FDRY Foundry Networks (MM)

SAN JOSE, Calif., April 20 /PRNewswire-FirstCall/ -- Foundry Networks(TM), Inc. (NASDAQ:FDRY), today reported financial results for its first quarter ended March 31, 2006. Foundry's revenue for the first quarter of 2006 was $114.0 million, up 35% from $84.6 million in the first quarter of 2005, and slightly lower compared to $116.1 million in the fourth quarter of 2005. Net income was $11.4 million or $0.08 per diluted share, compared to net income of $9.9 million, or $0.07 per diluted share in the first quarter of 2005, and net income of $20.6 million, or $0.14 per diluted share in the fourth quarter of 2005. Included in Foundry's results for the first quarter of 2006 was $9.0 million of non-cash stock-based compensation expense as a result of our adoption of SFAS 123R on January 1, 2006. Net income in the first quarter and fourth quarter of 2005 did not include stock-based compensation expense. Excluding this non-cash stock-based compensation expense and the related tax effect, non-GAAP net income in the first quarter of 2006 was $17.4 million and earnings per diluted share were $0.12 per share. Please refer to the table below for a reconciliation of GAAP to non-GAAP net income. Foundry's first quarter results reflect typical seasonal patterns. Activity from Foundry's Japanese and European customers increased modestly from the fourth quarter while the U.S. Federal Government vertical market declined slightly, representing approximately 19% of Foundry's total net revenue in the first quarter of 2006. "We are excited about our strong start in 2006," said Bobby Johnson, President and CEO of Foundry Networks. "The seasonally slow business trend we typically experience in the first quarter was mitigated by increased sales of our newly introduced products, as well as improved productivity of our recent sales force additions. "Sales of our XMR MPLS router, having completed a full quarter of revenue shipments in the March period, as well as our newest Metro router, the MLX which began shipping for revenue in February 2006, had good initial demand from service providers and large enterprise customers. In addition, our BigIron RX family of Layer 2/3 switches continued to increase in both the enterprise and service provider markets and we began revenue shipments of our Layer 4-7 traffic management SSL and security products. Outlook "Looking ahead, we plan to introduce several significant new platforms addressing both enterprise and service provider markets in the second quarter of 2006. Given current capital expenditure trends that we have seen within large enterprise and service provider accounts, we believe that as our product portfolio continues to expand, Foundry will be well positioned for continued growth in 2006," concluded Johnson. Conference Call Foundry Networks will host a conference call today to further discuss these results at 2:00 p.m. Pacific Time. The call can be accessed via a webcast at http://www.foundrynetworks.com/. A Web replay will also be available for approximately 90 days at this same Web address. About Foundry Networks Foundry Networks, Inc. is a leading provider of high-performance enterprise and service provider switching, routing, security and Web traffic management solutions including Layer 2/3 LAN switches, Layer 3 Backbone switches, Layer 4-7 application switches, wireless LAN and access points, access routers and Metro routers. Foundry's 9,700 customers include the world's premier ISPs, Metro service providers, and enterprises including e-commerce sites, universities, entertainment, health and wellness, government, financial, and manufacturing companies. For more information about Foundry and its products, call 1-888-TURBOLAN or visit http://www.foundrynetworks.com/. Safe Harbor Statement This release includes non-GAAP measures which are not in accordance with generally accepted accounting principles. In the first quarter of 2006, Foundry adopted Financial Accounting Standards Board Statement No. 123R,or SFAS 123R, which requires companies to recognize the compensation cost associated with stock-based awards in their financial statements. As a result, our financial statements for the first quarter of 2006 include stock-based compensation expense, but our financial results for the first quarter of 2005 do not include stock-based compensation expense because periods prior to January 1, 2006 are not required to be restated. Foundry has provided the non-GAAP financial information below, which is adjusted to exclude stock-based compensation expense, as well as a reconciliation of GAAP net income to non-GAAP net income. As Foundry begins to apply SFAS 123R, it believes that it is useful to investors to understand how the expenses associated with the application of SFAS 123R are reflected on its statements of operations. For its internal budgets, Foundry's management uses financial statements that do not include stock-based compensation expense related to its stock-based awards. Foundry's management also uses these non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Foundry. The non-GAAP information should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and is subject to the safe harbor created by that section. These forward-looking statements include, without limitation, the statement that our new products will enable continued growth. Other forward-looking statements include statements by Mr. Johnson regarding upcoming new products, capital expenditure trends, and Foundry's positioning for continued growth as a result of its expanding product portfolio. The forward-looking statements in this press release are only predictions and are subject to a number of risks and uncertainties which could cause actual results to differ materially, including, without limitation, the difficulty of predicting quarterly financial results, our dependence on large purchases of products from certain customers/resellers, the staging and amounts of U.S. government contract awards, risks associated with international sales, results of ongoing litigation, the strength of the overall economy and the high-technology market in particular, competition, product development efforts, acceptance of Foundry's current and future products, and other factors listed in Foundry's most recent reports on Form 10-K, 10-Q, and 8-K. Actual results could differ materially from those projected in our forward-looking statements. Foundry's results of operations for the three months ended March 31, 2006 are not necessarily indicative of Foundry's operating results for any future periods. Investors should review the risk factors described in more detail in our most recent Annual Report on Form 10-K, 10-Q and other SEC reports available free of charge from Foundry at http://www.foundrynetworks.com/ or from the SEC at http://www.sec.gov/. Any projections in this release are based on limited information currently available to Foundry. Foundry assumes no obligation to update the forward-looking statements contained in this press release. FOUNDRY NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share data) Three Months Ended March 31, 2006 2005 Net revenues: Product $96,063 $68,432 Service 17,938 16,204 Total net revenues 114,001 84,636 Cost of revenues: Product 42,151 28,622 Service 2,287 3,313 Total cost of revenues* 44,438 31,935 Gross profit 69,563 52,701 Operating expenses: Research and development 16,887 12,427 Sales and marketing 30,505 24,582 General and administrative 10,558 5,163 Total operating expenses* 57,950 42,172 Income from operations 11,613 10,529 Interest and other income, net 6,947 3,873 Income before provision for income taxes 18,560 14,402 Provision for income taxes 7,160 4,465 Net income $11,400 $9,937 Basic net income per share $0.08 $0.07 Weighted average shares used in computing basic net income per share 142,477 137,908 Diluted net income per share $0.08 $0.07 Weighted average shares used in computing diluted net income per share 149,208 141,758 * Includes stock-based compensation by category: Cost of product revenue $228 $-- Cost of service revenue 331 -- Research and development 2,784 -- Sales and marketing 3,890 -- General and administrative 1,759 -- $8,992 $-- FOUNDRY NETWORKS, INC. RECONCILIATION OF GAAP TO NON-GAAP NET INCOME (unaudited) (in thousands, except per share data) Three Months Ended March 31, 2006 2005 GAAP net income $11,400 $9,937 Adjustments: Stock-based compensation 8,992 -- Income tax effect (2,979) -- Non-GAAP net income $17,413 $9,937 Non-GAAP net income per share - basic $0.12 $0.07 Non-GAAP net income per share - diluted $0.12 $0.07 Shares used in per share calculation-basic 142,477 137,908 Shares used in per share calculation-diluted 149,208 141,758 FOUNDRY NETWORKS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) March 31, December 31, 2006 2005 (unaudited) (2) ASSETS Assets: Cash and investments (1) $789,614 $746,367 Accounts receivable, net 84,208 78,351 Inventories 36,051 32,309 Prepaid expenses and other current assets 12,132 7,824 Deferred tax assets 42,101 39,619 Property and equipment, net 11,283 10,986 Other long-term assets 5,976 6,468 $981,365 $921,924 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $23,392 $22,307 Accrued payroll and related expenses 17,131 23,410 Other accrued expenses 13,581 9,545 Income taxes payable 6,887 10,161 Deferred support revenue 46,268 38,653 Total current liabilities 107,259 104,076 Deferred support revenue 22,707 21,828 Stockholders' equity 851,399 796,020 $981,365 $921,924 (1) Includes $176.9 million and $174.0 million of long-term marketable securities at March 31, 2006 and December 31, 2005, respectively. (2) Derived from audited condensed consolidated financial statements as of December 31, 2005. FOUNDRY NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Three Months Ended March 31, 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $11,400 $9,937 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,617 1,948 Stock-based compensation 8,992 -- Inventory provisions 2,733 5,404 Deferred tax assets (2,482) 57 Tax benefit from stock option exercises 3,946 1,081 Changes in operating assets and liabilities: Accounts receivable (5,857) 25,240 Inventories (6,279) (7,647) Prepaid expenses and other assets (4,274) (294) Accounts payable 1,085 (1,072) Accrued payroll and related expenses (6,279) (8,031) Income taxes payable (3,274) 7,903 Other accrued expenses 4,036 (499) Deferred support revenue 8,494 (2,176) Net cash provided by operating activities 14,858 31,851 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available-for-sale investments (19,050) (38,350) Sales of available-for-sale investments 46,050 75,200 Purchases of held-to-maturity investments (188,610) (61,657) Maturities of held-to-maturity investments 38,238 2,999 Purchases of property and equipment, net (2,456) (1,325) Net cash used in investing activities (125,828) (23,133) CASH FLOWS FROM FINANCING ACTIVITIES: Excess tax benefit from stock-based compensation 4,235 -- Issuances of common stock under employee stock plans 26,692 8,429 Net cash provided by financing activities 30,927 8,429 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (80,043) 17,147 Effect of exchange rate changes on cash (82) 130 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 291,511 112,274 CASH AND CASH EQUIVALENTS, END OF PERIOD $211,386 $129,551 SUPPLEMENTAL CASH FLOW INFORMATION; Cash (paid for) refund from income taxes, net ($4,740) $4,919 DATASOURCE: Foundry Networks, Inc. CONTACT: Tim Heffner, Chief Financial Officer, +1-408-207-1700, or , or Michael Iburg, Treasurer, +1-408-207-1305, or , both of Foundry Networks, Inc.; or investors, Jason Golz of Financial Dynamics, +1-415-439-4532, or , for Foundry Networks Web site: http://www.foundrynetworks.com/

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