EX-99.1 2 f42308exv99w1.htm EXHIBIT 99.1 exv99w1
Exhibit 99.1
(FOUNDRY NETWORKS LOGO)
Contacts:
         
Foundry Networks
  Foundry Networks   FD
Chief Financial Officer
  Treasurer   Investor Relations
Dan Fairfax
  Michael Iburg   Brendan Lahiff
408.207.1700
  408.207.1305   415.293.4425
dfairfax@foundrynet.com
  miburg@foundrynet.com   brendan.lahiff@fd.com
FOUNDRY NETWORKS REPORTS SECOND QUARTER
2008 RESULTS
~ Company Delivers 12% Year Over Year Revenue Growth ~
     Santa Clara, CA – July 21, 2008 — Foundry NetworksÔ, Inc. (Nasdaq: FDRY), a performance and total solutions leader for end-to-end switching and routing, today announced financial results for its second quarter ended June 30, 2008.
     Foundry’s revenue for the second quarter of 2008 was $160.7 million, compared to $143.2 million in the second quarter of 2007, and compared to $150.1 million in the first quarter of 2008, an increase of 12% and 7% respectively. Net income was $18.3 million or $0.12 per diluted share, compared to net income of $15.6 million, or $0.10 per diluted share in the second quarter of 2007, and net income of $13.9 million, or $0.09 per diluted share in the first quarter of 2008.
     Revenue for the first six months of 2008 was $310.7 million, compared to $279.1 million for the first six months of 2007, an increase of 11%. Net income for the first six months of 2008 was $32.2 million, or $0.21 per diluted share, compared to net income of $24.7 million, or $0.16 per diluted share, for the same period in 2007.
     Included in Foundry’s results for the second quarter of 2008 was $11.2 million of non-cash stock-based compensation expense. Excluding these expenses and the related tax effect, non-GAAP net income in the second quarter of 2008 was $25.3 million and

 


 

non-GAAP net income per diluted share was $0.17 per share. Please refer to the table below for a reconciliation of GAAP to non-GAAP net income.
     In the second quarter of 2008, North American non-Federal commercial revenue represented 58.2% of total revenue; a record for the segment, primarily due to increased revenue from service provider customers. Sales to Europe, the Middle East and Africa (EMEA) represented 14.8% of total revenue and were essentially flat in absolute dollars from the first quarter of 2008. Sales to Japan represented 3.1% of total revenue while the rest of Asia represented 6.6%. Sales to the U.S. Federal Government represented approximately 17.3% of total sales.
     The Company’s cash and investments balance was $950.1 million in the second quarter of 2008. During the quarter, the Company spent $15.7 million repurchasing 1.2 million shares of Foundry common stock at an average price of $12.84 per share. To date, the Company has spent $158.7 million to repurchase 10.0 million shares of Foundry common stock at an average price of $15.82 per share.
   Quarterly Highlights
    Revenue breakdown: US Commercial = 58.2%, Federal = 17.3%, EMEA = 14.8%, Japan = 3.1%, Rest of Asia = 6.6%
 
    Technology breakdown: Layer 2/3 Switching = 50.7%, Internet & Metro Routers = 24.8%, Layer 4-7 = 8.6%, Support = 15.9%
 
    Chassis revenue = 71.7%, stackable revenue = 28.3%
 
    Enterprise revenue = 73.0%, service provider = 27.0%
 
    Total headcount as of June 30, 2008 = 1,068
 
    DSO = 63 days
 
    Book-to-bill was greater than one
 
    Gross margin improvement driven primarily by stable pricing and cost reduction

 


 

About Non-GAAP Financial Measures
Foundry uses non-GAAP net income and non-GAAP net income per share for internal planning purposes, to assess the results of its business on an ongoing basis, to determine management compensation, and for the convenience of analysts and investors. These measures are not in accordance with, or an alternative to, similarly-named measures under GAAP. The measures are intended to supplement GAAP financial information, and may be different from non-GAAP financial measures used by other companies. Foundry believes these measures provide useful information to its management, board of directors and investors regarding Foundry’s performance when used in conjunction with GAAP information. Foundry believes it is useful to investors to receive information about how items in the statement of operations are affected by stock-based compensation, litigation settlement charges, the expenses related to the stock option investigation and restatement of the Company’s consolidated financial statements and the related income tax effect. Stock-based compensation expense consists of expenses recorded under SFAS 123(R), “Share-Based Payment,” in connection with awards granted under the Company’s equity incentive plans and shares issued pursuant to the Company’s employee stock purchase plan. The Company excludes stock-based compensation expense from non-GAAP financial measures because it is a non-cash measurement that does not reflect the Company’s ongoing business and because the Company believes that investors want to understand the impact on the Company of the adoption of SFAS 123(R); the Company believes that the provision of non-GAAP information that excludes stock-based compensation improves the ability of investors to compare its period-over-period operating results, as there is significant variability and unpredictability across companies with respect to this expense. The Company also excludes legal, accounting and one-time employee compensation costs related to the stock option investigation and restatement of the Company’s consolidated financial statements in addition to litigation settlement charges because these payments do not reflect the Company’s ongoing business and the exclusion of these payments improves the ability of investors to compare its period-over-period operating results. However, investors should be aware that non-GAAP measures have inherent limitations and should

 


 

be read in conjunction with our consolidated financial statements prepared in accordance with GAAP.
About Foundry Networks
     Foundry Networks, Inc. (NASDAQ: FDRY) 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, metro and core routers. Foundry’s 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 the company and its products, call 1.888.TURBOLAN or visit www.foundrynet.com.

 


 

FOUNDRY NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share data)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2008        2007        2008        2007     
Net revenue:
                               
Product
  $ 134,843     $ 120,784     $ 260,705     $ 236,002  
Service
    25,836       22,456       50,029       43,051  
 
                       
Total net revenue
    160,679       143,240       310,734       279,053  
 
                       
Cost of revenue:
                               
Product
    51,591       51,695       100,006       102,832  
Service
    7,596       5,444       15,779       10,910  
 
                       
Total cost of revenue
    59,187       57,139       115,785       113,742  
 
                       
Gross margin
    101,492       86,101       194,949       165,311  
 
                       
Operating expenses:
                               
Research and development
    21,925       17,853       43,653       39,103  
Sales and marketing
    46,391       38,470       93,527       78,560  
General and administrative
    10,205       11,771       22,044       22,704  
Other charges, net
          3,067             5,600  
 
                       
Total operating expenses
    78,521       71,161       159,224       145,967  
 
                       
Income from operations
    22,971       14,940       35,725       19,344  
Interest and other income, net
    6,428       10,514       15,728       20,897  
 
                       
Income before provision for income taxes
    29,399       25,454       51,453       40,241  
Provision for income taxes
    11,073       9,822       19,221       15,518  
 
                       
 
                               
Net income
  $ 18,326     $ 15,632     $ 32,232     $ 24,723  
 
                       
Basic net income per share
  $ 0.13     $ 0.11     $ 0.22     $ 0.17  
 
                       
Weighted average shares used in computing basic net income per share
    145,092       147,285       146,163       147,194  
 
                       
Diluted net income per share
  $ 0.12     $ 0.10     $ 0.21     $ 0.16  
 
                       
Weighted average shares used in computing diluted net income per share
    149,059       154,034       150,219       153,668  
 
                       

 


 

FOUNDRY NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
                 
    June 30,     December 31,  
    2008     2007  
    (unaudited)     (2)  
ASSETS
               
Assets:
               
Cash and investments (1)
  $ 950,119     $ 965,668  
Accounts receivable, net
    112,362       124,234  
Inventories
    49,531       42,384  
Prepaid expenses and other current assets
    14,294       12,439  
Deferred tax assets
    85,112       79,214  
Property and equipment, net
    7,616       9,658  
Other long-term assets
    5,697       5,234  
 
           
Total assets
  $ 1,224,731     $ 1,238,831  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Liabilities:
               
Accounts payable
  $ 21,627     $ 23,892  
Accrued payroll and related expenses
    40,753       50,806  
Other accrued expenses
    12,441       12,382  
Income taxes payable
    12,833       11,860  
Deferred product and support revenue
    90,368       80,767  
Other long-term liabilities
    460       475  
 
           
Total liabilities
    178,482       180,182  
 
               
Stockholders’ equity
    1,046,249       1,058,649  
 
           
Total liabilities and shareholders’ equity
  $ 1,224,731     $ 1,238,831  
 
           
 
(1)   Includes $101.3 million of long-term marketable securities at June 30, 2008 and $58.1 million at December 31, 2007.
 
(2)   Derived from audited condensed consolidated financial statements as of December 31, 2007.

 


 

FOUNDRY NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
                 
    Six Months Ended  
    June 30,  
    2008     2007  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income
  $ 32,232     $ 24,723  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    5,129       5,649  
Stock-based compensation expense
    25,159       19,515  
Provision for doubtful accounts
    89       (230 )
Provision for sales returns
    (729 )     (888 )
Inventory provisions
    4,274       3,035  
Benefit for deferred income taxes
    (5,898 )     (5,500 )
Excess tax benefits from stock-based compensation
    (555 )     (934 )
Changes in operating assets and liabilities:
               
Accounts receivable
    12,513       (12,718 )
Inventories
    (11,411 )     (10,665 )
Prepaid expenses and other assets
    (3,860 )     (6,290 )
Accounts payable
    (2,263 )     1,414  
Accrued payroll and related expenses
    (10,053 )     108  
Income taxes payable
    564       6,641  
Other accrued expenses
    43       287  
Deferred product and support revenue
    9,600       9,069  
 
           
Net cash provided by operating activities
    54,834       33,216  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Maturities and purchases of investments, net
    (64,495 )     (72,629 )
Purchases of property and equipment, net
    (1,625 )     (4,093 )
 
           
Net cash provided by (used in) investing activities
    (66,120 )     (76,722 )
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from issuances of common stock under stock plans, net of repurchases
    12,459       4,486  
Repurchase and retirement of common stock
    (75,580 )      
Excess tax benefits from stock-based compensation
    555       934  
 
           
Net cash provided by (used in) used in financing activities
    (62,566 )     5,420  
 
           
 
               
Decrease in cash and cash equivalents
    (73,852 )     (38,086 )
Effect of exchange rate changes on cash
    (169 )     (121 )
Cash and cash equivalents, beginning of period
    331,961       258,137  
 
           
Cash and cash equivalents, end of period
  $ 257,940     $ 219,930  
 
           
 
               
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Cash paid for income taxes, net of refunds received
  $ 27,131     $ 18,229  
 
           

 


 

FOUNDRY NETWORKS, INC.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME AND EPS
(unaudited)
(in thousands, except per share data)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2008     2007     2008     2007  
Net income excluding certain charges and benefits (Non-GAAP)
  $ 25,271     $ 23,809     $ 48,287     $ 44,975  
Stock-based compensation expense (1)
    (11,158 )     (9,893 )     (25,159 )     (19,515 )
Stock option investigation and related compensation costs (2)
          (3,067 )           (13,186 )
Income tax effect
    4,213       4,783       9,104       12,449  
 
                       
Net income
  $ 18,326     $ 15,632     $ 32,232     $ 24,723  
 
                       
 
                               
Diluted net income per share excluding certain charges and benefits (Non-GAAP)
  $ 0.17     $ 0.15     $ 0.32     $ 0.29  
Stock-based compensation expense (1)
    (0.08 )     (0.06 )     (0.17 )     (0.13 )
Stock option investigation and related compensation costs (2)
          (0.02 )           (0.08 )
Income tax effect
    0.03       0.03       0.06       0.08  
 
                       
Diluted net income per share
  $ 0.12     $ 0.10     $ 0.21     $ 0.16  
 
                       
 
(1)   Includes stock-based compensation expense as follows:
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2008     2007     2008     2007  
Cost of product revenue
  $ 430     $ 319     $ 905     $ 634  
Cost of service revenue
    752       414       1,722       863  
Research and development
    3,837       3,440       8,717       6,778  
Sales and marketing
    4,494       3,902       9,972       7,597  
General and administrative
    1,645       1,818       3,843       3,643  
 
                       
Total
  $ 11,158     $ 9,893     $ 25,159     $ 19,515  
 
                       
(2)   Reflects expenses related to the independent review of our stock option practices, which began in June 2006, and related legal, accounting, and compensation costs as follows:
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2008     2007     2008     2007  
Cost of product revenue
  $     $     $     $ 250  
Cost of service revenue
                      228  
Research and development
                      3,305  
Sales and marketing
                      3,128  
General and administrative
                      675  
Other charges, net
          3,067             5,600  
 
                       
Total
  $     $ 3,067     $     $ 13,186