Extreme Networks (EXTR) 8-K Extreme Networks Reports Fourth Quarter Results

Exhibit 99.1

FOR IMMEDIATE RELEASE

For more information, contact:
Extreme Networks
Investor Relations	Public Relations
408/579-3030	408/579-3483
investor_relations@extremenetworks.com	gcross@extremenetworks.com

EXTREME NETWORKS REPORTS FOURTH QUARTER RESULTS

SANTA CLARA, Calif., August 2, 2006– Extreme Networks, Inc. (Nasdaq: EXTR), the leader in open converged networks, today announced financial results for its fiscal fourth quarter and year ended July 2, 2006.

For the quarter, net revenue was $82.4 million, compared to $96.1 million in the fourth quarter of fiscal 2005. Net loss for the quarter was $1.8 million or a loss of $0.02 per diluted share on a GAAP basis. Excluding stock-based compensation expense of $2.2 million, non-GAAP net income for the quarter was $0.4 million or $0.00 per diluted share, compared to non-GAAP net income of $0.3 million or $0.00 per diluted share in the fourth fiscal quarter of 2005.

For the fiscal year, the Company recorded net revenue of $358.6 million, down from $383.3 million in fiscal 2005. Net income for fiscal 2006 was $11.0 million. Excluding stock-based compensation expense of $7.0 million, non-GAAP net income for the fiscal year was $18.0 million, or $0.15 per share, up from $13.3 million or $0.11 per fully diluted share in fiscal 2005.

“We are pleased with the year-over-year improvement in our non-GAAP profitability,” said Gordon L. Stitt, CEO of Extreme Networks. “Our goal in the coming year is to expand our sales force in order to take greater advantage of the revenue opportunities made possible by our improving ExtremeXOS-based product line.”

Revenues in the U.S. were $35.0 million in the quarter, representing 42.4 percent of total consolidated revenue, compared to $43.1 million or 44.9 percent of revenue in the same quarter a year ago. International revenues were $47.4 million or 57.6% percent of total revenues, compared to $53.0 million or 55.2 percent of total revenues in the fourth quarter of last fiscal year.

For the fiscal year, international net revenues totaled $212.7 million, down 1.7 percent from fiscal 2005. Net revenues in the US were $145.9 million, down 12.7 percent from the previous fiscal year.

Gross margin on a GAAP basis for the fourth quarter was 52.7 percent. Excluding expense for stock-based compensation of $0.3 million, gross margin was 53.1 percent, compared to 53.0 percent in the fourth quarter of fiscal 2005, the tenth consecutive quarter of year-over-year gross margin increases. Operating expenses for the quarter, on a GAAP basis, were $47.4 million. Excluding stock-based compensation of $1.9 million, operating expenses were $45.5 million or 55.2% of sales.

Cash provided by operating activities during the quarter was $1.4 million. For the fiscal year, cash provided by operations was $28.0 million. During the quarter, the Company continued to execute on its $50 million share repurchase program by repurchasing 2.9 million shares for $13.1 million, leaving cash, cash equivalents and investments at the end of the fourth quarter of $433.1 million. Since announcing the program in October 2005, the Company has repurchased a total of 7.1 million shares for $33.7 million dollars.

Quarterly Business Highlights

• Extreme Networks assists Avaya to Deliver Highly Successful World Cup Event Network: Extreme Networks provided converged switching solutions and advanced network monitoring and performance management to support the converged communication network that Avaya supplied for the 2006 FIFA World Cup Germany^™. The resulting wired and wireless IP network provided 99.999 percent availability throughout the event connecting thousands of staff, journalists, and participating teams with critical data, reliable VoIP phone calls and multimedia content

• Extreme Networks named Top 100 IT vendor: Having completed shipment of 15 million Ethernet ports to its customers worldwide, IT Week Magazine hailed Extreme Networks as one of its Top 100 IT vendors based on the Company’s innovative technologies and an impressive history providing converged network solutions to global customers.

• Extreme Networks Wins InfoWorld Magazine’s Converged Network Review: In a ‘hands-on’ test of 10 Gigabit Ethernet switches conducted by InfoWorld Magazine, Extreme Networks’ BlackDiamond 10K and 8800 switches received the highest score of participating vendors for a complete enterprise convergence solution, where performance and scalability, integrated management, network security and ease-of-set-up were evaluated.

• German Telecom Service Provider Deploys Extreme Networks’ Multidimensional Ethernet: wilhelm.tel has deployed Extreme Networks’ BlackDiamond 12K switch to serve thousands of residential customers in Hamburg and surrounding cities with high performance Ethernet that powers triple-play applications consisting of voice, cable video and data.

• Extreme Networks Adds New Distribution Partner: Anixter of Mexico is now distributing Extreme’s BlackDiamond, Alpine^® and Summit^® switching family of products addressing healthcare, government and education customers in Mexico.

Conference Call

Extreme Networks will host a conference call to discuss these results today at 5:00 p.m. EDT (2:00 p.m. PDT), for more information visithttp://www.extremenetworks.com/aboutus/investor/ Financial information to be discussed during the conference call is posted on the Investor Relations section of the Company’s website (www.extremenetworks.com).

Extreme Networks

Extreme Networks is the leader in open converged networks. Its innovative network architecture provides Enterprises and Metro Service Providers with the resiliency, adaptability and simplicity required for a true converged network that supports voice, video and data, over a wired and wireless infrastructure, while delivering high-performance and advanced security features. For more information, please visit http://www.extremenetworks.com.

Non-GAAP Financial Measures

Extreme Networks provides all financial information required in accordance with generally accepted accounting principles (GAAP). In the first fiscal quarter of 2006, the Company adopted Financial Accounting Standards Board Statement No. 123(R), which requires companies to

recognize the compensation cost associated with share-based payments in their financial statements. As a result, the financial statements for the three months and year ended July 2, 2006 include the new stock-based compensation expense of $2.2 million and $7.0 million, respectively; however, comparable prior year periods are not required to be restated. Therefore, to supplement Extreme Networks’ consolidated financial statements presented in accordance with GAAP, the Company has provided non-GAAP financial information, which is adjusted to exclude all stock-based compensation expense. This non-GAAP reporting provides for comparable financial information and can enhance the understanding of the Company’s ongoing performance as a business. Therefore, Extreme Networks uses both GAAP and non-GAAP reporting to evaluate and manage its operations. A reconciliation of GAAP to non-GAAP financial measures is included in the accompanying attachments.

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Extreme Networks is a registered trademark of Extreme Networks, Inc., in the United States and other countries. All other marks are the property of their respective holders.

This announcement contains preliminary, unaudited financial data which could differ from actual financial data to be filed with the Securities and Exchange Commission in our Annual Report on Form 10-K. This announcement may contain forward-looking statements that involve risks and uncertainties. More information about potential factors that could affect our business and financial results is included in our filings with the Securities and Exchange Commission, including, without limitation, under the captions: “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Risk Factors,” which is on file with the Securities and Exchange Commission (http://www.sec.gov).

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per-share amounts)

(Unaudited)

	Three Months Ended						Year Ended
	July 2, 2006			July 3, 2005			July 2, 2006		July 3, 2005
Net revenues:
Product	$	66,761		$	80,486		$	294,824	$	324,256
Service		15,681			15,566			63,777		59,091
Total net revenues		82,442			96,052			358,601		383,347
Cost of revenues:
Product(1)		30,809			36,525			130,684		146,476
Service(1)		8,178			8,650			34,180		34,219
Total cost of revenues		38,987			45,175			164,864		180,695
Gross margin:
Product		35,952			43,961			164,140		177,780
Service		7,503			6,916			29,597		24,872
Total gross margin		43,455			50,877			193,737		202,652
Operating expenses:
Sales and marketing(1)		25,513			25,862			98,539		96,804
Research and development(1)		15,734			15,682			62,123		61,268
General and administrative(1)		6,136			9,838			25,868		31,754
Amortization of deferred stock compensation(1)		—			—			—		69
Technology agreement		—			—			—		2,000
Total operating expenses		47,383			51,382			186,530		191,895
Operating income (loss)		(3,928	)		(505	)		7,207		10,757
Other income, net		1,876			1,145			5,615		5,728
Income (loss) before income taxes		(2,052	)		640			12,822		16,485
Provision for (benefit from) income taxes		(232	)		517			1,798		3,543
Net income (loss)	$	(1,820	)	$	123		$	11,024	$	12,942
Net income (loss) per share - basic	$	(0.02	)	$	*		$	0.09	$	0.11
Net income (loss) per share - diluted	$	(0.02	)	$	*		$	0.09	$	0.10
Shares used in per share calculation - basic		118,453			121,779			121,286		121,225
Shares used in per share calculation - diluted		118,453			124,298			123,049		124,219
________________
(1)      Includes stock-based compensation expense as follows:
Cost of product revenue	$	205		$	32		$	718	$	32
Cost of service revenue		140			—			417		—
Sales and marketing		888			9			2,764		48
Research and development		663			92			1,993		190
General and administrative		340			—			1,103		—
Amortization of deferred stock compensation		—			—			—		69
Total stock-based compensation expense	$	2,236		$	133		$	6,995	$	339

* Less than $0.01 per share

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	July 2, 2006		July 3, 2005
Assets
Current assets:
Cash and cash equivalents	$	92,598	$	127,470
Short-term investments		297,726		127,889
Accounts receivable, net		27,681		30,778
Inventories, net		19,303		25,943
Prepaid expenses and other current assets		9,420		12,410
Total current assets		446,728		324,490
Property and equipment, net		46,499		50,438
Marketable securities		42,781		185,045
Other assets		22,710		23,641
Total assets	$	558,718	$	583,614
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	20,138	$	18,283
Deferred revenue		35,406		36,688
Accrued warranty		7,027		7,471
Convertible subordinated notes		200,000		—
Other accrued liabilities		37,624		42,462
Total current liabilities		300,195		104,904
Other long-term liabilities		10,128		16,913
Deferred revenue, less current portion		9,699		13,785
Convertible subordinated notes		—		200,000
Total stockholders’ equity		238,696		248,012
Total liabilities and stockholders’ equity	$	558,718	$	583,614

EXTREME NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Year Ended
	July 2, 2006			July 3, 2005
Cash flows from operating activities:
Net income	$	11,024		$	12,942
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,908			16,244
Provision for doubtful accounts		1,166			380
Provision for excess and obsolete inventory		1,259			1,061
Deferred income taxes		(249	)		451
Amortization of warrant		4,691			7,566
Amortization of deferred stock compensation		—			69
Stock-based compensation		6,995			—
Loss on disposal of assets		—			212
Net changes in operating assets and liabilities:
Accounts receivable		3,306			2,271
Inventories		5,405			(1,114	)
Prepaid expenses and other current and noncurrent assets		(2,075	)		(9,558	)
Accounts payable		1,855			(712	)
Deferred revenue		(5,326	)		(3,201	)
Accrued warranty		(444	)		(825	)
Other accrued liabilities		(11,478	)		(9,328	)
Net cash provided by operating activities		28,037			16,458
Cash flows from investing activities:
Capital expenditures		(7,969	)		(7,127	)
Purchases and maturities of investments, net		(26,260	)		53,033
Net cash provided by (used in) investing activities		(34,229	)		45,906
Cash flows from financing activities:
Proceeds from issuance of common stock		5,020			5,942
Repurchase of common stock		(33,700	)		—
Net cash provided by (used in) financing activities		(28,680	)		5,942
Net increase (decrease) in cash and cash equivalents		(34,872	)		68,306
Cash and cash equivalents at beginning of period		127,470			59,164
Cash and cash equivalents at end of period	$	92,598		$	127,470

EXTREME NETWORKS, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In thousands, except per-share amounts)

(Unaudited)

	Three Months Ended					Year Ended
	July 2, 2006			July 3, 2005		July 2, 2006		July 3, 2005
GAAP net income (loss)	$	(1,820	)	$	123	$	11,024	$	12,942
Adjustments:
Stock-based compensation		2,236			133		6,995		339
Income tax effect		—			—		—		—
Total non-GAAP adjustments		2,236			133		6,995		339
Non-GAAP net income (loss)	$	416		$	256	$	18,019	$	13,281
Non-GAAP net income (loss) per share — basic	$	*		$	*	$	0.15	$	0.11
Non-GAAP net income (loss) per share — diluted	$	*		$	*	$	0.15	$	0.11
Shares used in per share calculation — basic		118,453			121,779		121,286		121,225
Shares used in per share calculation — diluted		120,189			124,298		123,049		124,219

* Less than $0.01 per share