Foundry Reclassifies Auction-Rate Securities

It’s been my impression over the last several months that the controversy surrounding Auction Rate Securities [ARS] is rather a non-issue for tech companies, though it has been mentioned as a risk to companies’ cash position. Nevertheless, it is interesting to note ARS exposure where it pops up.

This evening, computer networking vendor Foundry Networks (FDRY) reported in its quarterly filing with the Securities and Exchange Commisssion that of a total $79.2 million in adjustable rate securities with an “auction reset feature” that it has held as short-term investments, $76.7 million have been reclassified as long-term assets, reducing the company’s total short-term investments from $576 million in December to $449 million. This is a change from what the company reported on its 10K filing in late February.

“Auctions for some of these adjustable rate securities have recently failed,” says Foundry in its filing, “and there is no assurance that auctions on the remaining adjustable rate securities in our investment portfolio will succeed.” The danger is that the asset could be drastically marked down at some point. Moreover, only $61 million of those ARS have a AAA investment rating, the company says, down from $66 million in December. The rest of the securities are rated AA.

I hasten to add that Foundry’s cash balance in the quarter rose from $332 million in December to $387 million last quarter, so it is still adding to its pile of actual cash.

Readers may recall that Merrill Lynch back in mid-January warned that fully 68% of Foundry’s cash and short-term investments were “at risk.”

Foundry shares Friday rose almost 2% to $12.71. The shares were unchanged after hours.