##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q/A




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 April 4, 1999

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 April 4, 1999 | 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.



Indicate the number of shares outstanding of each of the
issuers classes of common stock as of the latest practical
date.

As of May 7, 1999, there were outstanding 40,302,942 shares
of common stock of the registrant.



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TABLE OF CONTENTS



|                                                                                      |                                            |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  |  | 
|                                                                                      | CONSOLIDATED BALANCE SHEETS               
|                                                                                      | CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                                                                      | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                                                      | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|Part II -- Other Information                                                         
|                                                                                      | Item 1. Legal Proceedings                 
|                                                                                      | Item 2. Changes in Securities             
|                                                                                      | Item 6. Exhibits and Reports on Form 8-K  
|EX-3.1.1 Certificate of Designation                                                  
|EX-10.1 Employment Agreement                                                         
|EX-10.2 Change in Control Agreement                                                  
|EX-10.3 Consultant Agreement                                                         
|EX-27.1 Financial Data Schedule                                                      



---



PICTURETEL CORPORATION




FORM 10-Q/A




INDEX

|                                                                                                 |                                            |                                                     |       |      |   | 
|------------------------------------------------------------------------------------------------ | ------------------------------------------ | --------------------------------------------------- | ----- | ---- | - | 
|                                                                                                 |                                            | Page                                               
|                                                                                                 |                                            |                                                    
|PART I.  CONSOLIDATED FINANCIAL INFORMATION                                                      |                                            |                                                     |       |     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Item 1.  Consolidated Financial Statements:                                                      |                                            |                                                     |       |     
|                                                                                                 | Consolidated Balance Sheets                |                                                     |       |      |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |                                            | April 4, 1999 and December 31, 1998                 |       |      | 3 | 
|                                                                                                 | Consolidated Statements of Operations      |                                                     |       |      |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |                                            | Three months ended April 4, 1999 and March 29, 1998 |       |      | 4 | 
|                                                                                                 | Consolidated Statements of Cash Flows      |                                                     |       |      |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |                                            | Three months ended April 4, 1999 and March 29, 1998 |       |      | 5 | 
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Notes to Consolidated Financial Statements |                                                     |       | 6-10 |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Item 2.  Managements Discussion and Analysis
	 of Financial Condition and Results of Operations |                                            |                                                     | 11-18 |     
|PART II.  OTHER INFORMATION                                                                      |                                            |                                                     |       |     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Item 1.  Legal Proceedings                                                                       |                                            |                                                     | 19    |     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Item 2.  Changes in Securities                                                                   |                                            |                                                     | 20    |     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Item 6.  Exhibits and Reports on Form 8-K                                                        |                                            |                                                     | 20    |     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Signatures                                                                                       |                                            |                                                     | 21    |     

2



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##### Table of Contents



PICTURETEL CORPORATION




CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)





|                                                                                                                                       |                                                                                                                                                                     |                                                                         |        |              |         |  |        |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------ | ------------ | ------- |  | ------ | ------- | ------- | 
|                                                                                                                                       |                                                                                                                                                                     | April 4,                                                                |        | December 31,
|                                                                                                                                       |                                                                                                                                                                     | 1999                                                                    |        | 1998        
|                                                                                                                                       |                                                                                                                                                                     |                                                                         |        |             
|                                                                                                                                       |                                                                                                                                                                     | (Unaudited)                                                             |        |             
|                                                                                                                                       |                                                                                                                                                                     | Restated                                                                |        |             
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|ASSETS                                                                                                                                
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|Current assets:                                                                                                                        |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Cash and cash equivalents                                                                                                                                           |                                                                         | $      | 59,908       |         |  | $      | 62,642  |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Marketable securities                                                                                                                                               |                                                                         |        | 51,782       |         |  |        | 38,078  |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Accounts receivable, less allowance for doubtful accounts of
	$6,405 and $5,392 at April 4, 1999 and December 31,
	1998, respectively                               |                                                                         |        | 71,227       |         |  |        | 78,995  |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Inventories, net                                                                                                                                                    |                                                                         |        | 37,614       |         |  |        | 30,256  |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Other current assets                                                                                                                                                |                                                                         |        | 8,980        |         |  |        | 8,692   |        
|                                                                                                                                       |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|                                                                                                                                       |                                                                                                                                                                     | Total current assets                                                    |        |              | 229,511 |  |        |         | 218,663 | 
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|Property and equipment, net                                                                                                            |                                                                                                                                                                     |                                                                         | 94,356 |              |         |  | 95,655 |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|Capitalized software costs, net                                                                                                        |                                                                                                                                                                     |                                                                         | 18,199 |              |         |  | 20,484 |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|Goodwill, net                                                                                                                          |                                                                                                                                                                     |                                                                         | 5,063  |              |         |  | 5,336  |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|Other assets                                                                                                                           |                                                                                                                                                                     |                                                                         | 11,585 |              |         |  | 12,856 |        
|                                                                                                                                       |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|                                                                                                                                       |                                                                                                                                                                     | Total assets                                                            |        | $            | 358,714 |  |        | $       | 352,994 | 
|                                                                                                                                       |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS
	 EQUITY                                                                    
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|Current liabilities:                                                                                                                   |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Short-term borrowings                                                                                                                                               |                                                                         | $      |             |         |  | $      | 881     |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Accounts payable                                                                                                                                                    |                                                                         |        | 23,107       |         |  |        | 32,777  |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Accrued compensation and benefits                                                                                                                                   |                                                                         |        | 8,218        |         |  |        | 11,214  |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Accrued expenses                                                                                                                                                    |                                                                         |        | 37,244       |         |  |        | 35,316  |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Current portion of capital lease obligations                                                                                                                        |                                                                         |        | 2,775        |         |  |        | 3,537   |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Deferred revenue                                                                                                                                                    |                                                                         |        | 27,953       |         |  |        | 22,616  |        
|                                                                                                                                       |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|                                                                                                                                       |                                                                                                                                                                     | Total current liabilities                                               |        |              | 99,297  |  |        |         | 106,341 | 
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|Capital lease obligations                                                                                                              |                                                                                                                                                                     |                                                                         | 55,895 |              |         |  | 56,411 |        
|                                                                                                                                       |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|                                                                                                                                       |                                                                                                                                                                     | Total liabilities                                                       |        |              | 155,192 |  |        |         | 162,752 | 
|                                                                                                                                       |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|Commitments and contingencies (Notes 5 and 8)                                                                                          |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|Redeemable convertible, preferred stock, $.01 par value;
	15,000,000 shares authorized; 4,478,708 shares outstanding at
	April 4, 1999 |                                                                                                                                                                     |                                                                         | 30,500 |              |         |  |       |        
|                                                                                                                                       |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|Stockholders equity:                                                                                                                  |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Common stock, $.01 par value; 80,000,000 shares authorized;
	40,282,961 shares outstanding at April 4, 1999 and
	40,067,771 shares outstanding at December 31, 1998 |                                                                         |        | 403          |         |  |        | 400     |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Treasury stock, 70,000 shares                                                                                                                                       |                                                                         |        | (556         | )       |  |        |        |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Additional paid-in capital                                                                                                                                          |                                                                         |        | 223,919      |         |  |        | 222,230 |        
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Accumulated deficit                                                                                                                                                 |                                                                         |        | (56,224      | )       |  |        | (30,254 | )      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                      
|                                                                                                                                       | Accumulated other comprehensive income (loss)                                                                                                                       |                                                                         |        | 5,480        |         |  |        | (2,134  | )      
|                                                                                                                                       |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|                                                                                                                                       |                                                                                                                                                                     | Total stockholders equity                                              |        |              | 173,022 |  |        |         | 190,242 | 
|                                                                                                                                       |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        
|                                                                                                                                       |                                                                                                                                                                     | Total liabilities, redeemable preferred stock and
	stockholders equity |        | $            | 358,714 |  |        | $       | 352,994 | 
|                                                                                                                                       |                                                                                                                                                                     |                                                                         |        |              |         |  |        |        




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 OPERATIONS

(Dollars in thousands except per share amounts)





(UNAUDITED)








|                                              |                                     |                          |         |           |        |   |         |        |        | 
|--------------------------------------------- | ----------------------------------- | ------------------------ | ------- | --------- | ------ | - | ------- | ------ | ------ | 
|                                              |                                     |                         
|                                              |                                     | Three Months Ended      
|                                              |                                     |                         
|                                              |                                     | April 4,                 |         | March 29,
|                                              |                                     | 1999                     |         | 1998     
|                                              |                                     |                          |         |          
|                                              |                                     | Restated                 |         |          
|                                             
|                                             
|                                             
|                                             
|Revenues                                      |                                     | $                        | 76,194  |           |        | $ | 101,045 |       
|                                             
|                                             
|                                             
|                                             
|Cost of revenues                              |                                     |                          | 51,972  |           |        |   | 55,158  |       
|                                              |                                     |                          |         |           |        |   |         |       
|Gross margin                                  |                                     |                          | 24,222  |           |        |   | 45,887  |       
|                                             
|                                             
|                                             
|                                             
|Operating expenses:                           |                                     |                          |         |           |        |   |         |       
|                                             
|                                             
|                                             
|                                             
|                                              | Selling, general and administrative |                          |         | 32,362    |        |   |         | 32,810 |       
|                                             
|                                             
|                                             
|                                             
|                                              | Research and development            |                          |         | 17,523    |        |   |         | 16,899 |       
|                                              |                                     |                          |         |           |        |   |         |       
|                                              |                                     | Total operating expenses |         |           | 49,885 |   |         |        | 49,709 | 
|                                              |                                     |                          |         |           |        |   |         |       
|Loss from operations                          |                                     |                          | (25,663 | )         |        |   | (3,822  | )     
|                                             
|                                             
|                                             
|                                             
|Interest income, net                          |                                     |                          | 199     |           |        |   | 448     |       
|                                             
|                                             
|                                             
|                                             
|Other income, net                             |                                     |                          | 515     |           |        |   | 325     |       
|                                              |                                     |                          |         |           |        |   |         |       
|Loss before income tax expense (benefit)      |                                     |                          | (24,949 | )         |        |   | (3,049  | )     
|                                             
|                                             
|                                             
|                                             
|Income tax expense (benefit)                  |                                     |                          | 1,021   |           |        |   | (884    | )     
|                                              |                                     |                          |         |           |        |   |         |       
|Net loss                                      |                                     |                          | (25,970 | )         |        |   | (2,165  | )     
|                                             
|                                             
|                                             
|                                             
|Preferred stock beneficial conversion feature |                                     |                          | 5,612   |           |        |   |        |       
|                                              |                                     |                          |         |           |        |   |         |       
|Net loss applicable to common shareholders    |                                     | $                        | (31,582 | )         |        | $ | (2,165  | )     
|                                              |                                     |                          |         |           |        |   |         |       
|Net loss per common share  basic             |                                     | $                        | (0.79   | )         |        | $ | (0.06   | )     
|                                              |                                     |                          |         |           |        |   |         |       
|Net loss per common share  diluted           |                                     | $                        | (0.79   | )         |        | $ | (0.06   | )     
|                                              |                                     |                          |         |           |        |   |         |       
|Weighted average shares outstanding  basic   |                                     |                          | 40,218  |           |        |   | 38,092  |       
|                                              |                                     |                          |         |           |        |   |         |       
|Weighted average shares outstanding  diluted |                                     |                          | 40,218  |           |        |   | 38,092  |       
|                                              |                                     |                          |         |           |        |   |         |       




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

4



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##### Table of Contents



PICTURETEL CORPORATION




CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)





(Unaudited)





|                                                    |                                                                                               |                                                        |         |           |        |   |         |         |        |  
|--------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ------- | --------- | ------ | - | ------- | ------- | ------ | -
|                                                    |                                                                                               |                                                       
|                                                    |                                                                                               | Three Months Ended                                    
|                                                    |                                                                                               |                                                       
|                                                    |                                                                                               | April 4,                                               |         | March 29,
|                                                    |                                                                                               | 1999                                                   |         | 1998     
|                                                    |                                                                                               |                                                        |         |          
|Cash flows from operating activities:               |                                                                                               |                                                        |         |           |        |   |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net loss                                                                                      |                                                        | $       | (25,970   | )      |   | $       | (2,165  | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Adjustments to reconcile net income to net cash provided by (used
	 in) operating activities: |                                                        |         |           |        |   |         |         |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                               | Depreciation and amortization                          |         |           | 9,299  |   |         |         | 5,741  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                               | Bad debt reserves                                      |         |           | 1,401  |   |         |         |       |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                               | Inventory reserves                                     |         |           | 810    |   |         |         |       |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                               | Other non-cash items                                   |         |           | 128    |   |         |         | 616    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Changes in operating assets and liabilities:                                                  |                                                        |         |           |        |   |         |         |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                               | Accounts receivable                                    |         |           | 5,393  |   |         |         | 7,184  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                               | Inventories                                            |         |           | (8,364 | ) |         |         | 327    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                               | Other current assets                                   |         |           | (173   | ) |         |         | (1,192 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                               | Accounts payable                                       |         |           | (9,428 | ) |         |         | (2,419 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                               | Accrued compensation and benefits and accrued expenses |         |           | (710   | ) |         |         | (315   | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                               | Deferred revenue                                       |         |           | 5,560  |   |         |         | (1,441 | )
|                                                    |                                                                                               |                                                        |         |           |        |   |         |        
|Net cash provided by (used in) operating activities |                                                                                               |                                                        | (22,054 | )         |        |   | 6,336   |        
|                                                   
|                                                   
|                                                   
|                                                   
|Cash flows from investing activities:               |                                                                                               |                                                        |         |           |        |   |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchase of marketable securities                                                             |                                                        |         | (41,606   | )      |   |         | (36,615 | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from marketable securities                                                           |                                                        |         | 36,333    |        |   |         | 25,221  |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Additions to property and equipment                                                           |                                                        |         | (4,974    | )      |   |         | (4,620  | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Capitalized software costs                                                                    |                                                        |         |          |        |   |         | (1,457  | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchase of other assets                                                                      |                                                        |         |          |        |   |         | (99     | )     
|                                                    |                                                                                               |                                                        |         |           |        |   |         |        
|Net cash used in investing activities               |                                                                                               |                                                        | (10,247 | )         |        |   | (17,570 | )      
|                                                   
|                                                   
|                                                   
|                                                   
|Cash flows from financing activities:               |                                                                                               |                                                        |         |           |        |   |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net proceeds from foreign lines of credit                                                     |                                                        |         |          |        |   |         | 748     |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Payments on short-term/long-term borrowings                                                   |                                                        |         | (850      | )      |   |         |        |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Principal payments under capital lease obligations                                            |                                                        |         | (1,284    | )      |   |         | (418    | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Common stock repurchase                                                                       |                                                        |         | (556      | )      |   |         |        |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from preferred stock issuance                                                        |                                                        |         | 30,500    |        |   |         |        |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from exercise of stock options                                                       |                                                        |         | 902       |        |   |         | 624     |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from stock purchase plan                                                             |                                                        |         | 790       |        |   |         | 878     |       
|                                                    |                                                                                               |                                                        |         |           |        |   |         |        
|Net cash provided by financing activities           |                                                                                               |                                                        | 29,502  |           |        |   | 1,832   |        
|                                                   
|                                                   
|                                                   
|                                                   
|Effect of exchange rate changes on cash             |                                                                                               |                                                        | 65      |           |        |   | (1,544  | )      
|                                                    |                                                                                               |                                                        |         |           |        |   |         |        
|Net decrease in cash and cash equivalents           |                                                                                               |                                                        | (2,734  | )         |        |   | (10,946 | )      
|                                                   
|                                                   
|                                                   
|                                                   
|Cash and cash equivalents at beginning of period    |                                                                                               |                                                        | 62,642  |           |        |   | 49,859  |        
|                                                    |                                                                                               |                                                        |         |           |        |   |         |        
|Cash and cash equivalents at end of period          |                                                                                               | $                                                      | 59,908  |           |        | $ | 38,913  |        
|                                                    |                                                                                               |                                                        |         |           |        |   |         |        

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

5



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##### Table of Contents



PICTURETEL CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Managements Representation

As permitted by the rules of the Securities and Exchange
Commission applicable to Quarterly Reports on Form 10-Q,
these notes are condensed and do not contain all the disclosures
required by generally accepted accounting principles. Reference
should be made to the consolidated financial statements and
related notes included in the Companys Annual Report on
Form 10-K for the year ended December 31, 1998, as
filed with the Securities and Exchange Commission on
March 31, 1999.

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 April 4, 1999 and the results of
operations and changes in cash flow for the three months ended
April 4, 1999.

The results disclosed in the Consolidated Balance Sheet at
April 4, 1999 and the Consolidated Statement of Operations
and Consolidated Statement of Cash Flows for the three months
ended April 4, 1999 are not necessarily indicative of the
results to be expected for the full year.

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
 liabilities at the date of the financial statements and also
affect the reported amounts of revenues 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.

2.  Inventories

Inventories, net consist of the following (in thousands):

|                |  |          |        |              |  |   |        | 
|--------------- |  | -------- | ------ | ------------ |  | - | ------ | 
|                |  | April 4, |        | December 31,
|                |  | 1999     |        | 1998        
|                |  |          |        |             
|Purchased Parts |  | $        | 2,054  |              |  | $ | 2,609  | 
|               
|               
|               
|               
|Work in Process |  |          | 1,350  |              |  |   | 1,399  | 
|               
|               
|               
|               
|Finished Goods  |  |          | 34,210 |              |  |   | 26,248 | 
|                |  |          |        |              |  |   |        | 
|                |  | $        | 37,614 |              |  | $ | 30,256 | 
|                |  |          |        |              |  |   |        | 

6



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

3.  Earnings Per Share

The following table reconciles the numerator and the denominators
 of the basic and diluted EPS computations shown on the
Consolidated Statements of Operations (in thousands, except per
share data):




|                         |                                               |                            |       |           |   |   |       |        |  
|------------------------ | --------------------------------------------- | -------------------------- | ----- | --------- | - | - | ----- | ------ | -
|                         |                                               |                           
|                         |                                               | For the three months ended
|                         |                                               |                           
|                         |                                               | April 4,                   |       | March 29,
|                         |                                               | 1999                       |       | 1998     
|                         |                                               |                            |       |          
|                         |                                               | Restated                   |       |          
|                        
|                        
|                        
|                        
|Basic EPS Computation:   |                                               |                            |       |           |   |   |       |       
|                        
|                        
|                        
|                        
|Numerator:               |                                               |                            |       |           |   |   |       |       
|                        
|                        
|                        
|                        
|                         | Net loss                                      |                            | $     | (25,970   | ) |   | $     | (2,165 | )
|                        
|                        
|                        
|                        
|                         | Preferred stock beneficial conversion feature |                            |       | 5,612     |   |   |       |       |  
|                         |                                               |                            |       |           |   |   |       |       
|                         | Total                                         |                            | $     | (31,582   | ) |   | $     | (2,165 | )
|                         |                                               |                            |       |           |   |   |       |       
|Denominator:             |                                               |                            |       |           |   |   |       |       
|                        
|                        
|                        
|                        
|                         | Weighted average common shares outstanding    |                            |       | 40,218    |   |   |       | 38,092 |  
|                         |                                               |                            |       |           |   |   |       |       
|Basic EPS                |                                               | $                          | (0.79 | )         |   | $ | (0.06 | )     
|                         |                                               |                            |       |           |   |   |       |       
|Diluted EPS Computation: |                                               |                            |       |           |   |   |       |       
|                        
|                        
|                        
|                        
|Numerator:               |                                               |                            |       |           |   |   |       |       
|                        
|                        
|                        
|                        
|                         | Net loss                                      |                            | $     | (25,970   | ) |   | $     | (2,165 | )
|                        
|                        
|                        
|                        
|                         | Preferred stock beneficial conversion feature |                            |       | 5,612     |   |   |       |       |  
|                         |                                               |                            |       |           |   |   |       |       
|                         | Total                                         |                            | $     | (31,582   | ) |   | $     | (2,165 | )
|                         |                                               |                            |       |           |   |   |       |       
|Denominator:             |                                               |                            |       |           |   |   |       |       
|                        
|                        
|                        
|                        
|                         | Weighted average common shares outstanding    |                            |       | 40,218    |   |   |       | 38,092 |  
|                        
|                        
|                        
|                        
|                         | Stock options, preferred stock, warrants      |                            |       |          |   |   |       |       |  
|                         |                                               |                            |       |           |   |   |       |       
|                         | Total Shares                                  |                            |       | 40,218    |   |   |       | 38,092 |  
|                         |                                               |                            |       |           |   |   |       |       
|Diluted EPS              |                                               | $                          | (0.79 | )         |   | $ | (0.06 | )     
|                         |                                               |                            |       |           |   |   |       |       




Options to purchase shares of the Companys common stock of
7,373,874 and 5,972,190 were outstanding at April 4, 1999
and March 29, 1998, respectively, but were not included in
the computation of diluted EPS because they were antidilutive due
 to the net losses sustained in 1999 and in 1998. Warrants for
the Companys common stock of 2,723 and 4,478,708 shares of
the Companys convertible, preferred stock were outstanding
at April 4, 1999 but were not included in the computation of
 diluted EPS because they were antidilutive due to the loss
sustained in 1999.

4.  Comprehensive Loss

The Company in fiscal year 1998 adopted FASB 130, Reporting
Comprehensive Income. The calculation of comprehensive income
includes the loss as reported in the Consolidated Statements of
Operations for the first quarter of 1999 and 1998, the gains and
losses on foreign currency translation adjustments and unrealized
 gains and losses on marketable securities. Total comprehensive
loss for the three months ended April 4, 1999 was
$18,356,000 and total comprehensive loss for the comparable
period in 1998 was $3,710,000. The change from December 31,
1998 to April 4, 1999 in accumulated other comprehensive
income was a gain of $8,423,000 in marketable securities and a
loss of $809,000 in cumulative translation adjustments.

7



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

5.  Debt

On August 12, 1998 and March 31, 1999, the Company
amended certain provisions of the amended and restated credit
agreement which expires on October 4, 1999. This agreement
requires interest payable at either the banks base rate, or
 the adjusted eurocurrency rate plus an applicable margin of two
percent. The commitment fees were also amended and are payable
quarterly on any unused portion at a rate per annum equal to
0.25%. The amended agreement contains no demand feature and
provides that the principal portion of the borrowings be paid by
the expiration date.

At April 4, 1999, no borrowings were outstanding under this
credit agreement. In addition, the Company has $28,762,000 of
outstanding standby letters of credit under this agreement. Fees
for letters of credit outstanding against this revolving credit
line were amended and are now payable at two and one-eighth
percent per annum of the face amount. The revolving credit
agreement is collateralized by cash and cash equivalents and
contains certain financial covenants, including the maintenance
of certain financial ratios and minimum net income
(loss) requirements.

At April 4, 1999, the Company was out of compliance with two
 of the debt covenants. The Company received waivers from the
banks regarding those covenants and is retroactively in
compliance. The Companys quarterly operating results for
the remainder of the agreement term are likely to be out of
compliance with the credit lines financial covenants.
Effective March 26, 1999, the banks informed the Company
that they would not renew the Companys letters of credit,
outstanding under this agreement, as they come due. The letters
of credit, which relate to security for certain of the
Companys facility leases, come due as follows: $12,500,000
on June 24, 1999, $9,012,000 on July 31, 1999 and
$7,250,000 on September 12, 1999. In addition, effective
May 19, 1999, the respective banks have informed the Company
 that they will not provide additional short-term lending under
this agreement.

The Company is considering alternatives for the letters of credit
 including refinancing the loan, seeking alternative issuers of
letters of credit or cash collateral. In the event that such
letters of credit expire and are not renewed, the Companys
cash would be reduced by the amount of the letters of credit.

Local lines of credit are available for short-term advances of up
 to $5,300,000 to certain of the Companys foreign
subsidiaries. Two of these lines are guaranteed by the Company.
The agreements require interest payable ranging from the
banks prime lending rate plus up to one quarter of one
percent per annum. No borrowings were outstanding against these
local lines of credit at April 4, 1999.

6.  Capital Transaction

On January 19, 1999, the Company announced it had entered
into a distribution and joint development agreement with Intel
Corporation. On February 17, 1999, Intel invested
$30.5 million in the Company, acquiring approximately 10% of
 the Companys equity through convertible preferred stock.
The two companies will develop videoconferencing and
collaborative products based on a common PC-based technology
platform. Under terms of the agreement, Intel will provide the
Company with distribution rights to sell the Intel ProShare®
 Video System 500 and exclusive worldwide distribution rights to
sell and support the Intel®TeamStation System.

The convertible Preferred Stock issued to Intel Corporation is
non-voting and preferred with respect to dividend rights and
liquidation preference to the Companys Common Stock.
Additionally, each share of the Preferred Stock has the right to
convert to one share of common stock.

The terms of the convertible Preferred Stock are set forth in the
 Amendment to the Certificate of Incorporation filed as Exhibit
3.1.1 to this 10-Q.




The Company has revised its consolidated financial statements for
 the year ended December 31, 1999. The adjustments were to
reclassify the presentation of the Series A Preferred Stock
into the mezzanine section




8



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)




of the balance sheet and to record the preferred stock beneficial
 conversion feature in the first quarter of 1999 rather than over
 the first three quarters of 1999. The consolidated financial
statements and related notes to the consolidated financial
statements in this Form 10Q/A reflect all such revisions through
April 4, 1999. These revisions have no impact on total
assets, total liabilities, or cash flows. A summary of the impact
 of the adjustments for the three months ended April 4, 1999
 is as follows:







|                                              |  |                    |         |          |  |   |         |  
|--------------------------------------------- |  | ------------------ | ------- | -------- |  | - | ------- | -
|                                              |  |                   
|                                              |  | For The           
|                                              |  | Three Months Ended
|                                              |  | April 4, 1999     
|                                              |  |                   
|                                              |  | As                 |         |         
|                                              |  | Previously         |         | As      
|                                              |  | Reported           |         | Restated
|                                              |  |                    |         |         
|Net loss                                      |  | $                  | (25,970 | )        |  | $ | (25,970 | )
|                                             
|                                             
|                                             
|                                             
|Preferred stock beneficial conversion feature |  |                    | 1,434   |          |  |   | 5,612   |  
|                                             
|                                             
|                                             
|                                             
|Net loss applicable to common shareholders    |  |                    | (27,404 | )        |  |   | (31,582 | )
|                                             
|                                             
|                                             
|                                             
|Net loss per common share  basic and diluted |  |                    | (0.68   | )        |  |   | (0.79   | )







|                                       |  |               |         |          |  |   |         | 
|-------------------------------------- |  | ------------- | ------- | -------- |  | - | ------- | 
|                                       |  |              
|                                       |  | April 4, 1999
|                                       |  |              
|                                       |  | As            |         |         
|                                       |  | Previously    |         | As      
|                                       |  | Reported      |         | Restated
|                                       |  |               |         |         
|Redeemable convertible preferred stock |  | $             |        |          |  | $ | 30,500  | 
|                                      
|                                      
|                                      
|                                      
|Convertible preferred stock            |  |               | 45      |          |  |   |        | 
|                                      
|                                      
|                                      
|                                      
|Additional paid in capital             |  |               | 254,374 |          |  |   | 223,919 | 
|                                      
|                                      
|                                      
|                                      
|Total stockholders equity             |  |               | 203,522 |          |  |   | 173,022 | 




7.  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
|                                 |  |              |         |              |  |              |        |       |  |      
|Quarter ended April 4, 1999:     |  |              |         |              |  |              |        |       |  |       |       |  |  |   |        |   |  |   |         |  
|                                
|                                
|                                
|                                
|Revenues from external customers |  | $            | 53,838  |              |  | $            | 16,780 |       |  | $     | 5,576 |  |  | $ |       |   |  | $ | 76,194  |  
|                                
|                                
|                                
|                                
|Operating income (loss)          |  | $            | (22,735 | )            |  | $            | 1,570  |       |  | $     | 423   |  |  | $ | (4,921 | ) |  | $ | (25,663 | )
|                                
|                                
|                                
|                                
|Quarter ended March 29, 1998:    |  |              |         |              |  |              |        |       |  |       |       |  |  |   |        |   |  |   |         |  
|                                
|                                
|                                
|                                
|Revenues from external customers |  | $            | 81,512  |              |  | $            | 13,853 |       |  | $     | 5,680 |  |  | $ |       |   |  | $ | 101,045 |  
|                                
|                                
|                                
|                                
|Operating income (loss)          |  | $            | (2,616  | )            |  | $            | 1,041  |       |  | $     | 2,223 |  |  | $ | (4,470 | ) |  | $ | (3,822  | )

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 are no material intersegment revenues.
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



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

8.  Litigation

A.  Datapoint Litigation

In December 1993, PictureTel was sued by Datapoint
Corporation in the United States District Court for the Northern
District of Texas. Datapoint alleged that certain of
PictureTels products infringed patent rights allegedly
owned by Datapoint. On April 9, 1998 a jury returned a
verdict in favor of PictureTel finding that PictureTel did not
infringe the Datapoint patents and that the Datapoint patent
claims raised against PictureTel were invalid. On May 3, 1999 an
appeals hearing took place with regards to this litigation. While
 there can be no assurance that the outcome of the appeal will be
 in favor of the Company, the Company believes that it presented
meritorious defenses to the appeal.

B.  Shareholder Litigation

Since September 23, 1997, seven class action
shareholders complaints have been filed against the
Company, Norman E. Gaut, Director and former Chairman of the
Board and Chief Executive Officer, and Les Strauss, the former
Vice President and Chief Financial Officer, in the United States
District Court for the District of Massachusetts. The plaintiffs
filed a consolidated complaint on February 11, 1998.

The original complaints were filed following the Companys
announcement on September 19, 1997 that it would restate its
 financial results for the first quarter of the fiscal year
ending December 31, 1997 and the last two quarters of the
fiscal year ending December 31, 1996 and were amended when
the Company announced on November 13, 1997 that it would
also restate the second quarter of the fiscal year ending
December 31, 1997. The consolidated complaint alleges that
PictureTel and Messrs. Gaut and Strauss violated
Sections 10(b) and 20(a) of the Exchange Act and
Rule 10b-5 promulgated thereunder, during the period from
October 17, 1996 through November 13, 1997, through the
 alleged preparation and dissemination of materially false and
misleading financial statements which artificially inflated the
price of PictureTel Common Stock. The consolidated complaint
seeks to recover an unspecified amount of damages, including
attorneys and experts fees and expenses.

On April 7, 1998, the Company filed a motion to dismiss the
complaint. On October 28, 1998, the motion to dismiss Norman
 E. Gaut was granted and the motion to dismiss PictureTel and Les
 Strauss was denied. Limited discovery has occurred, and the
Company expresses no opinion as to the likely outcome. The
outcome of this litigation may have a material impact on the
Companys financial position, results of operations and cash
 flows.

C.  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
seeking $200,000,000 in damages. Discovery has recently begun.
The Company believes that the complaint and the claim for damages
 are without merit and intends to vigorously defend itself
against them.

In addition to the above, the Company has also been and is from
time to time subject to claims 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.

10



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##### Table of Contents






MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Forward-Looking Statements

This document includes forward-looking statements about the
Companys business, revenues and expenses, effective tax
rate, and operating and capital requirements. Forward-looking
statements made or incorporated by reference herein are not
guarantees of future performance. In addition, forward-looking
statements may be included in various other PictureTel documents
to be issued in the future and in various oral statements by
PictureTel representatives to security analysts and investors
from time to time. Any forward-looking statements are subject to
risks that could cause the actual results to vary materially.
Such risks are discussed in Risk Factors Which May Affect
Future Results and in other related portions of this
document.

Business Developments

On January 19, 1999, the Company announced it had entered
into a distribution and joint development agreement with Intel
Corporation. On February 18, 1999, Intel invested
$30.5 million in the Company, acquiring approximately 10% of
 the Companys equity through convertible preferred stock.
The two companies will develop videoconferencing and
collaborative products based on a common PC-based technology
platform. Under terms of the agreement, Intel will provide the
Company with distribution rights to sell the Intel ProShare®
 Video System 500 and exclusive worldwide distribution rights to
sell and support the Intel® TeamStation System.

Results of Operations

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




|                                              |  |                    |       |           |  |  |      |  
|--------------------------------------------- |  | ------------------ | ----- | --------- |  |  | ---- | -
|                                              |  |                   
|                                              |  | Three Months Ended
|                                              |  |                   
|                                              |  | April 4,           |       | March 29,
|                                              |  | 1999               |       | 1998     
|                                              |  |                    |       |          
|                                              |  | Restated           |       |          
|                                             
|                                             
|                                             
|                                             
|Revenues                                      |  |                    | 100%  |           |  |  | 100% |  
|                                             
|                                             
|                                             
|                                             
|Cost of revenues                              |  |                    | 68.2  |           |  |  | 54.6 |  
|                                             
|                                             
|                                             
|                                             
|Gross margin                                  |  |                    | 31.8  |           |  |  | 45.4 |  
|                                             
|                                             
|                                             
|                                             
|Selling, general and administrative           |  |                    | 42.5  |           |  |  | 32.5 |  
|                                             
|                                             
|                                             
|                                             
|Research and development                      |  |                    | 23.0  |           |  |  | 16.7 |  
|                                             
|                                             
|                                             
|                                             
|Total operating expenses                      |  |                    | 65.5  |           |  |  | 49.2 |  
|                                             
|                                             
|                                             
|                                             
|Income (loss) from operations                 |  |                    | (33.7 | )         |  |  | (3.8 | )
|                                             
|                                             
|                                             
|                                             
|Interest income, net                          |  |                    | 0.3   |           |  |  | 0.5  |  
|                                             
|                                             
|                                             
|                                             
|Other income, net                             |  |                    | 0.7   |           |  |  | 0.3  |  
|                                             
|                                             
|                                             
|                                             
|Income (loss) before taxes                    |  |                    | (32.7 | )         |  |  | (3.0 | )
|                                             
|                                             
|                                             
|                                             
|Income tax expense (benefit)                  |  |                    | 1.4   |           |  |  | (0.9 | )
|                                             
|                                             
|                                             
|                                             
|Net income (loss)                             |  |                    | (34.1 | )         |  |  | (2.1 | )
|                                             
|                                             
|                                             
|                                             
|Preferred stock beneficial conversion feature |  |                    | (7.4  | )         |  |  |     |  
|                                             
|                                             
|                                             
|                                             
|Net loss available to common shareholders     |  |                    | (41.5 | )         |  |  | (2.1 | )




Three Months Ended April 4, 1999 Compared to Three Months
 Ended March 29, 1998

Revenues.The Companys first quarter 1999 revenues
of $76,194,000 decreased $24,851,000, or 25%, from first quarter
1998 levels. Lower videoconferencing products volume and lower
average selling prices, as discussed below in
Videoconferencing Products, account for the decline.
Revenues from sales to foreign markets were approximately 48% of
total revenues in both periods.

11



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##### Table of Contents



Gross Margin.Overall gross margin declined $21,665,000,
or 47%, in the first quarter of 1999 compared to the first
quarter of 1998. Gross margin as a percentage of revenue was 32%
versus 45% in the first quarters of 1999 and 1998, respectively.
The decrease was caused by lower average selling prices coupled
with higher per unit costs due to lower volume in
videoconferencing products.

Operating Expenses.First quarter 1999 operating expenses
of $49,885,000 were flat compared with the comparable prior year
period. However, as a percentage of revenue, operating expenses
increased to 65.5% from 49.2% as a result of the decline in
revenue.

Selling, General and Administrative. First quarter 1999
selling, general, and administrative expenses of $32,362,000 were
 approximately 1% lower than first quarter 1998 due to cost
reduction efforts partially offset by higher real estate costs
and a $900,000 gain associated with the collection of a
previously written-off receivable. However, as a percentage of
revenue, selling, general and administrative increased to 42.5%
from 32.5% as a result of the decline in revenue.

The Company expects to record a charge of approximately
$2,500,000 in the second quarter related to subleasing certain
excess real estate.

Research and Development. First quarter 1999 research and
development expenses of $17,523,000 were approximately 4% higher
than in the previous year. New product development expenditures
at Starlight, which was acquired in the fourth quarter of last
year, and in the audioconferencing segment, coupled with
decreased capitalization of software development costs, account
for the higher expenses. The Company capitalized $1,457,000 of
software development costs in the first quarter of 1998. No such
costs were capitalized in the first quarter of 1999 as no current
 projects in progress had achieved technological feasibility.

Videoconferencing Products. First quarter 1999 revenues
for this segment, which develops, manufactures, and markets
visual communications systems and collaboration software totaled
$53,838,000. This represents a $27,674,000, or 34%, decrease from
 first quarter 1998 levels. Lower unit volumes and lower average
selling prices were responsible. Average selling prices were
lower across all product lines versus 1998, with this trend
expected to continue as the Company adjusts its prices in
response to competitive pressures.

Total videoconferencing system units decreased 18% versus the
prior year, with group system volume declining by 33% and
desktop/personal system volume off by 5%. Lower Concorde
shipments and a decision to suspend distribution of Swiftsite II,
 the Companys newly introduced compact system, until
certain software problems are resolved, accounted for the
decreased group system volume. The Company has deferred revenue
recognition on all Swiftsite II shipments until an improved
version of the software is available, which is currently expected
 to occur in the second quarter. As a result, nearly 40% of the
revenue decline and a major portion of the increase of finished
goods inventory is associated with this Swiftsite II revenue
deferral.

The videoconferencing products segment generated an operating
loss of $22,735,000 during the quarter compared to a $2,616,000
operating loss in the first quarter of 1998. Lower revenue and
decreased gross margin as a percent of revenue account for the
profitability decrease. Compared with the previous years
first quarter, gross margin as a percentage of revenue declined
16 percentage points to 32%. The primary reasons for the
decreased gross margin percentage were lower average sales
prices, excess overhead absorption associated with lower volumes
and capitalized software amortization related to Swiftsite II and
 completed technology purchased in the fourth quarter 1998
related to the Starlight acquisition. First quarter 1999
operating expenses decreased 5% from prior year levels because of
 ongoing cost reduction efforts partially offset by the Starlight
 acquisitions operating costs and a reduction in internal
software development capitalization.

Videoconferencing Services.The videoconferencing services
 segment provides maintenance as well as professional consulting
and management services for videoconferencing products sold by
the Company and its competitors. First quarter 1999 revenues grew
 from $13,853,000 in 1998 to $16,780,000 in 1999, as both
maintenance and professional service revenues increased 21%.

Operating profits were $1,570,000 during 1999s first
quarter compared with $1,041,000 in the comparable prior year
period. Revenue growth is the main reason for the 50%
improvement.

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Audioconferencing.The audioconferencing segment develops,
 manufactures, markets, and services multipoint audioconferencing
 control units. First quarter 1999 segment revenues totaled
$5,576,000 and were essentially flat with comparable 1998
results.

Operating income decreased from $2,223,000 in the first quarter
of 1998 to $423,000 in the first quarter of 1999, primarily
because of increased research and development spending on
enhancing existing products and developing next generation
products.

Income Taxes.The Companys effective income tax rate
 was 4% in the first quarter of 1999 compared with 29% in the
comparable period in 1998. The decrease in the effective tax rate
 is due to the Companys recording a full valuation
allowance against net deferred tax assets in the fourth quarter
of 1998 and continued uncertainty as to future realization of
those assets. The effective tax rate in 1999 relates to foreign
and state taxes.

Liquidity and Capital Resources

At April 4, 1999 the Company had $59,908,000 in cash and
cash equivalents and $51,782,000 in short-term marketable
securities. The primary uses of cash during the first quarter of
1999 were expenditures for normal operations, the increase of
inventory of $8,364,000 and the decrease in accounts payable of
$9,428,000. The principal sources of cash were the receipt of
$30.5 million of cash from the issuance of preferred stock and
the decrease in trade receivables of $5,393,000. The increase in
marketable securities was due primarily to the increase in value
of one equity security.

At April 4, 1999, no borrowings were outstanding under the
Companys credit agreement with its banks. However, the
Company has $28,762,000 of outstanding standby letters of credit
under this agreement. Fees for letters of credit outstanding
against this revolving credit line were amended and are now
payable at two and one-eighth percent per annum of the face
amount. The revolving credit agreement is collateralized by cash
and cash equivalents and contains certain financial covenants,
including the maintenance of certain financial ratios and minimum
 net income (loss) requirements.

At April 4, 1999, the Company was out of compliance with two
 of the debt covenants. The Company received waivers from the
banks regarding those covenants and is retroactively in
compliance. The Companys quarterly operating results for
the remainder of the agreement term are likely to be out of
compliance with the credit lines financial covenants.
Effective March 26, 1999, the banks informed the Company
that they would not renew the Companys letters of credit,
outstanding under this agreement, as they come due. The letters
of credit, which relate to security for certain of the
Companys facility leases, come due as follows: $12,500,000
on June 24, 1999, $9,012,000 on July 31, 1999 and
$7,250,000 on September 12, 1999. In addition, effective
May 19, 1999, the respective banks have informed the Company
 that they will not provide additional short-term lending under
this agreement.

The Company is considering alternatives for the letters of credit
 including refinancing the loan, seeking alternative issuers of
letters of credit or cash collateral. In the event that such
letters of credit expire and are not renewed, the Companys
cash would be reduced by the amount of the letters of credit.

Local lines of credit are available for short-term advances of up
 to $5,300,000 to certain of the Companys foreign
subsidiaries. Two of these lines are guaranteed by the Company.
The agreements require interest payable ranging from the
banks prime lending rate plus up to one quarter of one
percent per annum. No borrowings were outstanding against these
local lines of credit at April 4, 1999.

The Company has operating leases for various rented properties.
The Company signed an agreement to sublease the facility at
Riverside Drive in Andover in May, 1999 as part of its space
consolidation efforts. As of April 4, 1999, the remaining
obligation under this operating lease was $8,900,000. After
giving effect to expected sublease income, this obligation is
$5,500,000. As a result of lease obligations in excess of
sublease income over the term of the sublease and other charges
related to the transaction, the Company expects to record a
charge of approximately $2,500,000 in the second quarter of 1999.

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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.
 During the three month period ended April 4, 1999, the
Company repurchased 70,000 shares at a cost of $556,000. The
Company has no definitive plans to repurchase the remainder of
the shares.

The Company believes that funds from operations, equipment lease
financing and existing cash, cash equivalents and marketable
securities will be sufficient to meet the Companys
operating, investing and financing requirements for the
foreseeable future.

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
is still emerging as a result of extensive research and
development efforts and which continues to bring to market new,
more technologically advanced products introduced on an
accelerated basis. Simultaneously, the larger telecommunications
market is in a heightened competitive state due to deregulation
throughout the world. In order to maintain its market share
leadership role in this fast-paced emerging market, the Company
must continue to introduce, through internal development or by
acquisition, 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 which 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 will develop
videoconferencing and collaborative products based on a common
PC-based technology platform. There can be no assurance that the
partnership will be successful or produce products which 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 continued development of products and services for new
technologies and networks, such as the Internet and corporate
intranets or LANs. 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 has also experienced over the
past year 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 with attractive
margins for these new technologies and networks. The possible
transition, migration and/or convergence of technologies is
difficult to predict and could have profound implications for the
 industry and the business of the Company. Further, there is
significant risk that existing products could be rendered
obsolete due to changing technology. The failure of the Company
to develop and market new products on a timely basis or to
enhance its existing products or to respond effectively to
technological changes, new industry standards or product
announcements by competitors could have a material adverse effect
 on the Companys business, financial condition and results
of operations.

Competition.In its established businesses of group and
desktop/personal videoconferencing products, the Company competes
 with a number of corporations, such as Polycom, RSI Systems,
Sony, Tandberg, VTEL and VCON. In the developing businesses of
network-based videoconferencing systems and audioconferencing
systems, a number of corporations such as Lucent and Cisco have
begun to offer competitive products. In addition, partnerships
between corporations, which compete with the Company, and
corporations which develop and market network products, as well
as mergers among competitors, are intensifying competition in the
 marketplace. This increased competition, together with a
slowdown in the growth of the

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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 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 25%
decrease in revenues for the quarter ended April 4, 1999 as
compared to revenues for the quarter ended March 29, 1998
and an increase in net loss from $2,165,000 to $25,970,000.

The Company had revenues of $406,152,000 and $466,425,000 for the
 year ended December 31, 1998 and December 31, 1997,
respectively, and net losses of $55,679,000 and $39,398,000,
respectively. Included in the results for the year ended
December 31, 1998 were charges totaling $9,957,000 related
to discontinuing a video network server product line and the
write-down of certain inventory and fixed assets and a valuation
allowance for deferred taxes of $35,141,000. The Company recorded
 other charges in the year ended December 31, 1997 to bring
expenses into line with its lower level of revenues and a lower
expected rate of growth. Revenues and prospects for growth have
been impacted by, among other things, the decline in the average
selling price for several PictureTel products, a decline in the
profitability of the industry, a slowdown in the general market
for videoconferencing products, a suspension of Swiftsite II
distribution, as discussed in the results of operations above,
and also in part resulting from the perceived uncertainty of
customers with respect to the compatibility of existing products
of the Company and its competitors with expected new multimedia
videoconferencing products utilizing the Internet and LAN
systems. Continued lower operating results will impact the
Companys ability to remain in compliance with covenants
under its existing revolving credit agreement. Further, there can
 be no assurance that the Company can return to the level of
revenues or profits in relation to net sales experienced in years
 prior to the year ended December 31, 1997.

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

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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. See Litigation.

Potential Fluctuations of Quarterly Operating Results.The
 majority of the Companys revenues in each quarter result
from orders booked in that quarter, and a substantial portion of
the Companys orders and shipments typically occur during
the last weeks of each quarter 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
revenues. As a result, a shortfall in revenue compared to
internal expectations may not evidence itself until late in the
quarter and any resulting impact on earnings may not be
determinable until several weeks after the end of the quarter.
The Companys ability to maintain or increase net revenues
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.Revenues related to
international operations of the Company totaled approximately 48%
 of revenue for both periods ended April 4, 1999 and
March 29, 1998 and 43% of total revenues for both the years
ended December 31, 1998 and 1997, respectively. Management
of the Company expects international revenues to continue to
constitute a significant portion of total revenues in future
periods. However, there can be no assurance that the Company will
 be able to maintain or increase international market demand for
its products and, to the extent the Company is unable to do so,
its business, financial condition, results of operations or cash
flows could be materially adversely affected. The Companys
sales to international distributors are denominated in U.S.
dollars in order to minimize risks associated with fluctuating
foreign currency rates. An increase in the value of the U.S.
dollar relative to other currencies, however, could make the
Companys product more expensive and, therefore, potentially
 less competitive in foreign markets. Sales by the Companys
 foreign subsidiaries are generally made in the foreign
subsidiarys local currency, in which case fluctuations in
the value of the U.S. dollar relative to such other currencies
could have a material adverse effect on the operating results of
the Company. Currently, the Company employs various currency
hedging strategies to reduce these risks. In addition, a
significant portion of the Companys revenue is derived from
 Asian markets. Given the current general weakness in the Asian
markets, there can be no assurance that the Company will be able
to sustain current revenue levels or growth in such markets.
There can be no assurance that the above factors will not have a
material adverse effect on the Companys future
international sales and, consequently, on its business, financial
 condition, results of operations or cash flows.

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

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Dependence on Key Personnel.In February, 1998, Bruce R.
Bond succeeded Dr. Norman Gaut as Chief Executive Officer
and President. In June, 1998, Bruce Bond was elected Chairman of
the Board and Dr. Gaut retired as an active employee while
remaining a member of the Board of Directors. There can be no
assurance that the transition from Dr. Gaut to Bruce Bond
will be successful. On October 15, 1998, the Company
announced the appointment of Gary Bond as Group Vice President
and General Manager of Products. On October 21, 1998, Arthur
 Fatum was appointed as Vice President and Chief Financial
Officer. The Company depends on a limited number of key senior
management personnel, including Bruce Bond; David Grainger, Group
 Vice President and General Manager of Services; David Goselin,
Vice President, Operations; Lawrence Bornstein, Vice President,
Human Resources; Gary Bond; Arthur Fatum; Frazer Hamilton, Group
Vice President of Worldwide Sales; and John Nye, Vice President,
MultiLink. There has been 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, over
the past year, the Company has experienced an increase in
voluntary employee attrition from engineering and other
departments. There is no assurance, given the competitive nature
of the current job market, that the Company will be able to
adequately fill the open positions.

Year 2000 Readiness Disclosure.The Company has formed an
internal compliance team to evaluate its internal information
technology infrastructure and application systems (IT
Systems) and other non-IT infrastructure systems
(Non-IT Systems) to determine whether such systems
will operate correctly with regard to the import, export, and
processing of date information, including correct handling of
leap years, in connection with the change in the calendar year
from 1999 to 2000 (the Year 2000 Issue), and to
evaluate the Year 2000 Issue with respect to the systems of third
 party partners and suppliers with which the Company has a
material relationship (Third Party Systems).

The Company expects to complete in the second quarter of 1999 a
comprehensive IT Systems inventory analysis and risk assessment.
As previously planned and budgeted, the Company completed the
upgrade of its core domestic IT Systems to incorporate additional
 desired features and functionality and is now testing the Year
2000 compliance of the customizations to the software. The
Company expects to complete this process as planned by
June 30, 1999. IT systems at several foreign subsidiaries
will be converted to the IT systems used domestically by the end
of July, 1999. Systems supporting MultiLink will likely be
replaced in 1999 in order to achieve Year 2000 compliance. The
Company currently estimates an additional $1,200,000 of 1999 IT
system remediation costs based on its assessment to date. To the
extent, however, that such upgrades are not completed in a timely
 manner, the Companys operations, financial condition,
results of operations or cash flows could be materially adversely
 affected.

The Company also expects to complete a Non-IT Systems inventory
analysis and risk assessment in the second quarter of 1999. The
costs of any remediation actions required in order to be Year
2000 compliant have not been identified at this time. As the
Company believes the number of mission critical Non-IT Systems is
 relatively small, the Company does not expect that any
additional costs of addressing the Year 2000 Issue for Non-IT
Systems will have a material adverse impact on its operations or
its financial position, results of operations or cash flows.

With the assistance of an independent Year 2000 solution
provider, the Company is in the process of creating a plan to
complete a Third Party Systems inventory and risk assessment. The
 Company expects to verify Year 2000 compliance of Third Party
Systems using this independent Year 2000 solution provider. As
the Company believes the number of mission critical Third Party
Systems is relatively small, the Company expects to be in a
position to evaluate the risks in a timely manner. Until Year
2000 compliance of all Third Party Systems is ascertained and
written assurances are received, the risk to the Companys
operations and any additional costs relating to such Third Party
Systems is unknown.

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The Company estimates it will spend a total of $433,000 on
inventory analysis and risk assessment. To date, the Company has
incurred $288,000 of expense relating to inventory analysis and
risk assessment. These Year 2000 expenditures are within the
Companys planned organizational budgets and include the
cost of independent Year 2000 solution providers. Year 2000
expenditures for IT Systems, Non-IT Systems and Third Party
Systems do not reflect the cost to the Company of internal
resources working on the Year 2000 Issue and do not reflect
planned upgrades or planned replacement systems which may have a
positive impact on resolving the Year 2000 Issue. The Company
expects to complete its risk assessment and cost estimate
relating to the Year 2000 Issue no later than the end of May,
1999 and to develop a high-level contingency plan relating to the
 remediation and prioritization of its IT Systems, Non-IT Systems
 and Third Party Systems shortly thereafter. As of April 4, 1999,
 no IT Systems projects have been deferred due to problems
associated with the Year 2000 Issue.

The Company has also tested its products for Year 2000 compliance
 and had determined that all PictureTel products currently
available for sale have either successfully passed Year 2000
compliance testing or are not subject to Year 2000 compliance
because such products do not import, export or process date
information in any manner. Recently, it has come to the
Companys attention that two of its newly released products,
 which are supplied by a third party and whose prior versions
passed the Year 2000 compliance tests, are not Year 2000
compliant. The Company is actively pursuing the third party
supplier to provide fixes to these products. A small number of
the Companys installed base products do not meet Year 2000
compliance testing. For these older, non-compliant versions of
products, the Company has, with one exception, developed adequate
 workarounds that will be made available to customers and that
will permit the products to continue to operate with full
functionality.

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
has not had and is not anticipated to have a material impact on
the Companys business.

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Part II  Other Information




Item 1.  Legal Proceedings

A.  Datapoint Litigation

In December 1993, PictureTel was sued by Datapoint
Corporation in the United States District Court for the Northern
District of Texas. Datapoint alleged that certain of
PictureTels products infringed patent rights allegedly
owned by Datapoint. On April 9, 1998 a jury returned a
verdict in favor of PictureTel finding that PictureTel did not
infringe the Datapoint patents and that the Datapoint patent
claims raised against PictureTel were invalid. On May 3, 1999 an
appeals hearing took place with regard to this litigation. While
there can be no assurance that the outcome of the appeal will be
in favor of the Company, the Company believes that it presented
meritorious defenses to the appeal.

B.  Shareholder Litigation

Since September 23, 1997, seven class action
shareholders complaints have been filed against the
Company, Norman E. Gaut, Director and former Chairman of the
Board and Chief Executive Officer, and Les Strauss, the former
Vice President and Chief Financial Officer, in the United States
District Court for the District of Massachusetts. The plaintiffs
filed a consolidated complaint on February 11, 1998.

The original complaints were filed following the Companys
announcement on September 19, 1997 that it would restate its
 financial results for the first quarter of the fiscal year
ending December 31, 1997 and the last two quarters of the
fiscal year ending December 31, 1996 and were amended when
the Company announced on November 13, 1997 that it would
also restate the second quarter of the fiscal year ending
December 31, 1997. The consolidated complaint alleges that
PictureTel and Messrs. Gaut and Strauss violated
Sections 10(b) and 20(a) of the Exchange Act and
Rule 10b-5 promulgated thereunder, during the period from
October 17, 1996 through November 13, 1997, through the
 alleged preparation and dissemination of materially false and
misleading financial statements which artificially inflated the
price of PictureTel Common Stock. The consolidated complaint
seeks to recover an unspecified amount of damages, including
attorneys and experts fees and expenses.

On April 7, 1998, the Company filed a motion to dismiss the
complaint. On October 28, 1998, the motion to dismiss Norman
 E. Gaut was granted and the motion to dismiss PictureTel and Les
 Strauss was denied. Limited discovery has occurred, and the
Company expresses no opinion as to the likely outcome. The
outcome of this litigation may have a material impact on the
Companys financial position, results of operations and cash
 flows.

C.  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
seeking $200,000,000 in damages. Discovery has recently begun.
The Company believes that the complaint and the claim for damages
 are without merit and intends to vigorously defend itself
against them.

In addition to the above, the Company has also been and is from
time to time subject to claims 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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Item 2.  Changes in Securities

(a)  The rights of the common stock are materially limited
or qualified by the issue of non-voting, convertible Series A
Preferred Stock to Intel Corporation with respect to preferred
dividend rights and liquidation preference of said Series A
Preferred Stock.

On the date hereof each outstanding share of the Series A
Preferred has the right to convert to one share of common, see
the terms of the Series A Preferred Stock as set forth in the
Amendment to the Certificate of Incorporation filed as Exhibit
3.1.1 to this Report.

(b)  On February 17, 1999, the Company sold 4,478,708 shares
 of Series A Preferred Stock to Intel Corporation for cash of
$30,500,000. The Company expects to use the proceeds to
accelerate growth of videoconferencing worldwide, especially in
the use of videoconferencing products. The securities were 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 Intel Corporation.

The shares of this series of non-voting Series A Preferred Stock,
 convertible into the same number of shares of PictureTel Common
Stock (with anti-dilution protection for stock splits and the
like), was established by vote of PictureTels Board of
Directors pursuant to its authority under the Companys
Certificate of Incorporation as reported in the Companys
January 18, 1999 8-K filing. This represented on an as-converted
basis, an investment in approximately 10% of PictureTel Common
Stock. This security was sold by PictureTel in consideration of
the payment by Intel of cash as described above and Intels
entering into a Distribution and Joint Product Development
Agreement with PictureTel. Under the Stock Purchase and Investor
Rights Agreement Intel has certain ancillary rights to acquire
additional securities of PictureTel in order to maintain, subject
 to the specified terms and conditions, its percentage ownership
of PictureTels equity.




Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits

|      |  |                                                                                                                                                                                      
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1.1 |  | Certificate of designation, preferences and other rights of the
	Series A Preferred Stock of PictureTel Corporation,
	consisting of an Amendment to the Certificate of Incorporation.
|10.1  |  | Employment agreement between PictureTel Corporation and Frazer
	Hamilton dated June 16, 1998.                                                                                        
|10.2  |  | Change in control agreement between PictureTel Corporation and
	Frazer Hamilton dated June 22, 1998.                                                                                 
|10.3  |  | Consultant agreement between PictureTel Corporation and Enzo
	Torresi dated January 5, 1999.                                                                                         
|27.1  |  | Financial Data Schedule for the period ended April 4, 1999 as
	required by Item 601(c) of Regulation S-K.                                                                            

(b) Reports on Form 8-K

On January 22, 1999, the Company filed a report on
Form 8-K to announce it had entered into a distribution and
joint development agreement with Intel Corporation. On
February 18, 1999, Intel invested $30.5 million in the
Company, acquiring approximately 10% of the Companys equity
 through convertible preferred stock. The two companies will
develop videoconferencing and collaborative products based on a
common PC-based technology platform. Under terms of the
agreement, Intel will provide the Company with distribution
rights to sell the Intel ProShare® Video System 500 and
exclusive worldwide distribution rights to sell and support the
Intel®TeamStation System.

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##### Table of Contents



SIGNATURE




Pursuant to the Securities Exchange Act of 1934, the registrant
has duly caused this report on Form 10-Q/A 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 14, 2000                             
|

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