##### Table of Contents









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 July 1, 2000

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 July 1, 2000

Commission File Number 1-9434

PICTURETEL CORPORATION

(Exact name of Registrant as specified in its
charter)


|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|                                                               
|                                                               
|                                                               
|                                                               
|Delaware                                                        |  | 04-2835972                           
|(State or other jurisdiction of
	Incorporation or organization) |  | (I.R.S. Employer
	Identification No.)
|                                                               
|100 Minuteman Road, Andover, MA                                 |  | 01810                                
|(Address of principal executive offices)                        |  | (Zip Code)                           
|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.

[X]  Yes  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 August 4, 2000, there
were outstanding 40,966,647 shares of common stock of the
registrant.



---






---

TABLE OF CONTENTS



|                                               |                                                                                                 |                                            |  |  |  |  |  | 
|---------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I. CONSOLIDATED FINANCIAL INFORMATION    
|                                               | Item 1.   Consolidated Financial Statements                                                    
|                                               |                                                                                                 | Consolidated Balance Sheets               
|                                               |                                                                                                 | Consolidated Statements of Operations     
|                                               |                                                                                                 | Consolidated Statements of Cash Flows     
|                                               |                                                                                                 | Notes to Consolidated Financial Statements
|                                               | Item 2.   Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                               | Item 3. Quantitative and Qualitative Disclosures about Market Risk                             
|Part II -- OTHER INFORMATION                  
|                                               | Item 1. Legal Proceedings                                                                      
|                                               | Item 2. Changes in Securities and Use of Proceeds                                              
|                                               | Item 4. Submission of Matters to a Vote of Security Holders                                    
|                                               | Item 5. Other Information                                                                      
|                                               | Item 6. Exhibits and Reports on Form 8-K                                                       
|                                               | SIGNATURE                                                                                      
|EX-3.1.2 Certificate of Decrease              
|EX-10.19.2 Amendment #1 to Credit Agreement   
|EX-10.28 Employment Agreement w/ Lewis Jaffe  
|EX-10.28.1 Executive Officer Change in Control
|EX-27 Financial Data Schedule                 



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PICTURETEL CORPORATION

FORM 10-Q

INDEX

|                                            |          |  |                                                                                                |  |  |               |  |  | 
|------------------------------------------- | -------- |  | ---------------------------------------------------------------------------------------------- |  |  | ------------- |  |  | 
|PART I.  CONSOLIDATED FINANCIAL INFORMATION |          |  |                                                                                                | 
|                                            | Item  1. |  | Consolidated Financial Statements:                                                             |  |  |               | 
|                                           
|                                           
|                                           
|                                           
|                                            |          |  | Consolidated Balance Sheets July 1, 2000 and December 31, 1999                                 |  |  | 2             | 
|                                           
|                                           
|                                           
|                                           
|                                            |          |  | Consolidated Statements of Operations Three and Six Months Ended July 1, 2000 and July 4, 1999 |  |  | 3             | 
|                                           
|                                           
|                                           
|                                           
|                                            |          |  | Consolidated Statements of Cash Flows Six Months Ended July 1, 2000 and July 4, 1999           |  |  | 4             | 
|                                           
|                                           
|                                           
|                                           
|                                            |          |  | Notes to Consolidated Financial Statements                                                     |  |  | 5-10          | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item  2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  |  | 11-21         | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item  3. |  | Quantitative and Qualitative Disclosures about Market Risk                                     |  |  | 21            | 
|PART II.  OTHER INFORMATION                 |          |  |                                                                                                | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item  1. |  | Legal Proceedings                                                                              |  |  | 21            | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item  2. |  | Changes in Securities                                                                          |  |  | 22            | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item  3. |  | Defaults Upon Senior Securities                                                                |  |  | NotApplicable | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item  4. |  | Submission of Matters to a Vote of Security Holders                                            |  |  | 23            | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item  5. |  | Other Information                                                                              |  |  | 23            | 
|                                           
|                                           
|                                           
|                                           
|                                            | Item  6. |  | Exhibits and Reports on Form 8-K                                                               |  |  | 23            | 
|                                           
|                                           
|                                           
|                                           
|Signatures                                  |          |  | 25                                                                                             | 

1



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##### Table of Contents






PART I.  CONSOLIDATED FINANCIAL INFORMATION




PICTURETEL CORPORATION




CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)


|                                                                                                                                                           |                                                                                                                                                             |                                                                         |        |              |         |  |        |          |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------ | ------------ | ------- |  | ------ | -------- | ------- | 
|                                                                                                                                                           |                                                                                                                                                             | July 1,                                                                 |        | December 31,
|                                                                                                                                                           |                                                                                                                                                             | 2000                                                                    |        | 1999        
|                                                                                                                                                           |                                                                                                                                                             |                                                                         |        |             
|                                                                                                                                                           |                                                                                                                                                             | (Unaudited)                                                             |        |             
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|ASSETS                                                                                                                                                     |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Current assets:                                                                                                                                            |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Cash and cash equivalents                                                                                                                                   |                                                                         | $      | 21,033       |         |  | $      | 21,915   |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Restricted cash and cash equivalents                                                                                                                        |                                                                         |        | 2,625        |         |  |        | 1,200    |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Marketable securities                                                                                                                                       |                                                                         |        |             |         |  |        | 37,787   |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Accounts receivable, less allowances for doubtful accounts of
	$2,872 and $5,642 at July 1, 2000 and December  31,
	1999, respectively                      |                                                                         |        | 50,144       |         |  |        | 77,120   |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Inventories                                                                                                                                                 |                                                                         |        | 32,837       |         |  |        | 32,930   |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Other current assets                                                                                                                                        |                                                                         |        | 10,018       |         |  |        | 12,562   |        
|                                                                                                                                                           |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|                                                                                                                                                           | Total current assets                                                                                                                                        |                                                                         |        | 116,657      |         |  |        | 183,514  |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Restricted cash                                                                                                                                            |                                                                                                                                                             |                                                                         | 28,441 |              |         |  |       |         
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Property and equipment, net                                                                                                                                |                                                                                                                                                             |                                                                         | 81,067 |              |         |  | 86,219 |         
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Capitalized software costs, net                                                                                                                            |                                                                                                                                                             |                                                                         | 2,663  |              |         |  | 11,341 |         
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Goodwill, net                                                                                                                                              |                                                                                                                                                             |                                                                         |       |              |         |  | 4,242  |         
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Other assets                                                                                                                                               |                                                                                                                                                             |                                                                         | 7,467  |              |         |  | 9,554  |         
|                                                                                                                                                           |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|                                                                                                                                                           |                                                                                                                                                             | Total assets                                                            |        | $            | 236,295 |  |        | $        | 294,870 | 
|                                                                                                                                                           |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|LIABILITIES, REDEEMABLE PREFERRED STOCK AND
	STOCKHOLDERS EQUITY                                                                                         
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Current liabilities:                                                                                                                                       |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Short-term borrowings                                                                                                                                       |                                                                         | $      | 9,450        |         |  | $      | 196      |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Accounts payable                                                                                                                                            |                                                                         |        | 20,814       |         |  |        | 21,681   |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Accrued compensation and benefits                                                                                                                           |                                                                         |        | 8,737        |         |  |        | 10,517   |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Accrued expenses                                                                                                                                            |                                                                         |        | 35,851       |         |  |        | 37,518   |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Current portion of capital lease obligations                                                                                                                |                                                                         |        | 1,866        |         |  |        | 1,782    |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Deferred revenue                                                                                                                                            |                                                                         |        | 25,286       |         |  |        | 28,826   |        
|                                                                                                                                                           |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|                                                                                                                                                           | Total current liabilities                                                                                                                                   |                                                                         |        | 102,004      |         |  |        | 100,520  |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Capital lease obligations, net of current portion                                                                                                          |                                                                                                                                                             |                                                                         | 53,640 |              |         |  | 54,584 |         
|                                                                                                                                                           |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|                                                                                                                                                           |                                                                                                                                                             | Total liabilities                                                       |        |              | 155,644 |  |        |          | 155,104 | 
|                                                                                                                                                           |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|Commitments and contingencies (Notes 6 and 9)                                                                                                              |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Redeemable convertible preferred stock, $.01 par value;
	15,000,000 shares authorized; 4,478,708 shares outstanding at
	July 1, 2000 and December 31, 1999 |                                                                                                                                                             |                                                                         | 30,500 |              |         |  | 30,500 |         
|                                                                                                                                                           |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|Stockholders equity:                                                                                                                                      |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Common stock, $.01 par value; 80,000,000 shares authorized;
	41,058,712 and 40,617,634 shares issued and outstanding at
	July 1, 2000 and December 31, 1999 |                                                                         |        | 411          |         |  |        | 406      |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Additional paid-in capital                                                                                                                                  |                                                                         |        | 228,500      |         |  |        | 225,513  |        
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Accumulated deficit                                                                                                                                         |                                                                         |        | (176,595     | )       |  |        | (114,780 | )      
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Accumulated other comprehensive loss                                                                                                                        |                                                                         |        | (1,609       | )       |  |        | (1,317   | )      
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Treasury stock, 92,065 shares, at cost                                                                                                                      |                                                                         |        | (556         | )       |  |        | (556     | )      
|                                                                                                                                                           |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|                                                                                                                                                           |                                                                                                                                                             | Total stockholders equity                                              |        |              | 50,151  |  |        |          | 109,266 | 
|                                                                                                                                                           |                                                                                                                                                             |                                                                         |        |              |         |  |        |         
|                                                                                                                                                           |                                                                                                                                                             | Total liabilities, redeemable preferred stock and
	stockholders equity |        | $            | 236,295 |  |        | $        | 294,870 | 
|                                                                                                                                                           |                                                                                                                                                             |                                                                         |        |              |         |  |        |         

The accompanying notes are an integral part of the consolidated
financial statements.

2



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##### Table of Contents



PICTURETEL CORPORATION




CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)


(Unaudited)


|                                                        |                                     |                          |         |                  |        |         |         |         |        |   |         |        |        |   |         |        |         | 
|------------------------------------------------------- | ----------------------------------- | ------------------------ | ------- | ---------------- | ------ | ------- | ------- | ------- | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------- | 
|                                                        |                                     |                          |         |                 
|                                                        |                                     | Three Months Ended       |         | Six Months Ended
|                                                        |                                     |                          |         |                 
|                                                        |                                     | July 1,                  |         | July 4,          |        | July 1, |         | July 4,
|                                                        |                                     | 2000                     |         | 1999             |        | 2000    |         | 1999   
|                                                        |                                     |                          |         |                  |        |         |         |        
|Revenue                                                 |                                     | $                        | 61,424  |                  |        | $       | 85,962  |         |        | $ | 126,490 |        |        | $ | 162,156 |       
|                                                       
|                                                       
|                                                       
|                                                       
|Cost of revenue                                         |                                     |                          | 54,847  |                  |        |         | 58,937  |         |        |   | 102,195 |        |        |   | 110,909 |       
|                                                        |                                     |                          |         |                  |        |         |         |         |        |   |         |        |        |   |         |       
|Gross margin                                            |                                     |                          | 6,577   |                  |        |         | 27,025  |         |        |   | 24,295  |        |        |   | 51,247  |       
|                                                        |                                     |                          |         |                  |        |         |         |         |        |   |         |        |        |   |         |       
|Operating expenses:                                     |                                     |                          |         |                  |        |         |         |         |        |   |         |        |        |   |         |       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Selling, general and administrative |                          |         | 30,077           |        |         |         | 39,485  |        |   |         | 57,385 |        |   |         | 71,847 |        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Research and development            |                          |         | 13,596           |        |         |         | 18,348  |        |   |         | 27,049 |        |   |         | 35,871 |        
|                                                        |                                     |                          |         |                  |        |         |         |         |        |   |         |        |        |   |         |       
|                                                        |                                     | Total operating expenses |         |                  | 43,673 |         |         |         | 57,833 |   |         |        | 84,434 |   |         |        | 107,718 | 
|                                                        |                                     |                          |         |                  |        |         |         |         |        |   |         |        |        |   |         |       
|Loss from operations                                    |                                     |                          | (37,096 | )                |        |         | (30,808 | )       |        |   | (60,139 | )      |        |   | (56,471 | )     
|                                                       
|                                                       
|                                                       
|                                                       
|Interest expense, net                                   |                                     |                          | (584    | )                |        |         | (363    | )       |        |   | (875    | )      |        |   | (164    | )     
|                                                       
|                                                       
|                                                       
|                                                       
|Other income, net                                       |                                     |                          | 503     |                  |        |         | 375     |         |        |   | 829     |        |        |   | 890     |       
|                                                        |                                     |                          |         |                  |        |         |         |         |        |   |         |        |        |   |         |       
|Loss before income tax expense                          |                                     |                          | (37,177 | )                |        |         | (30,796 | )       |        |   | (60,185 | )      |        |   | (55,745 | )     
|                                                       
|                                                       
|                                                       
|                                                       
|Income tax expense                                      |                                     |                          | 796     |                  |        |         | 1,036   |         |        |   | 1,630   |        |        |   | 2,057   |       
|                                                        |                                     |                          |         |                  |        |         |         |         |        |   |         |        |        |   |         |       
|Net loss                                                |                                     |                          | (37,973 | )                |        |         | (31,832 | )       |        |   | (61,815 | )      |        |   | (57,802 | )     
|                                                       
|                                                       
|                                                       
|                                                       
|Preferred stock beneficial conversion feature           |                                     |                          |        |                  |        |         |        |         |        |   |        |        |        |   | 5,612   |       
|                                                        |                                     |                          |         |                  |        |         |         |         |        |   |         |        |        |   |         |       
|Net loss applicable to common shareholders              |                                     | $                        | (37,973 | )                |        | $       | (31,832 | )       |        | $ | (61,815 | )      |        | $ | (63,414 | )     
|                                                        |                                     |                          |         |                  |        |         |         |         |        |   |         |        |        |   |         |       
|Net loss per common share  basic and diluted           |                                     | $                        | (0.93   | )                |        | $       | (0.79   | )       |        | $ | (1.52   | )      |        | $ | (1.57   | )     
|                                                        |                                     |                          |         |                  |        |         |         |         |        |   |         |        |        |   |         |       
|Weighted average shares outstanding  basic and diluted |                                     |                          | 40,967  |                  |        |         | 40,334  |         |        |   | 40,798  |        |        |   | 40,276  |       
|                                                        |                                     |                          |         |                  |        |         |         |         |        |   |         |        |        |   |         |       

The accompanying notes are an integral part of the consolidated
financial statements.

3



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##### Table of Contents



PICTURETEL CORPORATION






CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars in thousands)


(Unaudited)


|                                                    |                                                                              |                                                        |         |         |         |   |         |         |         |  
|--------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------ | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                    |                                                                              |                                                       
|                                                    |                                                                              | Six Months Ended                                      
|                                                    |                                                                              |                                                       
|                                                    |                                                                              | July 1,                                                |         | July 4,
|                                                    |                                                                              | 2000                                                   |         | 1999   
|                                                    |                                                                              |                                                        |         |        
|Cash flows from operating activities:               |                                                                              |                                                        |         |         |         |   |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net loss                                                                     |                                                        | $       | (61,815 | )       |   | $       | (57,802 | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Adjustments to reconcile net loss to net cash used in operating
	activities: |                                                        |         |         |         |   |         |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Depreciation and amortization                          |         |         | 14,523  |   |         |         | 18,163  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Provision for doubtful accounts                        |         |         | (109    | ) |         |         | 1,822   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Provision for inventory obsolescence                   |         |         | 9,710   |   |         |         | 2,435   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Write-down of long-lived assets                        |         |         | 9,159   |   |         |         |        |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Other non-cash items                                   |         |         |        |   |         |         | 102     |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Changes in operating assets and liabilities:                                 |                                                        |         |         |         |   |         |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Accounts receivable                                    |         |         | 25,905  |   |         |         | 4,136   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Inventories                                            |         |         | (10,252 | ) |         |         | (8,362  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Insurance recovery receivable                          |         |         |        |   |         |         | (9,450  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Other current assets                                   |         |         | 2,199   |   |         |         | (276    | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Accounts payable                                       |         |         | (589    | ) |         |         | (10,213 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Accrued compensation and benefits and accrued expenses |         |         | (2,958  | ) |         |         | 3,011   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Accrued litigation settlement                          |         |         |        |   |         |         | 12,000  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                              | Deferred revenue                                       |         |         | (3,113  | ) |         |         | 4,633   |  
|                                                    |                                                                              |                                                        |         |         |         |   |         |        
|Net cash used in operating activities               |                                                                              |                                                        | (17,340 | )       |         |   | (39,801 | )      
|                                                    |                                                                              |                                                        |         |         |         |   |         |        
|Cash flows from investing activities:               |                                                                              |                                                        |         |         |         |   |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchase of marketable securities                                            |                                                        |         | (31,262 | )       |   |         | (73,718 | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from sale of marketable securities                                  |                                                        |         | 69,049  |         |   |         | 77,601  |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchases of property and equipment                                          |                                                        |         | (3,465  | )       |   |         | (7,076  | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from sale of fixed assets                                           |                                                        |         | 9       |         |   |         | 13      |        
|                                                    |                                                                              |                                                        |         |         |         |   |         |        
|Net cash provided by (used in) investing activities |                                                                              |                                                        | 34,331  |         |         |   | (3,180  | )      
|                                                    |                                                                              |                                                        |         |         |         |   |         |        
|Cash flows from financing activities:               |                                                                              |                                                        |         |         |         |   |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Increase in restricted cash and cash equivalents                             |                                                        |         | (29,866 | )       |   |         | (5,000  | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds (payments) on short-term/ long-term borrowings                      |                                                        |         | 9,252   |         |   |         | (842    | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Principal payments under capital lease obligations                           |                                                        |         | (860    | )       |   |         | (2,395  | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchase of treasury stock                                                   |                                                        |         |        |         |   |         | (556    | )      
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from preferred stock issuance                                       |                                                        |         |        |         |   |         | 30,500  |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from exercise of stock options                                      |                                                        |         | 2,460   |         |   |         | 1,811   |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from employee stock purchase plan                                   |                                                        |         | 533     |         |   |         | 790     |        
|                                                    |                                                                              |                                                        |         |         |         |   |         |        
|Net cash provided by (used in) financing activities |                                                                              |                                                        | (18,481 | )       |         |   | 24,308  |        
|                                                    |                                                                              |                                                        |         |         |         |   |         |        
|Effect of exchange rate changes on cash             |                                                                              |                                                        | 608     |         |         |   | 975     |        
|                                                    |                                                                              |                                                        |         |         |         |   |         |        
|Net decrease in cash and cash equivalents           |                                                                              |                                                        | (883    | )       |         |   | (17,698 | )      
|                                                   
|                                                   
|                                                   
|                                                   
|Cash and cash equivalents at beginning of period    |                                                                              |                                                        | 21,915  |         |         |   | 62,642  |        
|                                                    |                                                                              |                                                        |         |         |         |   |         |        
|Cash and cash equivalents at end of period          |                                                                              | $                                                      | 21,033  |         |         | $ | 44,944  |        
|                                                    |                                                                              |                                                        |         |         |         |   |         |        

The accompanying notes are an integral part of the consolidated
financial statements.

4



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##### Table of Contents



PICTURETEL CORPORATION






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Dollars in thousands, except per share amounts)


1.  Basis of Presentation

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/A for the year ended December 31, 1999, as
filed with the Securities and Exchange Commission on
August 14, 2000.

In the opinion of the management of PictureTel Corporation, the
accompanying unaudited consolidated financial statements contain
all adjustments necessary to present fairly the Companys
financial position at July 1, 2000 and December 31,
1999, results of operations for the three and six months ended
July 1, 2000 and July 4, 1999 and changes in cash flows
 for the six months ended July 1, 2000 and July 4,
1999.

The results disclosed in the Consolidated Balance Sheet at
July 1, 2000, the Consolidated Statement of Operations for
the three and six months ended July 1, 2000 and the
Consolidated Statement of Cash Flows for the six months ended
July 1, 2000 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. These estimates affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the reporting period. The financial statements include
significant estimates of the net realizable value of accounts
receivable, inventory and capitalized software and the amount of
certain contingent liabilities. Actual results could differ from
those estimates.

The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
The Company has incurred recurring losses from operations and
requires additional financing. These factors raise substantial
doubt about its ability to continue as a going concern.
Managements plans to continue as a going concern rely
heavily on forecasted revenue from new products, which are
planned for delivery commencing in the third quarter of 2000. In
addition to the revenue plan, management has obtained a letter of
 commitment from Congress Financial Corporation for an
asset-based secured revolving line of credit and has obtained an
additional $21,845 in convertible Series B Preferred Stock
which will be classified as mezzanine financing on the
Companys balance sheet. Management is continuing to
identify and implement other actions to improve the
Companys liquidity, including the sale of non-core business
 assets. While there can be no assurances that these plans will
be successful, management believes these actions, if successful,
will provide sufficient financial resources for the next twelve
months and beyond. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.

2.  Inventories

Inventories consist of the following:

|                |  |         |        |              |  |   |        | 
|--------------- |  | ------- | ------ | ------------ |  | - | ------ | 
|                |  | July 1, |        | December 31,
|                |  | 2000    |        | 1999        
|                |  |         |        |             
|Purchased Parts |  | $       | 5,543  |              |  | $ | 3,184  | 
|               
|               
|               
|               
|Work in Process |  |         | 1,218  |              |  |   | 1,157  | 
|               
|               
|               
|               
|Finished Goods  |  |         | 26,076 |              |  |   | 28,589 | 
|                |  |         |        |              |  |   |        | 
|                |  | $       | 32,837 |              |  | $ | 32,930 | 
|                |  |         |        |              |  |   |        | 

In the second quarter of 2000, the Company recorded a $4,721
charge to reduce inventory to its net realizable value. The
charge primarily reflects a reduction in the carrying value of
the inventory to its

5



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
Continued

(Dollars in thousands, except per share amounts)


estimated fair market value, based on estimated selling prices,
less costs to sell. The inventory write-down is associated with
lower than expected sales of PC-based videoconferencing systems,
exacerbated by the Companys transition to its next
generation product line, PictureTel Series 900.

3.  Impairment of Long-lived Assets

Based on continuing operating losses and a change in product
strategy for a division of the Companys videoconferencing
products segment, the Company performed a review of its
intangible assets including purchased software, tradename,
assembled workforce and goodwill. In connection with this review,
 the Company determined that the carrying value of the goodwill
and other intangible assets exceeded its fair value based on
Company projections of the discounted future net cash flows from
use together with the residual value of these assets.
Accordingly, the Company recorded an impairment charge of $9,159
during the second quarter of 2000, of which $5,020 is included in
 cost of revenue and $4,139 is included in selling, general and
administrative expense in the Companys Consolidated
Statements of Operations and impacted the Companys
videoconferencing products segment.

4.  Earnings Per Share

The following table reconciles the numerator and the denominator
of the basic and diluted EPS computations shown on the
Consolidated Statements of Operations:

|                                  |                                            |                    |       |                  |   |         |       |         |   |   |       |         |   |   |       |         |  
|--------------------------------- | ------------------------------------------ | ------------------ | ----- | ---------------- | - | ------- | ----- | ------- | - | - | ----- | ------- | - | - | ----- | ------- | -
|                                  |                                            |                    |       |                 
|                                  |                                            | Three Months Ended |       | Six Months Ended
|                                  |                                            |                    |       |                 
|                                  |                                            | July 1,            |       | July 4,          |   | July 1, |       | July 4,
|                                  |                                            | 2000               |       | 1999             |   | 2000    |       | 1999   
|                                  |                                            |                    |       |                  |   |         |       |        
|Basic and Diluted EPS Computation |                                            |                    |       |                  |   |         |       |         |   |   |       |         |   |   |       |        
|                                 
|                                 
|                                 
|                                 
|Numerator:                        |                                            |                    |       |                  |   |         |       |         |   |   |       |         |   |   |       |        
|                                 
|                                 
|                                 
|                                 
|                                  | Net loss applicable to common shareholders |                    | $     | (37,973          | ) |         | $     | (31,832 | ) |   | $     | (61,815 | ) |   | $     | (63,414 | )
|                                  |                                            |                    |       |                  |   |         |       |         |   |   |       |         |   |   |       |        
|Denominator:                      |                                            |                    |       |                  |   |         |       |         |   |   |       |         |   |   |       |        
|                                 
|                                 
|                                 
|                                 
|                                  | Weighted average common shares outstanding |                    |       | 40,967           |   |         |       | 40,334  |   |   |       | 40,798  |   |   |       | 40,276  |  
|                                  |                                            |                    |       |                  |   |         |       |         |   |   |       |         |   |   |       |        
|Basic and diluted EPS             |                                            | $                  | (0.93 | )                |   | $       | (0.79 | )       |   | $ | (1.52 | )       |   | $ | (1.57 | )      
|                                  |                                            |                    |       |                  |   |         |       |         |   |   |       |         |   |   |       |        

Options to purchase shares of the Companys common stock of
6,821,164 and 6,406,873 were outstanding at July 1, 2000 and
 July 4, 1999, respectively, but were not included in the
computation of diluted EPS because they were antidilutive due to
the net losses sustained in 2000 and in 1999. Warrants for
2,723 shares of the Companys Common Stock and
Series A Convertible Preferred Stock of 4,478,708 shares
were outstanding at July 1, 2000, but were not included in
the computation of diluted EPS because they were antidilutive due
 to the loss sustained in 2000.

6



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
Continued

(Dollars in thousands, except per share amounts)


5.  Comprehensive Loss

The Company adopted SFAS No. 130, Reporting
Comprehensive Income, in fiscal year 1998. The calculation
of comprehensive income includes the loss as reported in the
Consolidated Statements of Operations, the gains and losses on
foreign currency translation adjustments and unrealized gains and
 losses on marketable securities.

|                                                |  |                    |         |                  |  |         |         |         |  |   |         |   |  |   |         |  
|----------------------------------------------- |  | ------------------ | ------- | ---------------- |  | ------- | ------- | ------- |  | - | ------- | - |  | - | ------- | -
|                                                |  |                    |         |                 
|                                                |  | Three Months Ended |         | Six Months Ended
|                                                |  |                    |         |                 
|                                                |  | July 1,            |         | July 4,          |  | July 1, |         | July 4,
|                                                |  | 2000               |         | 1999             |  | 2000    |         | 1999   
|                                                |  |                    |         |                  |  |         |         |        
|Net loss                                        |  | $                  | (37,973 | )                |  | $       | (31,832 | )       |  | $ | (61,815 | ) |  | $ | (57,802 | )
|                                               
|                                               
|                                               
|                                               
|Foreign currency translations, net              |  |                    | (43     | )                |  |         | 871     |         |  |   | (291    | ) |  |   | 62      |  
|                                               
|                                               
|                                               
|                                               
|Unrealized gains on marketable securities,
	net |  |                    | 17      |                  |  |         | 1,150   |         |  |   |        |   |  |   | 9,573   |  
|                                                |  |                    |         |                  |  |         |         |         |  |   |         |   |  |   |         |  
|Comprehensive loss                              |  | $                  | (37,999 | )                |  | $       | (29,811 | )       |  | $ | (62,106 | ) |  | $ | (48,167 | )
|                                                |  |                    |         |                  |  |         |         |         |  |   |         |   |  |   |         |  

6.  Debt

In May 2000, the Company amended its asset-based secured
revolving credit agreement dated July 15, 1999, which will
now expire on May 17, 2001. The amended credit facility has
provided $8,500 in working capital through a short-term loan and
a $30,086 letter of credit facility. The Company has
$29,587 of outstanding standby letters of credit issued
under this agreement as of July 1, 2000. Fees for letters of
credit outstanding against this facility are payable at
225 basis points per annum of the face amount. Interest for
the term loan is payable at prime plus 3% and such rate
shall increase by 1 1/2% on August 15, 2000 and on
 each ninetieth day anniversary of such date thereafter. The
amended credit agreement is collateralized by all assets of the
parent Company and certain stock of its subsidiaries. The Company
 is required to maintain cash collateral equal to 105% of
outstanding letters of credit in an account held at the lender.
Cash subject to the cash collateral requirement amounts to
$31,066 as of July 1, 2000. The secured letters of credit
expire between October 31, 2000 and June 1, 2001. The
credit agreement also contains certain financial covenants,
including net income (loss) and minimum working capital
requirements. The Company has obtained a waiver on
August 10, 2000 for not meeting its second quarter 2000 net
income requirement.

On July 24, 2000, the Company received, and accepted, a
letter of commitment from Congress Financial Corporation for an
asset-based secured revolving line of credit with a limit of
$35,000, based upon certain lending formulas. This facility
replaces the credit facility amended in May 2000. This new
facility will provide additional borrowing capacity of $26,500.
This new facility also provides the Company with letter of credit
 capabilities, secured by the Companys receivables and
inventory pledged under this new debt facility and/ or its cash.

In addition, on July 13, 2000 the Company announced that it
had agreements with investors to purchase $21,845 (8,738,000
shares at $2.50 per share) of new convertible shares of
Series B Preferred Stock. In conjunction with the purchase
of convertible Series B Preferred Stock, each investor also
received a specified small minority interest in the
Companys subsidiary, 1414c, Inc. In addition, in accordance
 with the convertible Series B Preferred Stock agreement,
the Company also entered into a joint venture and hosting
agreement with one of the investors. These transactions were
completed and the funds became available on July 24, 2000.
The Company used $8,500 of the proceeds of this stock sale
to pay off its $8,500 term loan discussed above and expects
to use the balance of the proceeds for working capital and
necessary operational expenses. The Company is currently
evaluating the accounting for these agreements.

7



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
Continued

(Dollars in thousands, except per share amounts)


Local lines of credit are available for short-term advances of up
 to $950 to certain of the Companys foreign
subsidiaries. The agreements require interest payable up to one
quarter of one percent, per annum. Borrowings of $950 were
outstanding against these local lines of credit at July 1,
2000.

In June 1999, the Company entered into a short-term security
 agreement with BankBoston. Under this agreement, the Company
pledged to the Bank certain amounts of cash and cash equivalents
as collateral for obligations of the Company arising from use of
the Banks cash management and foreign exchange services.
The requirement for collateral under this agreement was
terminated in June 2000. There are no remaining liabilities
under this agreement.

The Company has operating leases for various rented properties.
The Company signed an agreement to sublease MultiLinks
former facility at 6 Riverside Drive in Andover, Massachusetts in
 May 1999, as part of its space consolidation efforts. As of
 July 1, 2000, the remaining obligation under this operating
 lease was $7,634. After giving effect to expected sublease
income, this obligation is $4,918. In addition, in
June 1998, the Company subleased its property at
50 Minuteman Road for a ten-year term. After giving effect
to expected sublease income, the remaining obligation under the
capital lease was $16,694 at July 1, 2000.

On June 26, 2000, the Company negotiated an option agreement
 with the landlord of its facility located at 200 Minuteman
Road in Andover, Massachusetts, whereby the Company has agreed to
 vacate certain space in the 200 Minuteman facility during
the third quarter in exchange for termination of the lease. The
Company anticipates that under this option agreement, an
$11,992 letter of credit would be drawn down by the landlord
 and an approximate $4,000 in deposits would be returned to the
Company.

7.  Recently Issued Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This
statement was originally effective for all fiscal years beginning
 after June 15, 1999. In June 1999, the FASB issued
Statement 137, which delayed the effective date of
Statement 133 by one year. Statement 133 will be
effective for PictureTels fiscal year beginning
January 1, 2001. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value.
 Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a
hedge transaction and, if it is, the type of hedge transaction.
The Company is currently evaluating the effects of this change
but anticipates that the adoption of SFAS 133 will not have
a significant effect on the Companys financial position or
results of operations.

In December 1998, the American Institute of Certified Public
 Accountants issued Statement of Position No. 98-9,
Modification of SOP No. 97-2, Software Revenue
Recognition, With Respect to Certain Transactions
(SOP 98-9). SOP 98-9 amends SOP 97-2
to require recognition of revenue using the residual
method in circumstances outlined in SOP 98-9. Under
the residual method, revenue is recognized as follows:
(1) the total fair value of undelivered elements, as
indicated by vendor specific objective evidence, is deferred and
subsequently recognized in accordance with the relevant sections
of SOP 97-2 and (2) the difference between the total
arrangement fee and the amount deferred for the undelivered
elements is recognized as revenue related to the delivered
elements. The Company has adopted SOP 98-9 and it has not
had a significant impact on its results of operations or
financial position.

In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements,
(SAB 101) as amended by SAB 101B, which is
effective no later than the year ending December 31, 2000.
SAB 101 clarifies the Securities and Exchange
Commissions views regarding recognition of revenue. The
Company will adopt SAB 101 in the fourth quarter of 2000.
The Company has identified one series of transactions where the
adoption of SAB 101 is expected to

8



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
Continued

(Dollars in thousands, except per share amounts)


have a material effect on its 2000 financial position and results
 of operations but it has not yet completed its analysis.

In March 2000, the Financial Accounting Standards Board
released FASB Interpretation No. 44
(FIN 44), Accounting for Certain
Transactions involving Stock Compensation  an
interpretation of APB Opinion No. 25. FIN 44
provides guidance for certain issues that arise in applying
Accounting Principles Board Opinion No. 25 (APB
No. 25), Accounting for Stock Issued to
Employees. The Company does not expect that the adoption of
 FIN 44 will have a significant impact on the Companys
 results of operations or financial position.

8.  Segment Information

The Company has determined that its reportable segments are
videoconferencing products, videoconferencing services and
audioconferencing. The videoconferencing products segment
develops, manufactures and markets visual communications systems
and collaboration software. The videoconferencing services
segment provides services for the videoconferencing products. The
 audioconferencing segment develops, manufactures, markets and
services multipoint control units.

|                                 |  |              |         |              |  |              |        |       |  |       |        |   |  |   |         |   |  |   |         |  
|-------------------------------- |  | ------------ | ------- | ------------ |  | ------------ | ------ | ----- |  | ----- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                 |  | Video-       |         | Video-       |  |              |        |       |  |      
|                                 |  | conferencing |         | conferencing |  | Audio-       |        |       |  |      
|                                 |  | Products     |         | Services     |  | Conferencing |        | Other |  | Total
|                                 |  |              |         |              |  |              |        |       |  |      
|Three months ended July 1, 2000: |  |              |         |              |  |              |        |       |  |       |        |   |  |   |         |   |  |   |         |  
|                                
|                                
|                                
|                                
|Revenue from external customers  |  | $            | 36,123  |              |  | $            | 18,208 |       |  | $     | 7,093  |   |  |   |        |   |  | $ | 61,424  |  
|                                
|                                
|                                
|                                
|Operating income (loss)          |  | $            | (34,308 | )            |  | $            | 2,748  |       |  | $     | 621    |   |  | $ | (6,157  | ) |  | $ | (37,096 | )
|                                
|                                
|                                
|                                
|Three months ended July 4, 1999: |  |              |         |              |  |              |        |       |  |       |        |   |  |   |         |   |  |   |         |  
|                                
|                                
|                                
|                                
|Revenue from external customers  |  | $            | 65,838  |              |  | $            | 16,109 |       |  | $     | 4,015  |   |  |   |        |   |  | $ | 85,962  |  
|                                
|                                
|                                
|                                
|Operating income (loss)          |  | $            | (19,685 | )            |  | $            | 231    |       |  | $     | (3,459 | ) |  | $ | (7,895  | ) |  | $ | (30,808 | )
|                                
|                                
|                                
|                                
|Six months ended July 1, 2000:   |  |              |         |              |  |              |        |       |  |       |        |   |  |   |         |   |  |   |         |  
|                                
|                                
|                                
|                                
|Revenue from external customers  |  | $            | 80,761  |              |  | $            | 36,406 |       |  | $     | 9,323  |   |  |   |        |   |  | $ | 126,490 |  
|                                
|                                
|                                
|                                
|Operating income (loss)          |  | $            | (49,970 | )            |  | $            | 4,209  |       |  | $     | (2,745 | ) |  | $ | (11,633 | ) |  | $ | (60,139 | )
|                                
|                                
|                                
|                                
|Six months ended July 4, 1999:   |  |              |         |              |  |              |        |       |  |       |        |   |  |   |         |   |  |   |         |  
|                                
|                                
|                                
|                                
|Revenue from external customers  |  | $            | 119,676 |              |  | $            | 32,889 |       |  | $     | 9,591  |   |  |   |        |   |  | $ | 162,156 |  
|                                
|                                
|                                
|                                
|Operating income (loss)          |  | $            | (41,910 | )            |  | $            | 1,291  |       |  | $     | (3,036 | ) |  | $ | (12,816 | ) |  | $ | (56,471 | )

The classification Other consists of corporate
administrative functions, which are excluded from the
videoconferencing products, videoconferencing services and
audioconferencing segments for management decision making.

The Company evaluates the performance of its segments based upon
operating income. There is no material intersegment revenue.
Transfers of videoconferencing products to the videoconferencing
services segment are recorded at standard cost and are not
tracked for management reporting purposes. Asset information by
reportable segment has not been disclosed since the Company does
not produce such information internally.

9.  Litigation

A.  SEC Investigation

In May 1999, the Company was informed that the Securities
and Exchange Commission (SEC) had initiated a formal
investigation of matters related to the Companys 1997
restatement of its earnings. The Company has been cooperating
with the SEC and will continue to do so. The Company expresses no
 opinion

9



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
Continued

(Dollars in thousands, except per share amounts)


as to the likely outcome. While no assurances can be provided,
the Company does not believe that the investigation will have a
material adverse affect to its business, financial condition,
results of operations or cash flows.

B.  Revnet, Inc.

On June 2, 1998, the Company was served with a complaint
from a former distribution channel customer, Revnet, Inc., which
has ceased operations. (Revnet, Inc., v. PictureTel
Corporation. Civil Action 98092039, filed April 2, 1998,
 in the Circuit Court for Baltimore City, Maryland.) The
complaint alleges that the Company breached an oral contract.
Revnet is allegedly seeking $200,000 in damages. Discovery is in
process. The Company believes that the complaint and the claim
for damages are without merit and intends to vigorously defend
against them. In addition, after limited discovery under the
above named suit, the Company on September 13, 1999 filed a
related action in the Circuit Court for Baltimore City, Maryland
against Revnet, Inc., Vuecom, Inc. (an entity related to Revnet,
Inc.), George Harris IV, George Sandmann and Lou Brown, (PictureTel Corporation v. RevNet, Inc., et al. Civil
Action 24-C99-004406) alleging among other things Breach of
Contract, Fraudulent Inducement and Securities Fraud. The
Companys complaint is seeking more than $7,000 in damages.
While no assurances can be provided, the Company does not believe
 that the outcome of this dispute will have a material adverse
affect on its business, financial condition, results of
operations or cash flows.

In addition to the above, the Company has also been and is from
time to time subject to claims, such as potential patent
infringements, and suits incidental to the conduct of business.
There can be no assurance that the Companys insurance will
be adequate to cover all liabilities that may arise out of such
claims. Further, although the Company intends to defend itself
vigorously against all such claims, the ultimate outcome of the
claims cannot be accurately predicted. The Company does not
believe that any claim of which it is aware, other than the
claims listed above, could result in an outcome that will have a
material adverse affect to its business, financial condition,
results of operations or cash flows.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS


(Dollars in thousands, unless otherwise indicated)


Forward-Looking Statements

This document includes forward-looking statements about the
Companys business, revenue 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 in Risk Factors Which May Affect
Future Results and in other related portions of this
document.

Business Developments

During the second quarter of 2000, the Company has continued to
develop its business plan, inclusive of a multi-pronged approach
by focusing on improving liquidity, disposition of non-core
business assets, consolidation opportunities and process
improvement.

Financing activities are in process. On July 24, 2000, the
Company consummated a preferred stock transaction resulting in
funding of $21,845 through the issuance of Series B
convertible preferred shares which will be classified in the
mezzanine section of the Companys balance sheet. In
conjunction with the purchase of convertible Series B Preferred
Stock, each investor also received a specified small minority
interest in the Companys subsidiary, 1414c, Inc.
Additionally, in accordance with the convertible Series B
Preferred Stock agreement, the Company also entered into a joint
venture and hosting agreement with one of the investors. In
addition, the Company has received a commitment for an
asset-based secured revolving line of credit. While there are no
assurances, the Company expects to finalize this transaction
within the next few weeks.

With regard to disposition of non-core business assets, the
Company received a letter of intent on July 31, 2000 from a
third party to acquire the Companys Starlight division and
expects the sale, if completed, to occur in the third quarter. On
 October 28, 1999, the Company announced it had retained an
investment banker to represent it in the sale of MultiLink, Inc.,
 the Companys audioconferencing subsidiary. The Company
intends to operate MultiLink, Inc. as a wholly-owned subsidiary
while it considers a number of divestiture alternatives.

The Company has continued to seek out consolidation
opportunities. During the second quarter of 2000, the Company
negotiated an option agreement with the landlord of its facility
located at 200 Minuteman Road in Andover, Massachusetts, whereby
the Company has agreed to vacate certain space in the
200 Minuteman facility during the third quarter in exchange
for termination of the lease. The Company anticipates that under
this option agreement, a $11,992 letter of credit would be drawn
down by the landlord and an approximate $4,000 in deposits would
be returned to the Company. Furthermore, an annual reduction of
approximately $5,000 in rent and related costs would result from
this consolidation. The Company will continue to pursue
opportunities with focus on consolidation and process
improvements.

On July 31, 2000, the Company announced the launch of its
next generation product, PictureTel 900 Series. Deferred customer
 orders, in anticipation of the new product, impacted second
quarter revenue and are expected to continue impacting revenue in
 the third quarter. The Company started shipping the PictureTel
900 Series on August 14, 2000.

The Company previously announced the formation of
1414c, Inc. a wholly-owned subsidiary established to provide
 application service providers (ASPs) access to a broad range of
IP-based interactive communication solutions. These solutions
will enable ASPs to provide rapid Web access to streaming,
videoconferencing, Voice-over-IP, and other Web-enabled
interactive solutions such as call scheduling and launching. The
Company is currently exploring joint venture and other financing
opportunities to develop this activity.

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Results of Operations

The following table sets forth, for the periods indicated, the
percentage of revenue for certain items in the Companys
Consolidated Statements of Operations for each period:

|                                              |  |                    |       |                  |  |         |       |         |  |  |       |   |  |  |       |  
|--------------------------------------------- |  | ------------------ | ----- | ---------------- |  | ------- | ----- | ------- |  |  | ----- | - |  |  | ----- | -
|                                              |  |                    |       |                 
|                                              |  | Three Months Ended |       | Six Months Ended
|                                              |  |                    |       |                 
|                                              |  | July 1,            |       | July 4,          |  | July 1, |       | July 4,
|                                              |  | 2000               |       | 1999             |  | 2000    |       | 1999   
|                                              |  |                    |       |                  |  |         |       |        
|Revenue                                       |  |                    | 100   | %                |  |         | 100   | %       |  |  | 100   | % |  |  | 100   | %
|                                             
|                                             
|                                             
|                                             
|Cost of revenue                               |  |                    | 89.3  |                  |  |         | 68.6  |         |  |  | 80.8  |   |  |  | 68.4  |  
|                                             
|                                             
|                                             
|                                             
|Gross margin                                  |  |                    | 10.7  |                  |  |         | 31.4  |         |  |  | 19.2  |   |  |  | 31.6  |  
|                                             
|                                             
|                                             
|                                             
|Selling, general and administrative           |  |                    | 49.0  |                  |  |         | 45.9  |         |  |  | 45.4  |   |  |  | 44.3  |  
|                                             
|                                             
|                                             
|                                             
|Research and development                      |  |                    | 22.1  |                  |  |         | 21.3  |         |  |  | 21.3  |   |  |  | 22.1  |  
|                                             
|                                             
|                                             
|                                             
|Total operating expenses                      |  |                    | 71.1  |                  |  |         | 67.2  |         |  |  | 66.7  |   |  |  | 66.4  |  
|                                             
|                                             
|                                             
|                                             
|Loss from operations                          |  |                    | (60.4 | )                |  |         | (35.8 | )       |  |  | (47.5 | ) |  |  | (34.8 | )
|                                             
|                                             
|                                             
|                                             
|Interest expense, net                         |  |                    | (0.1  | )                |  |         | (0.4  | )       |  |  | (0.7  | ) |  |  | (0.1  | )
|                                             
|                                             
|                                             
|                                             
|Other income, net                             |  |                    |      |                  |  |         | 0.4   |         |  |  | 0.6   |   |  |  | 0.5   |  
|                                             
|                                             
|                                             
|                                             
|Loss before income tax expense                |  |                    | (60.5 | )                |  |         | (35.8 | )       |  |  | (47.6 | ) |  |  | (34.4 | )
|                                             
|                                             
|                                             
|                                             
|Income tax expense                            |  |                    | 1.3   |                  |  |         | 1.2   |         |  |  | 1.3   |   |  |  | 1.2   |  
|                                             
|                                             
|                                             
|                                             
|Net loss                                      |  |                    | (61.8 | )                |  |         | (37.0 | )       |  |  | (48.9 | ) |  |  | (35.6 | )
|                                             
|                                             
|                                             
|                                             
|Preferred stock beneficial conversion feature |  |                    |      |                  |  |         |      |         |  |  |      |   |  |  | 3.5   |  
|                                             
|                                             
|                                             
|                                             
|Net loss applicable to common shareholders    |  |                    | (61.8 | )                |  |         | (37.0 | )       |  |  | (48.9 | ) |  |  | (39.1 | )

Three Months Ended July 1, 2000
Compared to Three Months Ended July 4, 1999

Revenue.Consolidated second quarter 2000 revenue of
$61,424 decreased $24,538, or 29%, from second quarter 1999
levels. Videoconferencing products revenue was impacted by
customer deferrals of orders, while awaiting the introduction of
new products in the third quarter. Service revenue continued to
grow during the second quarter as the result of increased sales
of spare parts, customer integration services and hosting of
multipoint videoconference calls. An increase in the
audioconferencing segments (MultiLinks) revenue was
the result of new product sales related to the segments new
 high-capacity audio bridge. Revenue from sales to foreign
markets was approximately 40% and 51% of total revenue during the
 second quarters of 2000 and 1999, respectively.

Gross Margin.Overall second quarter 2000 gross margin of
$6,577 declined $20,448, or 76%, from prior year levels and
represented 11% of revenue versus 31% in the second quarter of
1999. Lower revenue accounts for the dollar decline, while lower
average selling prices for videoconferencing products, together
with charges of $4,721 necessary to reduce inventory to net
realizable value and an impairment charge of $5,020 to write-down
 purchased software, were primarily responsible for the decreased
 margin percentage.

Operating Expenses.Second quarter 2000 operating expenses
 of $43,673 decreased $14,160, or 25%, from comparable prior year
 levels. Based on continuing operating losses and a change in
product strategy for a division of the Companys
videoconferencing products segment, impairment charges of $4,139
related to the write-down of goodwill, tradename and assembled
workforce are included in operating expenses during the second
quarter of 2000. Included in the second quarter of 1999, were
special charges of $6,976 related to headcount reductions and
real estate consolidation actions. Without these charges,
operating expenses declined $11,323, or 22%.

Income Taxes.The Companys effective income tax rate
 was 2.1% in the second quarter of 2000 compared to 3.4% in the
second quarter of 1999. The tax rate in both periods relates to
state and foreign taxes.

Videoconferencing
Products, Videoconferencing Services and Audioconferencing
Segments

Videoconferencing Products.Second quarter 2000 revenue
for this segment, which develops, manufactures, and markets
visual communications systems and collaboration software, totaled
 $36,123. This represents

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Although total videoconferencing system units sold was flat
versus the prior year, higher-end group system volume decreased
by 56%, while lower-end desktop/ personal system volume increased
 by 100%. The large increase in desktop/ personal systems was the
 result of significant volume purchases. Total units sold of
larger group systems, Concordes and Venues, was down 38% from the
 second quarter of 1999.

The videoconferencing products segment generated a $34,308
operating loss during the second quarter of 2000 compared to a
$19,685 operating loss in the second quarter of 1999. Declining
revenue, together with a charge of $4,721 to reduce PC-based
videoconferencing systems inventory to net realizable value,
contributed to the increased operating loss. The inventory
write-down is associated with lower than expected sales of
PC-based videoconferencing systems, exacerbated by the
Companys transition to its next generation product line,
PictureTel Series 900. An impairment charge of $9,159
related to the write-down of certain intangible assets also
contributed to the increased operating loss for the quarter.

Videoconferencing Services.The videoconferencing services
 segment provides maintenance as well as professional consulting,
 integration and management services for videoconferencing
products sold by the Company and its competitors. Second quarter
2000 revenue grew from $16,109 in 1999 to $18,208 in 2000, an
increase of 13%. Significantly higher sales of spare parts
accounted for 43% of the revenue increase. Professional service
activity increased during the quarter particularly from the sale
of custom integration services and hosting multi-point
videoconference calls for customers. Maintenance revenue
increased 1% from prior year levels.

Segment operating income was $2,748 during 2000s second
quarter compared with operating income of $231 in the comparable
prior year period. Increased profitability was due to higher
business volume, improved gross margin and a 20% reduction in
selling and administrative expenses.

Audioconferencing (MultiLink).The audioconferencing
segment develops, manufactures, markets and services multipoint
audioconferencing control units. Segment revenue for the second
quarter of 2000 totaled $7,093 compared with revenue of $4,015
during the second quarter of 1999. Sales of the new System 700
audio bridge, which was introduced in December of 1999,
contributed to the increased revenue.

Operating income increased from a loss of $3,459 in 1999s
second quarter to an operating income of $621 in the second
quarter of 2000. The increase in operating income is primarily
due to an increase in revenue, while operating expenses remained
relatively flat.

Six Months Ended July 1, 2000 Compared
 to Six Months Ended July 4, 1999

Revenue.Total revenue of $126,490 decreased $35,666, or
22%, in the six months ended July 1, 2000 compared to the
comparable six months of 1999. Videoconferencing products revenue
 was impacted by customer deferrals of orders, while awaiting the
 introduction of new products in the third quarter of 2000.
Service revenue continued to grow during the first six months of
2000, as the result of increased sales of spare parts, customer
integration services and hosting of multi-point videoconference
calls. Audioconferencing (MultiLink) segment revenue during the
first six months of 2000 and 1999 remained relatively flat
between the two periods. Revenue from sales to foreign markets
decreased 4% during the six months ended July 1, 2000 as
compared to the same period in 1999, and represented 46% of total
 sales.

Gross Margin.Overall gross margin declined $26,952 to
$24,295 in the six months ended July 1, 2000 compared to the
 comparable period in 1999. Gross margin as a percentage of
revenue declined to 19% from 32% for the period ended
July 1, 2000 as compared to the comparable period in 1999.
Lower revenue accounts for the dollar decline, while lower
average selling prices for videoconferencing products, together
with charges of $6,006 necessary to reduce inventory to net
realizable value and an impairment charge of $5,020 to write-down
 purchased software, were primarily responsible for the decreased
 margin percentage.

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Operating Expenses.Operating expenses for the first six
months of 2000 totaled $84,434, representing a decline of
$23,284, or 22%, compared to the first six months of 1999. Based
on continuing operating losses and a change in product strategy
for a division of the Companys videoconferencing products
segment, impairment charges of $4,139 related to the write-down
of goodwill, tradename and assembled workforce are included in
operating expenses during the six-month period in 2000. Included
in the comparable six-month period in 1999 were $6,976 of special
 charges related to headcount reductions and real estate
consolidation actions. Without these charges, operating expenses
declined $20,447, or 20%, during the six month period in 2000
compared to the comparable period in 1999.

Income Taxes.The Companys effective income tax rate
 for the six months ended July 1, 2000 was 2.7% as compared
with 3.7% for the comparable period in 1999. The effective tax
rate in both years relates to foreign and state taxes.

Videoconferencing
Products, Videoconferencing Services and Audioconferencing
Segments

Videoconferencing Products.Videoconferencing product
revenue totaled $80,761 for the first six months of 2000, which
represents a $38,915, or 33%, decrease from the first six months
of 1999. Segment revenue for the six month period of 2000 was
impacted by customer deferrals of orders, while awaiting the
introduction of new products in the third quarter of 2000.

Total videoconferencing system units increased 8% versus the
prior year, while group system volume decreased by 31% and
desktop/ personal system volume increased by 49%. Total units
sold of larger group systems, Concordes and Venues, declined 28%,
 while sales of compact systems, Swiftsite II and
TeamStation, decreased 20%.

The videoconferencing products segment operating loss increased
to $49,970 during the first six months of 2000 compared to
$41,910 operating loss during the first six months of 1999.
Declining revenue, together with a charge of $6,006 to reduce
PC-based videoconferencing systems inventory to net realizable
value, contributed to the increased operating loss. The inventory
 write-down is associated with lower than expected sales of
PC-based videoconferencing systems, exacerbated by the
Companys transition to its next generation product line,
PictureTel Series 900. An impairment charge of $9,159
related to the write-down of certain intangible assets also
contributed to the increased operating loss for the first six
months of 2000.

Videoconferencing Services. Videoconferencing service
revenue grew from $32,889 during the first six months of 1999 to
$36,406 during the first six months of 2000, an 11%, increase.
The revenue growth resulted from increased sales of spare parts,
custom integration services, and hosting of multi-point
videoconference calls for customers. Maintenance service revenue
declined slightly in the first half of 2000 compared to the same
period in the prior year.

Segment operating income for the first six months of 2000 was
$4,209 compared with $1,291 in the same prior year period, an
increase of $2,918, or 226%. Service gross margins increased due
to higher sales volume of spare parts. Approximately 75% of the
increased profits resulted from a 16% decrease in selling,
general and administrative expenses compared to the first half of
 1999.

Audioconferencing (MultiLink).Revenue for the first six
months of 2000 totaled $9,323 and was relatively flat compared to
 $9,591 for the first six months of 1999.

Operating income improved to a loss of $2,745 for the first six
months of 2000 from an operating loss of $3,036 for the first six
 months of 1999, representing a 10% decrease.

Liquidity and Capital Resources

At July 1, 2000, the Company had $21,033 in cash and cash
equivalents. Operating activities used $17,340 of cash during the
 first half of 2000 compared with a $39,801 usage in the
comparable period in 1999. Funding operating losses in excess of
non-cash expense was a primary use of cash during both periods.
The Company generated $11,192 of cash from working capital during
 the first half of 2000 compared to using $4,521 of cash for
working capital in the first half of 1999. The Company paid
$1,656 of accrued severance and

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Investing activities provided $34,331 of cash in the first half
of 2000 compared with a $3,180 usage in the comparable prior year
 period. Changes in marketable securities balances are the
principal reason for both results. In addition, first half 2000
capital expenditures of $3,465 were less than 50% of the
comparable 1999 figure of $7,076, as the Company has sharply
curtailed spending.

Financing activities used $18,481 of cash in the first half of
2000, due to an increase in restricted cash balances in excess of
 proceeds from short-term borrowings. During the first half of
1999 the Companys financing activities generated $24,308 of
 cash, primarily through issuance of $30,500 of preferred
convertible stock to Intel Corporation.

Cash utilization continues to be a major concern for the Company.
 During the six months ended July 1, 2000, net cash
decreased $883 compared to a net cash decrease of $17,698 for the
 comparable period in 1999. The Company continues to benefit from
 cost reduction measures taken during 1999 in several areas
including, reduced staffing, intensified programs to reduce
working capital, and curtailed capital spending. However, without
 increased revenue and additional equity and debt financing,
these actions alone will not return the Company to a cash
positive position. The Company closed on a preferred stock sale
on July 24, 2000 and expects to complete additional debt
financing within the next few weeks.

In May 2000, the Company amended its revolving credit
agreement dated July 15,1999, which will now expire on
May 17, 2001. The amended credit facility has provided
$8,500 in working capital through a short-term loan and a $30,086
 letter of credit facility. The Company has $29,587 of
outstanding standby letters of credit issued under this agreement
 as of July 1, 2000. Fees for letters of credit outstanding
against this facility are payable at 225 basis points per annum
of the face amount. Interest for the term loan is payable at
prime plus 3% and such rate shall increase by 1 1/2% on
August 15, 2000 and on each ninetieth day anniversary of
such date thereafter. The amended credit agreement is
collateralized by all assets of the parent Company and certain
stock of its subsidiaries. The Company is required to maintain
cash collateral equal to 105% of outstanding letters of credit in
 an account held at the lender. Cash subject to the cash
collateral requirement amounts to $31,066 as of July 1,
2000. The secured letters of credit expire between
October 31, 2000 and June 1, 2001. The credit agreement
 also contains certain financial covenants, including net income
(loss) and minimum working capital requirements. The Company
 has obtained a waiver on August 10, 2000 for not meeting
its second quarter 2000 net income requirement.

On July 24, 2000, the Company received, and accepted, a
letter of commitment from Congress Financial Corporation for an
asset based secured revolving line of credit with a limit of
$35,000, based upon certain lending formulas. This facility
replaces the credit facility amended in May 2000. This new
facility will provide additional borrowing capacity of $26,500.
This new facility also provides the Company with letter of credit
 capabilities, secured by the Companys receivables and
inventory pledged under this new debt facility and/or its cash.
While there are no assurances, the Company expects to close on
this facility, subject to satisfaction of closing conditions,
within the next few weeks.

In addition, on July 13, 2000 the Company announced it had
agreements with investors to purchase $21,845 (8,738,000 shares
at $2.50 per share) of new convertible shares of Series B
Preferred Stock. In conjunction with the purchase of convertible
Series B Preferred Stock, each investor also received a
specified small minority interest in the Companys
subsidiary, 1414c, Inc. In addition, in accordance with the
convertible Series B Preferred Stock agreement, the Company
also entered into a joint venture and hosting agreement with one
of the investors. These transactions were completed and the funds
 became available on July 24, 2000. The Company used $8,500
of the proceeds of this stock sale to pay off its $8,500 term
loan discussed above and expects to use the balance of the
proceeds for working capital and necessary operational expenses.
The Company is currently evaluating the accounting for these
agreements.

Local lines of credit are available for short-term advances of up
 to $950 to certain of the Companys foreign subsidiaries.
The agreements require interest payable up to one quarter of one
percent, per annum. Borrowings totaling $950 were outstanding
against these local lines of credit at July 1, 2000.

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In June 1999, the Company entered into a short-term security
 agreement with BankBoston. Under this agreement, the Company
pledged to the Bank certain amounts of cash and cash equivalents
as collateral for obligations of the Company arising from use of
the Banks cash management and foreign exchange services.
The requirement for collateral under this agreement was
terminated in June 2000. There are no remaining liabilities
under this agreement.

The Company received a report from its independent accountants
for the year ended December 31, 1999 containing an
explanatory paragraph stating that our recurring losses and
requirement for additional financing raise substantial doubt
about our ability to continue as a going concern. Moreover,
managements plans to continue as a going concern rely
heavily on forecasted revenue from new products being jointly
developed with Intel Corporation, new multi-media applications
services, and enhanced compact videoconferencing systems. The
Companys new PictureTel Series 900 system was
announced on July 31, 2000. Under generally accepted
auditing standards, the Companys auditors had concluded
that they were unable to rely on future revenue from these new
products and services in evaluating the achievability of
managements plan to continue as a going concern. In
addition to the revenue plan, management has obtained a letter of
 commitment from Congress Financial Corporation for an asset
based secured revolving line of credit, as discussed above, and
has obtained an additional $21,845 in convertible Series B
Preferred Stock which will be classified as mezzanine financing
on the Companys balance sheet. Management is continuing to
identify and implement other actions to improve the
Companys liquidity, including the sale of non-core business
 assets. While there can be no assurances that these plans will
be successful, management believes these actions, if successful,
will provide sufficient financial resources for the next twelve
months and beyond.

The Company has operating leases for various rented properties.
The Company signed an agreement to sublease MultiLinks
former facility at 6 Riverside Drive in Andover,
Massachusetts in May 1999 as part of its space consolidation
 efforts. As of July 1, 2000, the remaining obligation under
 this operating lease was $7,634. After giving effect to expected
 sublease income, this obligation is $4,918. In addition, in
June 1998, the Company subleased its property at
50 Minuteman Road for a ten-year term. After giving effect
to expected sublease income, the remaining obligation under the
capital lease was $16,694 at July 1, 2000.

On June 26, 2000, the Company negotiated an option agreement
 with the landlord of its facility located at 200 Minuteman
Road in Andover, Massachusetts, whereby the Company has agreed to
 vacate certain space in the 200 Minuteman facility during
the third quarter in exchange for termination of the lease. The
Company anticipates that under this option agreement, an $11,992
letter of credit would be drawn down by the landlord and an
approximate $4,000 in deposits would be returned to the Company.
Furthermore, an annual reduction of approximately $5,000 in rent
and related costs would result from this consolidation.

In October 1998, the Board of Directors authorized a plan to
 repurchase up to 1,000,000 shares of the Companys Common
Stock in open market, privately negotiated or other transactions.
 The Company repurchased 70,000 shares during the first quarter
of 1999 at a cost of $556 (approximately $7.94 per share). There
are no definitive plans to repurchase the additional shares under
 the plan.

Recently Issued Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This
statement was originally effective for all fiscal years beginning
 after June 15, 1999. In June 1999, the FASB issued
Statement 137, which delayed the effective date of
Statement 133 by one year. Statement 133 will be
effective for PictureTels fiscal year beginning
January 1, 2001. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value.
 Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a
hedge transaction and, if it is, the type of hedge transaction.
The Company is currently evaluating the effects of this change
but anticipates that the adoption of SFAS 133 will not have
a significant effect on the Companys financial position or
results of operations.

In December 1998, the American Institute of Certified Public
 Accountants issued Statement of Position No. 98-9,
Modification of SOP No. 97-2, Software Revenue
Recognition, With Respect to Certain

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In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements,
(SAB 101) as amended by SAB 101B, which is
effective no later than the year ending December 31, 2000.
SAB 101 clarifies the Securities and Exchange
Commissions views regarding recognition of revenue. The
Company will adopt SAB 101 in the fourth quarter of 2000.
The Company has identified one series of transactions where the
adoption of SAB 101 is expected to have a material effect on its
2000 financial position and results of operations but it has not
yet completed its analysis.

In March 2000, the Financial Accounting Standards Board
released FASB Interpretation No. 44
(FIN 44), Accounting for Certain
Transactions involving Stock Compensation  an
interpretation of APB Opinion No. 25. FIN 44
provides guidance for certain issues that arise in applying
Accounting Principles Board Opinion No. 25 (APB
No. 25), Accounting for Stock Issued to
Employees. The Company does not expect that the adoption of
 FIN 44 will have a significant impact on the Companys
 results of operations or financial position.

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
stock. These factors should be considered in conjunction with
other information contained in this document.

New Products, Cost Reductions, Technological Change, and
Evolving Markets. The Company is engaged in an industry that
continues to innovate as a result of extensive research and
development efforts and which brings 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 in this
fast-paced emerging market, the Company must continue to
introduce, through internal development or by acquisition, joint
venture or other collaborative arrangements, significant
innovative, technologically leading and cost-competitive
products. There can be no assurance that such new products will
be introduced by the Company, or if introduced, will be accepted
by the market and its customers. In November 1998, the
Company acquired all of the common stock of Starlight Networks,
Inc. Starlight develops, manufactures and markets streaming video
 that enables live, interactive multicast video-on-demand. There
can be no assurance that the integration of Starlight will be
successful or produce products that will be accretive to the
Companys results of operations and financial condition. In
January 1999, the Company entered into a distribution and
joint product development agreement with Intel Corporation. The
two companies have jointly developed videoconferencing and
collaborative products based on a common PC-based technology
platform. On July 31, 2000, the Company announced that it
would begin shipping the resulting product (known as the
900 Series) in mid August 2000. However, there can be
no assurance that the products produced by this partnership will
be accretive to the Companys results of operations and
financial condition. In addition to offering products that
operate in an integrated service digital network (ISDN)
environment, the Company and its competitors are exploring new
technologies and networks, such as the Internet and corporate
intranets or LANs, for delivering videoconferencing and data
collaboration services. The industry standards for such new
technologies and networks, however, are still in the early stages
 of development, which the Company believes has led to customer
uncertainty and, accordingly, a slowdown in the growth of the
general market for videoconferencing products. As a result of
customer preferences, the Company continues to experience a shift
 in its sales model to videoconferencing systems with lower
average selling prices. There can be no assurance that the
Company will be successful in implementing cost reductions for
all of its products or in developing and marketing suitable new
products and related services

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Competition.The increased competition resulting from
partnerships and acquisitions by and with our competitors,
together with mergers among competitors and a slowdown in the
growth of the general market for visual collaboration products,
has 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 visual collaboration systems, and a lower
segment market share by PictureTel for products and services in
the emerging area of network-based visual collaboration. In some
cases, PictureTel competes with its channel partners for various
services, which increases the complexity of channel management.
In addition, competitors may offer network-based visual
collaboration 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 visual collaboration
products. In addition, the prices which PictureTel is able to
charge for its visual collaboration products and services may
further decrease from historical levels as a result of new
product introductions by competitors, price competition,
technological advances, or otherwise. Any of these factors could
have a material adverse effect on PictureTels business,
financial condition and results of operations.

Manufacturing.Certain key subassemblies and products are
currently available only from one vendor and several vendors are
smaller corporations 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 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 business, financial condition and results of
operations. The Companys business could also be adversely
affected by delays or interruptions in delivery, and poor quality
 of supplies, subassemblies or products from key vendors. In
addition, the Company designs and procures certain circuits,
components and subassemblies from non-videoconferencing divisions
 of its competitors, such as Sony and Panasonic Corporation. The
failure to obtain adequate supplies or the requirement to
redesign and source supplies from another manufacturer may take
substantial time and result in significant expense, each of which
 could adversely impact product shipments and materially and
adversely affect the Companys business, financial condition
 or results of operations.

Recent History of Losses.The Company reported a 29%
decrease in revenue for the second quarter of 2000 as compared to
 the second quarter of 1999. Losses from operations were $37,096
and $30,808 for the second quarter of 2000 and 1999,
respectively, representing a 21% increase in losses from
operations. For the first six months of 2000, the Company
reported a 22% decrease in revenue as compared to the first six
months of 1999. Losses from operations for the first six months
of 2000 were $60,139 as compared with $56,471 for the first six
months of 1999.

The Companys revenue decreased 20% during fiscal year 1999
as compared to fiscal year 1998 and decreased 13% between fiscal
year 1998 and fiscal year 1997. Losses from operations were
$90,284, $23,650 and $56,850 in 1999, 1998 and 1997,
respectively.

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Continued negative operating results could adversely impact the
Companys relationship with customers, vendors and
employees, as well as its liquidity and ability to remain in
compliance with covenants under its revolving credit agreement.
The Company received a report from its independent accountants
for the year ended December 31, 1999 containing an
explanatory paragraph stating that our recurring losses and
requirement for additional financing raise substantial doubt
about our ability to continue as a going concern.
Managements plans to continue as a going concern rely
heavily on forecasted revenue from new products being jointly
developed with Intel Corporation, new multi-media applications
services, and enhanced compact videoconferencing systems. On
July 31, 2000, the Company announced that it would start
shipping its new 900 Series products in mid August 2000,
which are the first products resulting from the joint development
 effort with Intel Corporation. However, there can be no
guarantee that such revenue increase will occur or will be
sufficient to meet the Companys needs. In addition to the
revenue plan, on July 24, 2000, the Company raised
additional equity by selling $21,845 of Convertible Series B
 Preferred Stock to Intel Corporation, State of Wisconsin
Investors Board, Halpern Denny Fund II, L.P. and
12 directors and senior managers of the Company. Of the
equity proceeds, $8,500 was used to pay off an $8,500 term loan.
On July 25, 2000, the Company announced that it had received
 a commitment letter from Congress Financial Corporation to
provide the Company with an asset-based secured revolving credit
line with a limit of $35,000, which would provide the Company
with an additional $26,500 in borrowing capacity. However, there
is no guarantee that either of these two recent efforts will be
sufficient to meet the Companys needs.

Product Protection and Intellectual Property.The
Companys success depends in part on its proprietary
technology. The Company 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 the Companys reliance upon
 its proprietary confidential information, competitors of the
Company have been able to use algorithms, or other features
similar to those used by the Company, to design and manufacture
products that are directly competitive with the Companys
products. The Company believes that due to the rapid pace of
technological change in the visual collaboration 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 the Company does not believe that its products infringe
the proprietary rights of any third parties, third parties have
asserted infringement and other claims against the Company from
time to time. There can be no assurance that third parties will
not assert such claims against the Company in the future or that
such claims will not be successful. The Company could incur
substantial costs and diversion of management resources with
respect to the defense of any claims relating to proprietary
rights, which in turn could have a material adverse effect on the
 Companys business, financial condition and result of
operations.

Potential Fluctuations of Quarterly Operating Results. The
 majority of the Companys revenue 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 such 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
revenue. 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 several weeks after the end of the quarter. The
Companys ability to maintain or increase net revenue
depends upon its ability to increase unit volume sales. There can
 be no assurance that the Company will be able to increase or to
maintain the current level of unit volume sales. Other factors
which may cause period-to-period fluctuations in operational
results 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.

International Operations.Revenue related to international
 operations of the Company totaled approximately 40% and 51% of
total revenue for the quarters ended July 1, 2000 and
July 4, 1999, respectively. Revenue related to international
 operations of the Company totaled approximately 46% and 50% of
total revenue for the six-month period ended July 1, 2000
and July 4, 1999, respectively. Management of the

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Volatility of Stock Price.As is frequently the case with
the stocks of high technology corporations, the market price of
PictureTel Common 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 the Company and by its competitors, changes in the
mix of products and sales channels, the timing of significant
customer orders, and macroeconomic conditions generally, may have
 a significant adverse effect on the market price of the
Company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 corporations and which, on
occasion, have appeared to be unrelated to the operating
performance of such corporations. Past financial performance
should not be considered a reliable indicator of future
performance and investors should not use historical trends to
anticipate results or trends in future periods. Any shortfall in
revenue or earnings from the levels anticipated by securities
analysts could have an immediate and significant adverse effect
on the market price of PictureTel Common Stock in any given
period.

Dependence on Key Personnel.On August 31, 1999, the
Company announced that Dr. Norman Gaut had succeeded
Bruce R. Bond as Chairman of the Board, CEO and President of
 the Company. In February 1998, Mr. Bond had earlier
succeeded Dr. Gaut as Chief Executive Officer and President,
 and had been elected Chairman of the Board in June 1998. At
 that time, Dr. Gaut had retired as an active employee while
 remaining a member of the Board of Directors. Dr. Gaut
accepted this 1999 position at a difficult time for the Company.
On June 19, 2000, Mr. Lewis Jaffe became President and
Chief Operating Officer of the Company, while Dr. Gaut
remained Chairman and Chief Executive Officer. The Company
appointed Mr. Ralph Takala, a principal of Altman and
Associates as its interim Chief Financial Officer on
June 15, 2000 following the resignation of its previous
Chief Financial Officer. The Company depends on a limited number
of key senior management personnel, including Norman Gaut; Lewis
Jaffe; Ralph Takala; Amit Akkad, Vice President of Services;
Timothy Duffy, Group Vice President and General Manager of
Conferencing Products; Robert Byrnes, Group Vice President for
Emerging Products; David Blandford, President and General
Manager, MultiLink; and W. Robert Kellegrew, Jr., Vice
President and General Counsel. There has been and continues to be
 considerable turnover in the Companys senior management
team over the past several years, and the loss of the services of
 one or more of the Companys senior management team or the
inability to attract, retain, motivate and manage additional key
personnel could have a material adverse effect on the business,
financial condition or operating results of the Company. In
addition, the Company continues to experience 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 the Company will be able to
adequately fill the open positions.

Year 2000 Compliance.In prior years, the Company
discussed the nature and progress of its plans to become Year
2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no disruptions in
 mission

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Euro.On January 1, 1999, eleven of the fifteen
member countries of the European Union established fixed
conversion rates between their existing sovereign currencies and
established the euro, making the euro their common legal currency
 on that date. Based on a recent assessment, the euro conversion
is not anticipated to have a material impact on the
Companys business.




Item 3.  Quantitative and Qualitative
Disclosures about Market Risk

There were no material changes in the Companys exposure to
market risk from December 31, 1999.




Part II  OTHER INFORMATION




Item 1.  Legal Proceedings

A.  SEC Investigation

In May 1999, the Company was informed that the Securities
and Exchange Commission (SEC) had initiated a formal
investigation of matters related to the Companys 1997
restatement of its earnings. The Company has been cooperating
with the SEC and will continue to do so. The Company expresses no
 opinion as to the likely outcome. While no assurances can be
provided, the Company does not believe that the investigation
will have a material adverse affect on its business, financial
condition, results of operations or cash flows.

B.  Revnet, Inc.

On June 2, 1998, the Company was served with a complaint
from a former distribution channel customer, Revnet, Inc., which
has ceased operations. (Revnet, Inc., v. PictureTel
Corporation. Civil Action 98092039, filed April 2, 1998,
 in the Circuit Court for Baltimore City, Maryland.) The
complaint alleges that the Company breached an oral contract.
Revnet is allegedly seeking $200 million in damages. Discovery is
 in process. The Company believes that the complaint and the
claim for damages are without merit and intends to vigorously
defend against them. In addition, after limited discovery under
the above named suit, the Company on September 13, 1999
filed a related action in the Circuit Court for Baltimore City,
Maryland against Revnet, Inc., Vuecom, Inc. (an entity related to
 Revnet, Inc.), George Harris IV, George Sandmann and Lou
Brown, (PictureTel Corporation v. RevNet, Inc., et al.
Civil Action 24-C99-004406) alleging among other things Breach of
 Contract, Fraudulent Inducement and Securities Fraud. The
Companys complaint is seeking more than $7 million in
damages. While no assurance can be provided, the Company does not
 believe that the outcome of this dispute will have a material
adverse affect on its business, financial condition, results of
operations or cash flows.

In addition to the above, the Company has also been and is from
time to time subject to claims, such as potential patent
infringements, and suits incidental to the conduct of business.
There can be no assurance that the Companys insurance will
be adequate to cover all liabilities that may arise out of such
claims. Further, although the Company intends to defend itself
vigorously against all such claims, the ultimate outcome of the
claims cannot be accurately predicted. The Company does not
believe that any claim of which it is aware, other than the
claims listed above, could result in an outcome that will have a
material adverse effect to its business, financial condition,
results of operations or cash flows.

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Item 2.  Changes in Securities and Use of
Proceeds

(a)  The rights of the Common Stock are materially limited
or qualified by the issue of an aggregate of 8,738,000 shares of
non-voting, convertible Series B Preferred Stock to Intel
Corporation, State of Wisconsin Investment Board, Halpern Denny
Fund II, L.P. and the other investors (twelve directors and
senior management of PictureTel) listed on Schedule I
(collectively the Investors) to the Stock Purchase
and Investors Rights Agreement dated as of July 13, 2000, as
 amended, with respect to preferred dividend rights and the
liquidation preference of said Series B Preferred Stock.

On the date hereof each outstanding share of the Series B
Preferred Stock has the right to convert to one share of Common;
see the terms of the Series B Preferred Stock as set forth
in the Certificate of Designation of the Series B,
constituting an Amendment to the Certificate of Incorporation
included as Exhibit 3.1.1 to this report.

(b)  On July 24, 2000 the Company sold 8,738,000 shares
 of Series B Preferred Stock to the Investors for cash in
the amount of $2.50 per share (aggregating $21.8 million) less a
small amount of the purchase price allocated to the purchase of
specified small minority interests in 1414c, Inc., a PictureTel
subsidiary set up earlier this year to develop Internet-based
communication products and services such as multi-port video
conferencing and voice-over-IP. The Company used $8.5 million of
the proceeds of this equity sale to pay off its $8.5 million Term
 Loan, incurred on May 17, 2000, and expects to use the
balance of the proceeds for working capital and necessary
operational expenses. The issue and sale of the securities was
exempt from registration under the Securities Act of 1933 by
virtue of Section 4(2) as a private placement, accompanied
by an investment representation by each purchaser.

The shares of this series of non-voting Series B Preferred
Stock, convertible initially into the same number of shares of
PictureTel Common Stock (with anti-dilution protection as
specified in the Certificate of Designation for the
Series B), was established by vote of PictureTels
Board of Directors on July 11, 2000 pursuant to its
authority under the Companys Certificate of Incorporation,
as reported in the Companys 8-K filing dated July 14,
2000. This represented on an as-converted basis, an investment in
 approximately 21% of PictureTels Common Stock. These
securities were sold by PictureTel in consideration of the
payment by the Investors of cash as described above (and
allocated as described above).

The Investors have certain ancillary rights to acquire additional
 securities of PictureTel, in order to maintain, subject to
specified laws and conditions, their respective percentage
ownership of PictureTels equity.

In connection with the above-described $21.8 million equity
financing, on July 11, 2000 the Board of Directors of the
Company approved Amendment No. 2 to the Rights Agreement
between the Company and Fleet National Bank (Second
Amendment. The Second Amendment provides that Intel
Corporation (Intel) will not be considered an
Acquiring Person under the Rights Agreement so long
as Intel and its affiliates and associates do not become the
beneficial owner of greater than the number of shares of Common
Stock of the Company equal to the sum of: (A) the
number of shares of Common Stock issuable upon conversion of the
Series A Preferred Stock of the Company purchased by Intel
in connection with that certain Stock Purchase and Investors
Rights Agreement dated as of January 18, 1999 (1999
Stock Agreement) by and among the Company and Intel; plus
(B) the number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock of the Company
(Series B Stock) purchased by Intel in
connection with a Stock Purchase and Investors Rights Agreement
dated as of July 13, 2000 (2000 Stock Agreement)
 by and among the Company, Intel, the State of Wisconsin
Investment Board (SWIB), Halpern Denny Fund II,
L.P., and certain other investors; plus (C) the number of
additional shares of Common Stock which may be purchased by Intel
 pursuant to certain provisions of the 1999 Stock Agreement and
the 2000 Stock Agreement, each such number of shares as adjusted
for stock splits.

The Second Amendment also provides that the State of Wisconsin
Investment Board (SWIB) will not be considered an
Acquiring Person under the Rights Agreement so long as SWIB and
its affiliates and associates do not become the beneficial owner
of greater than that number of shares of Common Stock equal to
the sum of: (A) 3,616,900 shares of Common Stock, plus
(B) the number of shares of Common Stock

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provided, however,





Item 4.  Submission of Matters to a Vote of
Security Holders

The Annual meeting of Stockholders of the Company was held on
June 16, 2000. The Stockholders of the Company were asked to
 vote on the following items, and voted as follows:

Proposal I:  Election of the Board of Directors

|                  |  |     |            |          |  |  |         | 
|----------------- |  | --- | ---------- | -------- |  |  | ------- | 
|                  |  | For |            | Withheld
|                  |  |     |            |         
|Norman E. Gaut    |  |     | 34,518,374 |          |  |  | 710,303 | 
|                 
|                 
|                 
|                 
|Robert T. Knight  |  |     | 34,513,001 |          |  |  | 715,676 | 
|                 
|                 
|                 
|                 
|David B. Levi     |  |     | 34,511,136 |          |  |  | 717,541 | 
|                 
|                 
|                 
|                 
|Enzo Torresi      |  |     | 34,520,863 |          |  |  | 707,814 | 
|                 
|                 
|                 
|                 
|Carl S. Ledbetter |  |     | 34,518,710 |          |  |  | 709,967 | 
|                 
|                 
|                 
|                 
|Werner Schmucking |  |     | 34,524,130 |          |  |  | 704,547 | 

Proposal II:  To ratify the election of
PricewaterhouseCoopers LLP as the Companys auditors for
fiscal year 2000.

|           |  |         |         |         |  |  |         | 
|---------- |  | ------- | ------- | ------- |  |  | ------- | 
|For        |  | Against |         | Abstain
|           |  |         |         |        
|34,888,559 |  |         | 200,162 |         |  |  | 139,956 | 




Item 5.  Other Information

Subsequent to the end of the second quarter of 2000, PictureTel
sold $21.8 million Series B Preferred Stock (an aggregate of
 8,738,000 shares) to investors on July 24, 2000 and on
July 25, 2000 PictureTel announced the receiving of a
commitment letter from Congress Financial Corporation
(Commitment Letter). The Commitment Letter provides
for an asset based secured revolving credit agreement, with a
limit of $35 million, subject to certain lending formulas,
thereby providing additional borrowing capacity of $26.5 million.

See information under Item 2 (Changes in Securities and Use
of Proceeds) and elsewhere in this Report and see the
Companys Reports on Form 8-K dated July 14, 2000
and July 31, 2000 relating to the issuance of the
Series B Preferred Stock.




Item 6.  Exhibits and Reports on
Form 8-K

(a)  Exhibits

|      |  |                                                                                                                                                                                                                                                                                            
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1.1 |  | Certificate of Designation, Preferences and Other Rights of the
	Series B Preference Stock of PictureTel Corporation,
	consisting of an Amendment to the Certificate of Incorporation
	filed as Exhibit 2 to Report on Form 8-K, dated
	July 31, 2000 and hereby incorporated by reference.
|3.1.2 |  | Certificate of Decrease to Designation relating to Series A
	Preference Stock, consisting of an Amendment to the Certificate
	of Incorporation filed herewith.                                                                                                                             
|4.2.5 |  | Stock Purchase and Investors Rights Agreement dated as of
	July 13, 2000 as amended by Amendment dated as of
	July 24, 2000, filed as Exhibit 1 to Report on
	Form 8-K, dated July 31, 2000 and hereby incorporated
	by reference.                                                         

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|        |  |                                                                                                                                                                    
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.19.2 |  | Amendment No. 1 to the Credit Agreement among PictureTel
	Corporation and Congress Financial Corporation (New England) and
	AbleCo Finance LLC, dated May 17, 2000.
|10.28   |  | Employment agreement between PictureTel Corporation and Lewis
	Jaffe, dated June 19, 2000.                                                                         
|10.28.1 |  | Change in Control Agreement by and between PictureTel Corporation
	 and Lewis Jaffe, dated June 19, 2000.                                                          
|27.1    |  | Financial Data Schedule for the period ended July 1, 2000 as
	 required by Item 601(c) of Regulation S-K.                                                          

(b)  Reports on Form 8-K



| |    |                                                                                                                                                                                                                                                                                                                                                                  
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | The Company filed a Report on Form 8-K dated July 14,
	2000, relating to the signing of the Stock Purchase and
	Investors Rights Agreement dated as of July 13, 2000
	as amended as of July 24, 2000.                                                                                                                                                           
|
| | 2. | The Company filed a Report on Form 8-K dated July 31,
	2000, relating to the issuance and sale of $21.8 million of
	Series B Preferred Stock (8,738,000 shares) pursuant to the
	previously announced Stock Purchase and Investors Rights
	Agreement and relating to an amendment of the PictureTel Rights
	Agreement, in order to permit the equity transaction.

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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/ RALPH J. TAKALA                         
| |                                             
| | Ralph J. Takala                             
| | Chief Financial Officer                     
| | (Principal Financial and Accounting Officer)
| | August 15, 2000                             

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EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                            
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1.1   |  | Certificate of Designation, Preferences and Other Rights of the
	Series B Preference Stock of PictureTel Corporation,
	consisting of an Amendment to the Certificate of Incorporation
	filed as Exhibit 2 to Report on Form 8-K, dated
	July 31, 2000 and hereby incorporated by reference.
|3.1.2   |  | Certificate of Decrease to Designation relating to Series A
	Preference Stock, consisting of an Amendment to the Certificate
	of Incorporation filed herewith.                                                                                                                             
|4.2.5   |  | Stock Purchase and Investors Rights Agreement dated as of
	July 13, 2000 as amended by Amendment dated as of
	July 24, 2000, filed as Exhibit 1 to Report on
	Form 8-K, dated July 31, 2000 and hereby incorporated
	by reference.                                                         
|10.19.2 |  | Amendment No. 1 to the Credit Agreement among PictureTel
	Corporation and Congress Financial Corporation (New England) and
	AbleCo Finance LLC, dated May 17, 2000.                                                                                                                        
|10.28   |  | Employment agreement between PictureTel Corporation and Lewis
	Jaffe, dated June 19, 2000.                                                                                                                                                                                                 
|10.28.1 |  | Change in Control Agreement by and between PictureTel Corporation
	 and Lewis Jaffe, dated June 19, 2000.                                                                                                                                                                                  
|27.1    |  | Financial Data Schedule for the period ended July 1, 2000 as
	 required by Item 601(c) of Regulation S-K.