
were outstanding during the year but were not included in the computation of
diluted EPS because they were antidilutive due to the net loss sustained in the
three month period ended March 29, 1998.
 
5.  COMPREHENSIVE INCOME (LOSS)
 
     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This statement requires that changes in
comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. The statement is effective
for fiscal years beginning after December 15, 1997. The Company adopted the
interim reporting requirements in the first quarter of fiscal year 1998 and will
adopt the annual reporting requirements in the fourth quarter of fiscal year
1998. Total comprehensive loss for the period ended March 29, 1998 was
$3,710,000 and total comprehensive income for the comparable period in 1997 was
$561,000. The components of other comprehensive income are foreign currency
translation adjustments and unrealized gains and losses on marketable
securities.
 
6.  LITIGATION
 
  A.  Datapoint Litigation
 
     In December 1993, PictureTel was sued by Datapoint Corporation in the
United States District Court for the Northern District of Texas. Datapoint
alleged that certain of PictureTel's products infringed patent rights allegedly
owned by Datapoint. Datapoint had been joined as plaintiff by John Frassanito
and David Monroe, two individuals who claimed to have rights to Datapoint's
patents. The plaintiffs sought approximately $100-190 million in damages for
alleged past infringement and an injunction against alleged future infringement.
On April 9, 1998, a jury returned a verdict in favor of PictureTel finding that
PictureTel did not infringe the Datapoint patents and that the Datapoint patent
claims raised against PictureTel were invalid. On April 29, 1998 Datapoint filed
an appeal. The Company plans to file a cross-appeal.
 
  B.  Shareholder Litigation
 
     Since September 23, 1997, seven class action shareholders' complaints have
been filed against the Company, Norman E. Gaut, Chairman of the Board and former
Chief Executive Officer, and Les Strauss, the former Vice President and Chief
Financial Officer, in the United States District Court for the District of
Massachusetts. The plaintiffs, who brought these actions on behalf of themselves
and others similarly situated, are: (1) Faith Egli, Civil Action No.
97-12135-DPW; (2) Jerome H. Lipman, IRA, Civil Action No. 97-12238-DPW; (3)
Daniel Frucher, Civil Action No. 97-12310-DPW; (4) Edmond J. Proulx and
 
                                        7
<PAGE>   9
                             PICTURETEL CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
James Harris, Civil Action No. 97-12345-DPW; (5) Marvin Barab and Thomas J.
Curley, Civil Action No. 97-12338-DPW; (6) Mark Szen and Nancy Szen, Civil
Action No. 97-12439-DPW; and (7) Michael D. Kugler, Civil Action No. 97-12537
PBS. These plaintiffs filed a consolidated complaint on February 11, 1998,
encaptioned In re PictureTel Corporation Securities Litigation, Civil Action No.
97-12135-DPW.
 
     The original Complaints were filed following the Company's announcement on
September 19, 1997 that it would restate its financial results for the first
quarter of fiscal 1997 and the last two quarters of fiscal 1996 and were amended
when the Company announced that it would also restate the second fiscal quarter
of 1997 on November 13, 1997. The consolidated Complaint alleges that the
defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act
of 1934 and Rule 10b-5, promulgated thereunder, during the period from October
17, 1996 through November 13, 1997, through the alleged preparation and
dissemination of materially false and misleading financial statements which
artificially inflated the prices of PictureTel common stock. The consolidated
Complaint seeks to recover an unspecified amount of damages, including
attorneys' and experts' fees and expenses. The Company is currently
investigating the allegations in the consolidated Complaint and will respond to
the allegations in a timely fashion when responses become due.
 
     No discovery has occurred and the Company expresses no opinion as to the
likely outcome.
 
  C.  NV Holdings, Inc.
 
     On February 13, 1998, NV Holdings, Inc., filed a complaint in the State
District Court for Dallas county, Texas, NV Holdings, Inc. v. PictureTel
Corporation, Cause No. DF 98-01404 alleging against PictureTel tortious
interference with both business advantage and existing contracts, as well as
business disparagement and slander. While the plaintiff has listed no specific
damages they are seeking an injunction and $20,000,000 in punitive damages. The
Company believes that it has meritorious defenses to the allegations of the
complaint filed against it and is vigorously defending against the lawsuit and
pursuing recovery under the following actions filed by the Company. The Company
has filed two separate actions against parties that are believed, by the
Company, to be related to NV Holdings, Inc.: (1) (PictureTel Corporation v. NV
Technologies, Inc. d/b/a NuVision Technologies, Inc., et al, Civil Action No.
98-337A, filed February 17, 1998, for False Advertising and Unfair Business
Practices). On February 23, 1998, the court issued a preliminary injunction
against NuVision Technologies, Inc., and all persons acting in concert,
participation or combination with them, prohibiting them from continuing to
publish a certain advertisement that the Company alleges is false and
misleading. As of March 9, 1998, the advertisement in question had continued to
be published and the Company is aggressively pursuing its legal remedies; and
(2) (PictureTel Corporation v. NV Technologies d/b/a NuVision Technologies,
Inc., Civil action No. 98-166-C, filed January 23, 1998, for Breach of
Contract), seeking the repayment of approximately $4,000,000 from NuVision
Technologies, Inc.
 
     Limited discovery has begun with regard to the enforcement of the
preliminary injunction, however, the Company expresses no opinion as to the
likely outcome of any of these matters.
 
7.  DEBT
 
     The Company has available up to $40,000,000 under its revolving credit
agreement and approximately $4,400,000 available under local foreign guaranteed
lines of credit to certain of its foreign subsidiaries. At March 29, 1998, there
were no borrowed amounts outstanding under the revolving credit agreement and
$29,100,000 in standby letters of credit outstanding under the revolving credit
agreement. There was $934,000 outstanding under the foreign lines of credit. At
March 29, 1998, the Company had $25,008,000 outstanding under various leasing
lines including the obligation for the lease of the facility at 50 Minuteman
Road in Andover which was $20,659,000 at March 29, 1998.
 
                                        8
<PAGE>   10
                             PICTURETEL CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The revolving credit agreement is secured by cash and marketable securities
and contains certain financial covenants, including the maintenance of certain
ratios including total liabilities to tangible net worth and minimum net income
(loss) requirements. The Company was in compliance with all covenants for the
quarter ending March 29, 1998.
 
                                        9
<PAGE>   11
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     The following table sets forth, for the periods indicated, the percentage
of revenues for certain items in the Company's Statement of Operations for each
period:
 
<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED
                                                         -----------------------
                                                         MARCH 29,    MARCH 29,
                                                           1998          1997
                                                         ---------    ----------
                                                                      (RESTATED)
<S>                                                      <C>          <C>
Revenues...............................................    100.0%       100.0%
Cost of revenues.......................................     54.6         51.8
Gross margin...........................................     45.4         48.2
Selling, general and administrative....................     32.5         29.7
Research and development...............................     16.7         17.2
Total operating expenses...............................     49.2         46.9
Income (loss) from operations..........................     (3.8)         1.3
Interest income, net...................................      0.5          0.7
Other income, net......................................      0.3          0.3
Income (loss) before taxes.............................     (3.0)         2.3
Income tax expense (benefit)...........................     (0.9)         0.7
Net income (loss)......................................     (2.1)         1.6
</TABLE>
 
FORWARD-LOOKING STATEMENTS
 
     This document includes forward-looking statements about the Company's
business, revenues and expenses, effective tax rate, and operating and capital
requirements. Forward-looking statements made or incorporated by reference
herein are not guarantees of future performance. In addition, forward-looking
statements may be included in various other PictureTel documents to be issued in
the future and in various oral statements by PictureTel representatives to
security analysts and investors from time to time. Any forward-looking
statements are subject to risks that could cause the actual results to vary
materially. Such risks are discussed below ("Risk Factors Which May Affect
Future Results") and in related portions of this document.
 
BUSINESS DEVELOPMENTS
 
     On September 19, 1997, after the Company's reexamination (with assistance
from its outside auditors) of leasing and other indirect channel transactions,
the Company announced that it would reverse revenue related to certain of these
transactions and, as a result, the Company intended to restate its financial
statements for the third and fourth quarters of 1996 and the first quarter of
1997. On November 13, 1997, after completion of its reexamination, the Company
announced that it would also restate the second quarter of 1997. The
restatements were required to reverse product sales recorded which contained
rights of return, contingent liabilities, payment contingencies, payment
uncertainties, or product sales for which delivery did not occur at the end of
the period. The restatements were also required to record such product sales in
the period in which the rights of return lapsed, contingencies or uncertainties
were resolved, or delivery was completed, if at all. Certain transactions which
were reversed have not been re-recorded as revenues in later periods. The
financial statements and related notes to consolidated financial statements set
forth in this Form 10-Q reflect the restatements that were made on Form 10-Q/A
for the three month period ended March 29, 1997 as filed with the Securities and
Exchange Commission on January 13, 1998.
 
RESULTS OF OPERATIONS
 
  Three Months Ended March 29, 1998 Compared to Three Months Ended March 29,
1997
 
     REVENUES.  The Company's revenues decreased $20,890,000, or 17%, in the
three month period ended March 29, 1998 compared to the comparable period in
1997. The decrease in revenue was primarily a result of
 
                                       10
<PAGE>   12
 
lower unit volumes and the reduction in the average selling price of
videoconferencing systems compared with the comparable period in 1997. Sales of
group and desktop videoconferencing products accounted for 69% and 7%,
respectively, of revenues for the three month period ended March 29, 1998,
compared with 70% and 9%, respectively, for the comparable period in 1997.
Personal desktop product revenue declined during the three month period ended
March 29, 1998 from the comparable period in 1997 due to the lower unit volumes
and the reduction in average selling prices. In addition, sales of bridge
products accounted for approximately 10% and 11% of the Company's revenues for
the three month period ended March 29, 1998 and the comparable period in 1997,
respectively. Revenues from service and maintenance agreements increased
$2,568,000 or 22% for the period ended March 29, 1998 compared with the
comparable period in 1997. Service revenues totaled 14% and 10% of total
revenues for the period ended March 29, 1998 and the comparable period in 1997,
respectively.
 
     The Company's revenues from sales to foreign markets were approximately
$48,113,000 for the three month period ended March 29, 1998 compared to
approximately $57,909,000 for the comparable period in 1997 representing 48% and
47% of total revenues, respectively. The decrease in international revenues is a
result of lower unit volumes and the reduction in average selling prices. The
Company expects that international revenues will continue to account for a
significant portion of total revenues.
 
     GROSS MARGIN.  The Company's gross margin decreased $12,850,000 or 22%, in
the three month period ended March 29, 1998 compared to the comparable period in
1997. Gross margin as a percentage of revenues was 45% for the three month
period ended March 29, 1998 compared to 48% for the comparable period in 1997.
Gross margin as a percentage of revenues decreased as a result of a reduction in
the average selling price of videoconferencing systems, lower unit volumes and a
change in the mix of sales of videoconferencing products and service and
maintenance agreements. The reduced average selling prices are expected to
continue and may impact future gross margins.
 
     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses decreased $3,455,000 or 10% from the comparable period in 1997 but
increased as a percentage of revenues to 33% from 30%. The dollar decrease in
spending resulted primarily from efforts to reduce the Company's cost structure
which began during in the last two quarters of fiscal 1997.
 
     RESEARCH AND DEVELOPMENT.  Research and development expenses decreased
$4,035,000, or 19% for the three month period ended March 29, 1998 from the
comparable period in 1997 and were 17% of revenues for both the three month
period ended March 29, 1998 and the comparable period in 1997. Research and
development expenditures, prior to the capitalization of software costs, were
$18,356,000 for the three month period ended March 29, 1998 and $22,774,000 for
the comparable period in 1997 or 18% and 19% of revenues, respectively. The
Company capitalized software costs of $1,457,000 for the three month period
ended March 29, 1998 and $1,840,000 for the comparable period in 1997
representing 8% of aggregate research and development expenditures for both the
three month period ended March 29, 1998 and the comparable period in 1997. The
Company reduced the level of research and development investment during the
first quarter of fiscal 1998 from the comparable period in 1997 and continues to
evaluate the scope and direction of various programs. There can be no assurance
that management's initiatives to focus its efforts on the costs of research and
development will be successful or that any technologies will be ultimately
successfully commercialized.
 
     OPERATING INCOME (LOSS).  Operating income (loss) as a percentage of
revenues decreased from income of 1% of revenues for the period ended March 29,
1997 to a loss of 4% of revenues for the period ended March 29, 1998. The
operating loss was impacted primarily by the lower revenue and lower gross
margin as discussed above.
 
     NET INTEREST INCOME.  Net interest income decreased to $448,000 for the
three month period ended March 29, 1998 from $891,000 for the comparable period
in 1997. The decrease was primarily the result of higher interest expense
resulting from capital lease obligations and lower average marketable securities
balances.
 
     OTHER INCOME, NET.  Other income, net of $325,000 and $404,000 for the
three month period ended March 29, 1998 and the comparable period in 1997,
respectively, consists primarily of net gains on foreign currency transactions
and net gains on sales of securities.
 
                                       11
<PAGE>   13
 
     INCOME TAXES.  The Company's effective tax rate for the three month period
ended March 29, 1998 and the comparable period in 1997 was 29%. The effective
tax rate for the three month period ended March 29, 1998 rate differs from the
federal statutory rate due to state and foreign taxes offset by research and
development tax credits and an increase to the valuation allowance related to
certain current and prior year tax credits and net operating losses whose
benefits are uncertain. The effective tax rate for the three month period ended
March 29, 1997 was lower than the federal statutory rate primarily due to the
benefits of the research and development credits, the foreign sales corporation
and a decrease in the valuation allowance. At March 29, 1998, the realization of
the net deferred tax asset is dependent on generating sufficient taxable income
in future periods. The amount of the deferred tax asset considered realizable
could be significantly or completely reduced. Although realization is not
assured, management believes it is more likely than not that the net deferred
tax asset will be realized. The valuation allowance primarily offsets the
deferred benefit of certain federal and state tax credit carryforwards whose
benefit is uncertain. The Company will continue to assess the valuation of the
deferred tax asset each quarter.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At March 29, 1998 the Company had $38,913,000 in cash and cash equivalents
and $43,546,000 in short-term marketable securities. During the three month
period ended March 29, 1998 the Company generated $6,336,000 in cash from
operating activities. The primary source of cash during the three month period
ended March 29, 1998 was the collection of accounts receivable.
 
     The Company has available up to $40,000,000 under its revolving credit
agreement and approximately $4,400,000 available under local foreign guaranteed
lines of credit to certain of its foreign subsidiaries. At March 29, 1998, there
were no borrowed amounts outstanding under the revolving credit agreement and
$29,100,000 in standby letters of credit outstanding under the revolving credit
agreement. There was $934,000 outstanding under the foreign lines of credit. At
March 29, 1998, the Company had $25,008,000 outstanding under various leasing
lines including the obligation for the lease of the facility at 50 Minuteman
Road in Andover which was $20,659,000 at March 29, 1998.
 
     The revolving credit agreement is secured by cash and marketable securities
and contains certain financial covenants, including the maintenance of certain
ratios including total liabilities to tangible net worth and minimum net income
(loss) requirements. The Company was in compliance with all covenants for the
quarter ending March 29, 1998.
 
     The Company believes that funds from operations, equipment lease financing,
available borrowings under its various credit agreements and existing cash, cash
equivalents and marketable securities will be sufficient to meet the Company's
near term operating and capital requirements.
 
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information," which
changes the way public companies report information about their operating
segments. SFAS No. 131, which is based on the management approach to segment
reporting, establishes requirements to report selected segment information
quarterly and to report entity-wide disclosures about products and services,
major customers, and material geographic locations in which the entity holds
assets and reports revenues. The Company will adopt SFAS No. 131 for its fiscal
year ending December 31, 1998. The Company is currently evaluating the effects
of this change on its reporting of segment and geographic information but does
not expect the statement to have a material impact on its financial position or
results of operations as the statement requires only additional disclosure.
 
     In January 1997, the Securities and Exchange Commission issued Financial
Reporting Release No. 48 which expands the disclosure requirements for certain
derivative and other financial instruments. The Company adopted the enhanced
accounting policy disclosure requirements in the fourth quarter of the fiscal
year ending December 31, 1997. The Company will begin furnishing the qualitative
and quantitative disclosures of market risk in the second quarter of the fiscal
year ending December 31, 1998 and expects to adopt the tabular presentation.

                                       12
<PAGE>   14
 
RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS
 
     The following risk factors relating to the business of PictureTel and
certain forward looking statements contained herein, should be considered by
current and prospective investors of PictureTel Common Stock. These factors
should be considered in conjunction with other information contained in this
document and the documents incorporated by reference.
 
     NEW PRODUCTS, COST REDUCTIONS, TECHNOLOGICAL CHANGE, AND EVOLVING
MARKETS.  The Company is engaged in an industry that is still emerging as a
result of extensive research and development efforts which continue to bring to
market new, more technologically advanced products introduced on an accelerated
basis. Simultaneously, the larger telecommunications market is in a heightened
competitive state due to deregulation throughout the world. In order to maintain
its market share leadership role in this fast-paced emerging market, the Company
must introduce significant innovative, technologically leading and competitively
leading new products. There is no assurance that such new products will be
introduced by the Company, or if introduced, be accepted by its customers. In
addition to products operating in an ISDN environment, new technologies and
networks for delivering videoconferencing and data collaboration services, such
as the Internet and corporate intranets or LANs, have opened new delivery
mediums and opportunities for videoconferencing. Industry standards for such new
technologies are still being developed and in the meantime, there has been a
slowdown in the growth of the general market for videoconferencing products due
to customer uncertainty There can be no assurance that the Company will be
successful in obtaining cost reductions or in developing and marketing suitable
new products with attractive margins for these new technologies and networks
that are competitive and accepted by the marketplace. The possible transition,
migration and/or convergence of technologies is difficult to predict and could
have profound implications for the industry. Furthermore there can be no
assurance that some existing products could be rendered obsolete due to the
changing technology.
 
     COMPETITION.  In its established businesses of group systems and desktop
systems, the Company competes with a number of larger corporations, such as Sony
and Intel, which have greater financial and marketing resources than the
Company. In the developing businesses of videoconferencing over networks such as
the Internet and LANs, and compact systems, a number of new companies have begun
to offer competitive products. In addition, alliances between companies which
compete with the Company and companies which develop and market network products
as well as mergers among competitors are intensifying competition in the
marketplace. This increased competition, together with a slowdown in the growth
of the general market for videoconferencing products, have led and may continue
to lead to increases in the defection or dilution of PictureTel's distribution
channel partners to competitors, decreases in average selling prices and margins
in both group and desktop videoconferencing systems or a lower Company segment
market share for newer products and services in the emerging areas of
network-based videoconferencing products and services. In some cases, PictureTel
competes with its channel partners for various services which increases the
complexity of channel management. In addition, other companies such as Microsoft
or Intel may respectively offer network videoconferencing software solutions or
incorporate standard algorithms into processor chips free of additional charge
which may reduce the value PictureTel technology provides to the market,
especially in its lower end products. Some of PictureTel's competitors have
introduced a new sales model consisting of leasing all videoconferencing
equipment and videoconferencing services on a monthly basis. In addition, future
prices the Company is able to obtain for its products and services may further
decrease from historical levels as a result of new product introductions by
others, price competition, technological change, or otherwise. These factors may
impact the Company's growth and operating results.
 
     MANUFACTURING.  Some key subassemblies and products are currently available
only from one vendor and some vendors are smaller companies with limited
financial resources that could prove to be inadequate. In some cases components
are sourced from only one vendor, even where multiple sources are available, to
maintain quality control and enhance the working relationship with the vendor.
In addition, the Company from time to time enters into development arrangements
with other third parties to develop and incorporate new features and functions
into the Company's products. Failure of these third parties to fulfill their
respective obligations under these development arrangements could have a
material adverse effect on the Company's results of operations. The Company's
business could be adversely affected by delays or interruptions in
                                       13
<PAGE>   15
 
delivery, and poor quality of supplies, subassemblies or products from such key
vendors. Additionally, the Company designs and procures certain circuits,
components and subassemblies from non-videoconferencing divisions of
PictureTel's competitors such as Sony. Failure to obtain adequate supplies or
having to redesign and source supplies from another manufacturer may take
substantial time and expense which could impact product shipments and could
materially and adversely affect the Company's business, financial condition or
results of operations.
 
     PRODUCT PROTECTION AND INTELLECTUAL PROPERTY.  PictureTel's success depends
in part on its proprietary technology. PictureTel attempts to protect its
proprietary technology through patents, copyrights, trademarks, trade secrets
and license agreements. In absence of broad patent protection (which is not
likely), and despite PictureTel's reliance upon its proprietary confidential
information, competitors of PictureTel have been able to use algorithms or other
features similar to those used by PictureTel to design and manufacture products
that are directly competitive with PictureTel's products. The Company believes
that due to the rapid pace of technological change in the videoconferencing
industry, legal protection for its products is less significant than factors
such as the Company's use, implementation and enhancement of standards-based
open architecture and the Company's ongoing efforts in product innovation.
 
     Although PictureTel does not believe that its products infringe the
proprietary rights of any third parties, third parties have asserted
infringement and other claims against PictureTel from time to time, and there
can be no assurance that third parties will not assert such claims against
PictureTel in the future or that such claims will not be successful. PictureTel
could incur substantial costs and diversion of management resources with respect
to the defense of any claims relating to proprietary rights which could have a
material adverse effect on PictureTel business, financial condition or result of
operations. (See "Litigation" for details regarding current intellectual
property litigation.)
 
     RECENT HISTORY OF LOSSES.  PictureTel reported a 5% decrease in revenues
for 1997 as compared to revenues for 1996 and a decrease in net income from
$32,172,000 net income in 1996 to $39,398,000 net loss in 1997. These results
have been adjusted for the restatement announced in the third quarter of 1997
for the financial results for the first and second quarters of 1997 and the
third and fourth quarters of 1996. PictureTel recorded significant other charges
in 1997 to bring expenses into line with its lower level of revenues and a lower
expected rate of growth. The decrease in revenues continued in the first quarter
of 1998, and the Company reported a net loss of $2,165,000 for the three months
ended March 29, 1998. Revenues and prospects for growth have been impacted by
the decline in the average selling price for many PictureTel products, a decline
in the profitability of the industry, and by a slowdown in the general market
for videoconferencing products, in part resulting from the perceived uncertainty
of customers as to how the existing products of the Company and its competitors
will fit in with expected new multimedia videoconferencing products utilizing
the Internet and LAN systems. Continued lower operating results may impact
covenants the Company has agreed to with banks in its revolving credit
agreement. There can be no assurance that PictureTel can return to the level of
profit in relation to net sales experienced in years prior to 1997.
 
     POTENTIAL FLUCTUATIONS OF QUARTERLY OPERATING RESULTS.  The majority of the
Company's revenues in each quarter result from orders booked in that quarter and
a substantial portion of the Company's orders and shipments typically occur
during the last weeks of each quarter so that forecasting of revenue and product
mix is both complex and difficult. Unanticipated variations in the timing of
receipt of customer orders in any quarter may produce significant fluctuations
in quarterly revenues. As a result, a shortfall in revenue compared to internal
expectations may not evidence itself until late in the quarter and any resulting
impact on earnings may not be determinable until some weeks after the end of the
quarter. The Company's ability to maintain or increase net revenues depend upon
its ability to increase unit volume sales. There can be no assurance that the
Company will increase unit sales volumes. Other factors which may cause
operational results to fluctuate include the timing of new product announcements
and introductions by the Company and its competitors; market acceptance of new
or enhanced versions of the Company's products; changes in the product mix of
sales; changes in the relative proportions of sales among distribution channels
or among customers within each distribution channel; changes in manufacturing
costs; and general economic factors such as the recent decline of currency
values in the Asian markets.
 
                                       14
<PAGE>   16
 
     VOLATILITY OF STOCK PRICE.  As is frequently the case with the share price
of high technology companies, the market price of PictureTel's stock has been,
and may continue to be, volatile. Factors such as quarterly fluctuations in
results of operations, increased competition, the introduction of new products
by PictureTel and by its competitors, changes in the mix of sales channels, the
timing of significant customer orders, and macroeconomic conditions generally,
may have a significant adverse effect on the market price of PictureTel's stock
in any given period. In addition, the stock market has, from time to time,
experienced extreme price and volume fluctuations, which have particularly
affected the market price for many high-technology companies and which, on
occasion, have appeared to be unrelated to the operating performance of such
companies.
 
     DEPENDENCE ON KEY PERSONNEL.  In February, 1998, Bruce Bond succeeded Dr.
Norman Gaut as Chief Executive Officer. There can be no assurance that the
transition from Dr. Gaut to Mr. Bond will be successful. PictureTel depends on a
limited number of key management personnel, including Mr. Bond; Mr. David
Grainger, Group Vice President of Field Operations; Mr. David Goselin, Vice
President, Operations; Mr. Stephen Chambers, Vice President, Marketing; Mr.
Lawrence Bornstein, Vice President, Human Resources; Mr. Richard Goldman, Vice
President and Chief Financial Officer; and Dr. Gaut (as acting Vice President of
Engineering). There has been considerable change in the PictureTel management
team since late 1996, and the loss of the services of one or more of
PictureTel's key personnel or the inability to attract, retain, motivate and
manage additional key personnel could have a material adverse effect on the
business or operating results of PictureTel. In addition, in recent months, the
Company has experienced an increase in voluntary employee attrition from
engineering and other departments. There is no assurance, given the competitive
nature of the current job market, that PictureTel will be able to adequately
fill the open positions.
 
     INTERNAL ACCOUNTING CONTROLS.  On September 19, 1997, after the Company's
reexamination (with assistance from its outside auditors) of leasing and other
indirect channel transactions, the Company announced that it would reverse
revenue related to certain of these transactions and, as a result, the Company
announced that it intended to restate its financial statements for the third and
fourth quarters of 1996 and the first quarter of 1997. On November 13, 1997,
after completion of its reexamination, the Company announced it would also
restate the second quarter of 1997. The restatements were required to reverse
product sales recorded which contained rights of return, contingent liabilities,
payment contingencies, payment uncertainties, or product sales for which
delivery did not occur until the end of the period. The restatements were also
required to record such product sales in the period in which the rights of
return lapsed, contingencies or uncertainties were resolved, or delivery was
completed. Certain transactions which were reversed have not been re-recorded as
revenues in later periods.
 
     The Company has taken actions including personnel changes, new procedures
and greater oversight by the Audit Committee of the Board of Directors. The
Company believes these actions will strengthen its internal controls so that the
practices which led to the Company's restated financial reporting in the earlier
periods will not reoccur. However, there can be no assurance that these actions
by the Company will be sufficient.
 
     YEAR 2000 COMPLIANCE.  PictureTel has formed an internal Year 2000
compliance team to evaluate its internal information systems purchased from
PictureTel's suppliers. PictureTel's internal team is in the process of
completing the inventory of all internal applications and infrastructure to
determine Year 2000 compliance. PictureTel will require its suppliers to resolve
any compliance failures and ensure a detailed implementation plan for its
products in order to achieve Year 2000 compliance in a timely manner. Since Year
2000 compliance of products used by PictureTel depends upon the supplier's
cooperation, unresolved failures remain a possibility. In the event PictureTel
does not achieve full Year 2000 compliance in its internal information systems
prior to December 31, 1999, PictureTel could experience disruption, delays and
use of incorrect data which could have a material adverse impact on its
operations.
 
     PictureTel has tested its products for Year 2000 compliance and has
determined that most PictureTel products have either successfully passed Year
2000 compliance testing or have been deemed Year 2000 not-applicable by virtue
of the fact that they do not process dates in any manner. As of May 7, 1998 only
one of PictureTel's currently offered products have failed compliance testing.
PictureTel has developed a plan to achieve Year 2000 compliance testing for
these products by June 1, 1998 by planning to make a software
 
                                       15
<PAGE>   17
 
update available to its customers which will enable the products to achieve
compliance. A small number of PictureTel's installed base products do not pass
Year 2000 compliance testing. For these non-compliant older versions of
PictureTel products, PictureTel has generated simple workarounds that are
planned to be made available to customers which will allow the systems to
operate with full functionality. PictureTel has determined that only one product
does not pass Year 2000 compliance tests and no workaround has yet been found.
In the event PictureTel's customers or future customers find PictureTel's
solutions to any outstanding Year 2000 compliance issues unacceptable, such
customers may attempt to make warranty claims or cease purchasing non-compliant
products. These events would affect the Company's ability to meet its revenue
goals and increase costs associated with the products.
 
                                       16
<PAGE>   18
 
                          PART II -- OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS
 
  (a) Datapoint Litigation
 
     In December 1993, PictureTel was sued by Datapoint Corporation in the
United States District Court for the Northern District of Texas. Datapoint
alleged that certain of PictureTel's products infringed patent rights allegedly
owned by Datapoint. Datapoint had been joined as plaintiff by John Frassanito
and David Monroe, two individuals who claimed to have rights to Datapoint's
patents. The plaintiffs sought approximately $100-190 million in damages for
alleged past infringement and an injunction against alleged future infringement.
On April 9, 1998, a jury returned a verdict in favor of PictureTel finding that
PictureTel did not infringe the Datapoint patents and that the Datapoint patent
claims raised against PictureTel were invalid. On April 29, 1998 Datapoint filed
an appeal. The Company plans to file a cross-appeal.
 
  (b) Shareholder Litigation
 
     Since September 23, 1997, seven class action shareholders' complaints have
been filed against the Company, Norman E. Gaut, Chairman of the Board and former
Executive Officer, and Les Strauss, the former Vice President and Chief
Financial Officer, in the United States District Court for the District of
Massachusetts. The plaintiffs, who brought these actions on behalf of themselves
and others similarly situated, are: (1) Faith Egli, Civil Action No.
97-12135-DPW; (2) Jerome H. Lipman, IRA, Civil Action No. 97-12238-DPW; (3)
Daniel Frucher, Civil Action No. 97-12310-DPW; (4) Edmond J. Proulx and James
Harris, Civil Action No. 97-12345-DPW; (5) Marvin Barab and Thomas J. Curley,
Civil Action No. 97-12338-DPW; (6) Mark Szen and Nancy Szen, Civil Action No.
97-12439-DPW; and (7) Michael D. Kugler, Civil Action No. 97-12537 PBS. These
plaintiffs filed a consolidated complaint on February 11, 1998, encaptioned In
re PictureTel Corporation Securities Litigation, Civil Action No. 97-12135-DPW.
 
     The original Complaints were filed following the Company's announcement on
September 19, 1997 that it would restate its financial results for the first
quarter of fiscal 1997 and the last two quarters of fiscal 1996 and were amended
when the Company announced that it would also restate the second fiscal quarter
of 1997 on November 13, 1997. The consolidated Complaint alleges that the
defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act
of 1934 and Rule 10b-5, promulgated thereunder, during the period from October
17, 1996 through November 13, 1997, through the alleged preparation and
dissemination of materially false and misleading financial statements which
artificially inflated the prices of PictureTel common stock. The consolidated
Complaint seeks to recover an unspecified amount of damages, including
attorneys' and experts' fees and expenses. The Company is currently
investigating the allegations in the consolidated Complaint and will respond to
the allegations in a timely fashion when responses become due.
 
     No discovery has occurred and the Company expresses no opinion as to the
likely outcome.
 
  (c) NV Holdings, Inc.
 
     On February 13, 1998, NV Holdings, Inc., filed a complaint in the State
District Court for Dallas county, Texas, NV Holdings, Inc. v. PictureTel
Corporation, Cause No. DF 98-01404 alleging against PictureTel tortious
interference with both business advantage and existing contracts, as well as
business disparagement and slander. While the plaintiff has listed no specific
damages they are seeking an injunction and $20,000,000 in punitive damages. The
Company believes that it has meritorious defenses to the allegations of the
complaint filed against it, and is vigorously defending against the lawsuit and
pursuing recovery under the following actions filed by the Company. The Company
has filed two separate actions against parties that are believed, by the
Company, to be related to NV Holdings, Inc.: (1) (PictureTel Corporation v. NV
Technologies, Inc. d/b/a NuVision Technologies, Inc., et al, Civil Action No.
98-337A, filed February 17, 1998, for False Advertising and Unfair Business
Practices). On February 23, 1998, the court issued a preliminary injunction
against NuVision Technologies, Inc., and all persons acting in concert,
participation or combination with them, prohibiting them from continuing to
publish a certain advertisement that the Company alleges is false and
misleading. As of March 9, 1998, the advertisement in question had continued to
 
                                       17
<PAGE>   19
 
be published and the Company is aggressively pursuing its legal remedies; and
(2) (PictureTel Corporation v. NV Technologies d/b/a NuVision Technologies,
Inc., Civil action No. 98-166-C, filed January 23, 1998, for Breach of
Contract), seeking the repayment of approximately $4,000,000 from NuVision
Technologies, Inc.
 
     Limited discovery has begun with regard to the enforcement of the
preliminary injunction, however, the Company expresses no opinion as to the
likely outcome of any of these matters.
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
     (a) Exhibits
 
     10.1  Employment agreement between PictureTel Corporation and Bruce Bond
           dated March 1, 1998.
 
     10.2  Change in control agreement between PictureTel Corporation and Bruce
           Bond dated February 25, 1998.
 
     10.3  Option granted to Bruce Bond effective January 31, 1998.
 
     27.1  Financial Data Schedule for the period ended March 29, 1998 as
           required by Item 601(c) of Regulation S-K
 
     27.2  Financial Data Schedule for the period ended March 29, 1997 as
           required by Item 601 (c) of Regulation S-K
 
     27.3  Financial Data Schedule for the period ended March 29, 1996 as
           required by Item 601 (c) of Regulation S-K
 
     (b) Reports on Form 8-K
 
     1.  On February 11, 1998, the Company filed a report on Form 8-K to
         announce the appointment of Bruce R. Bond as President and Chief
         Executive Officer.
 
                                       18
<PAGE>   20
 
                                   SIGNATURE
 
     Pursuant to the Securities Exchange Act of 1934, the registrant has duly
caused this report on Form 10-Q to be signed on its behalf by the undersigned
thereunto duly authorized.
 
                                          PICTURETEL CORPORATION
 
                                                /s/ RICHARD B. GOLDMAN
                                          --------------------------------------
                                          Richard B. Goldman
                                          Vice President and Chief Financial
                                          Officer,
                                          (Principal Financial and Accounting
                                          Officer)
                                          May 13, 1998.
 
                                       19