##### 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                              October 3,
 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 October 3, 1999 | Commission File Number 1-9434

PICTURETEL CORPORATION

(Exact name of Registrant as specified in its
charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Delaware(State or other jurisdiction of
	incorporation or organization) |  | 04-2835972(I.R.S. Employer
	Identification No.)
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|100 Minuteman Road, Andover, MA(Address of Principal Executive Offices) |  | 01810(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.

Yes
[X]          No
 [ ]

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

As of October 8, 1999, there were outstanding 40,526,112
shares of common stock of the registrant.



---






---

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 4. Submission of Matters to a Vote of Security Holders
|                                                                                      | Item 6. Exhibits and Reports on Form 8-K                   
|SIGNATURE                                                                            
|EX-10.6.2 Employment Agreement Letter - N. Gaut                                      
|Ex-10.18.3 Separation Agreement Letter - B. Bond                                     
|ex-10.20.2 Separation Agreement - Gary L. Bond                                       
|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                |                                                                      |       |      |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |                                            | October 3, 1999 and December 31, 1998.                               |       |      | 3 | 
|                                                                                                 | Consolidated Statements of Operations      |                                                                      |       |      |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |                                            | Three and nine months ended October 3, 1999 and
	September 27, 1998. |       |      | 4 | 
|                                                                                                 | Consolidated Statements of Cash Flows      |                                                                      |       |      |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 |                                            | Nine months ended October 3, 1999 and September 27,
	1998.           |       |      | 5 | 
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Notes to Consolidated Financial Statements |                                                                      |       | 6-11 |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Item 2.  Managements Discussion and Analysis
	 of Financial Condition and Results of Operations |                                            |                                                                      | 12-22 |     
|PART II.  OTHER INFORMATION                                                                      |                                            |                                                                      |       |     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Item 1.  Legal Proceedings                                                                       |                                            |                                                                      | 23    |     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Item 4.  Submission of Matters to a Vote of
	Security Holders                                    |                                            |                                                                      | 24    |     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Item 6.  Exhibits and Reports on Form 8-K                                                        |                                            |                                                                      | 24    |     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Signature                                                                                        |                                            |                                                                      | 25    |     

2



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##### Table of Contents



PICTURETEL CORPORATION






CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)





|                                                                                                                                         |                                                                                                                                                                        |                                                                         |        |              |         |  |        |         |         | 
|---------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------ | ------------ | ------- |  | ------ | ------- | ------- | 
|                                                                                                                                         |                                                                                                                                                                        | October 3,                                                              |        | December 31,
|                                                                                                                                         |                                                                                                                                                                        | 1999                                                                    |        | 1998        
|                                                                                                                                         |                                                                                                                                                                        |                                                                         |        |             
|                                                                                                                                         |                                                                                                                                                                        | (Unaudited)                                                             |        |             
|                                                                                                                                         |                                                                                                                                                                        | Restated                                                                |        |             
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|ASSETS                                                                                                                                  
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|Current assets:                                                                                                                          |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Cash and cash equivalents                                                                                                                                              |                                                                         | $      | 18,670       |         |  | $      | 62,642  |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Restricted cash                                                                                                                                                        |                                                                         |        | 2,500        |         |  |        |        |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Marketable securities                                                                                                                                                  |                                                                         |        | 51,864       |         |  |        | 38,078  |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Accounts receivable, less allowance for doubtful accounts of
	$6,876 and $5,392 at October 3, 1999 and December 31,
	1998, respectively                                |                                                                         |        | 69,548       |         |  |        | 78,995  |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Inventories                                                                                                                                                            |                                                                         |        | 35,425       |         |  |        | 30,256  |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Other current assets                                                                                                                                                   |                                                                         |        | 14,024       |         |  |        | 8,692   |        
|                                                                                                                                         |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|                                                                                                                                         |                                                                                                                                                                        | Total current assets                                                    |        |              | 192,031 |  |        |         | 218,663 | 
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|Property and equipment, net                                                                                                              |                                                                                                                                                                        |                                                                         | 89,098 |              |         |  | 95,655 |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|Capitalized software costs, net                                                                                                          |                                                                                                                                                                        |                                                                         | 13,627 |              |         |  | 20,484 |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|Goodwill, net                                                                                                                            |                                                                                                                                                                        |                                                                         | 4,515  |              |         |  | 5,336  |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|Other assets                                                                                                                             |                                                                                                                                                                        |                                                                         | 10,124 |              |         |  | 12,856 |        
|                                                                                                                                         |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|                                                                                                                                         |                                                                                                                                                                        | Total assets                                                            |        | $            | 309,395 |  |        | $       | 352,994 | 
|                                                                                                                                         |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS
	 EQUITY                                                                      
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|Current liabilities:                                                                                                                     |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Short-term borrowings                                                                                                                                                  |                                                                         | $      |             |         |  | $      | 881     |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Accounts payable                                                                                                                                                       |                                                                         |        | 20,050       |         |  |        | 32,777  |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Accrued compensation and benefits                                                                                                                                      |                                                                         |        | 7,114        |         |  |        | 11,214  |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Accrued expenses                                                                                                                                                       |                                                                         |        | 41,714       |         |  |        | 35,316  |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Current portion of capital lease obligations                                                                                                                           |                                                                         |        | 1,786        |         |  |        | 3,537   |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Deferred revenue                                                                                                                                                       |                                                                         |        | 26,351       |         |  |        | 22,616  |        
|                                                                                                                                         |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|                                                                                                                                         |                                                                                                                                                                        | Total current liabilities                                               |        |              | 97,015  |  |        |         | 106,341 | 
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|Capital lease obligations                                                                                                                |                                                                                                                                                                        |                                                                         | 55,059 |              |         |  | 56,411 |        
|                                                                                                                                         |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|                                                                                                                                         |                                                                                                                                                                        | Total liabilities                                                       |        |              | 152,074 |  |        |         | 162,752 | 
|                                                                                                                                         |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|Commitments and contingencies (Notes 5 and 9)                                                                                            |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|Redeemable convertible, preferred stock, $.01 par value;
	15,000,000 shares authorized; 4,478,708 shares outstanding at
	October 3, 1999 |                                                                                                                                                                        |                                                                         | 30,500 |              |         |  |       |        
|                                                                                                                                         |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|Stockholders equity:                                                                                                                    |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Common stock, $.01 par value; 80,000,000 shares authorized;
	40,526,112 shares outstanding at October 3, 1999 and
	40,067,771 shares outstanding at December 31, 1998. |                                                                         |        | 405          |         |  |        | 400     |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Treasury stock, 90,725 shares                                                                                                                                          |                                                                         |        | (556         | )       |  |        |        |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Additional paid-in capital                                                                                                                                             |                                                                         |        | 225,513      |         |  |        | 222,230 |        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Accumulated deficit                                                                                                                                                    |                                                                         |        | (98,622      | )       |  |        | (30,254 | )      
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                        
|                                                                                                                                         | Accumulated other comprehensive income (loss)                                                                                                                          |                                                                         |        | 81           |         |  |        | (2,134  | )      
|                                                                                                                                         |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|                                                                                                                                         |                                                                                                                                                                        | Total stockholders equity                                              |        |              | 126,821 |  |        |         | 190,242 | 
|                                                                                                                                         |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        
|                                                                                                                                         |                                                                                                                                                                        | Total liabilities, redeemable preferred stock and
	stockholders equity |        | $            | 309,395 |  |        | $       | 352,994 | 
|                                                                                                                                         |                                                                                                                                                                        |                                                                         |        |              |         |  |        |        






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       |         | Nine Months Ended
|                                                    |                                     |                          |         |                  
|                                                    |                                     | October 3,               |         | September 27,     |        | October 3, |         | September 27,
|                                                    |                                     | 1999                     |         | 1998              |        | 1999       |         | 1998         
|                                                    |                                     |                          |         |                   |        |            |         |              
|                                                    |                                     | Restated                 |         |                   |        |            |         |              
|                                                   
|                                                   
|                                                   
|                                                   
|Revenues                                            |                                     | $                        | 78,813  |                   |        | $          | 102,058 |               |        | $ | 240,969 |         |         | $ | 307,685 |       
|                                                   
|                                                   
|                                                   
|                                                   
|Cost of revenues                                    |                                     |                          | 53,883  |                   |        |            | 56,297  |               |        |   | 164,792 |         |         |   | 175,765 |       
|                                                    |                                     |                          |         |                   |        |            |         |               |        |   |         |         |         |   |         |       
|Gross margin                                        |                                     |                          | 24,930  |                   |        |            | 45,761  |               |        |   | 76,177  |         |         |   | 131,920 |       
|                                                   
|                                                   
|                                                   
|                                                   
|Operating expenses:                                 |                                     |                          |         |                   |        |            |         |               |        |   |         |         |         |   |         |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Selling, general and administrative |                          |         | 28,501            |        |            |         | 30,214        |        |   |         | 100,348 |         |   |         | 99,207 |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Research and development            |                          |         | 15,659            |        |            |         | 14,451        |        |   |         | 51,530  |         |   |         | 45,968 |        
|                                                    |                                     |                          |         |                   |        |            |         |               |        |   |         |         |         |   |         |       
|                                                    |                                     | Total operating expenses |         |                   | 44,160 |            |         |               | 44,665 |   |         |         | 151,878 |   |         |        | 145,175 | 
|                                                    |                                     |                          |         |                   |        |            |         |               |        |   |         |         |         |   |         |       
|Income (loss) from operations                       |                                     |                          | (19,230 | )                 |        |            | 1,096   |               |        |   | (75,701 | )       |         |   | (13,255 | )     
|                                                   
|                                                   
|                                                   
|                                                   
|Interest income, net                                |                                     |                          | 176     |                   |        |            | 721     |               |        |   | 12      |         |         |   | 1,722   |       
|                                                   
|                                                   
|                                                   
|                                                   
|Other income, net                                   |                                     |                          | 9,128   |                   |        |            | 572     |               |        |   | 10,018  |         |         |   | 901     |       
|                                                    |                                     |                          |         |                   |        |            |         |               |        |   |         |         |         |   |         |       
|Income (loss) before income tax expense (benefit)   |                                     |                          | (9,926  | )                 |        |            | 2,389   |               |        |   | (65,671 | )       |         |   | (10,632 | )     
|                                                   
|                                                   
|                                                   
|                                                   
|Income tax expense (benefit)                        |                                     |                          | 641     |                   |        |            | 765     |               |        |   | 2,698   |         |         |   | (3,402  | )     
|                                                    |                                     |                          |         |                   |        |            |         |               |        |   |         |         |         |   |         |       
|Net income (loss)                                   |                                     |                          | (10,567 | )                 |        |            | 1,624   |               |        |   | (68,369 | )       |         |   | (7,230  | )     
|                                                   
|                                                   
|                                                   
|                                                   
|Preferred stock beneficial conversion feature       |                                     |                          |        |                   |        |            |        |               |        |   | 5,612   |         |         |   |        |       
|                                                    |                                     |                          |         |                   |        |            |         |               |        |   |         |         |         |   |         |       
|Net income (loss) applicable to common shareholders |                                     | $                        | (10,567 | )                 |        | $          | 1,624   |               |        | $ | (73,981 | )       |         | $ | (7,230  | )     
|                                                    |                                     |                          |         |                   |        |            |         |               |        |   |         |         |         |   |         |       
|Net income (loss) per common share basic           |                                     | $                        | (0.26   | )                 |        | $          | 0.04    |               |        | $ | (1.83   | )       |         | $ | (0.19   | )     
|                                                    |                                     |                          |         |                   |        |            |         |               |        |   |         |         |         |   |         |       
|Net income (loss) per common share diluted         |                                     | $                        | (0.26   | )                 |        | $          | 0.04    |               |        | $ | (1.83   | )       |         | $ | (0.19   | )     
|                                                    |                                     |                          |         |                   |        |            |         |               |        |   |         |         |         |   |         |       
|Weighted average shares outstanding basic          |                                     |                          | 40,426  |                   |        |            | 38,376  |               |        |   | 40,326  |         |         |   | 38,259  |       
|                                                    |                                     |                          |         |                   |        |            |         |               |        |   |         |         |         |   |         |       
|Weighted average shares outstanding diluted        |                                     |                          | 40,426  |                   |        |            | 38,693  |               |        |   | 40,326  |         |         |   | 38,259  |       
|                                                    |                                     |                          |         |                   |        |            |         |               |        |   |         |         |         |   |         |       






4



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##### Table of Contents



PICTURETEL CORPORATION






CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)


(unaudited)





|                                                    |                                                                                            |                                                        |         |               |         |   |         |         |        |  
|--------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------ | ------- | ------------- | ------- | - | ------- | ------- | ------ | -
|                                                    |                                                                                            |                                                       
|                                                    |                                                                                            | Nine Months Ended                                     
|                                                    |                                                                                            |                                                       
|                                                    |                                                                                            | October 3,                                             |         | September 27,
|                                                    |                                                                                            | 1999                                                   |         | 1998         
|                                                    |                                                                                            |                                                        |         |              
|Cash flows from operating activities:               |                                                                                            |                                                        |         |               |         |   |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net loss                                                                                   |                                                        | $       | (68,369       | )       |   | $       | (7,230  | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Adjustments to reconcile net loss to net cash provided by (used
	in) operating activities: |                                                        |         |               |         |   |         |         |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Depreciation and amortization                          |         |               | 26,246  |   |         |         | 20,749 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Provision for doubtful accounts                        |         |               | 2,333   |   |         |         | 1,200  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Inventory provision                                    |         |               | 2,851   |   |         |         | 1,806  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Write-down of capitalized software                     |         |               |        |   |         |         | 1,586  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Write-down of long-lived assets                        |         |               |        |   |         |         | 4,210  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Deferred taxes, net                                    |         |               |        |   |         |         | 3,402  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Gain on sales of securities                            |         |               | (8,495  | ) |         |         |       |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Other non-cash items                                   |         |               | 64      |   |         |         | 915    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Changes in operating assets and liabilities:                                               |                                                        |         |               |         |   |         |         |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Accounts receivable                                    |         |               | 7,151   |   |         |         | 14,504 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Inventories                                            |         |               | (7,744  | ) |         |         | 11,609 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Other current assets                                   |         |               | (4,803  | ) |         |         | (2,551 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Accounts payable                                       |         |               | (12,623 | ) |         |         | (2,989 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Accrued compensation and benefits and accrued expenses |         |               | 2,203   |   |         |         | (9,321 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                            | Deferred revenue                                       |         |               | 3,699   |   |         |         | (734   | )
|                                                    |                                                                                            |                                                        |         |               |         |   |         |        
|Net cash provided by (used in) operating activities |                                                                                            |                                                        | (57,487 | )             |         |   | 37,156  |        
|                                                   
|                                                   
|                                                   
|                                                   
|Cash flows from investing activities:               |                                                                                            |                                                        |         |               |         |   |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchase of marketable securities                                                          |                                                        |         | (107,849      | )       |   |         | (94,703 | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from marketable securities                                                        |                                                        |         | 94,063        |         |   |         | 75,931  |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchases of property and equipment                                                        |                                                        |         | (9,756        | )       |   |         | (13,340 | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from sales of fixed assets                                                        |                                                        |         | 12            |         |   |         |        |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Capitalized software costs                                                                 |                                                        |         |              |         |   |         | (5,162  | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Purchase of other assets                                                                   |                                                        |         |              |         |   |         | (3,484  | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from sale of securities                                                           |                                                        |         | 8,495         |         |   |         |        |       
|                                                    |                                                                                            |                                                        |         |               |         |   |         |        
|Net cash used in investing activities               |                                                                                            |                                                        | (15,035 | )             |         |   | (40,758 | )      
|                                                   
|                                                   
|                                                   
|                                                   
|Cash flows from financing activities:               |                                                                                            |                                                        |         |               |         |   |         |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Restricted cash                                                                            |                                                        |         | (2,500        | )       |   |         |        |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net payments from foreign lines of credit                                                  |                                                        |         |              |         |   |         | 2,437   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Payments on short-term/long-term borrowings                                                |                                                        |         | (855          | )       |   |         |        |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Principal payments under capital lease obligations                                         |                                                        |         | (3,113        | )       |   |         | (2,292  | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Common stock repurchase                                                                    |                                                        |         | (556          | )       |   |         |        |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from preferred stock issuance                                                     |                                                        |         | 30,500        |         |   |         |        |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from exercise of stock options                                                    |                                                        |         | 1,821         |         |   |         | 793     |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Proceeds from stock purchase plan                                                          |                                                        |         | 790           |         |   |         | 1,660   |       
|                                                    |                                                                                            |                                                        |         |               |         |   |         |        
|Net cash provided by financing activities           |                                                                                            |                                                        | 26,087  |               |         |   | 2,598   |        
|                                                   
|                                                   
|                                                   
|                                                   
|Effect of exchange rate changes on cash             |                                                                                            |                                                        | 2,463   |               |         |   | 415     |        
|                                                    |                                                                                            |                                                        |         |               |         |   |         |        
|Net decrease in cash and cash equivalents           |                                                                                            |                                                        | (43,972 | )             |         |   | (589    | )      
|                                                   
|                                                   
|                                                   
|                                                   
|Cash and cash equivalents at beginning of period    |                                                                                            |                                                        | 62,642  |               |         |   | 49,859  |        
|                                                    |                                                                                            |                                                        |         |               |         |   |         |        
|Cash and cash equivalents at end of period          |                                                                                            | $                                                      | 18,670  |               |         | $ | 49,270  |        
|                                                    |                                                                                            |                                                        |         |               |         |   |         |        






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 October 3, 1999 and December 31,
1998, results of operations for the three and nine months ended
October 3, 1999 and September 27, 1998 and changes in
cash flows for the nine months ended October 3, 1999 and
September 27, 1998.

The results disclosed in the Consolidated Balance Sheet at
October 3, 1999, the Consolidated Statement of Operations
for the three and nine months ended October 3, 1999, and the
 Consolidated Statement of Cash Flows for the nine months ended
October 3, 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. These estimates affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of 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 consist of the following (in thousands):

|                |  |            |        |              |  |   |        | 
|--------------- |  | ---------- | ------ | ------------ |  | - | ------ | 
|                |  | October 3, |        | December 31,
|                |  | 1999       |        | 1998        
|                |  |            |        |             
|Purchased Parts |  | $          | 3,322  |              |  | $ | 2,609  | 
|               
|               
|               
|               
|Work in Process |  |            | 1,405  |              |  |   | 1,399  | 
|               
|               
|               
|               
|Finished Goods  |  |            | 30,698 |              |  |   | 26,248 | 
|                |  |            |        |              |  |   |        | 
|                |  | $          | 35,425 |              |  | $ | 30,256 | 
|                |  |            |        |              |  |   |        | 

6



---



##### 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 |       | For the nine 
|                         |                                               | months ended  |       | months ended 
|                         |                                               |               |       |              
|                         |                                               | October 3,    |       | September 27, |   | October 3, |      | September 27,
|                         |                                               | 1999          |       | 1998          |   | 1999       |      | 1998         
|                         |                                               |               |       |               |   |            |      |              
|                         |                                               | Restated      |       |               |   |            |      |              
|                        
|                        
|                        
|                        
|Basic EPS Computation:   |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|                        
|                        
|                        
|                        
|Numerator:               |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|                        
|                        
|                        
|                        
|                         | Net income (loss)                             |               | $     | (10,567       | ) |            | $    | 1,624         |  |   | $     | (68,369 | ) |   | $     | (7,230 | )
|                        
|                        
|                        
|                        
|                         | Preferred stock beneficial conversion feature |               |       |              |   |            |      |              |  |   |       | 5,612   |   |   |       |       |  
|                         |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|                         | Total                                         |               | $     | (10,567       | ) |            | $    | 1,624         |  |   | $     | (73,981 | ) |   | $     | (7,230 | )
|                         |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|Denominator:             |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|                        
|                        
|                        
|                        
|                         | Weighted average common shares outstanding    |               |       | 40,426        |   |            |      | 38,376        |  |   |       | 40,326  |   |   |       | 38,259 |  
|                         |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|Basic EPS                |                                               | $             | (0.26 | )             |   | $          | 0.04 |               |  | $ | (1.83 | )       |   | $ | (0.19 | )     
|                         |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|Diluted EPS Computation: |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|                        
|                        
|                        
|                        
|Numerator:               |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|                        
|                        
|                        
|                        
|                         | Net income (loss)                             |               | $     | (10,567       | ) |            | $    | 1,624         |  |   | $     | (68,369 | ) |   | $     | (7,230 | )
|                        
|                        
|                        
|                        
|                         | Preferred stock beneficial conversion feature |               |       |              |   |            |      |              |  |   |       | 5,612   |   |   |       |       |  
|                         |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|                         | Total                                         |               | $     | (10,567       | ) |            | $    | 1,624         |  |   | $     | (73,981 | ) |   | $     | (7,230 | )
|                         |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|Denominator:             |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|                        
|                        
|                        
|                        
|                         | Weighted average common shares outstanding    |               |       | 40,426        |   |            |      | 38,376        |  |   |       | 40,326  |   |   |       | 38,259 |  
|                        
|                        
|                        
|                        
|                         | Stock options, preferred stock, warrants      |               |       |              |   |            |      | 317           |  |   |       |        |   |   |       |       |  
|                         |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|                         | Total Shares                                  |               |       | 40,426        |   |            |      | 38,693        |  |   |       | 40,326  |   |   |       | 38,259 |  
|                         |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       
|Diluted EPS              |                                               | $             | (0.26 | )             |   | $          | 0.04 |               |  | $ | (1.83 | )       |   | $ | (0.19 | )     
|                         |                                               |               |       |               |   |            |      |               |  |   |       |         |   |   |       |       




Options to purchase shares of the Companys common stock of
7,535,141 and 5,938,763 were outstanding at October 3, 1999
and September 27, 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
 2,723 shares of the Companys common stock and convertible
preferred stock of 4,478,708 shares were outstanding at
October 3, 1999, but were not included in the computation of
 diluted EPS because they were antidilutive due to the loss
sustained in 1999.

7



---



##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

4.  Comprehensive Income (Loss)




The Company adopted FASB 130, Reporting Comprehensive Income, in
fiscal year 1998. The calculation of comprehensive income
includes the loss as reported in the Consolidated Statements of
Operations, the gains and losses on foreign currency translation
adjustments and unrealized gains and losses on marketable
securities. (in thousands)




|                                                    |                                                                     |                    |         |                   |   |            |       |               |  |   |         |     |   |   |        |    | 
|--------------------------------------------------- | ------------------------------------------------------------------- | ------------------ | ------- | ----------------- | - | ---------- | ----- | ------------- |  | - | ------- | --- | - | - | ------ | -- | 
|                                                    |                                                                     |                    |         |                  
|                                                    |                                                                     | Three months ended |         | Nine months ended
|                                                    |                                                                     |                    |         |                  
|                                                    |                                                                     | October 3,         |         | September 27,     |   | October 3, |       | September 27,
|                                                    |                                                                     | 1999               |         | 1998              |   | 1999       |       | 1998         
|                                                    |                                                                     |                    |         |                   |   |            |       |              
|Net income (loss)                                   |                                                                     | $                  | (10,567 | )                 |   | $          | 1,624 |               |  | $ | (68,369 | )   |   | $ | (7,230 | ) 
|                                                   
|                                                   
|                                                   
|                                                   
|Foreign currency translations, net                  |                                                                     |                    | 2,198   |                   |   |            | (382  | )             |  |   | 2,260   |     |   |   | 19     |   
|                                                   
|                                                   
|                                                   
|                                                   
|Unrealized gains (losses) on marketable securities: |                                                                     |                    |         |                   |   |            |       |               |  |   |         |     |   |   |        |   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Unrealized gains (losses) arising during the period                 |                    |         | (12               | ) |            |       | 15            |  |   |         | (45 | ) |   |        | 19 | 
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Less: reclassification adjustment for gains included in net
	income |                    |         | (9,606            | ) |            |       |              |  |   |         |    |   |   |        |   | 
|                                                    |                                                                     |                    |         |                   |   |            |       |               |  |   |         |     |   |   |        |   
|Comprehensive income (loss)                         |                                                                     | $                  | (17,987 | )                 |   | $          | 1,257 |               |  | $ | (66,154 | )   |   | $ | (7,192 | ) 
|                                                    |                                                                     |                    |         |                   |   |            |       |               |  |   |         |     |   |   |        |   

5.  Debt

On June 15, 1999, the Company entered into a new secured
revolving credit agreement, expiring June 15, 2001, with a
bank group led by Chase Manhattan Bank. The Company has up to
$35,000,000 available for borrowing under the new credit
agreement. This agreement requires interest payable at either the
 banks base rate or the adjusted eurocurrency rate, plus a
margin ranging from 75 basis points to 125 basis points, based
upon the financial performance of the Company. Facility fees are
also calculated on an annual basis, payable quarterly in advance,
 in accordance with the same ratio as the interest payable,
ranging from 20 basis points to 37.5 basis points. The agreement
contains no demand feature and provides that the principal
portion of the borrowings be paid by the expiration date.

At October 3, 1999, no borrowings were outstanding under
this credit agreement. However, the Company has $28,095,000 of
outstanding standby letters of credit issued under this
agreement, which reduces the amount available for borrowing on a
dollar for dollar basis. Fees for letters of credit outstanding
against this revolving credit line are payable at 125 basis
points per annum of the face amount. The revolving credit
agreement is collateralized by substantially all of the assets of
 the parent company and certain stock of its subsidiaries. The
credit agreement also contains certain financial covenants,
including net income (loss) and minimum cash requirements. As of
October 3, 1999, the Company was in compliance with all
covenants.

Local lines of credit are available for short-term advances of
approximately $900,000 to certain of the Companys foreign
subsidiaries. The agreements require interest payable at the
banks prime lending rate plus one-quarter of one percent
per annum. No borrowings were outstanding against these local
lines of credit at October 3, 1999.

In June 1999, the Company entered into a short-term security
 agreement with BankBoston. Under this agreement, the Company
pledged to the bank certain amounts of cash and cash equivalents
as collateral for obligations of the Company arising from cash
management and foreign exchange services. The required collateral
 was $2,500,000 as of October 3, 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 18, 1999, Intel invested
$30.5 million in the Company, acquiring approximately 10% of
 the Companys equity through convertible preferred stock.
The two

8



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##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

companies will develop videoconferencing and collaborative
products based on a common PC-based technology platform. Under
the terms of the agreement, the Company has 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 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 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 October 3, 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 October 3, 1999 as follows: (dollars in
thousands, except per share data)







|                                              |  |                 |         |          |  |   |         |  
|--------------------------------------------- |  | --------------- | ------- | -------- |  | - | ------- | -
|                                              |  |                
|                                              |  | For the three  
|                                              |  | months ended   
|                                              |  | October 3, 1999
|                                              |  |                
|                                              |  | As              |         |         
|                                              |  | previously      |         | As      
|                                              |  | Reported        |         | Restated
|                                              |  |                 |         |         
|Net loss                                      |  | $               | (10,567 | )        |  | $ | (10,567 | )
|                                             
|                                             
|                                             
|                                             
|Preferred stock beneficial conversion feature |  |                 | 1,341   |          |  |   |        |  
|                                             
|                                             
|                                             
|                                             
|Net loss applicable to common shareholders    |  |                 | (11,908 | )        |  |   | (10,567 | )
|                                             
|                                             
|                                             
|                                             
|Net loss per common share  basic and diluted |  |                 | (0.29   | )        |  |   | (0.26   | )







|                                       |  |                 |         |          |  |   |         | 
|-------------------------------------- |  | --------------- | ------- | -------- |  | - | ------- | 
|                                       |  |                
|                                       |  | October 3, 1999
|                                       |  |                
|                                       |  | As              |         |         
|                                       |  | previously      |         | As      
|                                       |  | Reported        |         | Restated
|                                       |  |                 |         |         
|                                      
|                                      
|                                      
|                                      
|Redeemable convertible preferred stock |  |                 |        |          |  | $ | 30,500  | 
|                                      
|                                      
|                                      
|                                      
|Convertible preferred stock            |  | $               | 45      |          |  |   |        | 
|                                      
|                                      
|                                      
|                                      
|Additional paid in capital             |  |                 | 255,968 |          |  |   | 225,513 | 
|                                      
|                                      
|                                      
|                                      
|Total stockholders equity             |  |                 | 157,321 |          |  |   | 126,821 | 




7.  Other Income

During the third quarter of 1999, the Company recorded an
$8,495,000 gain on the sale of RealNetworks stock. This stock was
 acquired through a 1996 investment in Vivo Software Inc., which
was acquired by RealNetworks. The gain is included in other
income.

8.  Segment Information




The Company has determined that its reportable segments are
videoconferencing products, videoconferencing services and
audioconferencing. The videoconferencing products segment
develops, manufactures and markets visual communications systems
and collaboration software. The videoconferencing services
segment provides maintenance as well as professional, consulting,
 and management services for the videoconferencing products sold
by the Company and its competitors. The audioconferencing segment
 develops, manufactures, markets and services multipoint
audioconferencing control units. (in thousands)




9



---



##### Table of Contents



PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                       |  |              |         |              |  |              |        |       |  |       |        |   |  |   |         |   |  |   |         |  
|-------------------------------------- |  | ------------ | ------- | ------------ |  | ------------ | ------ | ----- |  | ----- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                       |  | Video-       |         | Video-       |  |              |        |       |  |      
|                                       |  | conferencing |         | conferencing |  | Audio-       |        |       |  |      
|                                       |  | Products     |         | Services     |  | conferencing |        | Other |  | Total
|                                       |  |              |         |              |  |              |        |       |  |      
|Three months ended October 3, 1999:    |  |              |         |              |  |              |        |       |  |       |        |   |  |   |         |   |  |   |         |  
|                                      
|                                      
|                                      
|                                      
|Revenues from external customers       |  | $            | 56,095  |              |  | $            | 18,769 |       |  | $     | 3,949  |   |  |   |        |   |  | $ | 78,813  |  
|                                      
|                                      
|                                      
|                                      
|Operating income (loss)                |  | $            | (13,956 | )            |  | $            | 1,644  |       |  | $     | (450   | ) |  | $ | (6,468  | ) |  | $ | (19,230 | )
|                                      
|                                      
|                                      
|                                      
|Three months ended September 27, 1998: |  |              |         |              |  |              |        |       |  |       |        |   |  |   |         |   |  |   |         |  
|                                      
|                                      
|                                      
|                                      
|Revenues from external customers       |  | $            | 81,732  |              |  | $            | 14,534 |       |  | $     | 5,792  |   |  |   |        |   |  | $ | 102,058 |  
|                                      
|                                      
|                                      
|                                      
|Operating income (loss)                |  | $            | 385     |              |  | $            | 2,490  |       |  | $     | 2,555  |   |  | $ | (4,334  | ) |  | $ | 1,096   |  
|                                      
|                                      
|                                      
|                                      
|Nine months ended October 3, 1999:     |  |              |         |              |  |              |        |       |  |       |        |   |  |   |         |   |  |   |         |  
|                                      
|                                      
|                                      
|                                      
|Revenues from external customers       |  | $            | 175,771 |              |  | $            | 51,658 |       |  | $     | 13,540 |   |  |   |        |   |  | $ | 240,969 |  
|                                      
|                                      
|                                      
|                                      
|Operating income (loss)                |  | $            | (55,866 | )            |  | $            | 2,935  |       |  | $     | (3,486 | ) |  | $ | (19,284 | ) |  | $ | (75,701 | )
|                                      
|                                      
|                                      
|                                      
|Nine months ended September 27, 1998:  |  |              |         |              |  |              |        |       |  |       |        |   |  |   |         |   |  |   |         |  
|                                      
|                                      
|                                      
|                                      
|Revenues from external customers       |  | $            | 247,402 |              |  | $            | 43,365 |       |  | $     | 16,918 |   |  |   |        |   |  | $ | 307,685 |  
|                                      
|                                      
|                                      
|                                      
|Operating income (loss)                |  | $            | (7,642  | )            |  | $            | 6,107  |       |  | $     | 6,232  |   |  | $ | (17,952 | ) |  | $ | (13,255 | )

The classification Other consists of corporate
administrative functions, which are excluded from the
videoconferencing products, videoconferencing services and
audioconferencing segments for management decision making.
Certain reclassifications of prior period amounts have been made
to conform with current period presentation.

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.  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 regard to this litigation. On
July 15, 1999 the United States Court of Appeals for the Federal
Circuit issued a ruling in favor of PictureTel. The Appellate
Court found that all patent claims raised against PictureTel were
 invalid. This decision effectively closes the lawsuit brought by
 Datapoint.

B.  Shareholder Litigation

Since September 23, 1997, seven class action
shareholders complaints have been filed against the
Company, Norman E. Gaut, then Chairman of the Board, Chief
Executive Officer, and President 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 alleged 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

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PICTURETEL CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

On June 17, 1999 the Company announced that it had entered
into a settlement agreement with the Plaintiffs. The Settlement
provides that the claim against PictureTel and Mr. Strauss
will be dismissed. In agreeing to the proposed settlement, the
Company and Mr. Strauss specifically deny any wrongdoing.
The settlement provides for a cash payment of $12 million by
 the Company, plus interest, after the settlement is final. More
than 75% of the settlement amount will be covered by the
Companys insurance. The settlement is subject to certain
customary conditions, including preliminary and final approval by
 the United States District court for the District of
Massachusetts, and notice to the class. On July 29, 1999,
the court gave preliminary approval to this settlement, formal
notices with details of the settlement will be sent to the
purported class members by the Plaintiffs counsel. On
November 4, 1999 the Court gave its final approval of the
settlement.

C.  SEC Investigation

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

D. Revnet, Inc.

On June 2, 1998, the Company was served with a complaint
from a former distribution channel customer, Revnet, Inc., which
has ceased operations. (Revnet, Inc., v. PictureTel
Corporation. Civil Action 98092039, filed April 2, 1998,
 in the Circuit Court for Baltimore City, Maryland.) The
complaint alleges that the Company breached an oral contract.
Revnet is allegedly seeking $200,000,000 in damages. Discovery is
 in process. The Company believes that the complaint and the
claim for damages are without merit and intends to vigorously
defend against them. In addition, after limited discovery under
the above named suit, the Company on September 13, 1999
filed a related action in the Circuit Court for Baltimore City,
Maryland against Revnet, Inc., Vuecom, Inc. (an entity related to
 Revnet, Inc.), George Harris IV, George Sandmann and Lou Brown,
(PictureTel Corporation v. Revnet, Inc., et al. Civil
Action 24-C99-004406) alleging among other things Breach of
Contract, Fraudulent Inducement and Securities Fraud. The
Companys complaint is seeking more than $7,000,000 in
damages.

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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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 jointly develop videoconferencing and
collaborative products based on a common PC-based technology
platform. Use of a single architecture is expected to improve
ease of use and functionality, while reducing both product and
associated support costs. The first of these new products, which
will be marketed under the PictureTel name, is expected to be
available in the second quarter of 2000. Also, under the terms of
 the agreement, the Company has distribution rights to sell the
Intel ProShare® Video System 500 and exclusive worldwide
distribution rights to sell and support the Intel®
TeamStation System.

In mid June 1999, the Company resumed shipping Swiftsite II,
 a compact system designed for the fastest growing and lower
priced segment of the videoconferencing market, after resolving
performance issues that resulted in suspension of shipments in
the first quarter of 1999.

In the second quarter of 1999, the Company introduced its Visual
Collaboration for the Net (VCN) strategy.
PictureTels VCN strategy is designed to enable people to
communicate from anywhere, using any media across any network.
VCN seamlessly integrates end-point conferencing products (audio,
 video, data) connectivity products (gateways and multi-location
control units), network applications (setup of conferences,
control of events and video steaming), and all of the services
associated with these products. With VCN, end users can control
their collaboration events through a common web browser. In June
of 1999, the Company introduced the first two initiatives of this
 strategy, PictureTel eVideo Application Server and eVideo
Services. The Company expects the new strategy to make a material
 contribution to revenues beginning in the year 2000.

The Intel initiative and VCN are anticipated to have material,
long-term positive impacts on the Company. In addition, the
Company has been restructuring and reallocating its resources
with the goal of reducing its cost of doing business and
returning to a profitable position in the year 2000.

On August 31, 1999, the Company announced that Dr. Norman Gaut
had succeeded Bruce R. Bond as Chairman of the Board, Chief
Executive Officer, and President of the Company following Mr.
Bonds resignation. While affirming the strategic direction
developed by Mr. Bond, the Board of Directors and Mr. Bond
concluded that the Company would make faster progress toward
execution of the strategy under different leadership.




On October 28, 1999, the Company announced it had retained an
investment banker to represent it in the sale of MultiLink, Inc.,
 the Companys audioconferencing subsidiary. This potential
divestiture is part of the Companys strategy to focus on
market opportunities for its core visual collaboration business.




The net loss applicable to common shareholders of $11,908,000 or
$0.29 per share, for the third quarter of 1999 was a decrease
from net income of $1,624,000, or $0.04 per share, in the third
quarter of 1998. The Company reported a net loss to common
shareholders of $34,669,000, or $0.86 per share, for the second

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Results of Operations

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




|                                                    |  |              |       |               |  |            |      |               |  |  |       |   |  |  |      |  
|--------------------------------------------------- |  | ------------ | ----- | ------------- |  | ---------- | ---- | ------------- |  |  | ----- | - |  |  | ---- | -
|                                                    |  |              |       |              
|                                                    |  | Three Months |       | Nine Months  
|                                                    |  | Ended        |       | Ended        
|                                                    |  |              |       |              
|                                                    |  | October 3,   |       | September 27, |  | October 3, |      | September 27,
|                                                    |  | 1999         |       | 1998          |  | 1999       |      | 1998         
|                                                    |  |              |       |               |  |            |      |              
|                                                    |  | Restated     |       |               |  |            |      |              
|                                                   
|                                                   
|                                                   
|                                                   
|Revenues                                            |  |              | 100%  |               |  |            | 100% |               |  |  | 100%  |   |  |  | 100% |  
|                                                   
|                                                   
|                                                   
|                                                   
|Cost of revenues                                    |  |              | 68.4  |               |  |            | 55.2 |               |  |  | 68.4  |   |  |  | 57.1 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Gross margin                                        |  |              | 31.6  |               |  |            | 44.8 |               |  |  | 31.6  |   |  |  | 42.9 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Selling, general and administrative                 |  |              | 36.2  |               |  |            | 29.6 |               |  |  | 41.6  |   |  |  | 32.2 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Research and development                            |  |              | 19.8  |               |  |            | 14.2 |               |  |  | 21.4  |   |  |  | 15.0 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Total operating expenses                            |  |              | 56.0  |               |  |            | 43.8 |               |  |  | 63.0  |   |  |  | 47.2 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Income (loss) from operations                       |  |              | (24.4 | )             |  |            | 1.0  |               |  |  | (31.4 | ) |  |  | (4.3 | )
|                                                   
|                                                   
|                                                   
|                                                   
|Interest income (expense), net                      |  |              | 0.2   |               |  |            | 0.7  |               |  |  |      |   |  |  | 0.6  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Other income, net                                   |  |              | 11.6  |               |  |            | 0.6  |               |  |  | 4.1   |   |  |  | 0.3  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Income (loss) before income tax expense (benefit)   |  |              | (12.6 | )             |  |            | 2.3  |               |  |  | (27.3 | ) |  |  | (3.4 | )
|                                                   
|                                                   
|                                                   
|                                                   
|Income tax expense (benefit)                        |  |              | 0.8   |               |  |            | 0.7  |               |  |  | 1.1   |   |  |  | (1.1 | )
|                                                   
|                                                   
|                                                   
|                                                   
|Net income (loss)                                   |  |              | (13.4 | )             |  |            | 1.6  |               |  |  | (28.4 | ) |  |  | (2.3 | )
|                                                   
|                                                   
|                                                   
|                                                   
|Preferred stock beneficial conversion feature       |  |              |      |               |  |            |     |               |  |  | 2.3   |   |  |  |     |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net income (loss) applicable to common shareholders |  |              | (13.4 | )             |  |            | 1.6  |               |  |  | (30.7 | ) |  |  | (2.3 | )




Three Months Ended October 3, 1999 Compared to Three
Months Ended September 27, 1998

Revenues.Total revenues for the three months
ended October 3, 1999 decreased $23,245,000, or 23%, to
$78,813,000 from the comparable period in 1998. Lower average
selling prices and changes in the product sales mix to sales of
products at the lower end of the product line account for the
decline, as discussed below in Videoconferencing
Products. Revenues from sales to foreign markets increased
3 percentage points to 41% in the third quarter of 1999
versus the comparable 1998 period. Third quarter 1999 revenue
grew approximately 3% from the previous quarter after excluding
nearly $10 million of previously deferred Swiftsite II
revenue from reported second quarter 1999 revenue.

Gross Margin.Overall gross margin declined
$20,831,000, or 46%, in the third quarter of 1999 compared to the
 third quarter of 1998. Gross margin as a percentage of revenues
was 31.6% in the third quarter of 1999 compared to 44.8% in the
third quarter of 1998. The decrease as a percent of revenue was
caused by lower average selling prices coupled with an increase
in the sales mix of lower margin products and higher fixed costs,
 including increased amortization of higher software
capitalization costs. Gross margin as a percentage of revenues
was approximately equal to the second quarter of 1999.

Selling, General and Administrative.These
expenses decreased $1,713,000, or 6%, versus the prior year
quarter to $28,501,000 in the third quarter of 1999, but
increased as a percentage of revenues to 36.2% in the third
quarter of 1999 from 29.6% in the third quarter of 1998. The
dollar savings are attributable to cost reduction programs the
Company has undertaken offset, in part, by expenses associated
with Starlight, Inc., a

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Selling, general and administrative expenses in the quarter ended
 October 3, 1999 were $10,984,000 lower than the second quarter
of 1999 as the benefit of cost reduction efforts begun earlier in
 the year began to be realized. Second quarter expenses included
$6,123,000 of charges associated with restructuring and
severance, real estate consolidation, and settlement of the
consolidated securities class action lawsuit.

Research and Development.Research and
development expenses increased $1,208,000, or 8%, to $15,659,000
from the comparable 1998 period. Decreased capitalization of
software development costs, the addition of Starlight and higher
audioconferencing product development costs contributed to this
increase.

The Company capitalized $2,014,000 of software development costs
in the third quarter of 1998. No such costs were capitalized in
the third quarter of 1999, as no current projects in progress had
 achieved technological feasibility.

Research and development expenses in the quarter ended
October 3, 1999 were $2,689,000 lower than the second
quarter of 1999 as a result of cost reduction actions.

Other Income, net.Third quarter 1999 other
income, net includes a $8,495,000 gain from the sale of
RealNetworks shares acquired though an investment in a company
later acquired by RealNetworks.

Income Taxes.The Companys effective
income tax rate for the three month period ended October 3,
1999 was 6.5% compared with 32.0% for the comparable period in
1998. The decrease in the effective tax rate was due to the
Company 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.

Videoconferencing Products, Videoconferencing
Services and Audioconferencing Segments

The Company is in transition with its products and allocating its
 assets to support these products. It is investing in new
products that the Company is jointly developing with Intel and
its new strategic direction, VCN, while at the same time
maintaining existing products. The Company is also focusing
attention on its resources and eliminating unnecessary costs. In
that regard, the Company expects to reduce total headcount during
 1999 by approximately 25%.

Videoconferencing Products.The
videoconferencing products segment develops, manufactures, and
markets visual collaboration systems and software. Third quarter
1999 revenues totaled $56.1 million, which represents a
$25.6 million, or 31%, decrease from third quarter 1998. Third
quarter 1999 revenues decreased $9.7 million, or 15%, from
the second quarter of 1999. Swiftsite II, a compact system
targeted for the fastest growing and lower priced segment of the
videoconferencing market, was introduced by the Company in the
first quarter of 1999. Approximately $10 million of
Swiftsite II product revenue that had been deferred from the
first quarter, pending an improved version of its software, was
recognized in the second quarter of 1999 following the release of
 the improved software. Excluding this revenue, total revenues
for the third quarter of 1999 were essentially flat versus the
second quarter of 1999.

The revenue decrease in third quarter of 1999 from third quarter
of 1998 was caused by significantly lower average selling prices
and changes in product sales mix from larger to smaller group
systems. Average selling prices were lower across all product
lines versus 1998. This trend in lower selling prices is expected
 to continue as the Company adjusts its prices in response to
competitive pressures.

Total videoconferencing system units sold increased 21% versus
the prior year. Group system volume increased by nearly 11% as a
result of Swiftsite II and Intel TeamStation sales, while
desktop/personal system volume increased by 29%, driven by the
addition of Intel Proshare sales. Total units sold of larger
group systems, Concordes and Venues, were 29% lower versus the
second quarter of 1999 and 47% lower versus the third quarter of
1998.

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The videoconferencing products segment generated an operating
loss of $14.0 million during the third quarter of 1999 compared
to $0.4 million of operating income in the third quarter of
1998. The primary reasons for the decreased profitability from
the third quarter of 1998 to the third quarter of 1999 were lower
 average sales prices, decreased software capitalization,
capitalized software amortization related to Swiftsite II and
amortization of goodwill and completed technology purchased in
the fourth quarter 1998 in connection with the Starlight
acquisition. These items were partially offset by a
$6.8 million reduction in continuing operating expenses
versus the third quarter of 1998. Losses decreased from 30% of
revenue to 25% from the second to the third quarter of 1999,
respectively. This was primarily driven by an $8.0 million
reduction in ongoing operating expenses versus the second quarter
 of 1999. Management continues to look aggressively at additional
 opportunities for further expense and infrastructure savings in
light of current revenue performance.

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. Third quarter 1999 segment revenues increased
$4.2 million, or 29%, to $18.8 million from third
quarter 1998 levels. Maintenance revenue grew 14% versus the
third quarter of 1998, while professional services increased 66%.
 Revenue for the third quarter of 1999 was $2.7 million
higher than the second quarter of 1999, which represents 17%
sequential growth. Second quarter revenue was adversely impacted
by deferral of certain revenue associated with a large
integration project, a portion of which was recognized in the
third quarter.

Operating income for the third quarter of 1999 declined
$0.8 million from the comparable prior year period to
$1.6 million and represented 9% of revenues versus 17% a
year earlier. The dollar decline was caused by higher costs for
contracted services, increased provision for spare parts
obsolescence and the cost of developing two startup service
offerings. A shift in the revenue mix towards lower margin
professional services also adversely impacted profitability as a
percent of revenue. Third quarter segment operating income grew
$1.4 million from the second quarter and increased as a percent
of revenue by over seven percentage points. The Company
anticipates further profitability improvement in the fourth
quarter as further cost structure adjustments are implemented.

Audioconferencing (MultiLink).The
audioconferencing segment develops, manufactures, markets, and
services multipoint audioconferencing control units. Two major
sources of audioconferencing revenues are sales to service
bureaus, which are companies that provide use of the equipment to
 third parties, and enterprise product sales to end-users. Third
quarter revenues of $3.9 million declined $1.8 million,
 or 32%, from the third quarter of 1998 and were flat compared
with the second quarter of this year. Reduced sales to service
bureaus are responsible for the year over year decrease as
MultiLink transitions from its legacy System 70 audioconferencing
 product to its next generation offering, the System 700. This
new product is currently in beta testing and is scheduled for
production release in the fourth quarter. Management anticipates
that MultiLink will return to historical revenue levels once the
System 700 and other new products are introduced.

Operating income decreased $3.0 million to a loss of
$0.5 million in the third quarter of 1999 from the third
quarter of 1998. This is primarily due to decreased sales levels,
 increased research and development spending on enhancing
existing products and developing the System 700 and other next
generation products, and increased personnel to support these
activities.

Nine Months Ended October 3, 1999 Compared to Nine Months
 Ended September 27, 1998

Revenues.Total revenues of $240,969,000
decreased $66,716,000, or 22%, in the nine months ended
October 3, 1999 compared to the nine months of 1998. Lower
average selling prices and changes in the product sales mix to
sales of products at the lower end of the product line
principally account for the decline, as discussed below in
Videoconferencing Products. Revenues from sales to
foreign markets increased four percentage points during the nine
months ended October 3, 1999 as compared to the same period
in 1998 and represented 47% of total sales.

Gross Margin.Overall gross margin declined
$55,743,000 to $76,177,000 in the nine months ended
October 3, 1999 versus the comparable period in 1998. Gross
margin as a percentage of revenues declined to 31.6% from 42.9%
for the period ended October 3, 1999 as compared to the
comparable period in 1998. The

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Selling, General and Administrative.Selling,
general and administrative expenses increased $1,141,000, or 1%,
from the comparable nine months in 1998. The 1998 Starlight
acquisition and excess real estate costs contributed to the
unfavorable comparison. The Company expects to realize the full
benefits of its real estate consolidation efforts beginning in
fourth quarter of 1999. These charges more than offset savings
that began to be realized from cost reduction programs the
Company has implemented.

Research and Development.Research and
development expenses increased $5,562,000, or 12%, from the
comparable nine months in 1998. New product development
expenditures at Starlight, which was acquired in the fourth
quarter of 1998, and in the audioconferencing segment, plus the
effect of decreased capitalization of software development costs
account for the higher expenses. The Company capitalized
$5,411,000 of software development costs in the first nine months
 of 1998. No such costs were capitalized in 1999 as no current
projects in progress had achieved technological feasibility.

Other Income, net.As discussed above, other
income, net for the first nine months of 1999 includes the
$8,495,000 gain from sale of RealNetworks shares.

Income Taxes.The Companys effective
income tax rate for the nine months ended October 3, 1999
was 4.0% as compared with 32.0% tax benefit for the comparable
period in 1998. The decrease in the effective tax rate was due to
 the Company 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.

Videoconferencing Products, Videoconferencing
Services and Audioconferencing Segments

Videoconferencing Products.Videoconferencing
product revenues totaled $175.8 million for the first nine
months 1999, which represents a $71.6 million, or 29%,
decrease from the first nine months of last year. Lower average
selling prices and changes in product sales mix from larger to
smaller group systems were responsible for the decrease. 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 customer requirements.

Total videoconferencing system units were flat versus the prior
year, with group system volume increasing by 11% and
desktop/personal system volume decreasing by 7%. Total units sold
 of larger group systems, Concordes and Venues, declined 32%,
while sales of smaller systems, Swiftsite II and TeamStation,
increased 80%.

High-end videoconferencing system sales are down from prior years
 as customers express a stronger preference for compact and PC
based systems. Moreover, in the beginning of 1999 the Company
experienced delays delivering its next generation product in the
compact segment. Swiftsite II was introduced by the Company in
the first quarter of 1999, but shipments were suspended pending
software improvements late in the first quarter and not resumed
until late in the second quarter. The Company also expects a
significant market shift as the increasing availability of wide
band networks supports dramatic growth of videoconferencing and
collaboration, particularly using Internet Protocol (IP)
standards. To address the changing market conditions, on
January 19, 1999 the Company entered into a joint
distribution and joint development agreement with Intel
Corporation as is described above. Under this agreement, the
Company is developing a new range of products to address both
current and future market needs. The first of these new products
is expected to be available in the second quarter of 2000.

The videoconferencing products segment operating loss increased
to $55.9 million during the first nine months of 1999 compared to
 $7.6 million operating loss during the first nine months of
 1998. The primary reasons for the increased losses were lower
average sales prices, unfavorable change in sales mix, the
combined effect of decreased software capitalization and increase
 in software amortization charges and excess infrastructure and
overhead associated with lower volumes.

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Videoconferencing Services.Videoconferencing
service revenues totaled $51.7 million during the first nine
 months of 1999,which represents a $8.3 million, or 19%, increase
 from the first nine months of 1998. Maintenance services grew
12% and professional services increased 33% in the first nine
months of 1999 over the comparable period in 1998. The increases
in both areas were due to higher renewal rates and new customers.

Operating income was $2.9 million through the first nine
months of 1999 compared with $6.1 million a year earlier.
The decline in operating income for the nine months ended
October 3, 1999 over the comparable period of 1998 are for
the same reasons as detailed above in Videoconferencing
Services three months ended October 3, 1999.

Audioconferencing (MultiLink).The first nine
months 1999 audioconferencing revenues totaled
$13.5 million, which represents a $3.4 million, or 20%,
 decrease from the first nine months of 1998. This decline in
revenue is for the same reasons as detailed above in
Audioconferencing three months ended October 3, 1999.

Operating income decreased from $6.2 million in the first
nine months of 1998 to an operating loss of $3.5 million for
 the first three quarters of 1999, primarily because of a
$2.5 million second quarter 1999 facilities consolidation
charge, decreased sales, and increased research and development
spending on enhancing existing products and developing next
generation products.

Liquidity and Capital Resources

At October 3, 1999, the Company had $18,670,000 in cash and
cash equivalents and $51,864,000 in short-term marketable
securities. Net cash used by operating activities during the nine
 months ended October 3, 1999 increased by $94,643,000 over
the first nine months of the prior year. The primary uses of cash
 during the nine months ended October 3, 1999 were to fund
the operating loss, increase inventory, and decrease accounts
payable. The principal source of cash was the receipt of
$30.5 million of cash from the issuance of convertible
preferred stock to Intel Corporation. The Company paid
$0.7 million of accrued severance and restructuring charges
during the third quarter of 1999 and had a remaining accrual for
such items of $2.0 million as of October 3, 1999, the
balance of which will be paid over the next 24 months.

Net cash used in operating activities was $57,487,000 for the
nine months ended October 3, 1999. This amount represents
net cash used in the first quarter of $22,054,000, $17,747,000 in
 the second quarter, and $17,686,000 in the third quarter. Cash
utilization is of major concern to the Company. To reduce this
usage, the Company has restructured and consolidated several
areas, intensified programs to reduce inventory, receivables, and
 capital expenditures and is using attrition, without
replacement, plus selective layoffs to reduce headcount. Although
 the Company does not believe these programs will have enough
impact during the fourth quarter of 1999 to eliminate net cash
usage, it does believe that these programs will have a
significant impact.

The Company has a revolving credit agreement, expiring
June 15, 2001, with a bank group led by Chase Manhattan Bank
 as a source of funds. The Company has up to $35,000,000
available for borrowing under the new credit agreement. At
October 3, 1999, no borrowings were outstanding under this
credit agreement. However, the Company has $28,095,000 of
outstanding standby letters of credit issued under this agreement
 which reduces the amount available for borrowing on a dollar for
 dollar basis. Fees for letters of credit outstanding against
this revolving credit line are payable at 125 basis points per
annum of the face amount. The revolving credit agreement is
collateralized by substantially all assets of the parent Company
and certain stock of its subsidiaries. The credit agreement also
contains certain financial covenants, including net income (loss)
 and minimum cash requirements. As of October 3, 1999, the
Company was in compliance with all covenants.

Local lines of credit are available for short-term advances of
approximately $900,000 to certain of the Companys foreign
subsidiaries. The agreements require interest payable at the
banks prime lending rate plus one-quarter of one percent
per annum. No borrowings were outstanding against these local
lines of credit at October 3, 1999.

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In June 1999, the Company entered into a short-term security
 agreement with BankBoston. Under this agreement, the Company
pledged to the bank certain amounts of cash and cash equivalents
as collateral for obligations of the Company arising from cash
management and foreign exchange services. The required collateral
 was $2,500,000 as of October 3, 1999.

The Company has operating leases for various rented properties.
The Company signed an agreement to sublease MultiLinks
former facility in Andover, Massachusetts in May 1999 as
part of its space consolidation efforts. As of October 3,
1999, the remaining obligation under this operating lease was
$8.4 million. After giving effect to expected sublease
income, this obligation is $5.2 million.

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 nine month period ended October 3, 1999, the
Company repurchased 90,725 shares at a cost of $556,207. As of
October 3, 1999, the Company had no definitive plans to
repurchase the remainder of the shares.

The Company believes that funds from operations, lines of credit,
 equipment lease financing and existing cash, cash equivalents
and marketable securities should be sufficient to meet the
Companys operating, investing and financing requirements
for the foreseeable future. The Company is also exploring
alternative sources of capital.

On October 28, 1999, the Company announced it had retained
an investment banking firm to represent it in the sale of
MultiLink. This potential divestiture is part of the
Companys strategy to focus on market opportunities for its
core visual collaboration business.

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 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 that will be
accretive to the Companys results of operations and
financial condition. In January 1999, the Company entered
into a distribution and joint product development agreement with
Intel Corporation. The two companies 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 that 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 are
difficult to predict and

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On June 9, 1999 the Company announced a new strategic
direction called Visual Collaboration for the Net (VCN).
There can be no assurance that the Company will be successful in
implementing this new strategy, or if the strategy is implemented
 that the market will adopt the products associated with the
strategy to an extent to be accretive to the Companys
results of operations or financial condition.

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 that compete with the
 Company and corporations that develop and market network
products, as well as mergers among competitors, are intensifying
competition in the marketplace. This increased competition,
together with a slowdown in the growth of the general market for
videoconferencing products, has led and may continue to lead to
increases in the defection or dilution of the Companys
distribution channel partners to competitors, decreases in
average selling prices and margins in both group and
desktop/personal videoconferencing products, and a lower segment
market share by the Company for products and services in the
emerging area of network-based visual collaboration. In some
cases, the Company competes with its channel partners for various
 services, which increases the complexity of channel management.
In addition, competitors may offer network visual collaboration
software solutions or incorporate standard algorithms into
processor chips free of additional charge, which may reduce the
value the Companys technology provides to the market,
especially in its lower end videoconferencing products. In
addition, the prices which the Company is able to charge for its
videoconferencing products and services may further decrease from
 historical levels as a result of new product introductions by
competitors, price competition, technological advances, or
otherwise. Any of these factors could have a material adverse
effect on the Companys business, financial condition and
results of operations.

Manufacturing.Certain key subassemblies and
products are currently available only from one vendor and several
 vendors are smaller corporations with limited financial
resources that could prove to be inadequate. In some cases,
components are received 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.For the quarter ended
 October 3, 1999, the Company reported a 23% decrease in
revenues as compared to revenues for the quarter ended
September 27, 1998, and a net loss for the quarter in the
amount of $10,567,000 compared to net income of $1,624,000 for
the comparable quarter in 1998. The Company reported a 22%
decrease in revenues for the nine months ended October 3,
1999, as compared to revenues for the nine months ended
September 27, 1998, and an increase in net loss from
$7,230,000 to $68,369,000.

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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, 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 or to maintain an adequate cash position to
adequately fund its operations. While the Company plans to
preserve cash and marketable securities by reducing working
capital, capital expenditures and operating expenses, it is not
certain that such plans will be adequate to meet operating needs
if losses continue at recent levels.

Product Protection and Intellectual Property.
The Companys success depends in part on its proprietary
technology. The Company attempts to protect its proprietary
technology through patents, copyrights, trademarks, trade secrets
 and license agreements. In absence of broad patent protection,
which is not likely, and despite the Companys reliance upon
 its proprietary confidential information, competitors of the
Company have been able to use algorithms or other features
similar to those used by the Company to design and manufacture
products that are directly competitive with the Companys
products. The Company believes that due to the rapid pace of
technological change in the visual collaboration industry, legal
protection for its products is less significant than factors such
 as the Companys use, implementation and enhancement of
standards-based open architecture and the Companys ongoing
efforts in product innovation.

Although the Company does not believe that its products infringe
the proprietary rights of any third parties, third parties have
asserted infringement and other claims against the Company from
time to time. There can be no assurance that third parties will
not assert such claims against the Company in the future or that
such claims will not be successful. The Company could incur
substantial costs and diversion of management resources with
respect to the defense of any claims relating to proprietary
rights, which in turn could have a material adverse effect on the
 Companys business, financial condition and result of
operations. 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 41%
 and 47% of total revenues for the quarter and nine months ended
October 3, 1999, respectively, 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

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Volatility of Stock Price.As is frequently the
 case with the stocks of high technology corporations, the market
 price of PictureTel Common Stock has been, and may continue to
be, volatile. Factors such as quarterly fluctuations in results
of operations, increased competition, the introduction of new
products by the Company and by its competitors, changes in the
mix of products and sales channels, the timing of significant
customer orders, and macroeconomic conditions generally, may have
 a significant adverse effect on the market price of the
Companys stock in any given period. In addition, the stock
market has, from time to time, experienced extreme price and
volume fluctuations, which have particularly affected the market
price for many high technology corporations and which, on
occasion, have appeared to be unrelated to the operating
performance of such corporations. Past financial performance
should not be considered a reliable indicator of future
performance and investors should not use historical trends to
anticipate results or trends in future periods. Any shortfall in
revenue or earnings from the levels anticipated by securities
analysts could have an immediate and significant adverse effect
on the market price of PictureTel Common Stock in any given
period.

Dependence on Key Personnel.On August 31,
 1999, the Company announced that Dr. Norman Gaut had
succeeded Bruce R. Bond as Chairman of the Board, Chief Executive
 Officer, and President of the Company. In February 1998, Mr.
Bond succeeded Dr. Gaut as Chief Executive Officer and
President, and had been elected Chairman of the Board in June
1998. At that time, Dr. Gaut retired as an active employee
while remaining a member of the Board of Directors. Dr. Gaut
 has accepted his reappointment at a difficult time for the
Company and there is no assurance that this transition will be
successful. On September 20, 1999, the Company announced
that Gary Bond, Group Vice President and General Manager of
Products was leaving the Company. The Company depends on a
limited number of key senior management personnel, including
Timothy Duffy, Group Vice President Conferencing Products; Arthur
 Fatum, Vice President and Chief Financial Officer; David
Grainger, Group Vice President and General Manager of Services;
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).

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The Company has completed a comprehensive IT Systems inventory
analysis and risk assessment in the third quarter of 1999. 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
November 30, 1999. IT systems at several foreign
subsidiaries have been converted to the IT systems used
domestically as of August 1999. Systems supporting MultiLink are
expected to be replaced during the fourth quarter of 1999 in
order to achieve Year 2000 compliance. The Company currently
estimates $1,000,000 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.

PictureTel completed an assessment of desktops and related Third
Party systems and is in the process of developing a remediation
plan for the inventory that is not compliant. The Company does
not expect the cost of addressing areas of non-compliance will
have a material adverse impact on its operations or its financial
 position, results of operations or cash flows.

The Company has completed a Non-IT Systems inventory analysis and
 risk assessment in October of 1999. The costs of any remediation
 actions required in order to be Year 2000 compliant are
estimated at $400,000. The Company projects that the Year 2000
Issue for Non-IT Systems will not 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 has performed an Independent Validation and
 Verification (IV&V) process, evaluating the inventory and
assessment work to date. The IV&V report identified the Year
2000 project on track as compared with other companies. The
assessment identified areas of risk and related recommendations.
The team is actively addressing the recommendations. Another
IV&V process will be scheduled towards the end of the year,
evaluating remediation and test activities and contingency
planning preparedness.

The Company estimates that it has spent a total of $983,400 on
inventory analysis, risk assessment and remediation to date.
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 is developing a
high-level contingency plan relating to its core business
processes and its IT Systems, including Third Party systems and
Non-IT Systems. One IT Systems project will be deferred due to
focusing on replacing other systems due to the Year 2000 Issue.

The Company has also tested its products for Year 2000 compliance
 and has 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. 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. On
July 15, 1999 the United States Court of Appeals for the Federal
Circuit issued a ruling in favor of PictureTel. The Appellate
Court found that all patent claims raised against PictureTel were
 invalid. This decision effectively closes the lawsuit brought by
 Datapoint.

B.  Shareholder Litigation

Since September 23, 1997, seven class action
shareholders complaints have been filed against the
Company, Norman E. Gaut, then Director and Chairman of the Board,
 Chief Executive Officer and President, 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.

On June 17, 1999 the Company announced that it had entered
into a settlement agreement with the Plaintiffs. The Settlement
provides that the claim against PictureTel and Mr. Strauss
will be dismissed. In agreeing to the proposed settlement, the
Company and Mr. Strauss specifically deny any wrongdoing.
The settlement provides for a cash payment of $12 million by
 the Company, plus interest, after the settlement is final. More
than 75% of the settlement amount will be covered by the
Companys insurance. The settlement is subject to certain
customary conditions, including preliminary and final approval by
 the United States District court for the District of
Massachusetts, and notice to the class. On July 29, 1999,
the court gave preliminary approval of the settlement. Formal
notices with details of the settlement have been sent to the
purported class members by the Plaintiffs counsel.

C.  SEC Investigation

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

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D.  Revnet, Inc.

On June 2, 1998, the Company was served with a complaint
from a former distribution channel customer, Revnet, Inc., which
has ceased operations. (Revnet, Inc., v. PictureTel
Corporation.Civil Action 98092039, filed April 2, 1998,
 in the Circuit Court for Baltimore City, Maryland.) The
complaint alleges that the Company breached an oral contract.
Revnet is allegedly seeking $200,000,000 in damages. Discovery is
 in process. The Company believes that the complaint and the
claim for damages are without merit and intends to vigorously
defend against them. In addition, after limited discovery under
the above named suit, the Company on September 13, 1999
filed a related action in the Circuit Court for Baltimore City,
Maryland against Revnet, Inc., Vuecom, Inc. (an entity related to
 Revnet, Inc.), George Harris IV, George Sandmann and Lou Brown,
(PictureTel Corporation v. Revnet, Inc., et al.Civil
Action 24-C99-004406) alleging among other things Breach of
Contract, Fraudulent Inducement and Securities Fraud. The
Companys complaint is seeking more than $7,000,000 in
damages.

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.




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

None.




Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

|        |  |                                                                                                              
|------- |  | -------------------------------------------------------------------------------------------------------------
|10.6.2  |  | Employment Agreement Letter by and between Norman Gaut and
	PictureTel Corporation dated August 31, 1999.    
|10.18.3 |  | Separation Agreement Letter by and between Bruce R. Bond and
	PictureTel Corporation dated August 31, 1999.  
|10.20.2 |  | Separation Agreement Letter by and between Gary L. Bond and
	PictureTel Corporation dated September 10, 1999.
|27.1    |  | Financial Data Schedule for the period ended October 3, 1999
	 as required by Item 601(c) of Regulation S-K  

(b)  Reports on Form 8-K

None.

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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                             
|

25