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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to
.

Commission File No.: 0-30849



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WEBEX COMMUNICATIONS, INC

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 77-0548319                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

3979 Freedom Circle

Santa Clara, California 95054

(Address of principal executive offices)

Telephone: (408) 435-7000

(Registrants telephone number, including area code)



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Indicate by check mark whether the registrant (l) 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 at least the past 90
days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated filer ̈Non-accelerated
filer ̈

Indicate by
check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x

The number of shares of WebEx common stock outstanding
as of November 1, 2006 was 48,912,973 shares.



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WEBEX COMMUNICATIONS, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED

SEPTEMBER 30, 2006

TABLE OF
CONTENTS



|                              |  |                                                                                                                         |  |         
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | --------
|                              |  |                                                                                                                         |  | Page No.
|PART I.
FINANCIAL INFORMATION |  |                                                                                                                        
|                              |  |                                                                                                                        
|Item 1.                       |  | Financial Statements                                                                                                    |  |         
|                              |  |                                                                                                                        
|                              |  | Condensed Consolidated Balance Sheets as of September 30, 2006 (Unaudited) and as of December 31, 2005 (Audited)        |  | 3       
|                              |  |                                                                                                                        
|                              |  | Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2006 and 2005 (Unaudited) |  | 4       
|                              |  |                                                                                                                        
|                              |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 (Unaudited)       |  | 5       
|                              |  |                                                                                                                        
|                              |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                        |  | 6       
|                              |  |                                                                                                                        
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                   |  | 18      
|                              |  |                                                                                                                        
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                              |  | 32      
|                              |  |                                                                                                                        
|Item 4.                       |  | Controls and Procedures                                                                                                 |  | 33      
|                              | 
|PART II.
OTHER INFORMATION    |  |                                                                                                                        
|                              |  |                                                                                                                        
|Item 1.                       |  | Legal Proceedings                                                                                                       |  | 34      
|                              |  |                                                                                                                        
|Item 1A.                      |  | Risk Factors                                                                                                            |  | 34      
|                              |  |                                                                                                                        
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                             |  | 50      
|                              |  |                                                                                                                        
|Item 5.                       |  | Other Information                                                                                                       |  | 50      
|                              |  |                                                                                                                        
|Item 6.                       |  | Exhibits                                                                                                                |  | 50      
|                              | 
|Signatures                    |  | 52                                                                                                                     
|                              | 
|Exhibit Index                 |  | 53                                                                                                                     



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PART I - FINANCIAL INFORMATION

Item 1.Financial Statements

WEBEX COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)





|                                                                                                                          |  |                    |         |                   |   |        
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- | - | -------
|                                                                                                                          |  | September 30, 2006 |         | December 31, 2005
|                                                                                                                          |  | (Unaudited)        |         |                  
|ASSETS                                                                                                                    |  |                    |         |                   |   |        
|                                                                                                                          |  |                   
|Current assets:                                                                                                           |  |                    |         |                   |   |        
|Cash and cash equivalents                                                                                                 |  | $                  | 70,894  |                   | $ | 18,101 
|Short-term investments                                                                                                    |  |                    | 231,890 |                   |   | 179,110
|Accounts receivable, net of allowances of $7,585 and $7,131, respectively                                                 |  |                    | 58,473  |                   |   | 51,231 
|Prepaid expenses and other current assets                                                                                 |  |                    | 8,806   |                   |   | 7,231  
|Deferred tax assets                                                                                                       |  |                    | 11,813  |                   |   | 6,326  
|                                                                                                                          |  |                    |         |                   |   |        
|Total current assets                                                                                                      |  |                    | 381,876 |                   |   | 261,999
|Property and equipment, net                                                                                               |  |                    | 51,386  |                   |   | 51,592 
|Goodwill                                                                                                                  |  |                    | 26,458  |                   |   | 28,224 
|Intangible assets, net                                                                                                    |  |                    | 13,829  |                   |   | 16,453 
|Deferred tax assets                                                                                                       |  |                    | 7,450   |                   |   | 2,930  
|Other non-current assets                                                                                                  |  |                    | 1,322   |                   |   | 1,579  
|                                                                                                                          |  |                    |         |                   |   |        
|Total assets                                                                                                              |  | $                  | 482,321 |                   | $ | 362,777
|                                                                                                                          |  |                    |         |                   |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                      |  |                    |         |                   |   |        
|                                                                                                                          |  |                   
|Current liabilities:                                                                                                      |  |                    |         |                   |   |        
|Accounts payable                                                                                                          |  | $                  | 5,591   |                   | $ | 9,011  
|Accrued liabilities                                                                                                       |  |                    | 32,792  |                   |   | 24,737 
|Deferred revenue                                                                                                          |  |                    | 15,807  |                   |   | 12,652 
|Income tax payable                                                                                                        |  |                    | 1,968   |                   |   | 4,348  
|                                                                                                                          |  |                    |         |                   |   |        
|Total liabilities                                                                                                         |  |                    | 56,158  |                   |   | 50,748 
|                                                                                                                          |  |                    |         |                   |   |        
|Commitments and contingencies                                                                                             |  |                    |         |                   |   |        
|                                                                                                                          |  |                   
|Stockholders equity:                                                                                                     |  |                    |         |                   |   |        
|Preferred stock, $0.001 par value (5,000 shares authorized; no shares issued or outstanding)                              |  |                    |        |                   |   |       
|Common stock, $0.001 par value (250,000 shares authorized; 48,839 and 46,143 shares issued and outstanding, respectively) |  |                    | 49      |                   |   | 46     
|Additional paid-in capital                                                                                                |  |                    | 338,706 |                   |   | 258,002
|Accumulated other comprehensive income                                                                                    |  |                    | 3,572   |                   |   | 2,022  
|Accumulated earnings                                                                                                      |  |                    | 83,836  |                   |   | 51,959 
|                                                                                                                          |  |                    |         |                   |   |        
|Total stockholders equity                                                                                                |  |                    | 426,163 |                   |   | 312,029
|                                                                                                                          |  |                    |         |                   |   |        
|Total liabilities and stockholders equity                                                                                |  | $                  | 482,321 |                   | $ | 362,777
|                                                                                                                          |  |                    |         |                   |   |        

See accompanying notes to condensed consolidated financial statements.



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WEBEX COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data; unaudited)



|                                                              |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|------------------------------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | - | ------ |  | ---- | ------- |  | - | -------
|                                                              |  | Three months ended September 30, |        | Nine months ended September 30,
|                                                              |  | 2006                             |        | 2005                            |   | 2006   |  | 2005
|Net revenues                                                  |  | $                                | 96,761 |                                 | $ | 78,553 |  | $    | 278,087 |  | $ | 224,736
|Cost of revenues(1)                                           |  |                                  | 17,397 |                                 |   | 14,491 |  |      | 51,021  |  |   | 39,152 
|                                                              |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Gross profit                                                  |  |                                  | 79,364 |                                 |   | 64,062 |  |      | 227,066 |  |   | 185,584
|                                                              |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Operating expenses:                                           |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Sales and marketing(1)                                        |  |                                  | 35,379 |                                 |   | 25,640 |  |      | 104,438 |  |   | 74,487 
|Research and development(1)                                   |  |                                  | 13,236 |                                 |   | 12,565 |  |      | 40,038  |  |   | 33,614 
|General and administrative(1)                                 |  |                                  | 9,740  |                                 |   | 6,731  |  |      | 28,688  |  |   | 17,813 
|                                                              |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Total operating expenses                                      |  |                                  | 58,355 |                                 |   | 44,936 |  |      | 173,164 |  |   | 125,914
|                                                              |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Operating income                                              |  |                                  | 21,009 |                                 |   | 19,126 |  |      | 53,902  |  |   | 59,670 
|Interest and other income, net                                |  |                                  | 2,588  |                                 |   | 1,648  |  |      | 6,404   |  |   | 4,887  
|                                                              |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Income before income taxes                                    |  |                                  | 23,597 |                                 |   | 20,774 |  |      | 60,306  |  |   | 64,557 
|Provision for income taxes                                    |  |                                  | 11,491 |                                 |   | 8,099  |  |      | 28,429  |  |   | 25,151 
|                                                              |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Net income                                                    |  | $                                | 12,106 |                                 | $ | 12,675 |  | $    | 31,877  |  | $ | 39,406 
|                                                              |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Net income per share:                                         |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Basic                                                         |  | $                                | 0.25   |                                 | $ | 0.27   |  | $    | 0.67    |  | $ | 0.86   
|Diluted                                                       |  | $                                | 0.24   |                                 | $ | 0.26   |  | $    | 0.63    |  | $ | 0.82   
|                                                              |  |                                  |        |                                
|Weighted average shares used to compute net income per share: |  |                                  |        |                                 |   |        |  |      |         |  |   |        
|Basic                                                         |  |                                  | 48,506 |                                 |   | 46,208 |  |      | 47,670  |  |   | 45,680 
|Diluted                                                       |  |                                  | 50,459 |                                 |   | 48,428 |  |      | 50,234  |  |   | 47,770 

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|(1) | Costs and expenses for the three and nine months ended September 30, 2006 include SFAS
123R stock-based compensation expense. See Note 2 to the condensed consolidated financial statements for additional information.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to condensed consolidated financial statements.



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WEBEX COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)



|                                                                                  |  |                                 |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | Nine months ended September 30, |         
|                                                                                  |  | 2006                            |          |   | 2005 |  
|Cash flows from operating activities:                                             |  |                                 |          |   |      |   |          |  
|Net income                                                                        |  | $                               | 31,877   |   |      | $ | 39,406   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |          |   |      |   |          |  
|Provisions for doubtful accounts and sales reserve                                |  |                                 | 15,368   |   |      |   | 10,479   |  
|Depreciation and amortization                                                     |  |                                 | 15,825   |   |      |   | 11,363   |  
|Loss from disposal of assets                                                      |  |                                 | 273      |   |      |   | 420      |  
|Deferred income taxes                                                             |  |                                 | (8,400   | ) |      |   | (362     | )
|Tax benefits of stock plans                                                       |  |                                 | 13,682   |   |      |   | 10,058   |  
|Excess tax benefits from stock-based compensation                                 |  |                                 | (5,518   | ) |      |   |         |  
|Stock-based compensation                                                          |  |                                 | 18,616   |   |      |   | 10       |  
|In-process research and development charge                                        |  |                                 |         |   |      |   | 307      |  
|Changes in operating assets and liabilities:                                      |  |                                 |          |   |      |   |          |  
|Accounts receivable                                                               |  |                                 | (22,610  | ) |      |   | (20,405  | )
|Prepaid expenses and other current assets                                         |  |                                 | (1,575   | ) |      |   | (1,681   | )
|Other non-current assets                                                          |  |                                 | 257      |   |      |   | 131      |  
|Accounts payable                                                                  |  |                                 | (3,420   | ) |      |   | (2,397   | )
|Accrued liabilities                                                               |  |                                 | 8,055    |   |      |   | 975      |  
|Income tax payable                                                                |  |                                 | (2,380   | ) |      |   | 3,932    |  
|Deferred revenue                                                                  |  |                                 | 3,155    |   |      |   | 1,046    |  
|Other                                                                             |  |                                 | 2,221    |   |      |   | (181     | )
|                                                                                  |  |                                 |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                                 | 65,426   |   |      |   | 53,101   |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Cash flows from investing activities:                                             |  |                                 |          |   |      |   |          |  
|Purchases of property and equipment                                               |  |                                 | (13,268  | ) |      |   | (11,585  | )
|Reimbursement (payments) made in connection with business acquisition, net        |  |                                 | 159      |   |      |   | (40,023  | )
|Purchases of available-for-sale securities                                        |  |                                 | (145,459 | ) |      |   | (148,398 | )
|Maturities and sales of available-for-sale securities                             |  |                                 | 92,008   |   |      |   | 95,736   |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Net cash used in investing activities                                             |  |                                 | (66,560  | ) |      |   | (104,270 | )
|                                                                                  |  |                                 |          |   |      |   |          |  
|Cash flows from financing activities:                                             |  |                                 |          |   |      |   |          |  
|Net proceeds from issuances of common stock                                       |  |                                 | 48,409   |   |      |   | 28,139   |  
|Excess tax benefits from stock-based compensation                                 |  |                                 | 5,518    |   |      |   |         |  
|Repurchase of common stock                                                        |  |                                 |         |   |      |   | (19,990  | )
|                                                                                  |  |                                 |          |   |      |   |          |  
|Net cash provided by financing activities                                         |  |                                 | 53,927   |   |      |   | 8,149    |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Increase (decrease) in cash and cash equivalents                                  |  |                                 | 52,793   |   |      |   | (43,020  | )
|Cash and cash equivalents at beginning of the period                              |  |                                 | 18,101   |   |      |   | 80,442   |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Cash and cash equivalents at end of the period                                    |  | $                               | 70,894   |   |      | $ | 37,422   |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Supplemental disclosures of non-cash investing and financing activities:          |  |                                 |          |   |      |   |          |  
|Adjustments recorded in conjunction with acquisitions                             |  | $                               | (1,607   | ) |      | $ | 462      |  
|                                                                                  |  |                                
|Cash paid for:                                                                    |  |                                 |          |   |      |   |          |  
|Income taxes                                                                      |  | $                               | 25,492   |   |      | $ | 11,386   |  

See accompanying notes to condensed consolidated financial statements.



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WEBEX COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Basis of Presentation and
Significant Accounting Policies

The accompanying condensed consolidated financial statements of WebEx Communications (the
Company or WebEx) as of September 30, 2006 and for the three and nine months ended September 30, 2006 and 2005 are unaudited and in the opinion of management have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or
omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial
position of the Company, and its results of operations and cash flows. These financial statements should be read in conjunction with the Companys audited consolidated financial statements and notes thereto as of and for the year ended
December 31, 2005, included in the Companys Form 10-K filed with the Securities and Exchange Commission on March 15, 2006.

Certain reclassifications have been made to prior period amounts to conform to current period presentation. The Company reclassified $50.3 million of variable rate demand notes, which had been previously included in the consolidated balance
sheet caption cash and cash equivalents as of December 31, 2005, to the caption short-term investments. In addition, WebEx revised the presentation of the condensed consolidated statement of cash flows for the nine
months ended September 30, 2005 to reflect the gross purchases and sales of variable rate demand notes within cash flows used in investing activities. This reclassification resulted in increased cash flows from investing activities of $11.3
million for the nine months ended September 30, 2005. Stock compensation expense for the three and nine months ended September 30, 2005 has been reclassified to the general and administrative operating expense category, which was
previously classified as a single line item within the statements of income.

The results of operations for the three and nine months ended
September 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006 or any other future period, and the Company makes no representations related thereto. The condensed consolidated
financial statements include the accounts of WebEx and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition

Revenue
is derived from the sale of web collaboration services. Web collaboration services revenue is generated through a variety of contractual arrangements directly with customers and with resellers, who in turn sell the services to customers. The Company
sells web collaboration services directly to customers through service subscriptions or similar agreements and pay-per-use arrangements. Under these arrangements, customers typically access the application hosted on WebEx servers using a standard
web browser. Subscription arrangements include monthly subscriber user fees, user set-up fees and training. The subscription arrangements are considered service arrangements in accordance with Emerging Issues Task Force (EITF) Issue No.
00-3, Application of AICPA Statement of Position 97-2, Software Revenue Recognition, to Arrangements That Include the Right to Use Software Stored on Another Entitys Hardware, and with multiple deliverables under EITF 00-21,
Accounting for Revenue Arrangements with Multiple Deliverables. In addition, because the Company provides its applications as a service, the Company follows the provisions of Securities and Exchange Commission Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition. Under EITF 00-21, all deliverables are considered one unit of accounting. During the initial term of an agreement, the Company may provide technical consulting services such
as training, web-page design and custom set-up services. WebEx considers all such deliverables to be combined with service revenues into one unit of accounting, as individual delivered items do not have stand-alone value to the customer;
therefore, such revenue is recognized ratably (i.e. straight-line) over the initial term of the contract.

Committed and fixed fee
subscription service revenue is recognized ratably (i.e. straight-line) over the current term of the contract. The Company recently began to offer consulting services to train customers how to use WebExs web collaboration services to
improve sales, marketing, training, and other business activities. These consulting services are recognized upon delivery of the service as prescribed in SAB No. 104.

Some minute-based subscriptions involve a quarterly, semi-annual or annual rather than monthly commitment by the customer. In these cases, all monthly
billing is in arrears and monthly revenue is recognized based on actual usage during the month. If,



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following the last month billed, aggregate actual usage is less than the subscription amount, then in addition to actual
usage for the final month, revenue is recognized for the remaining amount of the contractual commitment not previously billed. In addition to committed and flat-rate or subscription service revenue, WebEx derives revenue from pay-per-use services,
usage in excess of commitments and other usage-based charges that are recognized as such services are provided. WebEx refers to these forms of revenue as uncommitted revenue.

The Company also enters into reselling arrangements with resellers, which purchase and resell the Companys services on a discounted or pay-per-use
basis. In such cases, revenue is recognized based on net amounts charged to the reseller. Revenue under these arrangements is derived from services provided to end-users and is recognized over the service period provided that evidence of the
arrangement exists, the fee is fixed or determinable and collectibility is reasonably assured. Initial set up fees received in connection with these arrangements are recognized ratably (i.e. straight-line) over the initial term of the contract.
During the initial term, the Company provides training services, web-page design and set-up services. Service fees are recognized as the services are provided for pay-per-use service arrangements and ratably (i.e. straight-line) over the service
period for services provided on a subscription basis through the reseller. In a very small number of cases the Companys reseller arrangements may require guaranteed minimum revenue commitments that are billed in advance to the reseller.
Advance payments received from resellers are deferred until the related services are provided or until otherwise earned by WebEx. When the reseller bills the end-user, WebEx sells the services on a discounted basis to the reseller, which in turn
marks up the price and sells the services to the end-user.

In a small minority of cases, the Company enters into another type of
distribution arrangementknown as a referral arrangementin which a third party refers a potential customer to WebExs direct sales force, which in turn seeks to enter into a contract directly with the potential customer. In these
situations, WebEx bills the end-user directly and WebEx pays a percentage of the proceeds generated from the sale of WebEx services to the third party. In these cases revenue is recognized based on amounts charged to the end-user, and amounts paid
to the third party are recorded as sales and marketing expense.

Persuasive evidence for each arrangement is represented by a binding
contract. The fee is considered fixed or determinable if it is not subject to refund or adjustment. Collectibility is considered reasonably assured if WebEx expects that the customer will be able to pay amounts under the arrangement as they become
due. Collectibility of guaranteed minimum revenue commitments by resellers is not reasonably assured; thus, revenue from guaranteed minimum commitments is deferred until services are provided to an end-user customer or until collected from the
reseller and forfeited at the end of the commitment period.

Deferred revenue includes amounts billed to customers for which revenue has
not been recognized and generally results from the following: (1) unearned portion of monthly billed subscription service fees; (2) unearned portion of annual or other period billed subscription service fees; (3) deferred set-up fees;
and (4) advances received from resellers under revenue sharing arrangements.

As of September 30, 2006 and December 31,
2005, accounts receivable includes receivables of $6.7 million and $6.4 million respectively, for unbilled per-minute-based charges that occurred during the final month of the quarter.

The Company has not yet recognized any revenue related to our new business platform WebEx Connect. The Company anticipates that it will recognize revenue
for customer use of third party software made available through the WebEx Connect marketplace under SAB No. 104. In these transactions, WebEx will be acting as a sales agent for the third party and will not take title to the product or bear the
risk of collection or returns. Thus, the Company anticipates that revenue will be recognized on a net basis and only the net fees received by WebEx will be recorded as revenue. Revenue for services related to WebEx Connect will be recognized upon
delivery of the service.

Stock-Based Compensation

Effective January 1, 2006, WebEx adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS)
No. 123 (revised 2004), Share-Based Payment (SFAS 123R), using the modified prospective transition method and therefore has not restated results for prior periods. Under this transition method, stock-based compensation
expense for the three and nine months ended September 30, 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated
in accordance with the original provision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). Stock-based compensation expense for all stock-based compensation awards granted after January 1,
2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.



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In conjunction with the adoption of SFAS 123R, the Company changed its method of attributing the value of
stock-based compensation to expense from the accelerated approach to the straight-line method. Compensation expense for all share-based payment awards prior to January 1, 2006 will continue to be recognized using the accelerated approach while
compensation expense for all share-based payment awards granted on or subsequent to January 1, 2006 is recognized using the straight-line method. Because stock-based compensation expense recognized in the Condensed Consolidated Statements of
Income for the three and nine months ended September 30, 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those estimates.

Prior to the adoption of SFAS 123R, WebEx
recognized stock-based compensation expense in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). In March 2005, the Securities and Exchange
Commission (the SEC) issued Staff Accounting Bulletin No. 107 (SAB 107) regarding the SECs interpretation of SFAS 123R and the valuation of share-based payments for public companies. WebEx has applied the
provisions of SAB 107 in its adoption of SFAS 123R. See Note 2 to the Condensed Consolidated Financial Statements for a further discussion on stock-based compensation.

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109 (FIN
48). FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for the Company beginning in the first quarter of 2007. The Company is in the process of determining the effect, if any, the
adoption of FIN 48 will have on its financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS 157), which provides guidance on how to measure assets and liabilities that use fair value. SFAS 157 will apply whenever another US GAAP standard requires (or permits) assets or liabilities to be
measured at fair value but does not expand the use of fair value to any new circumstances. This standard also will require additional disclosures in both annual and quarterly reports. SFAS 157 will be effective for financial statements issued for
fiscal years beginning after November 15, 2007, and will be adopted by the Company beginning in the first quarter of 2008. The Company is currently evaluating the potential impact this standard may have on its financial position and results of
operations.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 was issued in order to eliminate the diversity of practice in how public companies quantify misstatements of financial
statements, including misstatements that were not material to prior years financial statements. The Company is required to adopt the provisions of SAB 108 in its annual financial statements for calendar year 2006. The Company does not
believe that the adoption of SAB 108 will materially impact its consolidated financial statements.

Note 2: Employee Stock Benefit Plans and
Stock-Based Compensation

Stock Plans

The Company has granted stock options to employees, directors and consultants under the 1998 Stock Option Plan and the 2000 Stock Incentive Plan. In addition, beginning in the second quarter of 2006, the Company also
began to issue restricted stock units as well as stock settled stock appreciation rights as allowed under the 2000 Stock Incentive Plan. Under the 1998 Stock Option Plan and the 2000 Stock Incentive Plan, the Company has authorized a total of
26,936,769 shares available for grant. Grants to employees under these plans generally expire after 10 years or earlier in the case of termination or death. Vesting terms under these plans are generally over four years. As of September 30,
2006, there were a total of 1,899,149 shares available for issuance under the 2000 Stock Incentive Plan and no shares under the 1998 Stock Option Plan.

WebEx also administers the 2000 Employee Stock Purchase Plan, which along with the 2000 Stock Incentive Plan was approved by the stockholders on June 17, 2000. A total of 3,637,398 shares of common stock have been
reserved for issuance under this plan. This plan allows eligible employees to purchase common stock at 85% of the lower of the fair value of common stock on either the first day or last day of a defined participation period. In May 2005, WebEx
changed the defined participation period from 24 months to 6 months. As of September 30, 2006, 869,589 shares were available for issuance under this plan.



8



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##### Table of Contents

A summary of the stock option and stock settled stock appreciation right activity under the 1998 and 2000
stock plans for the period ended September 30, 2006 was as follows:



|                                                  |  |            |   |  |                                |       |                                                   |     |                                         |   |        
|------------------------------------------------- |  | ---------- | - |  | ------------------------------ | ----- | ------------------------------------------------- | --- | --------------------------------------- | - | -------
|                                                  |  | Shares     |   |  | Weighted-AverageExercise Price |       | WeightedAverageRemainingContractualTerm (Inyears) |     | Aggregate IntrinsicValue (In thousands)
|Outstanding at December 31, 2005                  |  | 10,462,575 |   |  | $                              | 20.72 |                                                   |     |                                         |   |        
|Granted                                           |  | 682,041    |   |  | $                              | 29.92 |                                                   |     |                                         |   |        
|Exercised                                         |  | (2,505,060 | ) |  | $                              | 17.82 |                                                   |     |                                         |   |        
|Forfeited/cancelled/expired                       |  | (1,359,663 | ) |  | $                              | 22.98 |                                                   |     |                                         |   |        
|                                                  |  |            |   |  |                                |       |                                                   |     |                                         |   |        
|Outstanding at September 30, 2006                 |  | 7,279,893  |   |  | $                              | 22.15 |                                                   | 7.5 |                                         | $ | 123,321
|                                                  |  |            |   |  |                                |       |                                                   |     |                                         |   |        
|Vested and expected to vest at September 30, 2006 |  | 6,260,687  |   |  | $                              | 21.94 |                                                   | 7.3 |                                         | $ | 107,503
|                                                  |  |            |   |  |                                |       |                                                   |     |                                         |   |        
|Vested at September 30, 2006                      |  | 3,203,070  |   |  | $                              | 20.46 |                                                   | 6.1 |                                         | $ | 59,961 
|                                                  |  |            |   |  |                                |       |                                                   |     |                                         |   |        

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the
difference between WebExs closing stock price on the last trading day of the third quarter of 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option
holders exercised their options on September 30, 2006. This amount changes based on the fair market value of WebExs stock. Total intrinsic value of options exercised for the three and nine months ended September 30, 2006 was
$11.3 million and $35.9 million, respectively. The Company issues new shares of common stock upon the exercise of stock options.

A
summary of restricted stock units as of September 30, 2006 and changes during the nine months ended were as follows:



|                                |  |         |   |  |                                        |      
|------------------------------- |  | ------- | - |  | -------------------------------------- | -----
|                                |  | Shares  |   |  | Weighted Average Grant Date Fair Value
|Nonvested at December 31, 2005  |  |        |   |  |                                        |     
|Granted                         |  | 149,549 |   |  | $                                      | 34.97
|Vested                          |  |        |   |  |                                        |     
|Forfeited                       |  | (3,033  | ) |  | $                                      | 31.29
|                                |  |         |   |  |                                        |      
|Nonvested at September 30, 2006 |  | 146,516 |   |  | $                                      | 35.05
|                                |  |         |   |  |                                        |      

The fair value of the Companys restricted stock units was calculated based upon the fair
market value of the Companys stock at the date of grant.

Stock-Based Compensation Assumptions

Effective January 1, 2006, the Company adopted SFAS 123R using the modified prospective transition method. SFAS 123R requires the measurement and
recognition of compensation expense for all stock-based awards including employee stock options and employee stock purchase plans based on estimated fair values. WebEx selected the Black-Scholes option pricing model as the most appropriate model for
determining the estimated fair value for stock-based awards. The fair value of share-based payment awards was calculated with the following assumptions and weighted average fair values as follows:



|                                      |  |                                  |      |   |                                 |   |      |                                  |  |   |                                 |   |  |      |      |   |      |   |     |      |  |   |      |   |  |   |     |   |  |   |     |  
|------------------------------------- |  | -------------------------------- | ---- | - | ------------------------------- | - | ---- | -------------------------------- |  | - | ------------------------------- | - |  | ---- | ---- | - | ---- | - | --- | ---- |  | - | ---- | - |  | - | --- | - |  | - | --- | -
|                                      |  | Stock Options                    |      |   | Employee Stock Purchase Plan    |  
|                                      |  | Three months ended September 30, |      |   | Nine months ended September 30, |   |      | Three months ended September 30, |  |   | Nine months ended September 30, |  
|                                      |  | 2006                             |      |   | 2005                            |   |      | 2006                             |  |   | 2005                            |   |  | 2006 |      |   | 2005 |   |     | 2006 |  |   | 2005 |  
|Weighted average fair value of grants |  | $                                | 16.4 |   |                                 | $ | 12.6 |                                  |  | $ | 15.2                            |   |  | $    | 12.4 |   |      | $ | 9.5 |      |  | $ | 5.5  |   |  | $ | 7.7 |   |  | $ | 6.0 |  
|Expected life (in years)              |  |                                  | 4.3  |   |                                 |   | 3.5  |                                  |  |   | 4.4                             |   |  |      | 3.5  |   |      |   | 0.5 |      |  |   | 0.5  |   |  |   | 0.5 |   |  |   | 0.5 |  
|Volatility                            |  |                                  | 51   | % |                                 |   | 66   | %                                |  |   | 55                              | % |  |      | 70   | % |      |   | 39  | %    |  |   | 34   | % |  |   | 35  | % |  |   | 54  | %
|Risk-free interest rate               |  |                                  | 4.5  | % |                                 |   | 4.1  | %                                |  |   | 4.7                             | % |  |      | 3.9  | % |      |   | 5.1 | %    |  |   | 3.2  | % |  |   | 4.7 | % |  |   | 2.6 | %
|Dividend yield                        |  |                                  |     |   |                                 |   |     |                                  |  |   |                                |   |  |      |     |   |      |   |    |      |  |   |     |   |  |   |    |   |  |   |    |  



9



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##### Table of Contents

In light of new accounting guidance under SFAS 123R, beginning in the fourth quarter of 2005, WebEx
reevaluated its assumptions used in estimating the fair value of employee options granted. Based on this assessment, management determined that a combination of implied volatility and historical volatility is a better indicator of expected
volatility than historical volatility alone. In addition, as part of the Companys SFAS 123R adoption, WebEx examined its historical pattern of option exercises and post-vesting termination behavior to determine the expected life assumption.
The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of the Companys employee stock plans. The dividend yield assumption is based on the Companys history and expectation of dividend
payouts.

Because stock-based compensation expense recognized in the Condensed Consolidated Statements of Income for the three and nine
months ended September 30, 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

Stock-Based
Compensation under SFAS 123R

The following table summarizes the impact of the adoption of SFAS 123R on our Condensed Consolidated
Statements of Income for the three and nine months ended September 30, 2006:



|                                                           |  |                                       |       |   |                                      |   |        |  
|---------------------------------------------------------- |  | ------------------------------------- | ----- | - | ------------------------------------ | - | ------ | -
|                                                           |  | Three months ended September 30, 2006 |       |   | Nine months ended September 30, 2006 |  
|Cost of revenues                                           |  | $                                     | 717   |   |                                      | $ | 2,247  |  
|Sales and marketing                                        |  |                                       | 2,373 |   |                                      |   | 7,472  |  
|Research and development                                   |  |                                       | 1,422 |   |                                      |   | 4,541  |  
|General and administrative                                 |  |                                       | 1,512 |   |                                      |   | 4,356  |  
|                                                           |  |                                       |       |   |                                      |   |        |  
|Stock-based compensation expense before income tax benefit |  | $                                     | 6,024 |   |                                      | $ | 18,616 |  
|Income tax benefit                                         |  |                                       | (214  | ) |                                      |   | (238   | )
|                                                           |  |                                       |       |   |                                      |   |        |  
|Stock-based compensation expense after income tax benefit  |  | $                                     | 5,810 |   |                                      | $ | 18,378 |  
|                                                           |  |                                       |       |   |                                      |   |        |  
|Effect on:                                                 |  |                                       |       |   |                                      |   |        |  
|Net income per share - Basic                               |  | $                                     | 0.12  |   |                                      | $ | 0.39   |  
|Net income per share - Diluted                             |  | $                                     | 0.12  |   |                                      | $ | 0.37   |  

As of September 30, 2006, total unamortized stock-based compensation cost related to
non-vested stock options and non-vested stock settled stock appreciation rights was $29.1 million which is expected to be recognized over the remaining vesting period of each grant, up to the next 48 months (or a weighted average period of 2.5
years). Total unrecognized compensation costs related to unvested restricted stock units granted was $4.9 million, which is expected to be recognized over the remaining vesting period of each grant, up to the next 48 months (or a weighted average
period of 3.9 years). Total unrecognized compensation costs related to employee stock purchase plans as of September 30, 2006 was $244,000 and is expected to be recognized over a weighted average period of 0.08 years.

Prior to the Companys adoption of SFAS 123R, benefits of tax deductions in excess of recognized compensation costs were reported as operating cash
flows. SFAS 123R requires that they be recorded as a financing cash inflow rather than as a reduction of taxes paid. For the three and nine months ended September 30, 2006, the Company recorded $1.8 million and $5.5 million of excess tax
benefits from stock-based compensation as a financing cash inflow.



10



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##### Table of Contents

Stock-Based Compensation under Fair Value Method of SFAS 123

The table below sets out the proforma amounts of net income and net income per share that would have resulted for the three and nine months ended
September 30, 2005, if WebEx accounted for its employee stock plans under the fair value recognition provisions of SFAS 123.



|                                                                                                           |  |                                       |        |   |                                      |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ------------------------------------ | - | ------- | -
|                                                                                                           |  | Three months ended September 30, 2005 |        |   | Nine months ended September 30, 2005 |  
|Net income as reported                                                                                     |  | $                                     | 12,675 |   |                                      | $ | 39,406  |  
|                                                                                                           |  |                                      
|Add: Stock-based employee compensation expense included in determination of net income, net of tax         |  |                                       | 1      |   |                                      |   | (6      | )
|                                                                                                           |  |                                      
|Deduct: Stock-based employee compensation expense determined under the fair-value based method, net of tax |  |                                       | (2,065 | ) |                                      |   | (13,165 | )
|                                                                                                           |  |                                       |        |   |                                      |   |         |  
|Pro-forma net income                                                                                       |  | $                                     | 10,611 |   |                                      | $ | 26,235  |  
|                                                                                                           |  |                                       |        |   |                                      |   |         |  
|Net income per share:                                                                                      |  |                                       |        |   |                                      |   |         |  
|Basic:                                                                                                     |  |                                       |        |   |                                      |   |         |  
|As reported                                                                                                |  | $                                     | 0.27   |   |                                      | $ | 0.86    |  
|                                                                                                           |  |                                       |        |   |                                      |   |         |  
|Pro forma                                                                                                  |  | $                                     | 0.23   |   |                                      | $ | 0.57    |  
|                                                                                                           |  |                                       |        |   |                                      |   |         |  
|Diluted:                                                                                                   |  |                                       |        |   |                                      |   |         |  
|As reported                                                                                                |  | $                                     | 0.26   |   |                                      | $ | 0.82    |  
|                                                                                                           |  |                                       |        |   |                                      |   |         |  
|Pro forma                                                                                                  |  | $                                     | 0.22   |   |                                      | $ | 0.55    |  
|                                                                                                           |  |                                       |        |   |                                      |   |         |  

Share Repurchases

WebEx repurchases shares of its common stock under a program to manage the dilution created by shares issued under employee stock plans as well as to
repurchase shares opportunistically. During July 2006, the Companys Board of Directors authorized a new share repurchase program, which authorizes up to $40.0 million for share repurchases through December 2007.

Note 3: Net Income per Share

Basic net income per
share is calculated using net income and the weighted-average number of shares outstanding during the reporting period. Diluted net income per share includes the effect from potential issuance of common stock, such as common stock issuable pursuant
to the exercise of stock options.

The reconciliation of the numerators and denominators of the basic and diluted net income per share
calculations was as follows:



|                                                                     |  |                                       |        |                                 |   |        |  |      |        |  |   |       
|-------------------------------------------------------------------- |  | ------------------------------------- | ------ | ------------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                                     |  | Three months ended September 30,      |        | Nine months ended September 30,
|                                                                     |  | 2006                                  |        | 2005                            |   | 2006   |  | 2005
|                                                                     |  | (In thousands, except per share data)
|Numerator:                                                           |  |                                       |        |                                 |   |        |  |      |        |  |   |       
|Net income                                                           |  | $                                     | 12,106 |                                 | $ | 12,675 |  | $    | 31,877 |  | $ | 39,406
|                                                                     |  |                                       |        |                                
|Denominator:                                                         |  |                                       |        |                                 |   |        |  |      |        |  |   |       
|Weighted average shares used to compute basic net income per share   |  |                                       | 48,506 |                                 |   | 46,208 |  |      | 47,670 |  |   | 45,680
|                                                                     |  |                                       |        |                                
|Effect of dilutive securities:                                       |  |                                       |        |                                 |   |        |  |      |        |  |   |       
|Dilutive potential common shares                                     |  |                                       | 1,953  |                                 |   | 2,220  |  |      | 2,564  |  |   | 2,090 
|                                                                     |  |                                       |        |                                 |   |        |  |      |        |  |   |       
|Weighted average shares used to compute diluted net income per share |  |                                       | 50,459 |                                 |   | 48,428 |  |      | 50,234 |  |   | 47,770
|                                                                     |  |                                       |        |                                 |   |        |  |      |        |  |   |       
|Net income per share:                                                |  |                                       |        |                                 |   |        |  |      |        |  |   |       
|Basic                                                                |  | $                                     | 0.25   |                                 | $ | 0.27   |  | $    | 0.67   |  | $ | 0.86  
|                                                                     |  |                                       |        |                                 |   |        |  |      |        |  |   |       
|Diluted                                                              |  | $                                     | 0.24   |                                 | $ | 0.26   |  | $    | 0.63   |  | $ | 0.82  
|                                                                     |  |                                       |        |                                 |   |        |  |      |        |  |   |       



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The following potential common shares have been excluded from the computation of diluted net income per
share because their inclusion would have been anti-dilutive:



|                                                |  |                                    |              |                                 |   |              |  |      |              |  |   |             
|----------------------------------------------- |  | ---------------------------------- | ------------ | ------------------------------- | - | ------------ |  | ---- | ------------ |  | - | ------------
|                                                |  | Three months ended September 30,   |              | Nine months ended September 30,
|                                                |  | 2006                               |              | 2005                            |   | 2006         |  | 2005
|                                                |  | (In thousands, except price range)
|Restricted stock units                          |  |                                    | 6            |                                 |   |             |  |      | 7            |  |   |            
|Outstanding common stock options                |  |                                    | 148          |                                 |   | 898          |  |      | 313          |  |   | 2,226       
|Price range of outstanding common stock options |  | $                                  | 35.83-$55.38 |                                 | $ | 26.62-$55.38 |  | $    | 32.35-$55.38 |  | $ | 24.22-$55.38

Note 4: Sales Reserve and Allowance for Doubtful Accounts

WebEx records an estimate of sales reserve for losses on receivables resulting from customer credits, cancellations or terminations as a reduction in
revenue at the time of sale. The sales reserve is estimated based primarily on an analysis of the historical rate of credits, cancellations or terminations. The accuracy of the estimate is dependent on the rate of future credits, cancellations or
terminations being consistent with the historical rate.

WebEx records an allowance for doubtful accounts to provide for losses on
receivables due to customer insolvency risk. Increases to the allowance for doubtful accounts are charged to general and administrative expense as bad debt expense. The allowance is estimated based primarily on an analysis of the historical rate of
insolvency losses. The accuracy of the estimate is dependent on the future rate of insolvency losses being consistent with the historical rate.

The following presents the detail of the changes in the sales reserve and allowance for doubtful accounts for the three and nine months ended September 30, 2006 and 2005:



|                                                                       |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  
|---------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                                       |  | Three months ended September 30, |        |   | Nine months ended September 30, |  
|                                                                       |  | 2006                             |        |   | 2005                            |   |        | 2006 |  |   | 2005    |  
|Sales reserve:                                                         |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  
|Beginning balance                                                      |  | $                                | 7,230  |   |                                 | $ | 4,748  |      |  | $ | 6,077   |   |  | $ | 4,631  |  
|Amounts deducted from revenue                                          |  |                                  | 4,503  |   |                                 |   | 4,022  |      |  |   | 15,026  |   |  |   | 9,822  |  
|Amounts written off                                                    |  |                                  | (5,123 | ) |                                 |   | (3,291 | )    |  |   | (14,493 | ) |  |   | (8,974 | )
|                                                                       |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  
|Ending balance                                                         |  | $                                | 6,610  |   |                                 | $ | 5,479  |      |  | $ | 6,610   |   |  | $ | 5,479  |  
|                                                                       |  |                                  |        |  
|Allowance for doubtful accounts:                                       |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  
|Beginning balance                                                      |  | $                                | 1,277  |   |                                 | $ | 562    |      |  | $ | 1,054   |   |  | $ | 1,003  |  
|Amounts (credited) charged to bad debt expense                         |  |                                  | (112   | ) |                                 |   | 454    |      |  |   | 342     |   |  |   | 657    |  
|Amounts written off                                                    |  |                                  | (190   | ) |                                 |   | (136   | )    |  |   | (421    | ) |  |   | (780   | )
|                                                                       |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  
|Ending balance                                                         |  | $                                | 975    |   |                                 | $ | 880    |      |  | $ | 975     |   |  | $ | 880    |  
|                                                                       |  |                                  |        |  
|Total sales reserve and allowance for doubtful accounts:               |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  
|Beginning balance                                                      |  | $                                | 8,507  |   |                                 | $ | 5,310  |      |  | $ | 7,131   |   |  | $ | 5,634  |  
|Amounts deducted from revenue / (credited) charged to bad debt expense |  |                                  | 4,391  |   |                                 |   | 4,476  |      |  |   | 15,368  |   |  |   | 10,479 |  
|Amounts written off                                                    |  |                                  | (5,313 | ) |                                 |   | (3,427 | )    |  |   | (14,914 | ) |  |   | (9,754 | )
|                                                                       |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  
|Ending balance                                                         |  | $                                | 7,585  |   |                                 | $ | 6,359  |      |  | $ | 7,585   |   |  | $ | 6,359  |  
|                                                                       |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  



12



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Note 5: Comprehensive Income

The changes in the components of other comprehensive income, net of taxes, were as follows:



|                                               |  |                                  |        |      |                                 |        |      |  |      |        |  |   |        |  
|---------------------------------------------- |  | -------------------------------- | ------ | ---- | ------------------------------- | ------ | ---- |  | ---- | ------ |  | - | ------ | -
|                                               |  | Three months ended September 30, |        |      | Nine months ended September 30, |       
|                                               |  | 2006                             |        | 2005 |                                 |        | 2006 |  | 2005 |       
|Net income                                     |  | $                                | 12,106 |      | $                               | 12,675 |      |  | $    | 31,877 |  | $ | 39,406 |  
|Other comprehensive income (loss), net of tax: |  |                                  |        |      |                                 |        |      |  |      |        |  |   |        |  
|Foreign currency translation adjustments       |  |                                  | 565    |      |                                 | 83     |      |  |      | 1,037  |  |   | 358    |  
|Unrealized gain (loss) on investments          |  |                                  | 512    |      |                                 | (476   | )    |  |      | 513    |  |   | (540   | )
|                                               |  |                                  |        |      |                                 |        |      |  |      |        |  |   |        |  
|                                               |  |                                  | 1,077  |      |                                 | (393   | )    |  |      | 1,550  |  |   | (182   | )
|                                               |  |                                  |        |      |                                 |        |      |  |      |        |  |   |        |  
|Comprehensive income                           |  | $                                | 13,183 |      | $                               | 12,282 |      |  | $    | 33,427 |  | $ | 39,224 |  
|                                               |  |                                  |        |      |                                 |        |      |  |      |        |  |   |        |  

Note 6: Investments

The following is a summary of available-for-sale investments as of September 30, 2006 and December 31, 2005:



|                               |  |                    |         |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |   |  |   |      |   |  |   |        
|------------------------------ |  | ------------------ | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - | ---- | - | -------------------- |  | --------------------- | ------- |  | ------------------- | - |  | - | ---- | - |  | - | -------
|                               |  | September 30, 2006 |         | December 31, 2005   
|                               |  | Cost               |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value |   | Cost |   | GrossUnrealizedGains |  | GrossUnrealizedLosses |         |  | EstimatedFair Value
|                               |  | (In thousands)    
|Available-for-Sale Securities: |  |                    |         |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |   |  |   |      |   |  |   |        
|Corporate notes and bonds      |  | $                  | 15,994  |                      | $ | 1                     |  | $ | (58                 | ) |      | $ | 15,937               |  | $                     | 37,550  |  | $                   | 2 |  | $ | (212 | ) |  | $ | 37,340 
|Municipal notes and bonds      |  |                    | 188,732 |                      |   | 72                    |  |   | (85                 | ) |      |   | 188,719              |  |                       | 96,009  |  |                     |  |  |   | (193 | ) |  |   | 95,816 
|Government agencies            |  |                    | 31,348  |                      |   |                      |  |   | (192                | ) |      |   | 31,156               |  |                       | 46,326  |  |                     |  |  |   | (371 | ) |  |   | 45,955 
|Money market funds             |  |                    | 44,906  |                      |   |                      |  |   |                    |   |      |   | 44,906               |  |                       | 1,537   |  |                     |  |  |   |     |   |  |   | 1,537  
|                               |  |                    |         |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |   |  |   |      |   |  |   |        
|Total                          |  | $                  | 280,980 |                      | $ | 73                    |  | $ | (335                | ) |      | $ | 280,718              |  | $                     | 181,422 |  | $                   | 2 |  | $ | (776 | ) |  | $ | 180,648
|                               |  |                    |         |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |   |  |   |      |   |  |   |        
|Reported as:                   |  |                    |         |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |   |  |   |      |   |  |   |        
|Cash and cash equivalents      |  |                    |         |                      |   |                       |  |   |                     |   |      | $ | 48,828               |  |                       |         |  |                     |   |  |   |      |   |  | $ | 1,538  
|Short-term investments         |  |                    |         |                      |   |                       |  |   |                     |   |      |   | 231,890              |  |                       |         |  |                     |   |  |   |      |   |  |   | 179,110
|                               |  |                    |         |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |   |  |   |      |   |  |   |        
|Total                          |  |                    |         |                      |   |                       |  |   |                     |   |      | $ | 280,718              |  |                       |         |  |                     |   |  |   |      |   |  | $ | 180,648
|                               |  |                    |         |                      |   |                       |  |   |                     |   |      |   |                      |  |                       |         |  |                     |   |  |   |      |   |  |   |        

The fair value of the Companys investment in available-for-sale securities, by contractual
maturity, as of September 30, 2006 and December 31, 2005 was as follows:



|                          |  |                    |         |                   |   |        
|------------------------- |  | ------------------ | ------- | ----------------- | - | -------
|                          |  | September 30, 2006 |         | December 31, 2005
|                          |  | (In thousands)    
|Due in less than one year |  | $                  | 198,174 |                   | $ | 88,150 
|Due in 1-5 years          |  |                    | 82,544  |                   |   | 92,498 
|                          |  |                    |         |                   |   |        
|Total                     |  | $                  | 280,718 |                   | $ | 180,648
|                          |  |                    |         |                   |   |        

Realized gains and losses from sales of available securities were zero in the three and nine
months ended September 30, 2006 and not material in the three and nine months ended September 30, 2005.



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Note 7: Goodwill and Intangibles, Net

Goodwill



|                                                               |  |                |        |  
|-------------------------------------------------------------- |  | -------------- | ------ | -
|                                                               |  | Amount         |       
|                                                               |  | (In thousands) |       
|Balance, December 31, 2005                                     |  | $              | 28,224 |  
|Goodwill adjustment related to Intranets.com, Inc. acquisition |  |                | (1,766 | )
|                                                               |  |                |        |  
|Balance, September 30, 2006                                    |  | $              | 26,458 |  
|                                                               |  |                |        |  

The goodwill adjustments during the nine months ended September 30, 2006 shown in the table
above primarily correspond to the Companys evaluation of the deferred tax assets and valuation allowance related to the utilization of acquired net operating loss carryforwards. The evaluation completed during the first quarter of 2006
resulted in the realization of the tax benefit of these deferred assets, of which $1.6 million related to net operating loss carryforwards acquired from Intranets.com, Inc. (Intranets). In addition, during the third quarter of 2006, the
Company received a $159,000 reimbursement from an escrow fund set up in connection with the Companys acquisition of Intranets to settle a patent claim related to the Intranets product.

In accordance with SFAS No. 142, the Company does not amortize goodwill but evaluates it at least on an annual basis for impairment. The Company
completed annual goodwill impairment tests during the fourth quarter of 2005 and 2004 and determined that the carrying amount of goodwill was not impaired. However, future goodwill impairment tests could result in a charge to earnings. WebEx will
continue to evaluate goodwill on an annual basis during the fourth quarter and whenever it becomes aware of changes in circumstances which indicate there may be a potential impairment.

Purchased Intangible Assets

Intangible assets, net as of September 30, 2006 and December 31, 2005 consisted of the following:



|                                     |  |                    |        |                         |   |        |     |  |       |        |                         |   |        |     |   |        |   |  |   |       
|------------------------------------ |  | ------------------ | ------ | ----------------------- | - | ------ | --- |  | ----- | ------ | ----------------------- | - | ------ | --- | - | ------ | - |  | - | ------
|                                     |  | September 30, 2006 |        | December 31, 2005      
|                                     |  | Gross              |        | AccumulatedAmortization |   |        | Net |  | Gross |        | AccumulatedAmortization |   |        | Net
|                                     |  | (In thousands)    
|Developed technology                 |  | $                  | 9,120  |                         | $ | (2,162 | )   |  | $     | 6,958  |                         | $ | 9,120  |     | $ | (780   | ) |  | $ | 8,340 
|Intellectual property rights         |  |                    | 4,326  |                         |   | (2,241 | )   |  |       | 2,085  |                         |   | 4,326  |     |   | (1,987 | ) |  |   | 2,339 
|Trade names and domain names         |  |                    | 1,556  |                         |   | (510   | )   |  |       | 1,046  |                         |   | 1,556  |     |   | (271   | ) |  |   | 1,285 
|Customer contracts and relationships |  |                    | 5,123  |                         |   | (1,383 | )   |  |       | 3,740  |                         |   | 5,123  |     |   | (634   | ) |  |   | 4,489 
|                                     |  |                    |        |                         |   |        |     |  |       |        |                         |   |        |     |   |        |   |  |   |       
|Total purchased intangible assets    |  | $                  | 20,125 |                         | $ | (6,296 | )   |  | $     | 13,829 |                         | $ | 20,125 |     | $ | (3,672 | ) |  | $ | 16,453
|                                     |  |                    |        |                         |   |        |     |  |       |        |                         |   |        |     |   |        |   |  |   |       

Amortization is recorded using the straight-line method over the estimated useful lives of these
assets, which range from 3-10 years.

Estimated future amortization expense of existing intangibles is as follows:



|                          |  |                      |       
|------------------------- |  | -------------------- | ------
|Year:                     |  | Amortization Expense
|                          |  | (In thousands)      
|2006 (remaining 3 months) |  | $                    | 855   
|2007                      |  |                      | 3,359 
|2008                      |  |                      | 3,269 
|2009                      |  |                      | 3,174 
|2010                      |  |                      | 2,240 
|Thereafter                |  |                      | 932   
|                          |  |                      |       
|Total                     |  | $                    | 13,829
|                          |  |                      |       



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Note 8: Commitments and Contingencies

Contractual Commitments

WebEx
leases certain equipment and facilities under non-cancelable operating leases expiring through 2014. Future minimum lease payments and purchase commitments by year and in the aggregate, as of September 30, 2006, were as follows:



|                             |  |                            |        |      |   |       |  |      |       |      |   |                |  |       |       |  |   |        |  |   |       
|---------------------------- |  | -------------------------- | ------ | ---- | - | ----- |  | ---- | ----- | ---- | - | -------------- |  | ----- | ----- |  | - | ------ |  | - | ------
|                             |  | Remaining 3 months of 2006 |        | 2007 |   | 2008  |  | 2009 |       | 2010 |   | 2011 and after |  | Total
|                             |  | (In thousands)            
|Operating leases commitments |  | $                          | 1,775  |      | $ | 6,739 |  | $    | 6,741 |      | $ | 6,119          |  | $     | 5,672 |  | $ | 13,625 |  | $ | 40,671
|Purchase commitments         |  |                            | 15,676 |      |   | 2,842 |  |      | 112   |      |   | 33             |  |       |      |  |   |       |  |   | 18,663
|                             |  |                            |        |      |   |       |  |      |       |      |   |                |  |       |       |  |   |        |  |   |       
|Total                        |  | $                          | 17,451 |      | $ | 9,581 |  | $    | 6,853 |      | $ | 6,152          |  | $     | 5,672 |  | $ | 13,625 |  | $ | 59,334
|                             |  |                            |        |      |   |       |  |      |       |      |   |                |  |       |       |  |   |        |  |   |       

Lease Commitments

WebEx leases facilities in various U.S. cities and in several non-U.S. countries for its business activities, including office space for its employees and
to house equipment used in the operation of the Companys MediaTone Network. Leases are accounted for under the provisions of SFAS No. 13, Accounting for Leases, which requires that leases be evaluated and classified as operating or
capital for financial reporting purposes. All rented office space that the Company currently occupies is classified as an operating lease. Rent expense is recognized based on an effective rate of rent per square foot, which takes into account
scheduled rent increases, the amount of space occupied at any time and certain incentives provided by the lessor. This results in the same amount of rent expense per square foot occupied in all periods during the lease term.

In April 2004, WebEx signed a lease to occupy space in a building located in Santa Clara, California, that serves as WebExs corporate headquarters.
The lease term is for approximately ten years, and initial occupancy commenced in the third quarter of 2004. The Company took possession of additional space in January 2005 and is committed to occupy additional space in February 2008. The rent for
all of this space is included in the future minimum rental payments. Minimum lease payments under this lease began in January 2005 and total an aggregate of $23.8 million for the life of the lease. Under the lease agreement, the landlord provided
incentives of $2.3 million including the construction of leasehold improvements for no additional payments by the Company. These lease incentives received have been accounted for as capitalized assets and are amortized over the lease term. In
addition, the Company received payment of certain operating expenses for the initial 20 months covered by the lease valued at $786,000. The lease currently requires a security deposit of $3.2 million, which WebEx satisfied through a letter of credit
issued under WebExs credit line.

Purchase Commitments

At September 30, 2006, WebEx had purchase commitments totaling approximately 18.7 million for the usage of telecommunication lines and data services,
equipment and software purchases. The majority of the purchase commitments are expected to be settled in cash within 12 months.

Other Commitments

WebEx has a revolving credit line with a bank that provides available borrowings up to $7.0
million. Amounts borrowed under the revolving credit line bear interest at the prime rate and may be repaid and reborrowed at any time prior to the maturity date. The credit agreement expires June 15, 2007. The credit agreement is unsecured and
is subject to compliance with covenants, including a minimum quick ratio and minimum profitability, with which the Company is currently in compliance. As of September 30, 2006, the Company had no outstanding borrowings under the credit line,
but did have $3.5 million in letters of credit issued to secure leases, which decline in value over the length of the respective leases.

Indemnity and Warranty Obligations

In some of WebExs agreements with customers and resellers, WebEx agrees to
indemnify the customers and resellers in the event a third party asserts an intellectual property infringement claim against the customer or reseller based on WebEx services. Certain restrictions are placed on the indemnity obligations, including
geographical limitations and limitations on the type of claims covered. In addition, WebEx has provided certain warranties and committed to maintain certain service levels in some of its



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##### Table of Contents

agreements with customers and resellers. These warranty and service level provisions specify limited remedies available
to the customer or reseller in the event of a breach of the warranty or a failure to maintain the specified service level. In addition, WebExs agreements contain limitation of liability provisions, which disclaim responsibility for
consequential, special or indirect damages and which generally limit WebExs liability under the agreements to the amount of fees paid to WebEx. However, any failure in a customers business interaction or other communications activity
that is caused or allegedly caused by our services, could result in a claim for damages against us, regardless of our responsibility for the failure, and cause us to incur unexpected costs which could unfavorably impact our revenue. Although
customers and resellers have on a few occasions brought to WebExs attention potential third party intellectual property claims, as of September 30, 2006, WebEx had not incurred any liability with respect to its indemnification
obligations. Likewise, customers and resellers may bring claims with respect to WebExs warranty and service level obligations, but as of September 30, 2006, WebEx has not incurred a material liability with respect to such claims.

Other

WebEx has not generally collected sales tax from customers in the United States and believes the services it provides are generally exempt from sales tax. From time to time, states have initiated, and may initiate in the future, audits
or inquiries with respect to sales, use or income taxes. For example, during the third quarter of 2006, the Company reached informal resolution of sales tax audits with two states, one verbal and one written, in which the states concluded that the
Companys services are exempt from sales tax. Thus, the Company concluded during the third quarter of 2006 that certain accruals recorded in prior periods related to this potential sales tax liability will not be paid by the Company, and the
Company accordingly reversed $810,000 related to potential sales tax liabilities during the third quarter of 2006. In addition, in April 2006, one city in which the Company has data center facilities sent a notice of assessment concerning use tax to
WebEx. The Company settled this assessment during the third quarter of 2006 for $135,000.

In the future, federal tax authorities or tax
authorities in one or more states could assert that WebEx is obligated to collect such taxes from its customers and remit those taxes to those authorities. The collection and remittance of such taxes is not expected to have a material impact on
WebExs financial statements. It is also possible, however, that such authorities could seek to collect sales taxes for sales of services by WebEx in the past. If such a claim were to be asserted against WebEx and WebEx was found
liable for such back taxes and WebEx was unable to collect such taxes from its customers, WebEx could incur an expense equal to the amount of such taxes and any associated interest and penalties. Although from time to time WebEx may receive
inquiries from states, the Company has not received any formal assessment from any state concerning sales tax.

Note 9: Litigation

In accordance with SFAS No. 5, the Company records a provision for a liability when management believes that it is both probable that a liability has
been incurred and WebEx can reasonably estimate the amount of the loss. The Company reviews any provisions at least quarterly and adjusts these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other
information and events pertaining to a particular case. The Company believes it has adequate provisions for any such matters.

On
March 27, 2006, a lawsuit was filed in the United States District Court for the Southern District of Texas by Automated Business Companies against a number of companies, including WebEx, alleging that the defendants services which
enable individuals to remotely control their personal computers infringe three of the plaintiffs patents. The plaintiff, Automated Business Companies, seeks damages and injunctive relief. WebEx believes that the claims being
asserted in the lawsuit are without merit and that it has meritorious defenses against such claims. Accordingly, WebEx intends to vigorously defend itself against these claims. Currently, the parties have stipulated to submit the three patents to
the United States Patent and Trademark Office for re-examination as to the validity and scope of the claims. The litigation is currently stayed pending the result of this re-examination. The Company has not recorded any accrual in connection with
this matter.

Note 10: Segment Information

SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, establishes standards for the reporting by business enterprises of information about operating segments, products and services, geographic areas,
and major customers. The standard for determining what information to report is based on operating segments within WebEx that are regularly reviewed and used by the chief operating decision maker in evaluating financial performance and resource
allocation.



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WebExs chief operating decision-maker is considered to be the chief executive officer
(CEO). Based on the financial information reviewed by the CEO, the Company has determined that it operates in a single operating segment, specifically, web collaboration services.



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Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations

When used in this Report, the words anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions are
intended to identify forward-looking statements. These are statements that relate to future periods and include, but are not limited to, statements regarding our business focus including our recently-announced WebEx Connect offering and its various
features, statements about the features, benefits and performance of our current service offerings and technology including our belief that use of our services allows users to be more productive and efficient, statements about the features and
benefits of our recently-announced WebEx Connect product offering, sources of revenue, expected expenses including those related to sales and marketing, research and development and general and administrative, our use of net operating loss
carryforwards, our beliefs regarding the health and growth of the market for our web collaboration services and reasons for growth, our anticipation that cash flow from operations will be sufficient to fund our current operations as well as fund
future expansion, our expectation that existing cash resources and cash generated from operations will be sufficient to fund our anticipated working capital needs and capital expenditures for at least the next twelve months and that we will continue
to generate cash from operations for at least the next twelve months, our investments and potential interest rate exposure, fluctuations in our operating results, volatility of our stock price, our tax liability exposure, our intent to license
technologies from third parties that are integrated into our services, our plans to increase headcount, relocate certain operations and the related costs, our plans to upgrade and expand our applications, our reliance on our China subsidiary,
statements regarding our internal controls and disclosure controls and procedures, the effect of recent accounting pronouncements and accounting rules, and our legal proceedings. Forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, our dependence on key products and/or services, demand for our products and services, the degree and rate of
commercial success achieved by our WebEx Connect product offering, our ability to attract and retain customers and resellers for existing and new services, the impact of reseller practices on our business, our ability to expand and manage our
operations internationally, our ability to expand and manage our infrastructure to meet both our internal corporate needs as well as the demand for our services, our ability to control our expenses, our ability to integrate and manage acquisitions,
our ability to recruit and retain employees particularly in the areas of sales, engineering, support and hosting services, the ability of resellers to successfully resell our services, the economy, political tensions or conflict, the strength of
competitive offerings, the prices being charged by those competitors, the risks discussed below and the risks discussed in Item 1A Risk Factors below. These forward-looking statements speak only as of the date hereof. We expressly
disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances
on which any such statement is based.

Overview

Business, Principal Products, Locations

We offer several on-demand web collaboration services. The term on-demand web collaboration services is a relatively new one in the software industry and can be better understood through the aid of the following explanatory
paragraphs:



| |  |  | On-Demand. On-demand is a software industry term meaning that the software is hosted at the facility of a vendor, such as WebEx, and from that source
is furnished online to customers as a service. A synonym for on-demand software is software as a service (SaaS) or a hosted service. On-demand is a relatively new way to provide software to computer users. The
traditionaland currently still dominantmanner in which individual users or companies obtain access to software is through physical installation of the software at the customers facilities, which means either inserting a disc or
downloading a file onto an individual computer or onto a computer server serving multiple computers, in either case after having obtained any necessary licenses to install and use the software. This physically-installed, licensed software is
sometimes also called on premise or perpetual license model software.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Web Collaboration Services. Web collaboration services are services that allow end-users to collaborate online. Examples of web collaboration include
sharing software applications, documents, presentations and other content online, participating in large-scale events or programs, and coordinating projects, activities and tasks. Our web collaboration services permit users to engage in these, and
related, collaboration activities through the use of a standard web browser. Our web collaboration services historically have enabled both individual professional and corporate employee users to engage in rich-media, interactive, real-time
communications without the need to be in the same physical location, which we believe allows such users to be more productive and efficient.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Originally, our principal product offering consisted of a basic on-demand web collaboration
servicethe web meeting. Since then we have expanded our offerings to include more advanced web collaboration services that complement our basic web meeting service, WebEx Meeting Center. We sometimes also refer to such enhanced web
collaboration services, which are designed for specific uses such as training, events, support and sales, as web applications. Our product names for such web applications include WebEx Training Center, WebEx Event Center, WebEx Support Center and
WebEx Sales Center. Included in our service offerings is a set of asynchronous collaboration services, such as our current WebOffice offering, which we acquired through our Intranets.com, Inc., or Intranets, acquisition. The term asynchronous
collaboration means collaboration not occurring at the same time and includes capabilities such as shared document folders, shared calendars, task management, shared database applications, discussion forums and contact directories. Our service
offerings now also include web applications services jointly developed with third-party partners such as AOL. Inc., with whom we offer a new instant messaging service, WebEx AIM Pro Business Edition. Our current business focus is to continue to
enhance and market our existing web collaboration services and to develop and deploy new web collaboration services.

A new business focus
of ours is the development of a platform designed to increase the breadth and effectiveness of a customers use of on-demand software applications generally. This platform, called WebEx Connect, was announced by us in September 2006 and is
being developed in part with technology provided from our partner, Europe-based Cordys. Although not yet commercially available, WebEx Connect has been designed to address several software-usage challenges that businesses face. The key features that
WebEx Connect, as presently designed, will offer customers include the following:



| | (1) | Online Marketplace Where Customers Can Obtain On-Demand Applications Developed by Third Parties. One feature of WebEx Connect service will be an on-demand
software marketplace, where customers will be able to subscribe to one or more of a variety of on-demand software applications developed and offered by third partiesthat is, not by WebExthat could be useful in the customers
business. These applications may be hosted either by WebEx as part of WebExs MediaTone Network or at a third partys facility. A related feature is that, for the convenience of both the customer and the third-party web application vendor,
WebEx will provide the billing services for customer purchases of third-party on-demand applications made through the WebEx Connect marketplace.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Middleware to Build Interoperability of On-Demand and Traditional On-Premise Applications. Currently, most on-demand software applications that a customer can
subscribe to, such as an on-demand customer relationship management (CRM) application, do not interoperate well, if at all, with a corporate users existing on-premise software applications such as a database application, or with the
customers other on-demand software applications. WebEx Connect will include software called middleware that will permit a customer to build, into a given on-demand application, the ability of that on-demand application to interoperate with the
customers other on-demand applications and with the customers existingsometimes also called legacyon-premise applications. We believe that this middleware will increase the benefit derived from a customers software
usage.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Client Software that Provides Access to WebEx Connect Applications. Client software is software that allows a computer to access and work with software
applications running on another computer, most often a server or some form of host computer. The WebEx Connect client, called Connect Workspace, is the access pointsometimes also called a portalthrough which customers can access the
various applications to which the customer has subscribed through WebEx Connect.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As WebEx Connect is not yet commercially
available, we do not know when or to what extent we will be able to make available the platform containing the components described above. However, we are making investments both inside and outside of WebEx with the objective of making the WebEx
Connect platform a web application ecosystem (i) to which an increasing number of third party web application providers will be drawn to offer their services, and (ii) in which customers can utilize their third party on-demand web
applications more efficiently and productively in their business. We believe that this strategy of offering added value to our customers search for and use of on-demand web applications, through our new WebEx Connect service, will complement
our core web meeting and web application service offerings.

Our web collaboration services generally run on our underlying WebEx MediaTone
Network. The WebEx MediaTone Network is a private, switched, web-based network that is designed to deliver scalable, secure and managed real-time web collaboration services. The WebEx MediaTone Network is based on MediaTone, our proprietary
information switching technology. Our MediaTone technology allows the WebEx MediaTone Network to handle high-speed data, voice and video communications, manage complex media types, and deliverwhether over traditional hard-wired or wireless
fidelity (Wi-Fi) networksadvanced communications capabilities to hundreds or even thousands of computers simultaneously regardless of location across a wide variety of platforms, computer operating systems, devices and browsers.

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Our corporate headquarters is located in Santa Clara, California, and we have a network operations center
located in Mountain View, California. We also lease facilities in various U.S. cities and in several non-U.S. countries for our business activities, including office space for our employees and the housing of equipment used in the operation of our
MediaTone Network.

Revenue and Cash-Generation Models

We sell our services directly to customers, which in the third quarter of 2006 accounted for approximately 84% of our revenue, or $81.4 million. We also
sell our services indirectly through our resellers that buy and resell our services. These sales in the third quarter of 2006 represented approximately 16% of our revenue, or $15.4 million. With our resellers, we sell our services to and contract
directly with the reseller, and revenue is recognized based on net amounts charged to the reseller. We also have another type of distribution arrangementknown as a referral arrangementin which a third party refers a potential customer to
our direct sales force, which in turn seeks to enter into a contract directly with the potential customer. When a sale is made from us to a customer through a lead provided by a referral agent, the referral agent receives from us a percentage of the
proceeds from the sale of WebEx services to the customer, and we categorize such revenue as revenue received from services sold directly to customers.

The majority of our revenue is currently generated based on a committed-subscription pricing model. We offer several forms of committed-subscription pricing:



| |  |  | Flat rate pricing, in which the customer pays a set price per month regardless of usage. A majority of our committed-subscription customers purchase our services in this
manner;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Concurrent-user or per port pricing which enables a customer to have a set number of users connected to WebEx meetings at any one time;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Minimum minutes pricing, in which the customer commits to pay for a certain number of minutes of usage during a specified time period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

We refer to the revenue associated with our various committed subscription arrangements as committed revenue.

Currently, our most popular flat-rate offering is the named host offering, in which a certain named individual may host meetings at which up to a certain
number of attendees may participate. The named host service differs from the concurrent-user port offering in several respects: (i) with the concurrent user offering, any employee of the customer may host a meeting, whereas with the named host
service only employees who are designated as named hosts may host a meeting, (ii) the price charged for a named host subscription is appreciably lower than the price charged for a concurrent user subscription, in part because the named host
model is less flexible with respect to who can host a meeting, and (iii) unlike the concurrent user offering, with the named host offering there are effectively no overage fees. We also offer a full-deployment offering in which all employees
within a company can utilize WebEx meeting services for a flat monthly rate. During the fourth quarter of 2005 we introduced two new flat-rate offerings, targeted at individuals and small businesses. The first offering, available for purchase online
and called MeetMeNow, is a simple web conferencing service offered on a monthly basis. The second flat-rate offering is our WebEx WebOffice line of collaboration services, which we offer for purchase through a variety of monthly subscription plans.

In addition to our committed subscription offerings, there are several situations in which customers are charged on a per-minute usage
basis, or what we call usage-based or uncommitted pricing. These include certain reseller arrangements, customer overage fees for above-the-subscribed-to use of ports or minutes, many types of telephony charges, individual pay-per-use services
purchased directly from our website, and a limited number of customers who do not have a minimum commitment obligation of any kind. A majority of revenue received from our telecommunications partner arrangements is usage based. In addition, we
sometimes obtain usage-based fees from subscription customers in the form of overage fees. Overage fees are charged when a customer subscribing to a set number of ports uses more than the subscribed number of ports, or when a customer on a minutes
pricing model uses more than its commitment. We get per-minute telephony revenue when we provide the audio conferencing component of a web conferencing session. Finally, we have per-minute web conferencing services available through our website and
payable by credit card. The revenue derived from this usage-based pricing model, measured as of the end of any month, is what we refer to as uncommitted revenue. We include in our usage-based revenue category, in addition to the types of per-minute
revenue mentioned in this paragraph, certain non-recurring revenues such as fees charged for consulting or other forms of professional services work performed for our customers.



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We typically bill our customers monthly and on open account. For each of our flat rate, concurrent-user
and monthly minutes-based commitment subscription customers, the customer is billed monthly in advance based on the monthly subscription amount stated in the customer agreement. For these customers, additional usage beyond the monthly subscription
quantity, or overage, is billed in arrears based on the actual amount of such overage. For quarterly, semi-annual and annual minutes-based subscription customers, all monthly billing is in arrears and based on actual usage during the month. If,
following the last month billed, aggregate actual usage is less than the subscription amount, then in addition to actual usage for the final month, the customer is billed for the remaining amount of the contractual commitment not previously billed.

Market Opportunities, Related Challenges and Our Responses

We believe the market for on-demand web collaboration services to be healthy and growing. Various published articles have cited several trends underlying
this projected market increase. One trend is the desire of many companies to achieve cost savings in the areas of information technology, or IT, spending and employee travel. In light of increased IT budget constraints reportedly faced by many
companies and particularly small companies or self-employed individuals, we believe a cost-saving decision is to purchase services from an on-demand web collaboration services vendor to meet a companys needs, rather than undertaking the
capital and personnel spending necessary to purchase, install and maintain their own systems to provide that type of functionality. Additionally, as a result of increasing fuel prices and travel costs, we believe companies may decide that online
collaborationthat is, web conferencing and web applicationscan reduce costs and obviate the need to travel to conduct business, perform training, provide support or participate in large-attendee events. However, it is possible that
growth in the market for web collaboration services may slow down or be less than currently projected.

There exist a number of challenges
to the projected market growth scenario for on-demand web collaboration services, including a concernactual or perceivedabout security. As the universe of corporate activities that can be conducted in a web conference or with a web
application expands, more and more of these activities will embrace sensitive corporate or government financial data, plans, projects or other proprietary information. If on-demand web collaboration technologies do not have embedded within them
adequate security protections so that the contents of, for example, web conference or application will remain private among the participants, usage may not grow as projected. Moreover, to the extent that there occur publicized incidents of security
breaches associated with usage of a web collaboration technology, regardless of which vendor is involved, the security-related concerns of would-be users of the technology likely will be increased and this could dampen market growth. We have
assigned a high priority, in the design and implementation of our WebEx MediaTone Network, to these security issues.

Another challenge to
broad adoption of on-demand web collaboration services is general acceptance of this mode of communication as a normal part of business activity. Individuals may not feel comfortable using the technology, or they may prefer traditional means of
communicating such as the telephone or face-to-face meetings. Broad adoption of web collaboration will occur only if large numbers of users incorporate the use of this technology as part of their normal business activity.

Industry-Wide Factors Relevant to Us

The collaboration software and services market is intensely competitive, subject to rapid change and is significantly affected by new product and service introductions and other market activities of industry participants. Although we do not
currently compete against any one entity with respect to all aspects of our services, we do compete with various companies in regards to specific elements of our on-demand web collaboration services. For example, we compete with providers of
traditional communications technologies such as teleconferencing and videoconferencing, applications software and tools companies including online application services providers, and web conferencing products and services from vendors such as Adobe
Systems, Cisco Systems, Citrix Systems, Genesys, IBM, Microsoft, Netviewer, NTR, Oracle, PC Visit and Saba.

In addition to the above
competitors, certain of our resellers offer competitive web conferencing, web application and other collaborative web communications services. One of our key resellers, Intercall, is a subsidiary of West Corporation which in April 2006 acquired our
competitor Raindance. As a result of its acquisition of Raindance, Intercall could choose to increase its emphasis on offerings competitive with ours, or cease to offer some or all of our offerings, or both.

Competition from Microsoft for the collaboration software and services markets may adversely affect us.Microsoft since 2003 has had a product
offering which is competitive with ours and which is called Microsoft Office Live Meeting. Microsoft has also announced its new Office Live offering, which it described as a set of Internet-based software services. Microsoft is currently offering a
free beta, or pre-commercial release, version of Office Live. Microsofts investment of development and marketing resources in products or services that compete directly with us and Microsofts integration of competitive
technologies from other companies may



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have an adverse impact on our business. More generally, Microsoft may attempt to leverage its dominant market position in
the operating system, productivity application or browser markets, through technical integration or bundled offerings, to expand further its presence in these web communications markets. This expanded Microsoft presence in web collaboration markets
could make it difficult for other vendors of web communications products and services, such as WebEx, to compete.

In addition, some
competitors offer web communications products and services targeted at customers who are more price-conscious and are less concerned about functionality, scalability, integration and security features. Such offerings may make it more difficult for
us to compete in that segment of the market and may cause some of our existing customers to switch to these competitors. In 2005, we introduced new services with lower entry prices that enable us to compete more effectively with such offerings. If
our industry were to experience a general decline in prices and there were not a sufficient increase in volume to compensate for the price reductions, we might be forced to change the extent and type of resources we deploy in the selling of our
services in an effort to maintain operating margins, such as switching to different sales practices.

Finally, some of our competitors such
as IBM and Cisco Systems offer software products or products that are a combination of software and hardware that include web collaboration functionality. This type of web collaboration offering, sometimes called a customer premise or on-premise
solution, allows customers to purchase such products, install them at their own facilities, and manage the products by themselves. If significant numbers of existing or potential customers determine that they would prefer to have their web
conferencing or more advanced web collaboration needs met with these types of products, demand for WebEx services may decrease.

Critical Accounting
Policies and Estimates

General

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on
historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

An accounting
policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or if
changes in the accounting estimate that are reasonably likely to occur, could materially change the financial statements. We believe that there are a number of accounting policies that are critical to understanding our historical and future
performance. These significant accounting policies relate to revenue recognition, sales reserves, allowance for doubtful accounts, income taxes, goodwill and intangible assets and stock-based compensation. The policies, and our procedures related to
these policies, are described in detail below.

Revenue Recognition

Revenue is derived from the sale of web collaboration services. Web collaboration services revenue is generated through a variety of contractual
arrangements directly with customers and with resellers, who in turn sell the services to customers. We sell web collaboration services directly to customers through service subscriptions and pay-per-use arrangements. Under these arrangements,
customers access the application hosted on our servers using a standard web browser. Subscription arrangements include monthly subscriber user fees and user set-up fees. The subscription arrangements are considered service arrangements in accordance
with EITF Issue No. 00-3, Application of AICPA Statement of Position 97-2, Software Revenue Recognition, to Arrangements That Include the Right to Use Software Stored on Another Entitys Hardware, and with multiple deliverables under
EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. In addition, because we provide our applications as a service, we follow the provisions of Securities and Exchange Commission Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition. Under EITF 00-21, all deliverables are considered one unit of accounting; therefore, committed revenue is recognized ratably (straight-line) over the current term of the contract and
variable usage-based fees are recognized as usage occurs. During the initial term of an agreement, we may provide training services, web-page design and custom set-up services. We consider all such deliverables to be combined with service revenues
into one unit of accounting, as individual delivered items do not have stand-alone value to the customer; therefore,



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such revenue is recognized ratably (i.e. straight-line) over the initial term of the contract. We have recently began to
offer consulting services to train customers how to use our web collaboration services to improve sales, marketing, training and other business activities. These consulting services are recognized upon delivery of the service as prescribed
in SAB No. 104.

Some minute-based subscriptions involve a quarterly, semi-annual or annual rather than monthly commitment by the
customer. In these cases, all monthly billing is in arrears and monthly revenue is recognized based on actual usage during the month. If, following the last month billed, aggregate actual usage is less than the subscription amount, then in addition
to actual usage for the final month the customer is billed and revenue is recognized for the remaining amount of the contractual commitment not previously billed. In addition to subscription services revenue, we derive revenue from pay-per-use
services and telephony charges that are recognized as the related services are provided.

We also enter into reselling arrangements with
certain resellers, which purchase and resell our services on a discounted or pay-per-use basis. We contract directly with resellers, and revenue is recognized based on net amounts charged to the reseller. Revenue under these arrangements is derived
from our services provided to end-users and is recognized over the service period provided that evidence of the arrangement exists, the fee is fixed or determinable and collectibility is reasonably assured. Initial set up fees received in connection
with these arrangements are recognized ratably over the initial term of the contract. During the initial term, we provide training services, web-page design and set-up services. Service fees are recognized as the services are provided for
pay-per-use service arrangements and ratably over the service period for services provided on a subscription basis through the reseller. In a very small number of cases our reseller arrangements may require guaranteed minimum revenue commitments
that are billed in advance to the reseller. Advance payments received from resellers are deferred until the related services are provided or until otherwise earned by us.

In a small minority of cases, we enter into another type of distribution arrangementknown as a referral arrangementin which a third party refers a potential customer to our direct sales force, which in
turn seeks to enter into a contract directly with the potential customer. In these situations, we bill the end-user directly and WebEx pays a percentage of the proceeds generated from the sale of our services to the third party. In these cases
revenue is recognized based on amounts charged to the end-user, and amounts paid to the third party are recorded as sales and marketing expense.

Persuasive evidence for all of our arrangements is represented by binding contracts. The fee is considered fixed or determinable if it is not subject to refund or adjustment. Collectibility of guaranteed minimum revenue commitments by
resellers is not reasonably assured; thus revenue from guaranteed minimum commitments is deferred until services are provided to an end-user customer or until collected from the reseller and the reseller forfeits commitment fees at the end of the
commitment period.

We have not yet recognized any revenue related to our new business platform WebEx Connect. We anticipate that we will
recognize revenue for customer use of third party software made available through the WebEx Connect marketplace under SAB No. 104. In these transactions, we will be acting as a sales agent for the third party and will not take title to the
product or bear the risk of collection or returns. Thus, we anticipate that revenue will be recognized on a net basis and only the net fees received by us will be recorded as revenue. Revenue for services related to WebEx Connect will be recognized
upon delivery of the service.

Sales Reserves

The sales reserve is an estimate for losses on receivables resulting from customer credits, cancellations and terminations and is recorded as a reduction in revenue at the time of the sale. Increases to the sales
reserve are charged to revenue, reducing the revenue otherwise reportable. The sales reserve estimate is based primarily on an analysis of the historical rate of credits, cancellations and terminations. The accuracy of the estimate is dependent on
the rate of future credits, cancellations and terminations being consistent with the historical rate. If the rate of actual credits, cancellations and terminations is different than the historical rate, revenue would be different from what was
reported.

Allowance for Doubtful Accounts

We record an allowance for doubtful accounts to provide for losses on accounts receivable due to customer insolvency risk. Increases to the allowance for doubtful accounts are charged to general and administrative
expense as bad debt expense. The allowance estimate is based primarily on an analysis of the historical rate of insolvency losses. The accuracy of the estimate is dependent on the future rate of insolvency losses being consistent with the historical
rate. If the rate of future insolvency losses is greater than the historical rate, then the allowance for doubtful accounts may not be sufficient to provide for actual insolvency losses. If we are uncertain whether a loss is appropriately charged to
the sales reserve or the allowance for doubtful accounts, we charge the loss to the sales reserve.



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We assess, on a quarterly basis, the adequacy of the sales reserve account balance and the allowance for
doubtful accounts account balance based primarily on historical experience. Any adjustments to these accounts are reflected in the income statement for the current period, as an adjustment to revenue in the case of the sales reserve and as a general
and administrative expense in the case of the allowance for doubtful accounts.

The following presents the detail of the changes in the
sales reserve and allowance for doubtful accounts for the eight quarters ended September 30, 2006:



|                                                                             |  |                        |        |   |               |   |        |                |  |   |                   |   |  |                    |        |   |               |   |        |                |  |   |                   |   |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ------------- | - | ------ | -------------- |  | - | ----------------- | - |  | ------------------ | ------ | - | ------------- | - | ------ | -------------- |  | - | ----------------- | - |  | - | ------ | - |  | - | ------ | -
|                                                                             |  | September 30, 2006     |        |   | June 30, 2006 |   |        | March 31, 2006 |  |   | December 31, 2005 |   |  | September 30, 2005 |        |   | June 30, 2005 |   |        | March 31, 2005 |  |   | December 31, 2004 |  
|                                                                             |  | (Dollars in thousands) |       
|Sales reserve:                                                               |  |                        |        |   |               |   |        |                |  |   |                   |   |  |                    |        |   |               |   |        |                |  |   |                   |   |  |   |        |   |  |   |        |  
|Beginning balance                                                            |  | $                      | 7,230  |   |               | $ | 6,528  |                |  | $ | 6,077             |   |  | $                  | 5,479  |   |               | $ | 4,748  |                |  | $ | 4,387             |   |  | $ | 4,631  |   |  | $ | 4,447  |  
|Amounts deducted from revenue                                                |  |                        | 4,503  |   |               |   | 5,851  |                |  |   | 4,672             |   |  |                    | 3,816  |   |               |   | 4,022  |                |  |   | 3,179             |   |  |   | 2,621  |   |  |   | 2,518  |  
|Amounts written off                                                          |  |                        | (5,123 | ) |               |   | (5,149 | )              |  |   | (4,221            | ) |  |                    | (3,218 | ) |               |   | (3,291 | )              |  |   | (2,818            | ) |  |   | (2,865 | ) |  |   | (2,334 | )
|                                                                             |  |                        |        |   |               |   |        |                |  |   |                   |   |  |                    |        |   |               |   |        |                |  |   |                   |   |  |   |        |   |  |   |        |  
|Ending balance                                                               |  |                        | 6,610  |   |               |   | 7,230  |                |  |   | 6,528             |   |  | $                  | 6,077  |   |               | $ | 5,479  |                |  | $ | 4,748             |   |  | $ | 4,387  |   |  | $ | 4,631  |  
|                                                                             |  |                        |        |   |               |   |        |               
|Allowance for doubtful accounts:                                             |  |                        |        |   |               |   |        |                |  |   |                   |   |  |                    |        |   |               |   |        |                |  |   |                   |   |  |   |        |   |  |   |        |  
|Beginning balance                                                            |  | $                      | 1,277  |   |               | $ | 1,063  |                |  | $ | 1,054             |   |  | $                  | 880    |   |               | $ | 562    |                |  | $ | 845               |   |  | $ | 1,003  |   |  | $ | 916    |  
|Amounts (credited) charged to bad debt expense                               |  |                        | (112   | ) |               |   | 302    |                |  |   | 152               |   |  |                    | 242    |   |               |   | 454    |                |  |   | (34               | ) |  |   | 237    |   |  |   | 231    |  
|Amounts written off                                                          |  |                        | (190   | ) |               |   | (88    | )              |  |   | (143              | ) |  |                    | (68    | ) |               |   | (136   | )              |  |   | (249              | ) |  |   | (395   | ) |  |   | (144   | )
|                                                                             |  |                        |        |   |               |   |        |                |  |   |                   |   |  |                    |        |   |               |   |        |                |  |   |                   |   |  |   |        |   |  |   |        |  
|Ending balance                                                               |  |                        | 975    |   |               |   | 1,277  |                |  | $ | 1,063             |   |  | $                  | 1,054  |   |               | $ | 880    |                |  | $ | 562               |   |  | $ | 845    |   |  | $ | 1,003  |  
|                                                                             |  |                        |        |   |               |   |        |               
|Total sales reserve and allowance for doubtful accounts:                     |  |                        |        |   |               |   |        |                |  |   |                   |   |  |                    |        |   |               |   |        |                |  |   |                   |   |  |   |        |   |  |   |        |  
|Beginning balance                                                            |  | $                      | 8,507  |   |               | $ | 7,591  |                |  | $ | 7,131             |   |  | $                  | 6,359  |   |               | $ | 5,310  |                |  | $ | 5,232             |   |  | $ | 5,634  |   |  | $ | 5,363  |  
|Amounts deducted from revenue / (credited) charged to bad debt expense       |  |                        | 4,391  |   |               |   | 6,153  |                |  |   | 4,824             |   |  |                    | 4,058  |   |               |   | 4,476  |                |  |   | 3,145             |   |  |   | 2,858  |   |  |   | 2,749  |  
|Amounts written off                                                          |  |                        | (5,313 | ) |               |   | (5,237 | )              |  |   | (4,364            | ) |  |                    | (3,286 | ) |               |   | (3,427 | )              |  |   | (3,067            | ) |  |   | (3,260 | ) |  |   | (2,478 | )
|                                                                             |  |                        |        |   |               |   |        |                |  |   |                   |   |  |                    |        |   |               |   |        |                |  |   |                   |   |  |   |        |   |  |   |        |  
|Ending balance                                                               |  | $                      | 7,585  |   |               | $ | 8,507  |                |  | $ | 7,591             |   |  | $                  | 7,131  |   |               | $ | 6,359  |                |  | $ | 5,310             |   |  | $ | 5,232  |   |  | $ | 5,634  |  
|                                                                             |  |                        |        |   |               |   |        |                |  |   |                   |   |  |                    |        |   |               |   |        |                |  |   |                   |   |  |   |        |   |  |   |        |  
|Gross accounts receivable                                                    |  | $                      | 66,058 |   |               | $ | 65,025 |                |  | $ | 60,840            |   |  | $                  | 58,362 |   |               | $ | 49,894 |                |  | $ | 46,296            |   |  | $ | 39,757 |   |  | $ | 38,072 |  
|                                                                             |  |                        |        |   |               |   |        |                |  |   |                   |   |  |                    |        |   |               |   |        |                |  |   |                   |   |  |   |        |   |  |   |        |  
|Sales reserve as a percentage of gross accounts receivable                   |  |                        | 10.0   | % |               |   | 11.1   | %              |  |   | 10.7              | % |  |                    | 10.4   | % |               |   | 11.0   | %              |  |   | 10.3              | % |  |   | 11.0   | % |  |   | 12.2   | %
|                                                                             |  |                        |        |   |               |   |        |                |  |   |                   |   |  |                    |        |   |               |   |        |                |  |   |                   |   |  |   |        |   |  |   |        |  
|Allowance for doubtful accounts as a percentage of gross accounts receivable |  |                        | 1.5    | % |               |   | 2.0    | %              |  |   | 1.8               | % |  |                    | 1.8    | % |               |   | 1.8    | %              |  |   | 1.2               | % |  |   | 2.1    | % |  |   | 2.6    | %
|                                                                             |  |                        |        |   |               |   |        |                |  |   |                   |   |  |                    |        |   |               |   |        |                |  |   |                   |   |  |   |        |   |  |   |        |  
|Total receivable reserves as a percentage of gross accounts receivable       |  |                        | 11.5   | % |               |   | 13.1   | %              |  |   | 12.5              | % |  |                    | 12.2   | % |               |   | 12.8   | %              |  |   | 11.5              | % |  |   | 13.1   | % |  |   | 14.8   | %
|                                                                             |  |                        |        |   |               |   |        |                |  |   |                   |   |  |                    |        |   |               |   |        |                |  |   |                   |   |  |   |        |   |  |   |        |  

Income Taxes

We determine deferred tax assets and liabilities at the end of each year based on the future tax consequences that can be attributed to net operating loss
and credit carryovers. Deferred tax assets and liabilities are also determined based on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, using the tax rate
expected to be in effect when the taxes are actually paid or recovered. The recognition of deferred tax assets is reduced by a valuation



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allowance if it is more likely than not that the tax benefits will not be realized. The ultimate realization of
deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider past performance, expected future taxable income and prudent and feasible tax
planning strategies in assessing the amount of the valuation allowance. Our forecast of expected future taxable income is based over such future periods that we believe can be reasonably estimated. Changes in market conditions that differ
materially from our current expectations and changes in future tax laws in the U.S. and in international jurisdictions may cause us to change our judgments of future taxable income. These changes, if any, may require us to adjust our existing
tax valuation allowance higher or lower than the amount we have recorded. For the nine months ended September 30, 2006, we evaluated our deferred tax assets and valuation allowance related to the utilization of our net operating loss
carryforwards. The evaluation resulted in the realization of the tax benefit of these deferred assets of $1.8 million for the balance of the year, of which $1.6 million reduced goodwill related to the acquisition of Intranets.

In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax
laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations. We account for income tax contingencies in accordance with Statement of Financial Accounting
Standards No. 5,Accounting for Contingencies.

Impairment of Goodwill and Intangible Assets

We assess the impairment of intangible and other long-lived assets whenever events or changes in circumstances indicate that their carrying value may not
be recoverable from the estimated future cash flows expected to result from their use and eventual disposition. Amortizable intangible assets subject to this evaluation include acquired developed technology, intellectual property rights, trade names
and domain names and customer contracts and relationships. We assess the impairment of goodwill annually during our fourth quarter and whenever events or changes in circumstances indicate that it is more likely than not that an impairment loss has
been incurred. We are required to make judgments and assumptions in identifying those events or changes in circumstances that may trigger impairment. Some of the factors we consider include:



| |  |  | Significant decrease in the market value of an asset;
| | - |  | -----------------------------------------------------



| |  |  | Significant changes in the extent or manner for which the asset is being used or in its physical condition;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | A significant change, delay or departure in our business strategy related to the asset;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Significant negative changes in the business climate, industry or economic conditions; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Current period operating losses or negative cash flow combined with a history of similar losses or a forecast that indicates continuing losses associated with the use of an asset.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our impairment evaluation of long-lived assets includes an analysis of estimated future undiscounted net cash flows expected
to be generated by the assets over their remaining estimated useful lives. If the estimated future undiscounted net cash flows are insufficient to recover the carrying value of the assets over the remaining estimated useful lives, we will record an
impairment loss in the amount by which the carrying value of the assets exceeds the fair value. We determine fair value based on discounted cash flows using a discount rate commensurate with the risk inherent in our current business model. If, as a
result of our analysis, we determine that our amortizable intangible assets or other long-lived assets have been impaired, we will recognize an impairment loss in the period in which the impairment is determined. Any such impairment charge could be
significant and could have a material adverse effect on our financial position and results of operations. Major factors that influence our cash flow analysis are our estimates for future revenue and expenses associated with the use of the asset.
Different estimates could have a significant impact on the results of our evaluation.

Our impairment evaluation of goodwill is based on
comparing the fair value to the carrying value of our reporting unit with goodwill. If our revenue and cost forecasts are not achieved, we may incur a charge for goodwill impairment, which could have a material adverse effect on our income
statement.

Stock-Based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment
(SFAS 123R), using the modified prospective transition method and



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therefore have not restated results for prior periods. Under this method we recognize compensation expense for all
share-based payments, granted after January 1, 2006 and prior to but not yet vested as of January 1, 2006, in accordance with SFAS 123R. Under the fair value recognition provisions of SFAS 123R, we recognize stock-based
compensation net of an estimated forfeiture rate and only recognize compensation cost for those shares expected to vest. Prior to SFAS 123R adoption, we accounted for share-based payments under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and accordingly, generally recognized compensation expense only when we granted options with a discounted exercise price.

Determining the appropriate fair value model and calculating the fair value of share-based payment awards require the input of highly subjective
assumptions. In calculating such fair value, we make certain assumptions consisting of the expected life of the equity grant, volatility, risk-free interest rate, dividend yield and the weighted average fair value of grants. Actual volatility,
expected lives, risk-free interest rates and dividend yield may be different than our assumptions which would result in an actual value of the equity grants being different than estimated. In determining volatility, we determined that a combination
of implied volatility and historical volatility is a better indicator of expected volatility than historical volatility alone. We examined our historical pattern of option exercises and post-vesting termination behavior to determine the expected
life assumption. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock plans and our dividend yield assumption is based on our history and expectation of dividend payouts. In
addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be
significantly different from what we have recorded in the current period.

The adoption of SFAS 123R has had a negative effect on our
reported net income, due to our past use of stock option and employee stock purchase plan awards, and also affects our reported amounts for pre-tax expense, tax rate, cash flow from operations and diluted shares outstanding. See Note 2 of our
Condensed Consolidated Financial Statements located in Item 1 for a further discussion on stock-based compensation.

Recent Accounting
Pronouncements

See Note 1 of the Condensed Consolidated Financial Statements in Item 1 for a full description of recent accounting
pronouncements, including the respective expected dates of adoption and effects on results of operations and financial condition.

Results of Operations

Net Revenues



|                                        |  |                                  |        |                                 |      |   |        |  |   |         |   |  |   |        
|--------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | ---- | - | ------ |  | - | ------- | - |  | - | -------
|                                        |  | Three months ended September 30, |        | Nine months ended September 30,
|                                        |  | 2006                             |        |                                 | 2005 |   | 2006   |  |   | 2005   
|                                        |  | (Dollars in thousands)          
|Net revenues                            |  | $                                | 96,761 |                                 |      | $ | 78,553 |  | $ | 278,087 |   |  | $ | 224,736
|Increase, period over period            |  | $                                | 18,208 |                                 |      |   |        |  | $ | 53,351  |   |  |   |        
|Percentage increase, period over period |  |                                  | 23     | %                               |      |   |        |  |   | 24      | % |  |   |        

Net revenues increased 23% (19% excluding the acquisition of Intranets) during the third quarter
of 2006 and 24% (19% excluding the acquisition of Intranets) during the first nine months of 2006 as compared to the corresponding prior year periods. Net revenues increased during both periods due primarily to growth in our domestic and
international subscriber base and increased usage of existing and new service products. During the third quarter of 2006, our number of subscription customers increased to approximately 27,000.

During the third quarter of 2006, U.S. net revenues were $81.8 million, an increase of 21% from the corresponding prior year period, while international
net revenues increased 38% to $15.0 million. Included in net revenues for the third quarter of 2006 was $4.2 million of revenues related to Intranets. During the first nine months of 2006, U.S. net revenues were $235.5 million, an increase of 20%
from the corresponding prior year period, while international net revenues increased 49% to $42.5 million. The increase in international revenues for the third quarter and first nine months of 2006 was due to the Companys increased focus and
investment outside of the U.S. Included in net revenues for the first nine months of 2006 was $11.9 million of revenues related to Intranets.

One of the measurement tools, or metrics, which we use to help forecast future revenue is what we refer to as monthly revenue rate, or MRR. We define MRR as the sum of the following: (i) committed monthly subscriptions, or the
aggregate dollar amount of minimum minutes, named hosts and ports that are contractually committed to us, as of the end of the month, and (ii) average monthly



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uncommitted revenue for the quarter, or the aggregate dollar amounts of per minute or usage-based services such as
reseller-related, overage, telephony and pay-per-use revenues for the quarter; divided by three. Our monthly subscription contracts at the end of September 2006 were approximately $24.8 million and our average monthly-uncommitted revenue in the
quarter ended September 30, 2006 was $8.6 million. Thus our monthly revenue rate exiting September 2006 was $33.4 million.

While the
quarter-exiting MRR is used by us as a forecasting tool for the following quarters revenue, the actual revenue in the next quarter is impacted by other factors in addition to the MRR entering that quarter. These factors include such items as
(i) new customer bookings and customer cancellations, and the timing of each during the quarter, (ii) usage-based revenues, (iii) customer credits, (iv) set up fees, fees charged for one-time customer events, fees charged for
professional services or consulting services as well as other non-recurring revenues that are not included in MRR, (v) sales reserve adjustments and (vi) revenue seasonality of our web service products. Certain revenue elements not
included in MRR have been declining in recent quarters due to changes in our business practices. For example, due to recent changes in our sales compensation plans, our sales employees, where permitted to give customer discounts, have been more apt
than previously to give discounts on the set-up fee portion of a customers payment obligation and less apt than previously to give discounts on the monthly subscription, or MRR, portion of the customers payment obligation. These declines
in non-MRR elements have been offset in part by the growth of our new professional services and consulting offerings. On the other hand, customer credits, which are among the factors outside of MRR that operate to reduce our revenue, have increased
in recent quarters. While quarterly or semiannual minutes-based subscriptions are included in the subscription portion of MRR, the revenue associated with them is recognized variably based on usage until the end of the quarterly or semiannual
billing period.

The following table shows our MRR for the nine quarters ended September 30, 2006:



|                                                       |  |                    |      |               |   |                |  |                   |      |                    |   |               |  |                |      |                   |   |                    |  |   |      |  |   |      |  |   |     
|------------------------------------------------------ |  | ------------------ | ---- | ------------- | - | -------------- |  | ----------------- | ---- | ------------------ | - | ------------- |  | -------------- | ---- | ----------------- | - | ------------------ |  | - | ---- |  | - | ---- |  | - | ----
|                                                       |  | September 30, 2006 |      | June 30, 2006 |   | March 31, 2006 |  | December 31, 2005 |      | September 30, 2005 |   | June 30, 2005 |  | March 31, 2005 |      | December 31, 2004 |   | September 30, 2004
|                                                       |  | (In millions)     
|Uncommitted usage  monthly average during the quarter |  | $                  | 8.6  |               | $ | 8.9            |  | $                 | 8.7  |                    | $ | 7.3           |  | $              | 7.3  |                   | $ | 7.7                |  | $ | 7.0  |  | $ | 6.2  |  | $ | 6.0 
|Contracted subscriptions at the end of the quarter     |  |                    | 24.8 |               |   | 23.6           |  |                   | 22.1 |                    |   | 21.4          |  |                | 19.2 |                   |   | 18.3               |  |   | 17.4 |  |   | 16.8 |  |   | 15.9
|                                                       |  |                    |      |               |   |                |  |                   |      |                    |   |               |  |                |      |                   |   |                    |  |   |      |  |   |      |  |   |     
|Total MRR                                              |  | $                  | 33.4 |               | $ | 32.5           |  | $                 | 30.8 |                    | $ | 28.7          |  | $              | 26.5 |                   | $ | 26.0               |  | $ | 24.4 |  | $ | 23.0 |  | $ | 21.9
|                                                       |  |                    |      |               |   |                |  |                   |      |                    |   |               |  |                |      |                   |   |                    |  |   |      |  |   |      |  |   |     

We use a lost subscription customer ratio metric to track what percentage of our customers we lose
each month. Our lost customer ratio is based on customer count and is calculated as the quotient obtained from the following: (i) the average monthly number of lost customers (including customers who have switched their purchases of our
services from us directly to our partners) during the quarter, divided by (ii) our total number of customers at the end of the last month of the quarter plus the average monthly number of lost customers during the quarter (including customers
who have switched their purchases of our services from us directly to our partners). Our lost subscription customer ratio for the three months ended September 30, 2006 was 1.9% per month, which includes Intranets beginning in the fourth
quarter of 2005. The following table shows our lost customer ratio for the nine quarters ended September 30, 2006:



|                                            |  |                    |   |  |               |   |  |                |   |  |                   |   |  |                    |   |  |               |   |  |                |   |  |                   |   |  |                    |  
|------------------------------------------- |  | ------------------ | - |  | ------------- | - |  | -------------- | - |  | ----------------- | - |  | ------------------ | - |  | ------------- | - |  | -------------- | - |  | ----------------- | - |  | ------------------ | -
|                                            |  | September 30, 2006 |   |  | June 30, 2006 |   |  | March 31, 2006 |   |  | December 31, 2005 |   |  | September 30, 2005 |   |  | June 30, 2005 |   |  | March 31, 2005 |   |  | December 31, 2004 |   |  | September 30, 2004 |  
|Lost subscription customer ratio percentage |  | 1.9                | % |  | 2.4           | % |  | 2.2            | % |  | 2.2               | % |  | 1.9                | % |  | 1.9           | % |  | 2.0            | % |  | 1.9               | % |  | 1.3                | %
|                                            |  |                    |   |  |               |   |  |                |   |  |                   |   |  |                    |   |  |               |   |  |                |   |  |                   |   |  |                    |  

The sequential improvement in the lost subscription customer ratio percentage is due in part to
our enhanced focus and addition of incremental resources to reduce customer losses on smaller accounts. The increase in the lost subscription customer ratio percentage trend over the prior three quarters was due primarily to the inclusion of
Intranets beginning in the fourth quarter of 2005 and the associated project based nature of a portion of Intranets business, which is focused on the small to medium business market. As projects are completed, websites are often cancelled by the
customer, although the customer may be retained.



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Cost of Revenues

Cost of revenues consists primarily of costs related to user set-up, network and data center operations, technical support and training activities,
including Internet access and telephony communication costs, personnel, licensed software and equipment costs and depreciation. Total cost of revenues for the periods reported was as follows:



|                                        |  |                                  |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                        |  | Three months ended September 30, |        |   | Nine months ended September 30, |  
|                                        |  | 2006                             |        |   | 2005                            |   |        | 2006 |  |   | 2005   |  
|                                        |  | (Dollars in thousands)           |       
|Cost of revenues                        |  | $                                | 17,397 |   |                                 | $ | 14,491 |      |  | $ | 51,021 |   |  | $ | 39,152 |  
|Percentage of net revenues              |  |                                  | 18     | % |                                 |   | 18     | %    |  |   | 18     | % |  |   | 17     | %
|Increase, period over period            |  | $                                | 2,906  |   |                                 |   |        |      |  | $ | 11,869 |   |  |   |        |  
|Percentage increase, period over period |  |                                  | 20     | % |                                 |   |        |      |  |   | 30     | % |  |   |        |  

Cost of revenues increased 20% during the third quarter of 2006 and 30% during the first nine
months of 2006 as compared to the corresponding prior year periods. Cost of revenues increased during the third quarter and first nine months of 2006 due primarily to $717,000 and $2.2 million, respectively, of stock compensation expense related to
the adoption of SFAS 123R as well as increases in the costs for delivering existing and new services to customers. In addition, we increased our technical staff during the third quarter of 2006 as compared to the corresponding prior year period to
support our installed base of customers and we increased expenditures to expand and improve our worldwide network. We recorded amortization of developed technology related to the acquisition of Intranets of $440,000 and $1.3 million during the third
quarter and first nine months of 2006, respectively.

Sales and Marketing

Sales and marketing expense consists of personnel costs, including commissions for sales, marketing and customer care, as well as costs of public
relations, advertising, marketing programs, lead generation, travel and trade shows. Sales and marketing expenses for the periods reported were as follows:



|                                        |  |                                  |        |   |                                 |   |        |      |  |   |         |   |  |   |        |  
|--------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                        |  | Three months ended September 30, |        |   | Nine months ended September 30, |  
|                                        |  | 2006                             |        |   | 2005                            |   |        | 2006 |  |   | 2005    |  
|                                        |  | (Dollars in thousands)           |       
|Sales and marketing                     |  | $                                | 35,379 |   |                                 | $ | 25,640 |      |  | $ | 104,438 |   |  | $ | 74,487 |  
|Percentage of net revenues              |  |                                  | 37     | % |                                 |   | 33     | %    |  |   | 38      | % |  |   | 33     | %
|Increase, period over period            |  | $                                | 9,739  |   |                                 |   |        |      |  | $ | 29,951  |   |  |   |        |  
|Percentage increase, period over period |  |                                  | 38     | % |                                 |   |        |      |  |   | 40      | % |  |   |        |  

Sales and marketing expense increased 38% during the third quarter of 2006 and 40% during the
first nine months of 2006 as compared to the corresponding prior year periods. Sales and marketing expense increased during the third quarter and first nine months of 2006 due primarily to $2.4 million and $7.5 million, respectively, of stock
compensation expense related to the adoption of SFAS123R, increased spending on sales and support personnel and additional spending on advertising and marketing related programs to build brand awareness and generate leads for our sales force. During
the third quarter and first nine months of 2006, we increased our promotion of existing products and continued to promote our latest forthcoming product releases, including WebEx Connect, which is a platform designed to increase the breadth and
effectiveness of a customers use of on demand software applications, WebOffice, which is intended to expand our offerings in the small to medium business market, as well as MeetMeNow and PCNow, which are targeted to individual professionals.

Research and Development

Research and development expense consists primarily of salaries and other personnel-related expenses, depreciation of equipment and supplies, and consulting engineering services. Research and development expenses for
the periods reported were as follows:



|                                        |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                        |  | Three months endedSeptember 30, |        |   | Nine months endedSeptember 30, |  
|                                        |  | 2006                            |        |   | 2005                           |   |        | 2006 |  |   | 2005   |  
|                                        |  | (Dollars in thousands)          |       
|Research and development                |  | $                               | 13,236 |   |                                | $ | 12,565 |      |  | $ | 40,038 |   |  | $ | 33,614 |  
|Percentage of net revenues              |  |                                 | 14     | % |                                |   | 16     | %    |  |   | 14     | % |  |   | 15     | %
|Increase, period over period            |  | $                               | 671    |   |                                |   |        |      |  | $ | 6,424  |   |  |   |        |  
|Percentage increase, period over period |  |                                 | 5      | % |                                |   |        |      |  |   | 19     | % |  |   |        |  



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Research and development expense increased 5% during the third quarter of 2006 and 19% during the first
nine months of 2006 as compared to the corresponding prior year periods. Research and development expense increased during the third quarter and first nine months of 2006 due primarily to $1.4 million and $4.5 million, respectively, of stock
compensation expense related to the adoption of SFAS 123R and increases in equipment related expenses to develop and support existing and new products. The increase in research and development expense was offset in part by a reduction in headcount
in the third quarter of 2006 as compared to the corresponding prior year period.

General and Administrative

General and administrative expense consists primarily of personnel costs for finance, human resources, legal and general management, bad debt expense and
professional services, such as legal, tax and accounting. General and administrative expenses for the periods reported were as follows:



|                                        |  |                                  |       |   |                                 |   |       |      |  |   |        |   |  |   |        |  
|--------------------------------------- |  | -------------------------------- | ----- | - | ------------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                        |  | Three months ended September 30, |       |   | Nine months ended September 30, |  
|                                        |  | 2006                             |       |   | 2005                            |   |       | 2006 |  |   | 2005   |  
|                                        |  | (Dollars in thousands)           |      
|General and administrative              |  | $                                | 9,740 |   |                                 | $ | 6,731 |      |  | $ | 28,688 |   |  | $ | 17,813 |  
|Percentage of net revenues              |  |                                  | 10    | % |                                 |   | 9     | %    |  |   | 10     | % |  |   | 8      | %
|Increase, period over period            |  | $                                | 3,009 |   |                                 |   |       |      |  | $ | 10,875 |   |  |   |        |  
|Percentage increase, period over period |  |                                  | 45    | % |                                 |   |       |      |  |   | 61     | % |  |   |        |  

General and administrative expense increased 45% during the third quarter of 2006 and 61% during
the first nine months of 2006 as compared to the corresponding prior year periods. General and administrative expense increased during the third quarter and first nine months of 2006 due primarily to $1.5 million and $4.4 million, respectively, of
stock compensation expense related to the adoption of SFAS 123R as well as increased professional service expenses and employee-related expenses. The increase in employee-related expenses was due primarily to increased headcount in the third quarter
of 2006 as compared to the corresponding prior year period.

Stock-Based Compensation

The stock-based compensation cost was included in the Condensed Consolidated Statements of Income corresponding to the same functional lines as cash
compensation paid to the same employees, as follows:



|                           |  |                                  |       |   |                                |   |   |      |  |   |        |   |  |   |    |  
|-------------------------- |  | -------------------------------- | ----- | - | ------------------------------ | - | - | ---- |  | - | ------ | - |  | - | -- | -
|                           |  | Three months ended September 30, |       |   | Nine monthsended September 30, |  
|                           |  | 2006                             |       |   | 2005                           |   |   | 2006 |  |   | 2005   |  
|                           |  | (Dollars in thousands)           |      
|Cost of revenues           |  | $                                | 717   |   |                                | $ |  |      |  | $ | 2,247  |   |  | $ |   |  
|Sales and marketing        |  | $                                | 2,373 |   |                                | $ |  |      |  | $ | 7,472  |   |  | $ |   |  
|Research and development   |  | $                                | 1,422 |   |                                | $ |  |      |  | $ | 4,541  |   |  | $ |   |  
|General and administrative |  | $                                | 1,512 |   |                                | $ | 3 |      |  | $ | 4,356  |   |  | $ | 10 |  
|                           |  |                                  |       |   |                                |   |   |      |  |   |        |   |  |   |    |  
|Stock-based compensation   |  | $                                | 6,024 |   |                                | $ | 3 |      |  | $ | 18,616 |   |  | $ | 10 |  
|                           |  |                                  |       |   |                                |   |   |      |  |   |        |   |  |   |    |  
|Percentage of net revenues |  |                                  | 6     | % |                                |   |  | %    |  |   | 7      | % |  |   |   | %

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS123R using
the modified prospective transition method and therefore have not restated results for prior periods. Under this transition method, stock-based compensation expense for the third quarter and first nine months of 2006 includes compensation expense
for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original



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provision of SFAS No. 123. Stock-based compensation expense for all stock-based compensation awards granted
after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Prior to the adoption of SFAS 123R, we recognized stock-based compensation expense in accordance with APB 25.

Interest and other income, net

Interest and other income, net consists of net investment income, interest income and expense, the effect of non-functional currency transactions of our foreign subsidiaries, and certain other expenses. Interest and
other income, net increased $940,000 and $1.5 million, respectively, in the third quarter and first nine months of 2006 as compared to the corresponding prior year periods due primarily to an increase in interest income from greater cash and
investments balances and higher interest rates, offset in part by currency exchange losses from transactions in other than the local currency of our foreign subsidiaries.

Provision for income taxes

We recorded a provision for income taxes of $11.5 million for the
three months ended September 30, 2006 and a provision for income taxes of $28.4 million for the nine months ended September 30, 2006. During the three months ended September 30, 2006, the effective tax rate was 49%, which varies from
our estimated annual effective tax rate of 47% for full year 2006, primarily due to certain non-recurring items related to state taxes that increased the effective tax rate during the quarter on a discrete basis. Our estimated annual effective tax
rate for 2006 is approximately 8.0 percentage points higher than 2005 due primarily to the tax impact of stock-based compensation under SFAS 123R. With the adoption of SFAS 123R, the stock-based compensation related to such items as incentive stock
options and the employee stock purchase plan is treated as a permanent tax difference. Therefore, the stock-based compensation is added back to income before income taxes for tax purposes and results in a higher effective tax rate in 2006 as
compared to 2005. We expect to continue to use net operating loss carryforwards to offset U.S. taxable income in 2006; however, the utilization is limited on an annual basis based on Section 382 of the Internal Revenue Code. For the nine months
ended September 30, 2006, we evaluated our deferred tax assets and valuation allowance related to the utilization of our net operating loss carryforwards. The evaluation resulted in the realization of the tax benefit of these deferred assets of
$1.8 million for the balance of the year, of which $1.6 million reduced goodwill related to the acquisition of Intranets.

Liquidity and Capital
Resources



|                                                     |  |                                 |         |   |      |   |          |  
|---------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | -------- | -
|                                                     |  | Nine months ended September 30, |        
|                                                     |  | 2006                            |         |   | 2005 |  
|                                                     |  | (In thousands)                  |        
|Net cash provided by operating activities            |  | $                               | 65,426  |   |      | $ | 53,101   |  
|Net cash used in investing activities                |  |                                 | (66,560 | ) |      |   | (104,270 | )
|Net cash provided by financing activities            |  |                                 | 53,927  |   |      |   | 8,149    |  
|                                                     |  |                                 |         |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents |  | $                               | 52,793  |   |      | $ | (43,020  | )
|                                                     |  |                                 |         |   |      |   |          |  

We have generated cash from operations in each quarter since the third quarter of 2002. We
anticipate cash flow from operations will fund our current operations.

As of September 30, 2006, cash, cash equivalents and
short-term investments were $302.8 million, an increase of $105.6 million compared with cash, cash equivalents and short-term investments of $197.2 million as of December 31, 2005. As of September 30, 2006 and December 31, 2005, we
had no debt.

Operating Activities

Net cash provided by operating activities increased $12.3 million in the nine months ended September 30, 2006 as compared to the corresponding period in 2005. The increase was due primarily to higher earnings of
$10.0 million, after adjustments for non-cash items including stock compensation expense, provisions for doubtful accounts and sales reserve and depreciation and amortization. In addition, an increase in accrued liabilities of $7.1 million and an
increase in deferred revenue of $2.1 million as compared to the corresponding prior year period also contributed to the increase in cash from operations. The increase in cash from operations was partially reduced by an increase in accounts
receivable of $2.2 million due to the revenue growth in the Company as well as higher payments in accounts payable of $1.0 million due to the timing of payments. In addition, with the adoption of SFAS 123R, $5.5 million related to excess tax
benefits from stock-based compensation, which was previously recorded in operating activities prior to 2006, was recorded in financing activities.



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Investing Activities

Net cash used in investing activities decreased $37.7 million in the first nine months of 2006 as compared to the corresponding prior year period. The
decrease was due primarily to the acquisition of Intranets.com in the third quarter of 2005. Capital purchases increased $1.7 million in the first nine months of 2006 as compared to the corresponding prior year period.

Financing Activities

Net cash
provided by financing activities increased $45.8 million in the first nine months of 2006 as compared to the corresponding prior year period. The increase was due primarily to proceeds received from issuances of common stock under employee stock
programs of $48.4 million in the first nine months of 2006 as compared to $28.1 million in the first nine months of 2005. In, addition, with the adoption of SFAS123R, we recorded $5.5 million of excess tax benefits from stock-based compensation in
financing activities.

In the first nine months of 2005, we repurchased $20.0 million of common stock under our $40.0 million authorized
repurchase program. We repurchase shares of our common stock under a program to manage the dilution created by shares issued under employee stock plans as well as to repurchase shares opportunistically. During July 2006, our Board of Directors
authorized a new share repurchase program, which authorizes up to $40.0 million for share repurchases through December 2007.

Other

We have a revolving credit line with a bank that provides available borrowings up to $7.0 million. Amounts borrowed under the
revolving credit line bear interest at the prime rate and may be repaid and re-borrowed at any time prior to the maturity date. The credit agreement expires June 15, 2007. The credit agreement is unsecured and is subject to compliance with
covenants, including a minimum quick ratio and minimum profitability, with which we are currently in compliance. As of September 30, 2006, we had no outstanding borrowings under the credit line, but did have $3.5 million in letters of credit
issued to secure leases, which decline in value over the length of the respective leases.

We expect that existing cash resources and cash
generated from operations will be sufficient to fund our anticipated working capital and capital expenditure needs for at least the next 12 months. We anticipate that we will continue to generate cash from operations for at least the next 12 months
and that existing cash reserves will therefore be sufficient to meet our capital requirements during this period. We base our expense levels in part on our expectations of future revenue levels. If our revenue for a particular period is lower than
we expect, we may take steps to reduce our operating expenses accordingly. If cash generated from operations is insufficient to satisfy our liquidity requirements, we may seek to sell additional public or private equity securities or obtain
additional debt financing. There can be no assurance that additional financing will be available at all or, if available, will be obtainable on terms favorable to us. If we are unable to obtain additional financing, we may be required to reduce the
scope of our planned technology and product development and sales and marketing efforts, which could harm our business, financial condition and operating results. Additional financing may also be dilutive to our existing stockholders.

Lease Commitments

We lease
facilities in various U.S. cities and in several non-U.S. countries for our business activities, including office space for our employees and to house equipment used in the operation of our MediaTone Network. In April 2004, we signed a lease to
occupy space in a building located in Santa Clara, California that serves as our corporate headquarters. The lease term is for approximately ten years, and initial occupancy commenced in the third quarter of 2004. We took possession of additional
space in January 2005 and are committed to occupy additional space in February 2008. The rent for all of this space is included in the future minimum rental payments. Minimum lease payments under this lease began in January 2005 and total an
aggregate of $23.8 million for the life of the lease.

Purchase Commitments

As of September 30, 2006, our material purchase commitments, including those for telecommunication lines and data services, equipment and software,
totaled $18.7 million. The majority of the purchase commitments are expected to be settled in cash within 12 months.



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Indemnity and Warranty Obligations

In some of our agreements with customers and resellers, we agree to indemnify the customers and resellers in the event a third party asserts an
intellectual property infringement claim against the customer or reseller based on our services. Certain restrictions are placed on the indemnity obligations, including geographical limitations and limitations on the type of claims covered. In
addition, we have provided certain warranties and committed to maintain certain service levels in some of our agreements with customers and resellers. These warranty and service level provisions specify limited remedies available to the customer or
reseller in the event of a breach of the warranty or a failure to maintain the specified service level. In addition, our agreements contain limitation of liability provisions, which disclaim responsibility for consequential, special or indirect
damages and which generally limit our liability under the agreements to the amount of fees paid to us. However, any failure in a customers business interaction or other communications activity that is caused or allegedly caused by our
services, could result in a claim for damages against us, regardless of our responsibility for the failure, and cause us to incur unexpected costs which could unfavorably impact our revenue. Although customers and resellers have on a few occasions
brought to WebExs attention potential third party intellectual property claims, as of September 30, 2006, we had not incurred any liability with respect to our indemnification obligations. Likewise, customers and resellers may bring
claims with respect to our warranty and service level obligations, but as of September 30, 2006, we had not incurred a material liability with respect to such claims.

Off-Balance-Sheet Arrangements

As of September 30, 2006, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Long Term Contracts

The following table summarizes our significant contractual commitments at
September 30, 2006, and the effect such obligations are expected to have on our liquidity and cash flows in future periods:



|                            |  |                        |        |                  |   |           |  |           |        |                   |   |        |  |   |       
|--------------------------- |  | ---------------------- | ------ | ---------------- | - | --------- |  | --------- | ------ | ----------------- | - | ------ |  | - | ------
|                            |  | Payments due by period
|                            |  | Total                  |        | Less than 1 year |   | 1-3 years |  | 3-5 years |        | More than 5 years
|                            |  | (In thousands)        
|Operating lease commitments |  | $                      | 40,671 |                  | $ | 1,775     |  | $         | 13,480 |                   | $ | 11,791 |  | $ | 13,625
|Purchase commitments        |  |                        | 18,663 |                  |   | 15,676    |  |           | 2,954  |                   |   | 33     |  |   |      
|                            |  |                        |        |                  |   |           |  |           |        |                   |   |        |  |   |       
|Total                       |  | $                      | 59,334 |                  | $ | 17,451    |  | $         | 16,434 |                   | $ | 11,824 |  | $ | 13,625
|                            |  |                        |        |                  |   |           |  |           |        |                   |   |        |  |   |       

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Foreign
Currency Risk

A small, but growing, part of our business is conducted outside the United States. In the majority of non-U.S.
transactions, whether they are revenue transactions or the payment of expenses or other obligations owing in the non-U.S. country, the currency involved is the local currency. In some countries we have far more sales collections than we do payment
obligations; in other countries, the reverse is true. For example, in China we have significant payment obligations that must be made in Chinese currency including employee salaries and lease payments, and these are currently not offset by revenues
in China. As a result of this imbalance between local currency collections and payments in certain non-U.S. countries, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions
in such foreign markets. When the amount of revenues obtained from sources outside the United States becomes significant, we may engage in hedging activities or other actions to decrease fluctuations in operating results due to changes in foreign
currency exchange rates.

Interest Rate Risk

We do not use derivative financial instruments or market risk sensitive instruments. Instead, we invest in highly liquid investments with short maturities. Accordingly, we do not expect any material loss from these
investments and believe that our potential interest rate exposure is not material.



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Item 4.Controls and Procedures

(a) Evaluation of disclosure controls and
procedures. We maintain disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), that are designed to ensure that information required to
be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and
procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.
Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure
controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b)
Changes in internal control over financial reporting. There was no significant change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the evaluation
described in Item 4(a) above that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II  OTHER INFORMATION

Item 1.Legal Proceedings

On March 27, 2006, a lawsuit was filed in the United
States District Court for the Southern District of Texas by Automated Business Companies against a number of companies, including us, alleging that the defendants services which enable individuals to remotely control their personal
computers infringe three of the plaintiffs patents. The plaintiff Automated Business Companies seeks damages and injunctive relief. We believe that the claims being asserted in the lawsuit are without merit and that we have
meritorious defenses against such claims. Accordingly, we intend to vigorously defend ourselves against these claims. Currently, the parties have stipulated to submit the three patents to the United States Patent and Trademark Office for
re-examination as to the validity and scope of the claims set forth in the patents. The litigation is currently stayed pending the result of this re-examination.

Item 1A.Risk Factors

The following risk factors and other information
included in this Quarterly Report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we deem immaterial also may impair our
business operations. If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected.

The revenue uncertainty associated with one of our two primary pricing models, usage-based pricing, makes our quarterly results variable and difficult to predict, which could cause unpredictable fluctuations in our
stock price.

We use two primary pricing models to price our services: a committed-subscription pricing model and a usage-based pricing
model. Each pricing model is responsible for a significant percentage of our total revenue. Because the usage-based portion of our revenue varies depending on customer usage, it is more difficult to predict than our subscription-based pricing and
therefore our revenue may fluctuate unpredictably from publicly-announced targets, which in turn could cause our stock price to fluctuate unpredictably.

Our dominant pricing model has been a committed-subscription pricing model. We offer several forms of committed-subscription pricing:



| |  |  | Flat rate pricing, in which the customer pays a set price per month regardless of usage. A majority of our committed-subscription customers purchase our services in this
manner;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Concurrent-user or per port pricing, which enables a customer to have a set number of users connected to WebEx meetings at any one time; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Minimum minutes pricing, in which the customer commits to pay for a certain number of minutes of usage during a specified time period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

We refer to the revenue associated with our various committed-subscription arrangements as committed revenue.

Currently, our most popular flat-rate offering is the named host offering, in which a certain named individual may host meetings at which up to a certain
number of attendees may participate. The named host service differs from the concurrent-user port offering in several respects: (i) with the concurrent user offering, any employee of the customer may host a meeting, whereas with the named host
service only employees who are designated as named hosts may host a meeting, (ii) the price charged for a named host subscription is appreciably lower than the price charged for a concurrent user subscription, in part because the named host
model is less flexible with respect to who can host a meeting, and (iii) unlike the concurrent user offering, with the named host offering there are effectively no overage fees. We also offer a full-deployment offering in which all employees
within a company can utilize WebEx meeting services for a flat monthly rate. During the fourth quarter of 2005 we introduced two new flat-rate offerings targeted at individuals and small businesses. The first offering, available for purchase online
and called MeetMeNow, is a simple web conferencing service offered on a monthly basis. The second flat-rate offering is our WebEx WebOffice line of collaboration services, which we offer for purchase through a variety of monthly subscription plans.



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In addition to our committed subscription offerings, there are several situations in which customers are
charged on a per-minute usage basis, or what we call usage-based or uncommitted pricing. These include certain reseller arrangements, customer overage fees for usage above the subscribed-to amount of ports or minutes, many types of telephony
charges, individual pay-per-use services purchased directly from our website, and a limited number of customers who do not have a minimum commitment obligation of any kind. A majority of revenue received from our telecommunications partner
arrangements is usage based. In addition, we sometimes obtain usage-based fees from subscription customers in the form of overage fees. Overage fees are charged when a customer subscribing to a set number of ports uses more than the subscribed
number of ports, or when a customer on a minutes pricing model uses more than its commitment. We get per-minute telephony revenue when we provide the audio conferencing component of a web collaboration session. Finally, we have per-minute web
collaboration services available through our website and payable by credit card. The revenue derived from this usage-based pricing model, measured as of the end of any month, is what we refer to as uncommitted revenue.

For the quarter ended September 30, 2006, usage-based revenue was approximately 26% of our total revenue. We include in our usage-based revenue
category, in addition to the various types of per-minute revenue identified in the preceding paragraph, certain non-recurring revenue items. Examples of such non-recurring revenue items include the fees we charge our customers for consulting or
other forms of professional services (PSO) workan example of which is the fee we charge to help a customer produce an online eventand the one-time fee we received in prior quarters from the United States Department of Defense in
connection with its online collaboration pilot program. Our various usage-based revenue sources are more variable and difficult to predict than our committed subscription revenue sources, given that customer demand may vary from month to month
depending on a number of factors, such as number of business days in a month or vacation patterns. Accordingly, to the extent the revenue derived from our various usage-based sourcesor uncommitted revenuegrows faster than the combined
revenue from ports, minimum minutes and flat-rate offeringstogether called committed revenueour overall revenue becomes more difficult to predict.

There are factors other than usage-based pricingsome within and some not within our controlthat make our quarterly results variable and difficult to predict, which could cause unpredictable fluctuations
in our stock price.

For several additional reasons, some inside and some outside of our control, our quarterly revenue and operating
results may fluctuate from quarter to quarter and may vary from publicly-announced quarterly or annual financial guidance. These additional factors include the emerging nature of the market for web collaboration services, fluctuations in sales and
customer retention and the uncertain impact of competition, which are listed below along with several other factors which could cause our quarterly results to fluctuate unpredictably:

Factors outside our control include:



| |  |  | the emerging nature of the market for, and the growth rate of, the market for web collaboration software and services generally and particularly for on-demand web collaboration
services;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | market acceptance of our services;
| | - |  | ----------------------------------



| |  |  | our resellers degree of success in distributing our services to end-users;
| | - |  | ---------------------------------------------------------------------------



| |  |  | the announcement, introduction and market acceptance of new or enhanced services or products by our competitors;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | changes in offerings, sourcing or pricing policies of our competitors and our distributors; and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | a trend toward lower average per-minute prices in the telecommunications sector generally.
| | - |  | ------------------------------------------------------------------------------------------

Factors within our control include:



| |  |  | our ability to develop, enhance and maintain our web communications network in a timely manner;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | the mix of web collaboration services we offer, and our introduction of asynchronous web collaboration services;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | our ability to attract and retain customers;
| | - |  | --------------------------------------------



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| |  |  | the amount and timing of operating costs and capital expenditures relating to expansion of our business and network infrastructure; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in our pricing policies.
| | - |  | --------------------------------

If any of these factors
impact our business in an unplanned and negative manner during a particular period, our operating results may be below market expectations, in which case the market price of our common stock would likely decline. Also, factors such as the growth
rate of the market for our services, our ability to maintain and enhance our network services and platform, and our competitors success could impact our longer-term financial performance by reducing demand for our services, which would harm
our business.

One of our subscription-based offerings, the named host offering, is the choice of an increasing percentage of our
subscription-based customers, both new and existing, because of its lower price relative to our other committed subscription offerings. This customer purchasing trend could reduce our revenue unless and until the volume of additional customers makes
up the difference.

A number of our new and existing customers are selecting our named host offering. Approximately 86% of our new
subscription-based agreements entered into during the third quarter of 2006 were named host agreements, and approximately 62% of our current subscription-based agreements are named host agreements. Because the amount we charge for a named host is
less than the amount we charge for a concurrent user, we may get less revenue from customers who select the named host pricing model than we have historically from our concurrent user customers. In addition, we generally do not receive overage
revenue under the named host model. This loss of subscription and overage revenue may be offset in the future if named host customers increase the number of named hosts they subscribe to or if the number of customers increases due to the
availability of this lower-priced model. If neither of these trends occurs, our operating results will be negatively affected.

We
expect that our operating expenses will continue to increase, and if our revenue does not correspondingly increase, our business and operating results will suffer.

We expect to continue to spend substantial financial and other resources on developing and introducing new services, on expanding our sales and marketing organization, on enhancing our network infrastructure and on
upgrading leased facilities such as our European headquarters. An example of a substantial financial commitment made during the past two years is our ten-year lease for space in a Santa Clara, California building which became our corporate
headquarters in January 2005. We base our expansion plans and expense levels in part on our expectations of future revenue levels. If our revenue for a particular quarter is lower than we expect, we may be unable to reduce, proportionately, our
operating expenses for that quarter, in which case our operating results for that quarter would suffer. And because our fixed expenses have increased appreciably due to our expectations relating to future revenue levels, if our revenue is
sufficiently below expectation in one or more quarters, we may be unable to effect proportionate reductions in our operating expenses in a timely manner and, therefore, our operating results could suffer.

Most of our customers do not have long-term obligations to purchase our services; therefore, our revenue and operating results could decline if our
customers do not continue to use our services.

Most of our customer contracts have initial terms of three to twelve months. These
contracts are typically automatically renewed except where a customer takes action to cancel a contract prior to the end of an initial or renewal term. In a few customer situations, including contracts with the federal government, the contract can
be terminated by the customer at any time during the term of the agreement. Our lost subscription customer ratio was 1.9% per month for the quarter ended September 30, 2006. In addition to cancellation, a customer may stop buying our
services directly from us and, instead, start purchasing our services from one of our resellers. A customer may also change types of services that the customer purchases directly from us such that the overall subscription revenue to us is lower. The
reasons why a customer would cancel use of our services have included the pricing of our service offerings, the failure of the customers employees to learn about and use our services, the failure of the services to meet the customers
expectations or requirements, financial difficulties experienced by the customer, or the customers decision to use services or products offered by a competitor. As a result of customer cancellations or reductions in purchases of our services,
we may need to invest additional dollars in sales and marketing in order to compensate for increases in net customer losses, or we may need to invest in the development or acquisition of new offerings in an attempt to increase customer retention. We
may not obtain a sufficient amount of



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new or incremental business to compensate for any customers that we may lose. The loss of existing customers or our
failure to obtain additional customers, and the additional expense associated with acquiring new customers or developing or acquiring new products, could harm our business and operating results.

Our business and operating results may suffer if we fail to establish reseller relationships, if our resellers experience financial hardships, do not
successfully market and sell our services, or devote greater efforts to the products and services of competitors, or if we fail to maintain significant participation in the telecommunications provider distribution channel.

As of September 30, 2006, we had distribution agreements in place with telecommunications partners, software vendors, web services providers and
miscellaneous other resellers that during the third quarter of 2006 accounted for 16% of our revenue. Our revenue generally consists of initial set-up fees, commitment payments, and service fees. The majority of the payments received from these
resellers are per minute or usage-based payments. We must continue to establish and extend these distribution relationships. Establishing these distribution relationships can take as long as several months or more. Our resellers are not prohibited
from offering and reselling the products and services of our competitors, and a significant majority of our resellers currently do so. Such resellers (i) may devote greater resources to marketing and supporting the products and services of our
competitors including specific efforts to persuade the resellers customers to switch from our services to those of our competitors, or (ii) may be persuaded by a competitor of ours to sever the resellers distribution arrangement
with us and possibly also become the exclusive reseller of that competitor. Our resellers could also devote greater resources to the development and deployment of their own web collaboration service offerings, which may be or become competitive with
ours.

An example of a reseller which may devote greater resources to marketing and supporting the products and services of our competitors
is our distributor Intercall, whose corporate parent West Corporation in April 2006 acquired our competitor Raindance and who therefore may increase its support of the Raindance offering, or cease offering some or all of our offerings, to our
detriment. With regard to the telecommunications-provider distribution channel for web collaboration services which may prove economically significant in the future, our web collaboration services competitors may be more successful in partnering
with telecommunications providers, or telecommunications providers may independently enter the web collaboration services business, either alone or with web conferencing vendors that do not include us. If we fail to establish new distribution
relationships in a timely manner, if our resellers do not successfully distribute our services, if we lose existing resellers for whatever reason or if we fail to maintain significant participation in the telecommunications-provider distribution
channel, our ability to maintain current levels of market acceptance of our web collaboration services will suffer and our business and operating results will be harmed.

A small number of reseller accounts is responsible for most of the 16% of our total revenue that is attributable to resellers, and if any of these resellers discontinues or significantly curtails a reseller
arrangement with us, our operating results would be negatively affected.

Of the 16% of our total third quarter revenue that is
attributable to resellers, a large majority comes from four resellers. Each of these four resellers operates in the telecommunications-provider reseller channel. If one or more of these resellers were to significantly reduce the scope of or
discontinue a reseller arrangement with us, our business and operating results would suffer.

Our total revenue may suffer if we are
unable to manage our distribution relationships successfully to prevent the undercutting of our direct sales efforts.

We sell our
services directly to customers and also indirectly through our resellers which buy and resell our services. We enter into distribution relationships so that we can obtain additional customers through third parties that we could not obtain through
our direct sales efforts. Under our agreements with our resellers, we sell our services on a discounted basis to the reseller, which in turn marks up the price and sells the services to the end-user. In such cases, we contract directly with the
reseller, and revenue is recognized on amounts charged to the reseller. We also have another type of distribution arrangementknown as a referral arrangementin which a third party refers a potential customer to our direct sales force,
which in turn seeks to enter into a contract directly with the potential customer. When a sale is made from us to a customer through a lead provided by a referral agent, the referral agent receives from us a percentage of the proceeds from the sale
of WebEx services to the customer, we include the revenue received by us within the broad category of revenue received from services sold directly to customers, and we record the amount paid to the referral agent as sales and marketing expense. In
either the reseller or referral agent case, the income per sale received by us when a sale is generated by a third party is not as great as it would have been had the sale been made by us directly, for the same



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volume of WebEx services. To the extent that sales of our services generated by our resellers or referral agents are
sales that, absent the existence of the distribution arrangement, would be made by our direct sales force, our income per sale may decrease. Additionally, to the extent our existing customers discontinue direct agreements with us in order to
purchase our services from our resellers or through our referral agents, our income per sale may decrease.

We expect to depend on sales
of our standalone WebEx Meeting Center service for a significant percentage of our revenue for the foreseeable future.

Our standalone
WebEx Meeting Center service, our service with the highest revenue, accounted for approximately 34% of our revenue for the quarter ended September 30, 2006. We have developed and are selling other services, such as (i) our Enterprise
Edition service consisting of a composite of our Event Center, Training Center, Sales Center and Support Center services, each of which services may also be purchased separately, (ii) our audio conferencing service called WebEx Audio;
(iii) our asynchronous offering called WebOffice, (iv) our MeetMeNow service, and (v) our PCNow service. Our services other than Meeting Center may not provide significant revenue in the future. If we are not successful in developing,
deploying and selling services other than our standalone Meeting Center service, and if sales of our standalone Meeting Center service decline or do not increase, our operating results will suffer.

We have modified our business strategy from a focus on web meetings to a more diverse product line of web collaboration services, and if our
investments in these new markets are not well targeted or well executed, if overall market growth in these new segments is less than anticipated or if we are unable to compete successfully in these new market segments, our operating results could
suffer.

Our business strategy has expanded from a focus on real-time web meetings and closely-related applications to an emphasis on a
more diverse product line of web collaboration services, including the asynchronous collaborative service offerings we now offer as a result of our acquisition of Intranets. We are also expanding service offerings such as remote access, instant
messaging and audio conferencing. In addition, we are developing a new proprietary platform, called WebEx Connect, which is designed to provide customers with (i) access to an online marketplace offering a variety of third party on-demand
software applications, (ii) software called middleware, with which customers can build interoperability functionality into the customers on-demand and on-premise applications, and (iii) a portal called Connect Workspace through which
a customer may access WebEx Connect applications.

This product diversification strategy includes a greater emphasis on selling services
provided by, or obtained through acquisition of, third parties rather than our historical practice of selling services developed solely by us. Because the markets for certain of these web collaboration services, such the asynchronous web
collaboration services market and the market for interoperable on-demand applications to be addressed by our WebEx Connect offering, are just emerging, it is uncertain how successful WebEx will be in these markets. We are also uncertain how much
investment in sales, marketing, product development and infrastructure will be necessary to compete successfully in these markets, since we are a relatively new participant to these markets. If our investments in these new markets do not produce or
exceed our expected return, our financial results will suffer. Also, to the extent we expand our service offerings to include those offerings, such as audio conferencing, which currently or may in the future have lower profit margins than our
traditional web collaboration service offerings, our operating and profit margins may decline.

If our marketing, branding and
lead-generation efforts are not successful, or if our decision to shift resources to sales and marketing from research and development causes service quality problems or delays in the rollout of new services or service upgrades, our business may be
harmed.

We believe that continued marketing and brand recognition efforts will be critical to achieve widespread acceptance of our web
collaboration services. In the current calendar year, we intend to invest more of our budget on sales and marketing and to reduce the percentage of our budget spent on research and development. Nevertheless, our marketing and advertising campaigns
or branding efforts may not be successful. For example, certain sales promotion initiatives, such as free introductory or free trial use, may dampen short-term sales even as such initiatives attempt to cultivate participants desire to purchase
and use our services, in that a customer who might have otherwise purchased our services will instead receive free use of our services for the trial period of time. In addition, failure to adequately generate and develop sales leads could negatively
impact our revenue and therefore our financial results. More specifically, our inability to generate and cultivate sales leads into large organizations, where there is the potential for significant use of our services and where any future
marketplace standardization of our service might emerge, could harm our business. If our



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marketing, branding or lead-generation efforts are not successful, or if a shift in resource emphasis from research and
development to sales and marketing causes a decline in the quality of services delivered or delays in the deployment of new or upgraded services, our business and operating results will be harmed.

If our services fail to function, whether because of the large number of participants or because of separate quality-related issues relating to our
network infrastructure, we may lose customers and our business and reputation may be harmed.

Our business strategy requires that our
services be able to accommodate large numbers of meetings and users at any one time. Our data network monitoring system measures the capacity of our data network by bandwidth use. The goal of our data network capacity planning is to have our average
daily peak usage be less than 50% of our data network capacity. We use this capacity planning standard as it is our best effort to simultaneously meet two important business objectives: (i) having enough excess capacity to avoid service
interruptions or other service quality problems on our service delivery network on days when network usage is unusually heavy, and (ii) not wasting resources on unnecessary excess network capacity.

From time to time daily peak usage exceeds 50% of data network capacity. However, by monitoring and managing our data network resources we have been able
to meet our internal goal of maintaining average daily peak usage at less than 50% of our data network capacity. Whenever average daily peak usage increases to a point approaching or exceeding 50% of our data network capacity, we add capacity so
that we continue to meet our internal target of having average daily peak usage be less than 50% of our data network capacity. During the quarter ended September 30, 2006, the average of our daily peak usages, as a percentage of our data
network capacity, was less than 50% of our total capacity. In addition to our data network, we also maintain an integrated telephony network for which capacity planning and service-level monitoring is necessary. Meeting our goal of having average
daily peak usage be less than 50% of our network capacity depends on our continuing ability to add both data network and telephony network capacity whenever we so desire. Securing such additional network capacity has not been a problem for us to
date, due to the abundance of supply available for purchase. However, there can be no assurance that such supply of data network and telephony network capacity will always be available or available at reasonable prices.

The trend in recent quarters has been that customer usage levels on our network have been growing at a rate faster than revenue growth. These increases
in network usage require us to more actively and accurately monitor not only our capacity but also the operational health of the basic computer-related hardware such as servers, personal computers and data storage equipment upon which the continuous
functioning of our network depends. Our network monitoring systems are capable of detecting equipment failure within the network, and we have redundantsometimes also called fail-overinfrastructure in place to keep our network functioning
in the event a hardware failure occurs within the network. Despite these safeguards, it is possible that we could suffer a temporary network service outage due to the quantity or critical nature of the particular disabled items of infrastructure, or
due to human operator error in dealing with a particular hardware failure or even a hardware maintenance activity.

If we fail to invest
adequately, or act quickly enough, to increase the capacity and quality of our data and telephony networks consistent with the growth in usage of each, if there are supply constraints with respect to the acquisition of additional data network or
telephony capacity, or if we improperly monitor or mishandle the hardware equipment components of our networks, the performance of these networks could be adversely impacted. In addition, we may encounter performance or other service-quality
problems when making upgrades and modifications to either or both of these networks. If our services do not perform adequately because of capacity-related or other quality-related problems with either or both of our data and telephony networks, we
may lose customers and be unable to attract new customers and our operating results would be harmed.

We operate a subsidiary in China,
which exposes us to economic and political risks in China, foreign exchange risk, risks related to political tension between China and the United States, risks arising from an inability to enforce our intellectual property rights, and risks relating
to possible Chinese government requirements or activities affecting our customers located in China.

We have relied, and for the
foreseeable future we plan to continue to rely, on our subsidiary WebEx China to conduct a significant portion of our quality assurance testing and software development activities, as well as other activities. Our reliance on WebEx China exposes us
to a variety of economic and political risks including, but not limited to, technology-development restrictions, potentially costly and pro-employee labor laws and regulations governing our employees in China, and travel restrictions. Also, our
business may be harmed if we encounter difficulties enforcing our intellectual property rights there.



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We also face foreign exchange risk in that we have significant payment obligations that must be made in
Chinese currency including employee salaries and lease payments, which currently and for the foreseeable future are currently not offset by sales revenue in China. If the Chinese currency, or yuan, appreciates relative to the U.S. dollar, the cost
of our Chinese operations, as reflected in our financial statements, would increase.

In addition, we face risks related to possible
Chinese government requirements or activities affecting customers of WebEx located in China. As evidenced by recent publicized issues involving U.S. Internet technology companies in China, the Chinese government may require, as a condition of doing
business in China, that WebEx provide information related to users of our services located in China or may otherwise seek to obtain information related to users of our services in China. Although we are not currently aware of any such activity or
requirement, if such activities or requirements were to occur, this could harm our reputation, cause us to lose customers in China and could deter potential future customers in China from signing up for our services which would damage our operating
results.

Finally, political and economic tensions between the United States and China could harm our ability to conduct operations in
China, which could increase our operating costs and harm our business and operations. If we lost the services of our WebEx China subsidiary, we would incur increased costs, which would harm our operating results and business.

Our international business activities expose us to foreign exchange risk, foreign country economic conditions and the challenges of managing a global
business operation, any of which if not managed successfully could harm our financial condition.

A small part of our sales and support
activities, and a significant portion of our customer provisioning and research and development activities, are conducted outside of the United States. Customer payments to us, and payments by us to both our foreign-based vendors and to our
foreign-based employees, are generally made in the local currency. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. We do not currently
engage in hedging activities or other actions to decrease fluctuations in operating results due to changes in foreign currency exchange rates, although we may do so when the amount of revenue obtained from sources outside the United States becomes
significant. We conduct sales, marketing, network and customer support operations in countries outside of the United States, and we currently have subsidiaries in several non-U.S. countries. Our future results could be materially adversely affected
by a variety of challenges generally associated with managing a global business including, among others, the following:



| |  |  | staffing and managing international operations including multiple non-U.S. subsidiary structures;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | handling the various accounting, tax and legal complexities arising from our international operations;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | properly designing, testing and maintaining internal controls over financial reporting in our non-U.S. subsidiaries, as required under the Sarbanes-Oxley Act of 2002 and related
laws and regulations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | understanding cultural differences affecting non-U.S. employee relations or sales transactions; and
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | addressing political, economic or social instabilities that may arise from time to time in a specific non-U.S. country or region.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------

The cost of meeting these and other challenges, or our failure to address adequately one or more of such challenges, could have a material adverse impact
on our costs, expenses, and financial condition.

We could incur unexpected costs resulting from claims relating to use of our
services.

Many of the business interactions supported by our services are critical to our customers businesses. Although it is
not standard practice for us to do so, in some situations we do make warranties in our customer agreements as to service uptime, or the percentage of time that our network will be operational and available for customer use. Accordingly, any failure
by us to fulfill such warranty obligation, or more generally any failure in a customers business interaction or other communications activity that is caused or allegedly caused by our services, could result in a claim for damages against us,
regardless of our responsibility for the failure, and cause us to incur unexpected costs which could unfavorably impact our revenue. The risk of service-related failures and claims may increase as we launch additional new services, including
services developed by third parties. Moreover, as certain of our recent and planned service offerings, such as our WebOffice service and our planned network-based-recording (NBR) offering, include storage of potentially sensitive customer content on
our network as part of the service offering, this may increase the potential for claims and liability associated with that stored content.



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The software underlying our services is complex, and our business and reputation could suffer if our
services fail to perform properly due to defects or similar problems with our underlying software.

In addition to possible flaws
within, or failure of, our network hardware components, the software underlying our services could also contain defects or fail to function properly. Complex software, such as the software underlying our services, often contains defects. We may be
forced to delay commercial release of new services or new versions of existing services until problems are corrected and, in some cases, we may need to implement enhancements to correct defects or bugs that we do not detect until after deployment of
our services. If we do detect a defect or bug in our software before we introduce new versions of our services, we might have to limit our services for an extended period of time while we resolve the problem. In addition, problems with the software
underlying our services could result in:



| |  |  | damage to our reputation;
| | - |  | -------------------------



| |  |  | damage to our efforts to build brand awareness;
| | - |  | -----------------------------------------------



| |  |  | loss of customers, or loss of or delay in revenue;
| | - |  | --------------------------------------------------



| |  |  | delays in or loss of market acceptance of our services; and
| | - |  | -----------------------------------------------------------



| |  |  | unexpected expenses and diversion of resources to remedy errors.
| | - |  | ----------------------------------------------------------------

If our services do not work with the many hardware and software platforms used by our customers and end-users, or if we do not successfully adapt our MediaTone on-demand delivery platform to the increasing numbers of customers and
varieties of web collaboration services we are offering including third-party web application services to be provided by our new WebEx Connect offering, our business may be harmed.

We currently serve customers and end-users that use a wide variety of constantly changing hardware and software applications and platforms. If our
services are unable to support these platforms, they may fail to gain broad market acceptance, which would cause our operating results to suffer. Our success also depends on our ability to deliver our services to multiple platforms and systems. In
addition, the success of our services depends on our ability to anticipate and support new standards, especially web standards.

Our
success also depends on our ability to modify our services and underlying technology as new versions of on-demand applications are introduced, and to manage our MediaTone platform such that it is able to handle the increasing scale and diversity of
on-demand collaboration services furnished to customers. In particular, our MediaTone Network must successfully accommodate our new WebEx Connect platform and its various customer-facing features including a user interface, tools the customer can
use to build software application interoperability and a marketplace where customers can obtain third-party applications. We could suffer damage to our reputation if third-party web applications purchased by customers from our WebEx Connect
on-demand software marketplace suffer from bugs or other service interruptions, regardless of whether such applications are hosted by WebEx as part of WebExs MediaTone Network or at a third-partys facility. If we fail to maintain the
capacity and quality of our MediaTone network across a wide variety of user computer platforms, or fail in our efforts to utilize the MediaTone Network to support new web collaboration services including those to be provided through our new WebEx
Connect platform, our business will suffer.

We rely on third parties for technologies we use in conducting our business, and in certain
cases we rely on third parties to provide us with products we include in our set of commercial offerings. If we cannot continue to license these third-party technologies or products in a timely manner and on commercially reasonable terms, our
business could suffer.

We intend to continue to license technologies from third parties, which are integrated into our services and
which constitute new web collaboration services. For example, we license database, operating system, server and enterprise marketing automation software, application server, monitoring and management software, billing software, font-rendering
technology, voice-over-Internet protocol



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(VOIP) technology, and credit card payment processing services. We also license proprietary software tools, within a
category of software called middleware, that will be a component of our new WebEx Connect platform. As our sales volume, together with the scale and variety of our collaborative service offerings, grows larger, managing these third-party
relationships and integrating the licensed technologies into our services, into our service delivery infrastructure and into our sales and marketing operations has become more important to the health of our business. If we are unable to meet the
challenges associated with these more numerous and complex relationships with third-party providers, our business could suffer. Also, we are now relying on third parties to supply us with certain of our web collaboration services themselves, such as
the System Management service that is a new offering within the Support Center family of services. These product-related third-party technologies, and any that we may utilize in the future, may not continue to be available to us on commercially
reasonable terms. In addition, we may fail to successfully integrate any licensed technology or licensed product into our MediaTone service delivery platform. This in turn could increase our costs and harm our business and operating results.

Our recent growth has placed a strain on our infrastructure and resources, and if we fail to adequately manage the infrastructure and
operational requirements of our business as it grows, both within the U.S. and internationally, our business could suffer.

We have
experienced a period of expansion in our personnel, facilities, and infrastructure that has placed a significant strain on our resources. We expect to continue to increase our personnel during the remainder of 2006. Our expansion has also placed,
and we expect that it will continue to place, a significant strain on our management and operational resources. In addition to completing the physical transfer of one of our primary network operations centers from our former San Jose headquarters to
a facility in Mountain View, California, we are exploring the option of transitioning another of our network operations centers from a Denver, Colorado facility to an alternative facility, although we have not yet identified the location of such
alternative facility.

Separately, we are continuing periodically to update our information technology infrastructure to meet increased
requirements for capacity, flexibility and efficiency resulting from the growth of our business. In the event these recently re-deployed or recently-updated systems or technologies do not meet our requirements or are not deployed in a successful or
timely manner, our business may suffer.

Breaches of our physical or technical security systems, or the security systems of our vendors
who partner with us in the delivery of services to customers, may result in violations of our confidentiality and security obligations to our customers, may result in damage to our systems and our reputation, may endanger the safety of our employees
and may harm our financial performance.

Our customers and end-users may use our services to share confidential and sensitive
information, the security of which is critical to their business. Third parties may attempt to breach our security or the security of our vendors or customers. For example, although we are not aware of any breaches to the security of our primary
service delivery infrastructure or our primary web collaboration service offerings, we have faced from time to time multiple ancillary security-related issues such as credit card payment verification problems, abuse of free trial offerings made
available on our public website, and theft of audio-conferencing services by non-contracted parties.

We may be liable to our customers for
any breach in security, and any breach could harm our reputation and cause us to lose customers or incur additional expenses, or both. For example, in connection with customer purchases of our services and with the help of an outside vendor, we
process tens of thousands of credit card transactions per month, and any failure in either our or the vendors security system to safeguard customer information could result in violations of law or industry standards by us, damage to our
customers or damage to our financial performance or reputation.

In addition, computers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to interruptions, delays or loss of data. A breach of the physical security of our facilities may endanger the safety of our employees. We may be required to expend significant capital
and other resources to further protect against security breaches or to resolve problems caused by any breach, including litigation-related expenses if we are sued.

Changes in our executive management team may be disruptive to our business.

From time to time there
are changes in our executive management team, including the hiring and departure of executives, and the reorganization of responsibilities and personnel. For example, during the first quarter of 2006 we had a reorganization affecting



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the leadership of our sales and customer care organization, our product and engineering organization and our marketing
organization, which are important areas of our business. In addition, our president and chief operating officer left the Company in the second quarter of 2006. Such changes may be disruptive to our business, because the executives and employees
reporting to them require time to become fully productive in their new roles and new organizations. Planned changes in the Companys organization or management may not achieve the expected benefits. In addition, the departure of executives may
create temporary voids in leadership in critical areas of the Company. In particular, we are highly dependent on the executive and leadership skills of our chief executive officer and co-founder Subrah Iyar, and his departure for any reason would
likely be disruptive to our business. Because of these risks, organizational and management changes may have an adverse impact on our financial performance. We do not have long-term employment agreements or life insurance policies on any of our
senior executives.

If we are unable to attract, integrate and retain qualified personnel, our business could suffer.

Our future success will depend on our ability to attract, train, retain and motivate highly skilled engineering, technical, managerial, sales and
marketing and customer support personnel. We expect to continue to increase our personnel during the remainder of 2006. Demand for skilled engineering and other technical personnel continues to be high among companies in the technology sector of the
U.S. economy and particularly in the Silicon Valley, and because of this we could encounter increasing difficulty hiring qualified personnel. We could encounter the same difficulty in other countries and regions where we operate and where the demand
for skilled technology workers is growing quite rapidly, such as in China and India where we have experienced a significant degree of salary pressure and turnover in our workforce. If we encounter difficulty hiring, integrating and retaining a
sufficient number of qualified personnel in the future, the quality of our web collaboration services and our ability to develop new services, obtain new customers, achieve revenue growth goals and provide a high level of customer service could all
suffer, and consequently the health of our overall business could suffer. If in our hiring we hire employees from our competitors, we face a risk that a competitor may claim that we have engaged in unfair hiring practices, which could cause us to
incur costs in defending ourselves against such claims, regardless of their merits. Also, our competitors appear to value certain specialized skills possessed by certain of our technical and sales employees, having hired or attempted to hire such
individuals in recent quarters. If the rate at which such employees are hired away increases appreciably, our business and operations could be harmed.

Interruption or malfunction of our internal business processing systems, including those resulting from upgrades to our comprehensive database system, or problems relating to our use of a third party service to
assist us with certain billing tasks, could result in customer invoicing delays and other disruptions to our revenue-related financial accounting processes.

Our business, which includes thousands of subscription customers and a large number of daily transactions, is substantially dependent on the continuous and error-free functioning of our automated business processing
systems covering such areas as order-entry, billing, contract management and collection activities. We currently are utilizing, in part, an internally-developed, proprietary business processing system to capture and record customer usage of our
various services. Because we have to rely on our own know-how and experience, rather than that of an outside vendor, to identify, diagnose and repair any bugs, start-up problems or other malfunctions relating to the system, any such malfunction
could cause delays or errors in transaction processing, which could negatively affect customer relationships and could harm our business. Actual malfunction-related costs that could have negative effects on our business include (i) delays in
generating, or inability to generate, customer invoices, (ii) difficulty, or inability, to track the customer usage data needed to generate invoices, (iii) our having to deploy additional resources internally to troubleshoot these invoice
and data collection problems and to complete the processing of sales transactions, and (iv) our having to issue credits to customers due to discrepancies or disagreements with particular invoices.

During the first quarter of 2006 we completed the installation of a key upgrade to the application we use for financial reporting, human resource
management and other enterprise resource planning functions. During the remainder of 2006 we plan to install upgrades to other portions of the application. In addition, we are utilizing a third party billing service to assist us in the preparation
and transmission of invoices to customers. Any material interruption or malfunction associated with the installation of these upgrades, or the functioning of our third party billing service arrangement, could result in billing, collection,
credit-issuance and other revenue-related financial accounting problems. Such interruptions or malfunctions, were they to become persistent or large-scale, could harm our customer relationships. In addition, such interruptions or malfunctions could
interfere with the accuracy of our financial reporting and could disrupt related internal control compliance activities, which could result in our violating legal requirements applicable to public companies. Any such result could harm our business
and stock price.



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Interruptions in either our internal or outsourced computer and communications systems could reduce
our ability to provide our revenue-generating services and could harm our business and reputation.

The success of our on-demand web
collaboration services depends on the efficient and uninterrupted operation of our internal and outsourced computer and communications hardware, software and services. Any system failure that causes an interruption in our web collaboration services,
or a decrease in their performance, could harm our relationships with our customers and resellers. In addition, some of our communications hardware and software are hosted at third-party co-location facilities, and we rely as well on the functional
operation of connectivity infrastructure such as fiber provided by third-party service providers. These systems and operations, including those of our third-party service providers as well as those within our service delivery network, are vulnerable
to damage or interruption from human error, telecommunications failures, physical or remote break-ins, physical damage to fiber lines or other third-party service provider infrastructure, sabotage, computer viruses and intentional acts of vandalism.
In addition, third-party co-location facilities may discontinue their operations due to poor business performance. Because a substantial part of our central computer and communications hardware and network operations are located in the San Francisco
Bay Area, an earthquake or other natural disaster, or a loss of electrical power to our Bay Area computer and communications hardware and network operations for a sustained period of time, could impair the performance of our entire network. In the
event of damage to or interruption of our internal or outsourced systems, if we are unable to implement our disaster recovery plans or our efforts to restore our services to normal levels in a timely manner are not successful, our business would be
harmed. In addition, business interruption insurance may not adequately compensate us for losses that may occur, which would harm our business.

We might have liability for content or information transmitted through our services.

Claims may be asserted against us for
defamation, negligence, copyright, patent or trademark infringement and other legal theories based on the nature and content of the materials transmitted through our web collaboration services. Defending against such claims could be expensive, could
be time-consuming and could divert managements attention away from running our business. In addition, any imposition of liability could harm our reputation, could harm our business and operating results, or could result in the imposition of
criminal penalties.

Our success depends upon the patent protection of our software and technology.

Our success and ability to compete depend to a significant degree upon the protection of our underlying software and our proprietary technology through
patents. We regard the effective protection of patentable inventions as important to our future opportunities. We currently have 29 issued patents. Our patents are in several areas including peer-to-peer connections to facilitate conferencing,
document annotation, optimizing data transfer, graphical user interface for extracting video presentations, and remote collaboration systems involving multiple computers. We currently have over 65 patent applications pending in the United States
Patent Office. We may seek additional patents in the future. Our current patent applications cover different aspects of the technology used to deliver our services and are important to our ability to compete. However, it is possible that:



| |  |  | any patents acquired by or issued to us may not be broad enough to protect us;
| | - |  | ------------------------------------------------------------------------------



| |  |  | any issued patent could be successfully challenged by one or more third parties, which could result in our loss of the right to prevent others from exploiting the inventions claimed
in those patents and subjecting us to claims for seeking to enforce such patents;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | current and future competitors may independently develop similar technology, duplicate our services or design around any of our patents;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our pending patent applications may not result in the issuance of patents; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | effective patent protection, including effective legal-enforcement mechanisms against those who violate our patent-related assets, may not be available in every country in which we
do business.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We also rely upon trademarks, copyrights and trade secrets to protect our technology, which may not be
sufficient to protect our intellectual property.

We also rely on a combination of laws, such as copyright, trademark and trade secret
laws, and contractual restrictions such as confidentiality agreements and licenses, to establish and protect our technology. Also, our software is automatically protected by copyright law. These forms of intellectual property protection are
critically important to our ability to establish and maintain our competitive position. However,



| |  |  | third parties may infringe or misappropriate our trademarks such as our registered Meeting Center trademark which is currently being used by at least one competitor that believes
our trademark to be invalid, and may also infringe our copyrights and similar proprietary rights;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | laws and contractual restrictions, particularly those existing within or applied within non-U.S. jurisdictions such as China, may not be sufficient to prevent misappropriation of
our technology or to deter others from developing similar technologies;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | effective trademark, copyright and trade secret protection, including effective legal-enforcement mechanisms against those who violate our trademark, copyright or trade secret
assets, may be unavailable or limited in foreign countries;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other companies may claim common law trademark rights based upon state or foreign laws that precede the federal registration of our marks; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | policing unauthorized use of our services and trademarks is difficult, expensive and time-consuming, and we may be unable to determine the extent of any unauthorized use.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Reverse engineering, unauthorized copying or other misappropriation of our proprietary technology could enable third parties
to benefit from our technology without paying us for it, which would significantly harm our business.

We may face intellectual property
infringement claims that could be costly to defend and result in our loss of significant rights.

We may be subject to legal proceedings
and claims, including claims of alleged infringement of the copyrights, trademarks and patents of third parties. Our services may infringe issued patents. The holders of such patents could initiate infringement claims against us. Also, in response
to an infringement action brought by us, the defendant in such action could file counterclaims against us in the same proceeding or file a separate action against us in a different court. For example, in March 2006 a lawsuit was filed in U.S.
federal district court by Automated Business Companies against a number of companies, including us, alleging that the defendants services infringe three of plaintiffs patents. Future intellectual property dispute proceedings such as the
Automated Business Companies action can be expensive, time-consuming and may divert management attention and engineering resources from their other responsibilities.

In addition, we may be unaware of filed patent applications which have not yet been made public and which relate to our services. From time to time, we have received notices alleging that we infringe intellectual
property rights of third parties. In such cases, we investigate the relevant facts, respond to the allegations and, where the facts, applicable law, and other conditions warrant, consider settlement options. Intellectual property claims that may be
asserted against us in the future could result in litigation. Intellectual property litigation is expensive and time-consuming and could divert managements attention away from running our business. Intellectual property litigation could also
require us to develop non-infringing technology or enter into royalty or license agreements. These royalty or license agreements, if required, may not be available on acceptable terms, if at all, in the event of a successful claim of infringement.
Our failure or inability to develop non-infringing technology or license proprietary rights on a timely basis would harm our business.

We may engage in future acquisitions or investments that could dilute the ownership of our existing stockholders, cause us to incur significant expenses, fail to complement our existing revenue models or harm our operating results.

We may acquire or invest in complementary businesses, technologies or services. For example, in September 2005 we acquired Intranets, a
company which provides web-based collaborative application services primarily to small businesses. We have changed the name of this subsidiary to WebExOne, Inc., and the various collaboration services are now marketed and sold under the brand name
WebEx WebOffice. Operating and integrating newly-acquired businesses, employees, technologies or services may be expensive and time-consuming. We may be unable to operate any acquired businesses profitably, successfully integrate the



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employees, technology, products or services of any acquired businesses into our existing business, or achieve
post-integration financial targets established for specific acquisitions. To illustrate, we could fail to successfully manage the newly-acquired WebExOne portion of our business, including such key areas as WebExOne sales activity, WebExOne employee
motivation and retention including key WebExOne executives, and the WebExOne service delivery infrastructure. Also, we face possible future integration-related risks such as those associated with transferring the WebExOne billing and service
delivery infrastructure from its current platform to our proprietary MediaTone platform. Expenses associated with, and diverted WebEx employee time and energy required in connection with, the integration of a newly-acquired business such as WebExOne
could further harm our operating results. More generally, if we are unable to operate and integrate any newly acquired entities or technologies effectively, including those related to our acquisition of the former Intranets entity now renamed
WebExOne, our operating results could suffer. Future acquisitions by us, or deterioration of the businesses we have acquired, could also result in large and immediate write-downs, or incurrence of debt and contingent liabilities, any of which would
harm our financial performance.

We must compete successfully in the web collaboration services market.

The market for collaboration software and services is intensely competitive, subject to rapid change and is significantly affected by new product and
service introductions and other market activities of industry participants. Although we do not currently compete against any one entity with respect to all aspects of our services, we do compete with various companies in regards to specific elements
of our on-demand web collaboration services. For example, we compete with providers of traditional communications technologies such as teleconferencing and videoconferencing, application software and tools companies including online application
services providers, and web conferencing products and services from vendors such as Adobe Systems, Cisco Systems, Citrix Systems, Genesys, IBM, Microsoft, Netviewer, NTR, Oracle, PC Visit and Saba.

In addition to the above competitors, certain of our resellers offer competitive web conferencing, web application and other web collaboration services.
One of our key resellers, Intercall, is a subsidiary of West Corporation which in April 2006 acquired our competitor Raindance. As a result of its acquisition of Raindance, Intercall could choose to increase its emphasis on offerings competitive
with ours, or cease to offer some or all of our offerings, or both.

Other companies could choose to extend their products and services to
include competitive interactive communication offerings in the future. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical and other resources and greater name recognition than we
do. Our current and future competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements. In addition, current and potential competitors have established, and may in the future establish,
cooperative relationships with third parties and with each other to increase the availability of their products and services in the marketplace. Competitive pressures could reduce our market share or require us to reduce the price of our services,
either of which could harm our business and operating results. For example, we offer VOIP to customers seeking that option for the audio portion of their web conferencing service activity, which puts us in competition with increasing numbers of low
cost providers of VOIP products and services of ever-increasing quality. One or more of these competitors may offer a sufficiently low-cost, feature-attractive, audio-centric VOIP offering that, though not a web conferencing offering, might divert
business away from us, or one or more of these competitors might themselves leverage their experience in the VOIP segment of web communications to develop and market a web conferencing or web application product or service of their own. Finally, our
revenues and market share could also be reduced if, during this time period where the market is still relatively new and competitors are still emerging, we do not capitalize on our current market leadership by timely developing and executing
corporate strategies that will increase the likelihood that our services will be accepted as the market standard in preference to the offerings of our current and future competitors.

Competition from Microsoft in the collaboration software and services markets, from other vendors specifically targeted at the low-end market, or
customers offering customer-premises products may adversely affect our operating results.

Competition from Microsoft in the
collaboration software and services markets may adversely affect us. Microsoft since 2003 has had a product offering which is competitive with ours and which is called Microsoft Office Live Meeting. Microsoft in March 2005 announced the certain
improvements to the Live Meeting service and other product developments. Microsoft has also announced its new Office Live offering, which it described as a set of Internet-based software services. Microsoft is currently offering a free
beta, or pre-commercial release, version of Office Live. Microsofts investment of development and marketing resources in products or services that compete directly with us and Microsofts integration of competitive
technologies from other companies may have an adverse impact on our business. More generally, Microsoft may attempt to leverage its dominant market position in the



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operating system, productivity application or browser markets, through technical integration or bundled offerings, to
expand further its presence in these web collaboration markets. This expanded Microsoft presence in web collaboration markets could make it difficult for other vendors of web collaboration products and services, such as WebEx, to compete.

In addition, some competitors offer web collaboration products and services targeted at customers who are more price-conscious and are
less concerned about functionality, scalability, integration and security features. Such offerings may make it more difficult for us to compete in that segment of the market and may cause some of our existing customers to switch to these
competitors. In 2005, we introduced new services with lower entry prices that enable us to compete more effectively with such offerings. If our industry were to experience a general decline in prices and there were not a sufficient increase in
volume to compensate for the price reductions, we might be forced to change the extent and type of resources we deploy in the selling of our services in an effort to maintain operating margins. Such forced price reductions, as well as costs or lost
sales associated with a transitioning to different sales practices, could have a negative effect on our operating results.

Finally, some
of our competitors such as IBM and Cisco Systems offer software products or products that are a combination of software and hardware that include web collaborations functionality. This type of web collaboration offering, sometimes called a customer
premise or on-premise solution, allows customers to purchase such products, install them at their own facilities, and manage the products by themselves. If significant numbers of existing or potential customers determine that they would prefer to
have their basic web conferencing or more advanced web collaboration needs met with these types of products, demand for WebEx services may decrease.

Our future success depends on the broad market adoption and acceptance of web collaboration services.

The market for web collaboration services is relatively new and rapidly evolving. Growth in market demand for collaboration services over the Web is uncertain. If the market for web collaboration services does not continue to grow, our
business and operating results will be harmed. Factors that might influence broad market acceptance of our services include the following, all of which are beyond our control:



| |  |  | willingness of businesses and end-users to use web collaboration services;
| | - |  | --------------------------------------------------------------------------



| |  |  | the continued growth and viability of the Web as an instrument of commerce;
| | - |  | ---------------------------------------------------------------------------



| |  |  | the willingness of our resellers to integrate web collaboration services in their service offerings; and
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the ongoing level of security and reliability for conducting business over the Web.
| | - |  | -----------------------------------------------------------------------------------

We face risks associated with government regulation of the Internet, and related legal uncertainties.

Currently, a relatively small number of existing laws or regulations specifically apply to the Internet, other than laws generally applicable to businesses. Many Internet-related laws and regulations, however, are pending and may be adopted
in the United States, in individual states, in local jurisdictions, and in other countries. These laws may relate to many areas that impact our business, including encryption, network and information security, the convergence of traditional
communication services, such as telephone services, with Internet communications, taxes and wireless networks. For example, media reports have surfaced from time to time concerning possible future regulation, and perhaps also taxation, of VOIP
products and services similar to the manner in which current telephony services are currently regulated and taxed. These types of regulations could differ between countries and other political and geographic divisions both inside and outside the
United States. Non-U.S. countries and political organizations may impose, or favor, more and different regulation than that which has been proposed in the United States, thus furthering the complexity of regulation. In addition, state and local
governments within the United States may impose regulations in addition to, inconsistent with, or stricter than federal regulations. The adoption of such laws or regulations, and uncertainties associated with their validity, interpretation,
applicability and enforcement, may affect the available distribution channels for, and the costs associated with, our products and services. The adoption of such laws and regulations may harm our business.

In addition to the effect of such potential future laws and regulations, existing laws and regulations in both domestic and non-U.S. jurisdictions could
be interpreted to apply to our web collaboration business, in which case our regulatory compliance obligations and associated financial burdens could increase. An example of a non-U.S. law or regulation that we are expending resources, both



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infrastructure-related and legal-related, to comply with are the various privacy statutes enacted by the European Union.
Examples of U.S. laws and regulations that we may have to expend greater resources to comply with are various U.S. state sales tax laws and regulations that may be held by the applicable authorities to apply to the sale of our web collaboration
services.

We have not generally collected sales tax from customers in the United States, and we believe that the services we provide are
generally exempt from sales tax. From time to time, states have initiated, and may initiate in the future, audits or inquiries with respect to sales, use or income taxes. For example, during the third quarter of 2006, we reached informal
resolution of sales tax audits with two states, one verbal and one written, in which the states concluded that our services are exempt from sales tax. In addition, during the third quarter of 2006 we settled a use tax assessment with a city in which
we have data center facilities. Despite the results of these particular audits, federal or state tax authorities could still assert that we are obligated to collect such taxes from our customers and remit those taxes to those authorities. The
collection and remittance of such taxes could increase the cost of our services and harm our operating results. In addition, such authorities may seek to collect sales taxes for sales of services by us that occurred in the past. If such a claim
were to be asserted against us and if we were unable to collect such taxes from our customers, we may be required to pay such back taxes and any associated interest and penalties, which would increase our costs and harm our operating results.

Current and future economic and political conditions may adversely affect our business.

Current economic and political conditions, including the effects of the war in Iraq, uncertainty about Iraqs political future, continuing tensions
throughout the Middle East and the supply and price of petroleum products continue to impact the U.S. and global economy, and any negative development in one of these geopolitical areas could cause significant worldwide economic harm. The sustained
price of petroleum products at or above present levels may negatively impact the U.S. and world economies generally, which in turn could hurt our business. Any significant downturn in the U.S. economy, whether due to the effect of increasing
interest rates or otherwise, could cause existing or potential customers to decide not to purchase our services, which in turn would hurt our business. To the extent that changes in laws, regulations or taxes in the U.S. diminish the economic
benefits of arrangements by U.S. companies with non-U.S. subsidiaries or suppliers, our business would be adversely affected. As with our operations in China, our operations in India could be significantly disrupted if U.S. relations with India
deteriorate, or if India becomes involved in armed conflict or otherwise becomes politically destabilized. Moreover, depending on severity, a significant terrorist attack anywhere in the world and particularly one within the United States could have
a significantly negative effect on both the domestic and global economies. If economic conditions worsen as a result of economic, political or social turmoil or military conflict, or if there are further terrorist attacks in the United States or
elsewhere, our customers may not be able to pay for our services and our resellers may cease operations, which may harm our operating results.

We face risks associated with potential future zoning activity relating to our Mountain View network operations center property.

We own real property in Mountain View, California on which resides a building that serves as one of our primary network operations center facilities. The Mountain View City Council is currently considering a proposal to rezone the area
surrounding our facility from industrial to residential use. If such rezoning, and the accompanying expansion of neighboring residential development, takes place, operations in our building could be impeded, interrupted or otherwise negatively
affected by construction activities, the new residents, or city ordinances relating to noise or other byproducts of our buildings operations. Because of such negative circumstances, we might be forced to re-locate to a less suitable and
perhaps more expensive site for our network operations facility, which would negatively affect our business. Having to invest additional resources and management time in the locating and fitting of the alternative network operations site would
further hurt our business.

New Financial Accounting Standards Board (FASB) rules relating to equity-compensation programs, changes we
are making in our equity compensation programs in response to the new rules, will significantly affect our results of operations.

The
Financial Accounting Standards Board (FASB) has adopted final rules which change the way companies account for equity compensation in their financial statements. This accounting rule change requires companies to report as a compensation expense
equity compensation provided to employees, including stock options, purchases of stock at a discount pursuant to an employee stock purchase plan, and other forms of equity compensation. The new accounting rule has had a negative effect on our
reported net income, due to our past extensive use of stock option and employee stock purchase plan awards, and also affects our reported amounts for pre-tax expense, tax rate, cash flow from operations and diluted shares outstanding.



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The new FASB rule has added, and we believe will continue to add, complexity and uncertainty to our
management of employee compensation practices, and for the foreseeable future will continue to demand a significant amount of management attention. On the one hand, if our policy of reduced equity compensation, or our plan to switch to alternative
forms of equity compensation, are objected to by sufficient percentages of existing or potential future employees, either (i) we may be forced to increase cash compensation to make up for such reduced and modified stock-based compensation
opportunities, which would increase our expenses, or (ii) we risk losing, or being unable to recruit, key personnel because our new equity compensation packages may not be deemed competitive in the technology company labor marketplace, which
would hurt our business. In particular, the equity compensation packages offered by private companiesthat is, companies whose securities are not publicly tradedcould look appreciably more attractive to current or potential employees if
we reduce our equity compensation packages too much. On the other hand, if in implementing these new equity issuance practices we are too liberal in the amount of equity compensation that we grant through new forms of equity instruments, whether
because of the demands of the technology labor market, miscalculation of the effects of the new forms of equity grants on our compensation expense or otherwise, our compensation expense will increase appreciably and our results of operations may be
further negatively affected.

While we believe that we currently have adequate internal controls over financial
reporting, we are exposed to risks and increased expense from recent legislation requiring companies to evaluate those internal controls.

Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to report on, and our independent auditors to attest to, the effectiveness of our internal control structure and procedures for financial reporting. We completed an
evaluation of the effectiveness of our internal controls for the fiscal year ended December 31, 2005, and we have an ongoing program to perform the system and process evaluation and testing supporting our legal obligation to comply with these
requirements. Our business continues to expand in size and complexity, and accordingly in 2006 we expect to incur increased expense, relative to our expenditures in 2005, and to devote additional management resources to comply with Section 404.
Any additional acquisitions we may pursue and complete will increase our Section 404-related expenses, compliance activities and resource allocation. In the event that our chief executive officer, chief financial officer or independent
registered public accounting firm determine that our internal controls over financial reporting are not effective as defined under Section 404, investor perceptions of our company may be adversely affected and could cause a decline in the
market price of our stock, and we could experience further increases in expenses and redirection of management resources in order to remedy such ineffective internal controls.

Our stock price has been and will likely continue to be volatile because of stock market fluctuations that affect the prices of technology stocks. A
decline in our stock price could result in securities class action litigation against us that could divert managements attention and harm our business.

Our stock price has been and is likely to continue to be highly volatile. For example, between July 1, 2006 and November 1, 2006, our stock price has traded as high as $40.62 on September 28, 2006, and
as low as $30.19 on July 24, 2006. Our stock price could fluctuate significantly due to a number of factors, including:



| |  |  | variations in our actual or anticipated operating results;
| | - |  | ----------------------------------------------------------



| |  |  | sales of substantial amounts of our stock;
| | - |  | ------------------------------------------



| |  |  | announcements by or about us or our competitors, including technological innovation, new products, services or acquisitions;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | litigation and other developments relating to our patents or other proprietary rights or those of our competitors;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | conditions in the Internet industry;
| | - |  | ------------------------------------



| |  |  | changes in laws, regulations, rules or standards by governments, regulatory bodies, exchanges or standards bodies; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | changes in securities analysts estimates of our performance, or our failure to meet analysts expectations.
| | - |  | ------------------------------------------------------------------------------------------------------------

Many of these factors are beyond our control. In addition, the stock markets in general, and the Nasdaq National Market and the market for Internet
technology companies in particular, continue to experience significant price and volume fluctuations. These



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fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad
market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. In the past, companies that have experienced volatility in the market prices of their stock have been the objects of
securities class action litigation. If we were to be the object of securities class action litigation, we could face substantial costs and a diversion of managements attention and resources, which could harm our business.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

(c)
Issuer Purchases of Equity Securities.

The WebEx Board of Directors on July 31, 2006 approved a new repurchase program authorizing
the repurchase of, at the discretion of WebEx management, up to $40,000,000 of the Companys common stock through December 31, 2007. During the quarter ended September 30, 2006, we did not make any repurchases under this repurchase
program, nor did we make any other repurchases of our equity securities.

Item 5. Other Information

Stockholder Proposals for 2007 Annual Meeting. To be considered for
inclusion in the Companys proxy statement and form of proxy for its 2007 Annual Meeting of Stockholders, a stockholder proposal must be received at the principal executive offices of the Company not later than December 5, 2006.

A stockholder proposal not included in the Companys proxy statement for the 2007 Annual Meeting will be ineligible for presentation
at the meeting unless the stockholder gives timely notice of the proposal in writing to the Secretary of the Company at the principal executive offices of the Company and otherwise complies with the provisions of the Companys Bylaws. To be
timely, the Companys Bylaws provide that the Company must have received the stockholders notice not less than 50 days nor more than 75 days prior to the scheduled date of such meeting. However, if notice or prior public disclosure of the
date of the annual meeting is given or made to stockholders less than 65 days prior to the meeting date, the Company must receive the stockholders notice by the earlier of (i) the close of business on the 15thday after the earlier of the day the Company mailed notice of the annual meeting date or provided such public disclosure of
the meeting date and (ii) two days prior to the scheduled date of the annual meeting. For the Companys 2007 Annual Meeting of Stockholders, which is scheduled to be held on May 7, 2007, stockholders must submit written notice to the
Secretary in accordance with the foregoing Bylaw provisions no later than March 18, 2007 but not prior to February 21, 2007.

Item 6.Exhibits

Exhibits:



|               |  |                                                                                                                                                  
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                      
|3.1*           |  | Amended and Restated Certificate of Incorporation                                                                                                
|               | 
|3.2**          |  | Amended and Restated Bylaws                                                                                                                      
|               | 
|4.1*           |  | Form of Common Stock Certificate                                                                                                                 
|               | 
|31.1           |  | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)                                                                
|               | 
|31.2           |  | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)                                                                
|               | 
|32.1+          |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002
|               | 
|32.2+          |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002

---

|* | Incorporated by reference from Exhibits 3.3 and 4.1 of Amendment No. 1 to the Registrants Registration Statement on Form S-1 (File No. 333-33716) filed with the
Securities and Exchange Commission on June 21, 2000.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|** | Incorporated by reference from Exhibit 3.2 of Registrants Annual Report on Form 10-K (File No. 0-30849) for the fiscal year ended December 31, 2000 filed with the
Securities and Exchange Commission on April 2, 2001.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|+ | The certifications filed as Exhibits 32.1 and
32.2 are not deemed filed for purpose of Section 18 of the Exchange Act and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
before or after the date hereof irrespective of any general incorporation language contained in any such filing, except to the extent that the registrant specifically incorporates it by reference.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  |                            |  |                                                           
|---------------------- |  | -------------------------- |  | ----------------------------------------------------------
|                       |  | WEBEX COMMUNICATIONS, INC.
|                       |  |                           
|Date: November 8, 2006 |  | By:                        |  | /s/ MICHAEL T. EVERETT                                    
|                       |  |                            |  | Michael T. Everett                                        
|                       |  |                            |  | Chief Financial Officer                                   
|                       |  |                            |  | (Duly Authorized Officer and Principal Financial Officer) 
|                       |  |                           
|                       |  | By:                        |  | /s/ KELLY STECKELBERG                                     
|                       |  |                            |  | Kelly Steckelberg                                         
|                       |  |                            |  | Vice President, Finance and Controller                    
|                       |  |                            |  | (Duly Authorized Officer and Principal Accounting Officer)



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EXHIBIT INDEX



|               |  |                                                                                                                                                  
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                      
|3.1*           |  | Amended and Restated Certificate of Incorporation                                                                                                
|               | 
|3.2**          |  | Amended and Restated Bylaws                                                                                                                      
|               | 
|4.1*           |  | Form of Common Stock Certificate                                                                                                                 
|               | 
|31.1           |  | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)                                                                
|               | 
|31.2           |  | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)                                                                
|               | 
|32.1+          |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002
|               | 
|32.2+          |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002

---

|* | Incorporated by reference from Exhibits 3.3 and 4.1 of Amendment No. 1 to the Registrants Registration Statement on Form S-1 (File No. 333-33716) filed with the
Securities and Exchange Commission on September 21, 2000.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Incorporated by reference from Exhibit 3.2 of Registrants Annual Report on Form 10-K (File No. 0-30849) for the fiscal year ended December 31, 2000 filed with the
Securities and Exchange Commission on April 2, 2001.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|+ | The certifications filed as Exhibits 32.1 and
32.2 are not deemed filed for purpose of Section 18 of the Exchange Act and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
before or after the date hereof irrespective of any general incorporation language contained in any such filing, except to the extent that the registrant specifically incorporates it by reference.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



53