##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                  to
 Commission File Number 000-26689
 FOUNDRY NETWORKS, INC.
  Delaware
    
    77-0431154(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 4980 Great America Parkway
Santa Clara, CA 95054
(Address of principal executive offices, including zip code)
 (408) 207-1700
(Registrants telephone number, including area code)
 N/A
(Former name, former address and former fiscal year, if changed since last report)
 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes o No þ
 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. (Check one):
 Large accelerated filer þ Accelerated filer o Non-accelerated filer o
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ




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##### 



FOUNDRY NETWORKS, INC.
 Table of Contents
 EXPLANATORY NOTE
    
    
    3PART I  FINANCIAL INFORMATION
    
    
    4Item 1. Financial Statements
    
    
    4Condensed Consolidated Balance Sheets
    
    
    4Condensed Consolidated Statements of Income
    
    
    5Condensed Consolidated Statements of Cash Flows
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29PART II  OTHER INFORMATION
    
    
    29Item 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 3. Defaults Upon Senior Securities
    
    
    41Item 4. Submission of Matters to a Vote of Security Holders
    
    
    41Item 5. Other Information
    
    
    42Item 6. Exhibits
    
    
    42SIGNATURE
    
    
    44EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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Explanatory Note
     3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 FOUNDRY NETWORKS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except per share amounts)
 March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)
    
    
    (1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    233,244
    
    
    $
    258,137Short-term investments
    
    
    477,296
    
    
    
    434,182Accounts receivable, net of allowances for doubtful accounts of
$2,251 and $2,493 and sales returns of $2,292 and $2,910 at March 31, 2007 and December 31, 2006, respectively
    
    
    89,497
    
    
    
    73,145Inventories
    
    
    37,305
    
    
    
    34,856Deferred tax assets
    
    
    40,579
    
    
    
    39,455Prepaid expenses and other assets
    
    
    10,457
    
    
    
    8,978Total current assets
    
    
    888,378
    
    
    
    848,753Property and equipment, net
    
    
    11,422
    
    
    
    11,103Investments
    
    
    186,605
    
    
    
    194,114Deferred tax assets
    
    
    33,748
    
    
    
    35,150Other assets
    
    
    6,890
    
    
    
    6,270Total assets
    
    $
    1,127,043
    
    
    $
    1,095,390LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    26,243
    
    
    $
    23,011Accrued payroll and related expenses
    
    
    27,835
    
    
    
    27,878Income taxes payable
    
    
    3,473
    
    
    
    5,661Other accrued expenses
    
    
    13,800
    
    
    
    15,181Deferred support revenue
    
    
    49,376
    
    
    
    41,706Total current liabilities
    
    
    120,727
    
    
    
    113,437Deferred support revenue
    
    
    24,375
    
    
    
    23,858Income taxes payable
    
    
    9,896
    
    
    
    Total liabilities
    
    
    154,998
    
    
    
    137,295Commitments and contingenciesStockholders equity:Preferred stock, $0.0001 par value:
    
    
    
    
    
    
    Authorized  5,000 shares at March 31, 2007 and December 31, 2006;
None issued and outstanding as of March 31, 2007 and December 31,
2006
    
    
    
    
    
    
    Common stock, $0.0001 par value:
    
    
    15
    
    
    
    15Authorized  300,000 shares at March 31, 2007 and December 31, 2006:Issued and outstanding  147,194 and 147,034 shares at March 31,
2007 and December 31, 2006, respectivelyAdditional paid-in capital
    
    
    732,125
    
    
    
    727,358Accumulated other comprehensive loss
    
    
    (486
    )
    
    
    (483
    )Retained
earnings
    
    
    240,391
    
    
    
    231,205Total stockholders equity
    
    
    972,045
    
    
    
    958,095Total liabilities and stockholders equity
    
    $
    1,127,043
    
    
    $
    1,095,390
 
 (1)
    
    Derived from audited consolidated financial statements as of December 31, 2006.  4




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FOUNDRY NETWORKS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (unaudited)
 (in thousands, except per share amounts)
 Three Months Ended March 31,2007
    
    
    2006Restated (1)Net revenue:Product
    
    $
    115,218
    
    
    $
    96,063Service
    
    
    20,595
    
    
    
    17,938Total net revenue
    
    
    135,813
    
    
    
    114,001Cost of revenue:Product
    
    
    51,137
    
    
    
    42,494Service
    
    
    5,466
    
    
    
    2,432Total cost of revenue
    
    
    56,603
    
    
    
    44,926Gross margin
    
    
    79,210
    
    
    
    69,075Operating expenses:Research and development
    
    
    21,250
    
    
    
    20,034Sales and marketing
    
    
    40,090
    
    
    
    34,270General and administrative
    
    
    10,933
    
    
    
    11,060Other charges, net
    
    
    2,533
    
    
    
    Total operating expenses
    
    
    74,806
    
    
    
    65,364Income from operations
    
    
    4,404
    
    
    
    3,711Interest and other income, net
    
    
    10,383
    
    
    
    6,911Income before provision for
income taxes and cumulative
effect of change in accounting
principle
    
    
    14,787
    
    
    
    10,622Provision for income taxes
    
    
    5,696
    
    
    
    4,659Income before cumulative effect
of change in accounting principle
    
    
    9,091
    
    
    
    5,963Cumulative effect of change in
accounting principle, net of
taxes
    
    
    
    
    
    
    439Net income
    
    $
    9,091
    
    
    $
    6,402Basic net income per share
    
    $
    0.06
    
    
    $
    0.04Weighted-average shares used in
computing basic net income per
share
    
    
    147,202
    
    
    
    142,477Diluted net income per share
    
    $
    0.06
    
    
    $
    0.04Weighted-average shares used in
computing diluted net income per
share
    
    
    153,386
    
    
    
    149,333
 
 (1)
    
    See Note 2, Restatement of Condensed Consolidated Financial Statements, to Condensed Consolidated Financial Statements.  5




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FOUNDRY NETWORKS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 (in thousands)
 Three Months Ended March 31,2007
    
    
    2006Restated (1)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    9,091
    
    
    $
    6,402Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    2,777
    
    
    
    2,617Stock-based compensation expense
    
    
    9,474
    
    
    
    16,405Provision for doubtful accounts
    
    
    (242
    )
    
    
    17Provision for sales returns
    
    
    (617
    )
    
    
    (467
    )Inventory provisions
    
    
    1,818
    
    
    
    2,733Deferred tax assets
    
    
    (3,895
    )
    
    
    (1,295
    )Excess tax benefits from stock-based compensation
    
    
    (2
    )
    
    
    (3,164
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (15,492
    )
    
    
    (5,407
    )Inventories
    
    
    (4,180
    )
    
    
    (6,276
    )Prepaid expenses and other assets
    
    
    (2,688
    )
    
    
    (748
    )Accounts payable
    
    
    3,231
    
    
    
    1,085Accrued payroll and related expenses
    
    
    (1,165
    )
    
    
    (6,237
    )Income taxes payable
    
    
    8,891
    
    
    
    1,219Other accrued expenses
    
    
    (1,381
    )
    
    
    4,076Deferred support revenue
    
    
    8,187
    
    
    
    8,495Net cash provided by operating activities
    
    
    13,807
    
    
    
    19,455CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of available-for-sale investments
    
    
    (12,050
    )
    
    
    (19,050
    )Purchases of held-to-maturity investments
    
    
    (169,389
    )
    
    
    (159,441
    )Proceeds from sales of available-for-sale investments
    
    
    29,675
    
    
    
    17,050Proceeds from maturities of held-to-maturity investments
    
    
    116,160
    
    
    
    38,070Purchases of property and equipment, net
    
    
    (2,508
    )
    
    
    (2,456
    )Net cash used in investing activities
    
    
    (38,112
    )
    
    
    (125,827
    )CASH FLOWS FROM FINANCING ACTIVITIES:Excess tax benefits from stock-based compensation
    
    
    2
    
    
    
    3,164Repurchase
of common stock
    
    
    (834
    )
    
    
    Proceeds from issuances of common stock
    
    
    247
    
    
    
    23,165Net cash provided by (used in) financing activities
    
    
    (585
    )
    
    
    26,329Decrease in cash and cash equivalents
    
    
    (24,890
    )
    
    
    (80,043
    )Effect of exchange rate changes on cash
    
    
    (3
    )
    
    
    (82
    )Cash and cash equivalents, beginning of period
    
    
    258,137
    
    
    
    291,511Cash and cash equivalents, end of period
    
    $
    233,244
    
    
    $
    211,386SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for income taxes, net of refunds
    
    $
    722
    
    
    $
    4,740
 
 (1)
    
    See Note 2, Restatement of Condensed Consolidated Financial Statements, to Condensed Consolidated Financial Statements.  6




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FOUNDRY NETWORKS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (information for the three months ended March 31, 2007 and 2006 is unaudited)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of Business
  Basis of Presentation
   Principles of Consolidation
  Reclassifications
  Use of Estimates
  Stock-Based Compensation
 Share-Based Payment Accounting for
Stock Issued to Employees, Accounting for Stock-Based
Compensation
 7




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##### Table of Contents



Three Months Ended March 31,2007
    
    
    2006Restated (1)Cost of revenue  Product
    
    $
    315
    
    
    $
    569Cost of revenue  Service
    
    
    449
    
    
    
    476Research and development
    
    
    3,338
    
    
    
    5,910Sales and marketing
    
    
    3,695
    
    
    
    7,634General and administrative
    
    
    1,825
    
    
    
    2,255Total
    
    $
    9,622
    
    
    $
    16,844
 
 (1)
    
    See Note 2, Restatement of Condensed Consolited
Financial Statements.  Valuation of Stock-Based Compensation
   Three Months Ended March 31, 2007
    
    Three Months Ended March 31, 2006Stock Option Plan
    
    Purchase Plan
    
    Stock Option Plan
    
    Purchase PlanRisk free interest rate
    
    
    4.7
    %
    
    
    4.9
    %
    
    
    4.4
    %
    
    
    3.1
    %Expected term (in years)
    
    3.5 years
    
    
1.3 years
    
    
3.4 years
    
    
1.6 yearsDividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Volatility of common stock
    
    
    39
    %
    
    
    43
    %
    
    
    49
    %
    
    
    60
    %Estimated annual forfeitures
    
    
    11
    %
    
    
    11
    %
    
    
    11
    %
    
    
    11
    %Weighted-average fair value
    
    $
    4.91
    
    
    $
    3.67
    
    
    $
    6.07
    
    
    $
    4.84
 Expected Term. .
 Expected Volatility.
 Expected Dividend.
 Risk-Free
Interest Rate.
 Estimated
Forfeitures.
 Cash Equivalents and Investments
   8




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March 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCash equivalents:Money market funds
    
    $
    112,162
    
    
    $
    
    
    
    $
    
    
    
    $
    112,162Government-sponsored enterprise securities
    
    
    98,309
    
    
    
    21
    
    
    
    (356
    )
    
    
    97,974Available-for-sale:Auction rate municipal bonds
    
    
    75,150
    
    
    
    
    
    
    
    
    
    
    
    75,150Held-to-maturity:Municipal bonds
    
    
    50,339
    
    
    
    11
    
    
    
    (32
    )
    
    
    50,318Government-sponsored enterprise securities
    
    
    546,402
    
    
    
    21
    
    
    
    (309
    )
    
    
    546,114$
    882,362
    
    
    $
    53
    
    
    $
    (697
    )
    
    $
    881,718Cash equivalents
    
    $
    218,461
    
    
    $
    17
    
    
    $
    (19
    )
    
    $
    218,459Short-term investments
    
    
    477,296
    
    
    
    15
    
    
    
    (601
    )
    
    
    476,710Long-term investments
    
    
    186,605
    
    
    
    21
    
    
    
    (77
    )
    
    
    186,549$
    882,362
    
    
    $
    53
    
    
    $
    (697
    )
    
    $
    881,718
 December 31, 2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCash equivalents:Money market funds
    
    $
    89,299
    
    
    $
    
    
    
    $
    
    
    
    $
    89,299Government-sponsored enterprise securities
    
    
    104,425
    
    
    
    32
    
    
    
    
    
    
    
    104,457Available-for-sale:Auction rate municipal bonds
    
    
    92,774
    
    
    
    
    
    
    
    
    
    
    
    92,774Held-to-maturity:Municipal bonds
    
    
    46,377
    
    
    
    13
    
    
    
    (29
    )
    
    
    46,361Government-sponsored enterprise securities
    
    
    500,092
    
    
    
    8
    
    
    
    (1,145
    )
    
    
    498,955$
    832,967
    
    
    $
    53
    
    
    $
    (1,174
    )
    
    $
    831,846Cash equivalents
    
    $
    204,671
    
    
    $
    32
    
    
    $
    (6
    )
    
    $
    204,697Short-term investments
    
    
    434,182
    
    
    
    2
    
    
    
    (860
    )
    
    
    433,324Long-term investments
    
    
    194,114
    
    
    
    19
    
    
    
    (308
    )
    
    
    193,825$
    832,967
    
    
    $
    53
    
    
    $
    (1,174
    )
    
    $
    831,846
 9




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Municipal bonds.
 Government-sponsored enterprise securities (GSEs).
 The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
 Loss Less Than 12 months
    
    
    Loss Greater Than 12 months
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesMunicipal bonds
    
    $
    38,108
    
    
    $
    (31
    )
    
    $
    1,355
    
    
    $
    (1
    )
    
    $
    39,463
    
    
    $
    (32
    )Government-sponsored enterprise securities
    
    
    235,445
    
    
    
    (257
    )
    
    
    155,591
    
    
    
    (408
    )
    
    
    391,036
    
    
    
    (665
    )$
    273,553
    
    
    $
    (288
    )
    
    $
    156,946
    
    
    $
    (409
    )
    
    $
    430,499
    
    
    $
    (697
    )
  Inventories
  March 31,2007
    
    
    December 31,2006Purchased parts
    
    $
    5,654
    
    
    $
    5,758Work-in-process
    
    
    15,805
    
    
    
    13,193Finished goods
    
    
    15,846
    
    
    
    15,905$
    37,305
    
    
    $
    34,856
  Concentrations
   10




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Revenue Recognition
 General.
 Revenue Arrangements with Multiple Deliverables
 Product.
  Services.
 Accounting
for Separately Priced Extended Warranty and Product Maintenance Contracts.
 Segment and Geographic Information
   11




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Three Months Ended March 31,2007
    
    2006Americas
    
    
    67
    %
    
    
    58
    %EMEA
    
    
    15
    %
    
    
    19
    %Asia Pacific
    
    
    10
    %
    
    
    8
    %Japan
    
    
    8
    %
    
    
    15
    %
   Computation of Per Share Amounts
  Three Months Ended March 31,2007
    
    
    2006(in thousands, except per share amounts)Restated (1)Net income
    
    $
    9,091
    
    
    $
    6,402Basic:Weighted-average shares outstanding
    
    
    147,202
    
    
    
    142,477Basic EPS
    
    $
    0.06
    
    
    $
    0.04Diluted:Weighted-average shares outstanding
    
    
    147,202
    
    
    
    142,477Add: Weighted-average dilutive potential shares
    
    
    6,184
    
    
    
    6,856Weighted-average shares used in computing diluted EPS
    
    
    153,386
    
    
    
    149,333Diluted EPS
    
    $
    0.06
    
    
    $
    0.04
 
 (1)
    
    See Note 2, Restatement of Condensed Consolidated Financial Statements. Stockholders Equity
 Stock-Based
Compensation Plans.
  12




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Weighted-Average
    
    RemainingOptions
    
    Exercise
    
    Contractual
    
    AggregateOutstanding
    
    Price
    
    Life (years)
    
    Intrinsic Value(in thousands)Balance, December 31, 2006
    
    
    31,749,912
    
    
    $
    14.40Granted
    
    
    423,500
    
    
    $
    14.25Exercised
    
    
    
    
    
    $
    Forfeited/expired
    
    
    (173,880
    )
    
    $
    12.69Balance, March 31, 2007
    
    
    31,999,532
    
    
    $
    14.41
    
    
    
    5.12
    
    
    $
    81,654Vested and expected to vest at March 31, 2007
    
    
    31,067,304
    
    
    $
    14.45
    
    
    
    5.14
    
    
    $
    80,741Exercisable at March 31, 2007
    
    
    23,595,589
    
    
    $
    14.82
    
    
    
    5.27
    
    
    $
    73,606
   Stock Award Activity.
  Restricted Stock
    
    Weighted AverageOutstanding
    
    Grant Date Fair Value(in thousands)Balance, December 31, 2006
    
    
    628
    
    
    $
    14.58Granted
    
    
    
    
    
    $
    Vested
    
    
    (159
    )
    
    $
    15.03Forfeited
    
    
    (8
    )
    
    $
    14.21Balance, March 31, 2007
    
    
    461
    
    
    $
    14.43
 Employee Stock Purchase Plan.
 13




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Guarantees and Product Warranties
 Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others
   Balance, December 31, 2006
    
    $
    1,546Liabilities accrued for warranties issued during the period
    
    
    387Warranty claims settled during the period
    
    
    (287
    )Balance, March 31, 2007
    
    $
    1,646
  Deferred Support Revenue
  Deferred support revenue at December 31, 2006
    
    $
    65,564New support arrangements
    
    
    28,392Recognition of support revenue
    
    
    (20,205
    )Ending balance at March 31, 2007
    
    $
    73,751
 14




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##### Table of Contents



Retained Earnings
  Balance at December 31, 2006
    
    $
    231,205Cumulative effect of adoption of FIN 48
    
    
    778Cumulative effect of adoption of EITF 06-2
    
    
    (683
    )Net income
    
    
    9,091Balance at March 31, 2007
    
    $
    240,391
 Income Taxes
 Accounting for Uncertainty in Income Taxes 
an interpretation of FASB Statement No. 109 Accounting for Income Taxes
 Recent Accounting Pronouncements
 Accounting for
Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43
 Fair Value Measurements
 2. RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Restatement of Previously Issued Financial Statements
    15




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Three Months Ended March 31, 2006As Reported
    
    
    Adjustments
    
    
    As RestatedNet revenue
    
    $
    114.0
    
    
    $
    
    
    
    $
    114.0Cost of revenue
    
    
    44.5
    
    
    
    0.4
    
    
    
    44.9Gross margin
    
    
    69.5
    
    
    
    (0.4
    )
    
    
    69.1Operating expenses:Research and development
    
    
    17.1
    
    
    
    2.9
    
    
    
    20.0Sales and marketing
    
    
    30.8
    
    
    
    3.5
    
    
    
    34.3General and administrative
    
    
    10.7
    
    
    
    0.4
    
    
    
    11.1Other charges, net
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    58.6
    
    
    
    6.8
    
    
    
    65.4Income from operations
    
    
    10.9
    
    
    
    (7.2
    )
    
    
    3.7Interest and other income, net
    
    
    6.9
    
    
    
    
    
    
    
    6.9Income before provision for
income taxes and cumulative
effect of change in
accounting principle
    
    
    17.8
    
    
    
    (7.2
    )
    
    
    10.6Provision for income taxes
    
    
    6.9
    
    
    
    (2.3
    )
    
    
    4.6Income before cumulative
effect of change in
accounting principle
    
    
    10.9
    
    
    
    (4.9
    )
    
    
    6.0Cumulative effect of change
in accounting principle, net
of taxes
    
    
    
    
    
    
    0.4
    
    
    
    0.4Net income
    
    $
    10.9
    
    
    $
    (4.5
    )
    
    $
    6.4Basic net income per share
    
    $
    0.08
    
    
    
    
    
    
    $
    0.04Diluted net income per share
    
    $
    0.07
    
    
    
    
    
    
    $
    0.04Shares used in computing
earnings per share (in
thousands):Basic
    
    
    142,477
    
    
    
    
    
    
    
    142,477Diluted
    
    
    149,208
    
    
    
    
    
    
    
    149,333
 16




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##### Table of Contents



Three months ended March 31, 2006As Reported
    
    
    Adjustments
    
    
    As RestatedCASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    10.9
    
    
    $
    (4.5
    )
    
    $
    6.4Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    2.6
    
    
    
    
    
    
    
    2.6Stock-based compensation expense
    
    
    9.6
    
    
    
    6.8
    
    
    
    16.4Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    Provision for sales returns
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )Inventory provisions
    
    
    2.7
    
    
    
    
    
    
    
    2.7Deferred tax assets
    
    
    (2.7
    )
    
    
    1.4
    
    
    
    (1.3
    )Excess tax benefits from stock-based compensation
    
    
    (4.2
    )
    
    
    1.0
    
    
    
    (3.2
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (5.4
    )
    
    
    
    
    
    
    (5.4
    )Inventories
    
    
    (6.3
    )
    
    
    
    
    
    
    (6.3
    )Prepaid expenses and other assets
    
    
    (0.7
    )
    
    
    
    
    
    
    (0.7
    )Accounts payable
    
    
    1.1
    
    
    
    
    
    
    
    1.1Accrued payroll and related expenses
    
    
    (6.3
    )
    
    
    
    
    
    
    (6.3
    )Income taxes payable
    
    
    4.9
    
    
    
    (3.7
    )
    
    
    1.2Other accrued expenses
    
    
    4.1
    
    
    
    
    
    
    
    4.1Deferred support revenue
    
    
    8.5
    
    
    
    
    
    
    
    8.5Net cash provided by operating activities
    
    
    18.4
    
    
    
    1.0
    
    
    
    19.4CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of available-for-sale investments
    
    
    (19.1
    )
    
    
    
    
    
    
    (19.1
    )Purchases of held-to-maturity investments
    
    
    (159.5
    )
    
    
    
    
    
    
    (159.5
    )Proceeds from sales of available-for-sale investments
    
    
    17.1
    
    
    
    
    
    
    
    17.1Proceeds from maturities of held-to-maturity investments
    
    
    38.1
    
    
    
    
    
    
    
    38.1Purchases of property and equipment, net
    
    
    (2.4
    )
    
    
    
    
    
    
    (2.4
    )Net cash used in investing activities
    
    
    (125.8
    )
    
    
    
    
    
    
    (125.8
    )CASH FLOWS FROM FINANCING ACTIVITIES:Excess tax benefits from stock-based compensation
    
    
    4.2
    
    
    
    (1.0
    )
    
    
    3.2Proceeds from issuances of common stock
    
    
    23.2
    
    
    
    
    
    
    
    23.2Net cash provided by financing activities
    
    
    27.4
    
    
    
    (1.0
    )
    
    
    26.4Decrease in cash and cash equivalents
    
    
    (80.0
    )
    
    
    
    
    
    
    (80.0
    )Effect of exchange rate changes on cash
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Cash and cash equivalents, beginning of period
    
    
    291.5
    
    
    
    
    
    
    
    291.5Cash and cash equivalents, end of period
    
    $
    211.4
    
    
    $
    
    
    
    $
    211.4SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for income taxes, net of refunds
    
    $
    4.7
    
    
    $
    
    
    
    $
    4.7
 3. COMPREHENSIVE INCOME (LOSS)
  17




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4. COMMITMENTS AND CONTINGENCIES
 Purchase Commitments with Suppliers and Third-Party Manufacturers
  Settlement and Patent License Agreements
  Alcatel-Lucent
  Litigation
 Intellectual Property Proceedings.
 Alcatel-Lucent
 18




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##### Table of Contents



Securities
Litigation. In re Foundry
Networks, Inc. Initial Public Offering Securities Litigation, related to In re Initial
Public Offering Securities Litigation,
  In re Initial Public
Offering Securities Litigation,
 Watkins v. Johnson, et al.
 19




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##### Table of Contents



Rosenbaum
v. Johnson, et al. In re Foundry Networks, Inc. Derivative Litigation
 Patel v. Akin, et al. Patel Patel
 Desai v.
Johnson, et al. McDonald v.
Johnson, et al. Jackson v. Akin, et
al. Edrington v. Johnson, Jr., et al. In re Foundry Networks, Inc. Derivative Litigation Edrington v.
Johnson, Jr., et al.
 SEC
Information Inquiry.
 United
States Attorneys Office Subpoena for Production of
Documents.
 The Nasdaq Stock Market Proceedings, Docket # 5181N-06
 20




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General. Accounting for Contingencies
 5. INCOME TAXES
    21




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22




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis of our financial condition and results of operations
should be read together with our condensed consolidated financial statements and related notes
appearing elsewhere in this Form 10-Q . This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of many factors,
including, but not limited to, those discussed in Part II, Item 1A. Risk Factors. Readers are
cautioned not to place undue reliance on these forward-looking statements, which reflect
managements opinions only as of the date hereof. We undertake no obligation to revise or publicly
release the results of any revision to these forward-looking statements. Readers should carefully
review the risk factors described in this document as well as in other documents we file from time
to time with the SEC. All public reports filed by us with the SEC are available free of charge on
our website at www.foundrynetworks.com or from the SEC at www.sec.gov as soon as practicable after
we electronically file such reports with the SEC.
 Overview
  Restatement
of Previously-Issued Financial Statements
        Critical Accounting Policies and Use of Estimates
  23




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##### Table of Contents



Income Taxes
 Accounting for Uncertainty in Income Taxes 
an interpretation of FASB Statement No. 109 Accounting for Income Taxes
   Results of Operations
 Net Revenue
  24




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Three Months Ended March 31,2007
    
    
    2006% of Net
    
    
    
    
    
    
    % of Net$
    
    
    Revenue
    
    
    $
    
    
    Revenue
    
    
    $ Change
    
    
    % ChangeNet revenue:Product
    
    $
    115,218
    
    
    
    85
    %
    
    $
    96,063
    
    
    
    84
    %
    
    $
    19,155
    
    
    
    20
    %Service
    
    
    20,595
    
    
    
    15
    %
    
    
    17,938
    
    
    
    16
    %
    
    
    2,657
    
    
    
    15
    %Total net revenue
    
    $
    135,813
    
    
    
    100
    %
    
    $
    114,001
    
    
    
    100
    %
    
    $
    21,812
    
    
    
    19
    %Net product revenue:Chassis
    
    
    86,414
    
    
    
    75
    %
    
    
    68,205
    
    
    
    71
    %
    
    
    18,209
    
    
    
    27
    %Stackable
    
    
    28,804
    
    
    
    25
    %
    
    
    27,858
    
    
    
    29
    %
    
    
    946
    
    
    
    3
    %Total net product revenue
    
    $
    115,218
    
    
    
    100
    %
    
    $
    96,063
    
    
    
    100
    %
    
    $
    19,155
    
    
    
    20
    %
  Three Months Ended March 31,2007
    
    2006Americas
    
    
    67
    %
    
    
    58
    %EMEA
    
    
    15
    %
    
    
    19
    %Asia Pacific
    
    
    10
    %
    
    
    8
    %Japan
    
    
    8
    %
    
    
    15
    %
     25




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##### Table of Contents



Gross Margins
  Three Months Ended March 31,2007
    
    
    2006Gross
    
    
    
    
    
    
    Gross$
    
    
    Margin %
    
    
    $
    
    
    Margin %Restated (1)Gross margins:Product
    
    $
    64,081
    
    
    
    56
    %
    
    $
    53,569
    
    
    
    56
    %Service
    
    
    15,129
    
    
    
    73
    %
    
    
    15,506
    
    
    
    86
    %Total gross margins
    
    $
    79,210
    
    
    
    58
    %
    
    $
    69,075
    
    
    
    61
    %
 
 (1)
    
    See Note 2, Restatement of
Condensed Consolidated Financial Statements, to Condensed Consolidated Financial
Statements.    Operating Expenses
  Three Months Ended March 31,2007
    
    2006% of Net
    
    
    
    
    
    % of Net
    
    %$
    
    Revenue
    
    $
    
    Revenue
    
    ChangeRestated (1)Research and development
    
    $
    21,250
    
    
    
    16
    %
    
    $
    20,034
    
    
    
    18
    %
    
    
    6
    %Sales and marketing
    
    
    40,090
    
    
    
    30
    %
    
    
    34,270
    
    
    
    30
    %
    
    
    17
    %General and administrative
    
    
    10,933
    
    
    
    8
    %
    
    
    11,060
    
    
    
    10
    %
    
    
    (1
    %)Other charges, net
    
    
    2,533
    
    
    
    2
    %
    
    
    
    
    
    
    0
    %
    
    
    n/a
 
 (1)
    
    See Note 2, Restatement of Condensed Consolidated Financial Statements, to Condensed Consolidated Financial Statements.  26




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Interest and Other Income, Net
  Provision for Income Taxes
    Liquidity and Capital Resources
  27




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Off-Balance Sheet Arrangements and Contractual Obligations
 Contractual Commitments
  Less Than
    
    
    1-3
    
    
    3-5
    
    
    More ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsOperating leases of facilities
    
    $
    14,179
    
    
    $
    6,506
    
    
    $
    6,407
    
    
    $
    1,266
    
    
    $
    Purchase commitments with contract manufacturers
    
    
    61,713
    
    
    
    61,713
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    75,892
    
    
    $
    68,219
    
    
    $
    6,407
    
    
    $
    1,266
    
    
    $
    
  Off-Balance Sheet Arrangements
  Indemnifications
  28




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Limitations on Effectiveness of Controls.
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control over Financial Reporting.
 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  The
    matters relating to our Special Committee investigation into our
    stock option granting practices and the restatement of our
    financial statements have exposed us to civil litigation claims,
    regulatory proceedings and government proceedings which could
    burden Foundry and have a material adverse effect on
    us.
   29




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We have
not been in compliance with The Nasdaq Stock Markets continued listing requirements and
remain subject to the risk of our stock being delisted from The
Nasdaq Global Select Market, which would
have a material adverse effect on us and our stockholders.
  The process of restating our financial statements, the associated disclosures, and complying with
SEC requirements are subject to uncertainty and evolving requirements.
  30




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A number of our current and former executive officers and directors have been named as parties
to several derivative action lawsuits arising from our internal option review, and there is a
possibility of additional lawsuits, all of which could require significant management time and
attention and result in significant legal expenses.
  Ongoing
government inquiries relating to our past stock option practices may
be time consuming and
expensive and could result in injunctions, fines and penalties that may have a material adverse
effect on our financial condition and results of operations.
  Intense competition in the market for networking solutions could prevent us from maintaining or
increasing revenue and sustaining profitability.
    We must continue to introduce new products with superior performance and features in a timely
manner in order to sustain and increase our revenue, and if we fail to predict and respond to
emerging technological trends and customers changing needs, our operating results may suffer.
  31




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We depend on large, recurring purchases from
certain significant customers, and a loss, cancellation or delay in purchases by these customers
could negatively affect our revenue.
   
    
    our reseller agreements generally do not require minimum purchases;
    
    our customers can stop purchasing and our resellers can stop marketing our products at any time; and
    
    our reseller agreements generally are not exclusive and are for one-year terms, with no
obligation of the resellers to renew the agreements.
  The United States government is a significant customer and has been one key to our financial
success. However, government demand is unpredictable and there is no guarantee of future contract
awards.
  32




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We may be subject to litigation risks and intellectual property infringement claims that are costly
to defend and could limit our ability to use certain technologies in the future. Additionally, we
may be found to infringe on intellectual property rights of others.
    If we fail to protect our intellectual property, our business and ability to compete could suffer.
   Our ability to increase our revenue depends on expanding our direct sales operations and reseller
distribution channels and providing excellent customer support.
  33




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We are required to expense equity compensation given to our employees, which has reduced our
reported earnings, will significantly impact our operating results in future periods and may reduce
our stock price and our ability to effectively utilize equity compensation to attract and retain
employees.
  Because our financial results are difficult to predict and may fluctuate significantly, we may
not meet quarterly financial expectations, which could cause our stock price to decline.
     34




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We purchase several key components for our products from sole sources; if these components are not
available, our revenue may be adversely affected.
    Our reliance on third-party manufacturing vendors to manufacture our products may cause a delay in
our ability to fill orders.
  35




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Our gross margins and average selling prices of our products have decreased in the past and may
continue to decrease as a result of competitive pressures and other factors.
   Weak economic and market conditions or geopolitical turmoil may adversely affect our revenue, gross
margins and expenses.
  We need additional qualified personnel to maintain and expand our business. If we are unable to
promptly attract and retain qualified personnel, our business may be harmed.
  36




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##### Table of Contents



Our operations in international markets involve inherent risks that we may not be able to control.
As a result, our business may be harmed if we are unable to successfully address these risks.
  
    
    seasonal reductions in business activity;
    
    potential recessions in economies outside the United States;
    
    adverse fluctuations in currency exchange rates;
    
    difficulties in managing operations across disparate geographic areas;
    
    export restrictions;
    
    unexpected changes in regulatory requirements;
    
    higher costs of doing business in foreign countries;
    
    longer accounts receivable collection cycles;
    
    potential adverse tax consequences;
    
    difficulties associated with enforcing agreements through foreign legal systems;
    
    infringement claims on foreign patents, copyrights, or trademark rights.
    
    natural disasters and widespread medical epidemics;
    
    military conflict and terrorist activities; and
    
    political instability.
   37




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##### Table of Contents



Due to the lengthy sales cycles of some of our products, the timing of our revenue is difficult to
predict and may cause us to fail to meet our revenue expectations.
  As a result of our delayed filing of our periodic SEC reports, our inability to maintain our Form
S-3 eligibility may adversely affect our ability to raise future capital or complete acquisitions.
  If we do not adequately manage and evolve our financial reporting and managerial systems and
processes, our ability to manage and grow our business may be harmed.
  We had a material weakness in internal control over financial reporting in the past and cannot
assure you that additional material weaknesses will not be identified in the future. If our
internal control over financial reporting or disclosure controls and procedures are not effective,
there may be errors in our financial statements that could require a restatement or our filings may
not be timely and investors may lose confidence in our reported financial information, which could
lead to a decline in our stock price.
    38




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The timing of the adoption of industry standards may negatively affect widespread market acceptance
of our products.
  If our products do not interoperate with our customers networks, installations will be delayed or
cancelled and could harm our business.
  If our products contain undetected software or hardware errors, we could incur significant
unexpected expenses and lost sales and be subject to product liability claims.
  
    
    negative customer reactions;
    
    product liability claims;
    
    negative publicity regarding us and our products;
    
    delays in or loss of market acceptance of our products;
 39




---



##### Table of Contents




    
    product returns;
    
    lost sales; and
    
    unexpected expenses to remedy defects or errors.
 We may incur liabilities that are not subject to maximum loss clauses.
  Our products may not continue to comply with the regulations governing their sale, which may harm
our business.
  We may engage in acquisitions that could result in the dilution of our stockholders, disrupt our
operations, cause us to incur substantial expenses and harm our business if we cannot successfully
integrate the acquired business, products, technologies or personnel.
  
    
    difficulties in the assimilation of products, operations, personnel and technologies of the acquired companies;
    
    diversion of managements attention from other business concerns;
    
    disruptions to our operations, including potential difficulties in completing ongoing projects in a timely manner;
    
    risks of entering geographic and business markets in which we have no or limited prior experience; and
    
    potential loss of key employees of acquired organizations.
 40




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##### Table of Contents



Our stock price has been volatile historically, which may make it more difficult to sell shares
when needed at attractive prices.
  Anti-takeover provisions could make it more difficult for a third party to acquire us.
  Our operations could be significantly hindered by the occurrence of a natural disaster, terrorist
acts or other catastrophic events.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  41




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Item 5. Other Information
  
 Item 6. Exhibits
 Number
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of Foundry Networks, Inc. (Amended and
Restated Certificate of Incorporation filed as Exhibit 3.2 to registrants Registration
Statement on Form S-1 (Commission File No. 333-82577) and incorporated herein by reference;
Certificate of Amendment to the foregoing filed as Exhibit 3.1 to registrants Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000 and
incorporated herein by reference).3.2
    
    Amended and Restated Bylaws of Foundry Networks, Inc. (Filed as Exhibit 3.2 to registrants
Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 and incorporated herein
by reference).10.1
    
    1996 Stock Plan.*(1)10.2
    
    Form of Stock Option Agreement under the registrants 1996 Stock Plan.*(1)10.3
    
    1999 Employee Stock Purchase
Plan, as amended.*(3)10.4
    
    1999 Directors Stock Option
Plan (including related form agreements), as amended.*(3)10.5
    
    Form of Indemnification Agreement. (2)10.6
    
    OEM Purchase Agreement dated January 6, 1999 between Foundry Networks, Inc. and
Hewlett-Packard Company, Workgroup Networks Division. (4)10.7
    
    Reseller Agreement dated July 1, 1997 between Foundry Networks, Inc. and Mitsui & Co., Ltd. (4)10.8
    
    2000 Non-Executive Stock Option Plan.*(5)10.9
    
    Form of Stock Option Agreement under the registrants 2000 Non-Executive Stock Option Plan.*(5)10.10
    
    Lease agreement dated September 28, 1999, between Foundry Networks, Inc., and Legacy Partners
Commercial Inc., for offices located at 2100 Gold Street, San Jose, CA 95002. (6)10.11
    
    Confidential Settlement Agreement and Release, effective October 25, 2004, by and between
Nortel Networks Limited, Nortel Networks, Inc., Foundry Networks, Inc., Bobby R. Johnson, Jr.,
H. Earl Ferguson, deceased, and Jeffrey Prince. (7)10.12
    
    Sublease agreement dated March 25, 2005, between Foundry Networks, Inc. and Hyperion Solutions
Corporation, for offices located at 4980 Great America Parkway, Santa Clara, CA 95054. (8)10.13
    
    Form of Restricted Stock Purchase Agreement under the registrants 1996 Stock Plan. *(1)10.14
    
    2006 Stock Incentive Plan.*(9)
 42




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##### Table of Contents



Number
    
    Description10.15
    
    2006 Stock Incentive Plan-Form of Stock Grant Agreement *(9)10.16
    
    2006 Stock Incentive Plan-Form of Notice of Stock Option Grant and Stock Option Agreement. *(9)10.17
    
    2006 Stock Incentive Plan-Form of Stock Unit Agreement. *(9)10.18
    
    2006 Stock Incentive Plan-Form of Stock Appreciation Right Agreement. *(9)31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934.32.1
    
    Certification of Chief Executive Officer pursuant to Section 18 U.S.C. Section 1350.32.2
    
    Certification of Chief Financial Officer pursuant to Section 18 U.S.C. Section 1350.
 
 *
    
    Indicates management contract or compensatory plan or arrangement.(1)
    
    Copy of original 1996 Stock Plan and related form of Stock Option Agreement incorporated
herein by reference to the exhibit filed with the Companys Registration Statement on Form S-1
(Commission File No. 333-82577). Copy of 1996 Stock Plan reflecting the amendments approved at
the 2000 Annual Meeting of Stockholders incorporated by reference to the Companys Definitive
Proxy Statement for such meeting (Commission File No. 000-26689). Copy of 1996 Stock Plan
reflecting the amendments for approval at the 2002 Annual Meeting of Stockholders incorporated
by reference to the Companys Definitive Proxy Statement for such meeting (Commission File No.
000-26689).(2)
    
    Incorporated herein by reference to the exhibit filed with the Companys Registration
Statement on Form S-1 (Commission File No. 333-82577).(3)
    
    Incorporated herein by reference to the exhibit filed with
the Companys Annual Report on Form 10-K for the year ended
December 31, 2006.(4)
    
    Incorporated herein by reference to the exhibit filed with the Companys Registration
Statement on Form S-1 (Commission File No. 333-82577); Confidential treatment has been granted
by the Securities and Exchange Commission with respect to this exhibit.(5)
    
    Incorporated herein by reference to the exhibit filed with the Companys Registration
Statement on Form S-8 filed on October 25, 2000 (Commission File No. 333-48560).(6)
    
    Incorporated herein by reference to the exhibit filed with the Companys Form 10-Q for the
quarter ended September 30, 1999 (Commission File No. 000-26689).(7)
    
    Incorporated by reference from the Companys Annual Report on Form 10-K filed on March 15,
2005 (Commission File No. 000-26689).(8)
    
    Incorporated herein by reference to the exhibit filed with the Companys Form 10-Q for the
quarter ended March 31, 2005 (Commission File No. 000-26689).(9)
    
    Copy of 2006 Stock Incentive Plan approved at the 2006 Annual Meeting of Stockholders
incorporated by reference to the exhibits filed with the Companys Form 8-K on June 22, 2006
(Commission File No. 000-26689). 43




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SIGNATURE
  Foundry Networks, Inc.
(Registrant)By:
    /s/ Daniel W. FairfaxDaniel W. FairfaxVice President, Finance and Administration and
     Chief Financial Officer 
(Principal Financial and Accounting Officer)  44




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Exhibit Index
 Number
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of Foundry Networks, Inc. (Amended and
Restated Certificate of Incorporation filed as Exhibit 3.2 to registrants Registration
Statement on Form S-1 (Commission File No. 333-82577) and incorporated herein by reference;
Certificate of Amendment to the foregoing filed as Exhibit 3.1 to registrants Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000 and
incorporated herein by reference.).3.2
    
    Amended and Restated Bylaws of Foundry Networks, Inc. (Filed as Exhibit 3.2 to registrants
Current Report on Form 8-K filed on April 24, 2007 and incorporated herein
by reference.).10.1
    
    1996 Stock Plan.*(1)10.2
    
    Form of Stock Option Agreement under the registrants 1996 Stock Plan.*(1)10.3
    
    1999 Employee Stock Purchase
Plan, as amended.*(3)10.4
    
    1999 Directors Stock Option
Plan (including related form agreements), as amended.*(3)10.5
    
    Form of Indemnification Agreement. (2)10.6
    
    OEM Purchase Agreement dated January 6, 1999 between Foundry Networks, Inc. and
Hewlett-Packard Company, Workgroup Networks Division. (4)10.7
    
    Reseller Agreement dated July 1, 1997 between Foundry Networks, Inc. and Mitsui & Co., Ltd. (4)10.8
    
    2000 Non-Executive Stock Option Plan.*(5)10.9
    
    Form of Stock Option Agreement under the registrants 2000 Non-Executive Stock Option Plan.*(5)10.10
    
    Lease agreement dated September 28, 1999, between Foundry Networks, Inc., and Legacy Partners
Commercial Inc., for offices located at 2100 Gold Street, San Jose, CA 95002. (6)10.11
    
    Confidential Settlement Agreement and Release, effective October 25, 2004, by and between
Nortel Networks Limited, Nortel Networks, Inc., Foundry Networks, Inc., Bobby R. Johnson, Jr.,
H. Earl Ferguson, deceased, and Jeffrey Prince. (7)10.12
    
    Sublease agreement dated March 25, 2005, between Foundry Networks, Inc. and Hyperion Solutions
Corporation, for offices located at 4980 Great America Parkway, Santa Clara, CA 95054. (8)10.13
    
    Form of Restricted Stock Purchase Agreement under the registrants 1996 Stock Plan. *(1)10.14
    
    2006 Stock Incentive Plan.*(9)10.15
    
    2006 Stock Incentive Plan-Form of Stock Grant Agreement *(9)




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Number
    
    Description10.16
    
    2006 Stock Incentive Plan-Form of Notice of Stock Option Grant and Stock Option Agreement. *(9)10.17
    
    2006 Stock Incentive Plan-Form of Stock Unit Agreement. *(9)10.18
    
    2006 Stock Incentive Plan-Form of Stock Appreciation Right Agreement. *(9)31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934.32.1
    
    Certification of Chief Executive Officer pursuant to Section 18 U.S.C. Section 1350.32.2
    
    Certification of Chief Financial Officer pursuant to Section 18 U.S.C. Section 1350.
 
 *
    
    Indicates management contract or compensatory plan or arrangement.(1)
    
    Copy of original 1996 Stock Plan and related form of Stock Option Agreement incorporated
herein by reference to the exhibit filed with the Companys Registration Statement on Form S-1
(Commission File No. 333-82577). Copy of 1996 Stock Plan reflecting the amendments approved at
the 2000 Annual Meeting of Stockholders incorporated by reference to the Companys Definitive
Proxy Statement for such meeting (Commission File No. 000-26689). Copy of 1996 Stock Plan
reflecting the amendments for approval at the 2002 Annual Meeting of Stockholders incorporated
by reference to the Companys Definitive Proxy Statement for such meeting (Commission File No.
000-26689).(2)
    
    Incorporated herein by reference to the exhibit filed with the Companys Registration
Statement on Form S-1 (Commission File No. 333-82577).(3)
    
    Incorporated herein by reference to the exhibit filed with
the Companys Annual Report on Form 10-K for the year ended
December 31, 2006.(4)
    
    Incorporated herein by reference to the exhibit filed with the Companys Registration
Statement on Form S-1 (Commission File No. 333-82577); Confidential treatment has been granted
by the Securities and Exchange Commission with respect to this exhibit.(5)
    
    Incorporated herein by reference to the exhibit filed with the Companys Registration
Statement on Form S-8 filed on October 25, 2000 (Commission File No. 333-48560).(6)
    
    Incorporated herein by reference to the exhibit filed with the Companys Form 10-Q for the
quarter ended September 30, 1999 (Commission File No. 000-26689).(7)
    
    Incorporated by reference from the Companys Annual Report on Form 10-K filed on March 15,
2005 (Commission File No. 000-26689).(8)
    
    Incorporated herein by reference to the exhibit filed with the Companys Form 10-Q for the
quarter ended March 31, 2005 (Commission File No. 000-26689).(9)
    
    Copy of 2006 Stock Incentive Plan approved at the 2006 Annual Meeting of Stockholders
incorporated by reference to the exhibits filed with the Companys Form 8-K on June 22, 2006
(Commission File No. 000-26689).