##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2004


Commission file number: 000-26689


FOUNDRY NETWORKS, INC.


(Exact name of registrant as specified in its charter)


|                               |  |                       
|------------------------------ |  | ----------------------
|Delaware                       |  | 77-0431154            
|(State or jurisdiction of      |  | (I.R.S. Employer      
|incorporation or organization) |  | Identification Number)

2100 Gold Street


P.O. Box 649100


San Jose, CA 95164-9100


Website: www.foundrynetworks.com


(Address of principal executive offices, including zip
code)


Registrants telephone number, including area code:


(408) 586-1700


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $0.0001 par value


þ o


o


þ o






DOCUMENTS INCORPORATED BY REFERENCE












---










FOUNDRY NETWORKS, INC.


TABLE OF CONTENTS


|              |  |                                                                                                                       |    |      |    |  |  | 
|------------- |  | --------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- |  |  | 
|              |  |                                                                                                                       |    | Page |   
|              |  |                                                                                                                       |    |      |   
|PART I       
|Item 1.       |  | Business                                                                                                              |    |      | 3  | 
|Item 2.       |  | Properties                                                                                                            |    |      | 11 | 
|Item 3.       |  | Legal Proceedings                                                                                                     |    |      | 12 | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                               |    |      | 13 | 
|             
|PART II      
|Item 5.       |  | Market for Registrants Common Equity,
    Related Stockholder Matters, and Issuer Purchases of Equity
    Securities |    |      | 13 | 
|Item 6.       |  | Selected Consolidated Financial Data                                                                                  |    |      | 14 | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                             |    |      | 15 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                        |    |      | 34 | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                                       |    |      | 36 | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                              |    |      | 64 | 
|Item 9A.      |  | Controls and Procedures                                                                                               |    |      | 64 | 
|Item 9B.      |  | Other Information                                                                                                     |    |      | 64 | 
|             
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                                |    |      | 64 | 
|Item 11.      |  | Executive Compensation                                                                                                |    |      | 64 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management                                                    |    |      | 64 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                    |    |      | 64 | 
|Item 14.      |  | Principal Auditor Fees and Services                                                                                   |    |      | 65 | 
|             
|PART IV      
|Item 15.      |  | Exhibits and Financial Statement
    Schedules                                                                        |    |      | 65 | 
|SIGNATURES    |  |                                                                                                                       | 67 |     
|EXHIBIT 10.12
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 





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##### Table of Contents






PART I


we us or
Foundry www.foundrynetworks.com www.sec.gov







|        |         
|------- | --------
|Item 1. | Business



| |         
| | --------
| | Overview



tm tm tm


3



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Market Trends and Business Drivers










| |   |            
| | - | -----------
| |  | Convergence
|
| |  | Mobility   
|
| |  | Security   

Convergence


Mobility


Security


4



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Strategy






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Continue to Deliver Products that Meet the Needs of the
    High-End Switching Segment. Our high-performance
    Ethernet switches have achieved both commercial success and high
    levels of customer satisfaction. We will continue to broaden our
    product offerings to meet customer business needs with a full
    range of networking products. We will continue to broaden our
    high-end enterprise and service provider switch portfolio to
    meet the needs for greater bandwidth, more flexible interfaces,
    advances in Internet networking protocols, convergence,
    mobility, and enhanced security. We intend to continue to offer
    value-added feature sets that provide for reliability,
    redundancy, ease of use and management of the network, yielding
    a higher return on investment with a lower total cost of
    ownership.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10 Gigabit Ethernet  Our 10GbE solutions have
    achieved commercial success in the marketplace and we remain a
    leader in 10 Gigabit Ethernet. Our 10GbE customers include
    healthcare, government, research, university, and media
    organizations. As the boundaries of LANs, MANs and WANs continue
    to blur, companies will want to unify networks at a lower cost,
    with fewer management and operational requirements. 10GbE is the
    logical evolution of Ethernet that delivers the reliability of
    optical networks. 10GigE addresses the key concerns facing
    businesses today  the continued need for additional
    bandwidth while building a reliable network. In 2004, we
    expanded the number and types of interface modules available to
    the Terathon class of products. These interface modules included
    1-Gigabit Ethernet connections and support for Internet Protocol
    Verion 6 (IPv6). Also in 2004, we began shipping new 10-Gigabit
    Ethernet products in our FastIron Edge and EdgeIron product
    lines. Recently in 2005, we announced and began shipping the
    FastIron SuperX, a modular switch that provides outstanding port
    density in a compact form factor. We also announced that the
    FastIron SuperX would be accompanied by BigIron SuperX and
    TurboIron SuperX models. These products are designed to
    accelerate the adoption of 10-Gigabit Ethernet by offering
    attractive price points and high-performance switching and
    routing.
|
| |  | Mobility  Our wireless product offering, the
    IronPoint 200 and IronWare-IP operating system for FastIron Edge
    switches, delivers strong security, seamless mobility, enhanced
    user policies, centralized management, ease of use, and
    integration with our wired networks. The IronPoint 200 offers
    enterprises maximum flexibility with optimal controls for
    increased productivity and secure deployments. Effective and
    efficient management of networking resources is key to cost
    containment and reliability. Therefore, we also developed an
    IronPoint edition of the IronView Network Manager system to
    provide centralized wireless access point management. Our high-
    performance FastIron Edge Layer 2/3 switches are wireless LAN
    capable. We intend to further develop and support new wireless
    networking products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Voice-over-IP (VoIP)  An increasing number of
    enterprises are migrating to converged environments in which
    voice, video, and data are carried by the same network to take
    advantage of valuable business benefits such as reduced costs
    and increased productivity. A converged network needs more than
    just new devices such as IP telephones or IP video cameras. A
    converged environment needs a network foundation that provides
    superior performance and high availability. We deliver both the
    high-performance networking products in our FastIron Layer 2/3
    Enterprise Switches and the tools necessary to configure and
    optimize a converged environment with our IronView Network
    Manager system. Our adherence to industry and international
    standards has been validated by our customers who have
    successfully used a wide variety of IP phones and cameras from
    different suppliers, including those of our                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

5



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | competitors. In 2003, we delivered new FastIron Edge switches
    with power-over-Ethernet. This provides customers the technology
    needed to power new devices such as IP phones, realize optimal
    network performance, and manage network resources. We intend to
    further develop and expand our networking and management
    offerings for converged environments so that customers will have
    more options for efficiencies and productivity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Security  As networking has become an essential part
    of nearly all businesses, agencies, and organizations, security
    has become an integral part of designing and deploying
    todays networks and data centers. The foundation for our
    security model is our reliable, robust, high-performance
    security architecture. Our architecture is based on our layered
    IronShield Security Model, with advanced device, network, and
    service protection features. We intend to evolve IronShield
    Security to keep ahead of risks. In the near-term, we intend to
    deliver an extension to the IronShield security reference model
    that addresses new high-profile security services. Our
    IronShield security encompasses network level features that we
    have deployed in our full range of Layer 2-7 switches, routers,
    and intelligent traffic management devices to implement secure
    networks. Since our inception, we have delivered innovative,
    effective, and efficient functions and features into our
    products to provide network security. We intend to continue our
    investment in security and best practices, and to build them
    into all of our products. We remain committed to a strategy of
    standard-based implementations and product offerings so that our
    customers will benefit from ease of use and interoperability.
|
| |  | Internet Protocol version 6 (IPv6)  Although interest
    in and adoption of IPv6 is gaining momentum in international
    markets, the widespread adoption of IPv6 in the
    U.S. commercial sector is likely to take several years.
    However, the U.S. federal government has made IPv6 a
    requirement for its installations. We deliver products that meet
    the requirements of IPv6 using a phased approach. In 2004, we
    delivered new IPv6 interface modules for the BigIron MG8 and
    NetIron 40G. We intend to further develop and deliver IPv6
    solutions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Extend Product Offerings with Adjacent Technologies that
    Provide High-Value to Customers. In 2004, we introduced
    our line of AccessIron WAN aggregation routers. We designed this
    solution to meet the needs of businesses and organizations for
    T-Carrier, E-Carrier, and T-Carrier-3 interconnection with WAN
    services. Such WAN services are typically provided by telephone
    carriers. Our AccessIron routers also include Ethernet ports. We
    intend to explore additional product offerings in adjacent
    technologies that would benefit our installed customer base by
    providing ease of management, cost efficiencies, or productivity
    gains.                                                                                                                                                                                                                                                                                                                                
|
| | Continue to Expand our Metro Router Capabilities to
    Address this Growing Market and Deliver a New Level of Price/
    Performance. We remain committed to the service provider
    and metro provider markets while growing our enterprise
    business. As these markets regain momentum and growth, we are
    positioned to provide state-of-the-art solutions. We have
    product offerings and planned enhancements for Multi-Protocol
    Label Switching, Virtual Private LAN Services (VPLS), traffic
    engineering (TE) and multiplexing of different services
    over Virtual LAN (VLAN). Our superior wire-speed bandwidth and
    port density accommodate the most demanding metro area networks
    with room for growth.                                                                                                                                                                                                                                                                           
|
| | Continue to Leverage our Product Capabilities to Address
    Emerging Markets. This includes metropolitan area
    networking (MAN), Gigabit Ethernet storage area networking
    (SAN), VoIP, and content distribution networks. As noted above,
    the key advantages of 1 and 10 Gigabit Ethernet, such as price,
    simplicity and ease of use, will allow this technology to
    migrate into many new adjacent markets over time. Our strategy
    is to position ourself to benefit from acceptance of Gigabit
    Ethernet in such environments as MAN, SAN, VoIP, and content
    distribution. To accomplish this, we have added the necessary
    features and enhancements to our products to provide an ideal
    solution for these customers. We work with select partners when
    additional non-networking hardware or software is needed for
    solutions such as VoIP and SAN. This permits us to remain
    focused on network infrastructure and provide complete solutions
    to our customers.
|
| | Continue our Market Leadership Position in Internet
    Traffic Management Systems. We believe demand for
    Internet traffic management intelligence capabilities will be a
    very important growth area for                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

6



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | web-based businesses and Internet service providers and an area
    of increasing importance to traditional enterprise networks. We
    intend to maintain our leadership position in this market by
    continually improving the performance and functionality of our
    Internet traffic management products. Designed to provide the
    highest level of performance and network intelligence
    capabilities, our products enable web-based businesses and
    Internet service providers to rapidly deliver new
    revenue-generating applications and services to customers, while
    providing a high degree of service reliability.
|
| | Expand Global Sales Organization.We intend to
    continue the global expansion of our sales organization
    utilizing a direct sales organization in the United States and
    abroad, strategic channel partners outside the United States and
    select original equipment manufacturers. We intend to increase
    our worldwide sales force and establish additional channel
    partner relationships to build a greater worldwide sales
    presence.                                                                                                                                                                                   
|
| | Deliver World Class Service and Support. We
    intend to expand our service and support infrastructure to meet
    the needs of our growing customer base. Our goal is to minimize
    our customers network downtime by offering a wide range of
    service and support programs to meet individual customer needs,
    including prompt on-site hardware repair and replacement,
    24-hour, seven days-a-week web and telephone support, parts
    depots in strategic global locations, implementation support,
    pre-sales service, system software and network management
    software updates, and technical documentation updates. 

Sales and Marketing




Domestic field sales.


Domestic resellers.


International sales.


OEM/ Co-Branding.


Marketing programs.


7



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Customer Service and Support








Significant Customers






|           |  |      |     |   |      |  |    |      |  |  |     |  
|---------- |  | ---- | --- | - | ---- |  | -- | ---- |  |  | --- | -
|           |  | 2004 |     |   | 2003 |  |    | 2002 | 
|           |  |      |     |   |      |  |    |      | 
|Customer A |  |      | <10 | % |      |  | 14 | %    |  |  | 12  | %
|Customer B |  |      | <10 | % |      |  | 12 | %    |  |  | <10 | %

Quality Assurance




8



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Manufacturing










Research and Development






9



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##### Table of Contents





Competition








Seasonality




Backlog




10



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Intellectual Property








Employees









|        |           
|------- | ----------
|Item 2. | Properties



|                         |  |                        |  |                  
|------------------------ |  | ---------------------- |  | -----------------
|Americas                 |  | EMEA                   |  | APAC             
|                         |  |                        |  |                  
|San Jose, California     |  | London, England        |  | Tokyo, Japan     
|Irvine, California       |  | Munich, Germany        |  | Singapore        
|Salt Lake City, Utah     |  | Paris, France          |  | Hong Kong        
|Chicago, Illinois        |  | Amsterdam, Netherlands |  | Sydney, Australia
|Fort Lauderdale, Florida |  | Milan, Italy           |  | Beijing, China   
|New York City, New York  |  |                        |  |                  
|Herndon, Virginia        |  |                        |  |                  
|Toronto, Canada          |  |                        |  |                  

11



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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings



In
re Foundry Networks, Inc. Securities Litigation.


In re Foundry Networks, Inc. Initial Public Offering
Securities Litigation, related to In re Initial Public Offering
Securities Litigation,


12



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|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission Of Matters to a Vote of Security Holders






PART II







|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 5. | Market For Registrants Common Equity, Related
    Stockholder Matters, and Issuer Purchases of Equity
    Securities

Price Range of Common Stock




13



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|               |  |      |       |  |     |   |       | 
|-------------- |  | ---- | ----- |  | --- | - | ----- | 
|               |  | High |       |  | Low |  
|               |  |      |       |  |     |  
|2004           |  |      |       |  |     |   |       | 
|Fourth quarter |  | $    | 13.96 |  |     | $ | 9.91  | 
|Third quarter  |  | $    | 13.57 |  |     | $ | 8.50  | 
|Second quarter |  | $    | 18.84 |  |     | $ | 11.30 | 
|First quarter  |  | $    | 33.75 |  |     | $ | 15.80 | 
|2003           |  |      |       |  |     |   |       | 
|Fourth quarter |  | $    | 27.68 |  |     | $ | 21.88 | 
|Third quarter  |  | $    | 23.77 |  |     | $ | 15.25 | 
|Second quarter |  | $    | 16.00 |  |     | $ | 7.92  | 
|First quarter  |  | $    | 10.13 |  |     | $ | 7.39  | 

Dividend Policy




Unregistered Securities Sold in 2004




Issuer Purchases of Equity Securities









|        |                                     
|------- | ------------------------------------
|Item 6. | Selected Consolidated Financial Data



|                                           |                         |                                                  |         |         |      |   |         |         |   |   |         |         |   |      |         |         |   |   |         |         |  
|------------------------------------------ | ----------------------- | ------------------------------------------------ | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                           |                         | Year Ended December 31,                          |        
|                                           |                         |                                                  |        
|                                           |                         | 2004                                             |         |         | 2003 |   |         | 2002    |   |   | 2001    |         |   | 2000 |        
|                                           |                         |                                                  |         |         |      |   |         |         |   |   |         |         |   |      |        
|                                           |                         | (Dollars in thousands, except per share amounts) |        
|Consolidated Statement of Operations Data: |                         |                                                  |         |         |      |   |         |         |   |   |         |         |   |      |         |         |   |   |         |        
|Revenues, net                              |                         | $                                                | 409,104 |         |      | $ | 399,628 |         |   | $ | 300,742 |         |   | $    | 311,176 |         |   | $ | 377,156 |        
|                                           | Gross margin            |                                                  |         | 265,681 |      |   |         | 258,770 |   |   |         | 160,550 |   |      |         | 153,035 |   |   |         | 242,826 |  
|                                           | Gross margin percentage |                                                  |         | 65      | %    |   |         | 65      | % |   |         | 53      | % |      |         | 49      | % |   |         | 64      | %
|Income (loss) from operations(1)           |                         |                                                  | 63,365  |         |      |   | 112,057 |         |   |   | 27,171  |         |   |      | (1,591  | )       |   |   | 130,896 |        
|Net income(1)                              |                         |                                                  | 47,967  |         |      |   | 75,082  |         |   |   | 22,537  |         |   |      | 2,886   |         |   |   | 88,121  |        
|Basic net income per share(1)              |                         | $                                                | 0.35    |         |      | $ | 0.60    |         |   | $ | 0.19    |         |   | $    | 0.02    |         |   | $ | 0.80    |        
|Diluted net income per share(1)            |                         | $                                                | 0.34    |         |      | $ | 0.55    |         |   | $ | 0.18    |         |   | $    | 0.02    |         |   | $ | 0.69    |        

14



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|                                       |  |                    |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|-------------------------------------- |  | ------------------ | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | 
|                                       |  | As of December 31, |        
|                                       |  |                    |        
|                                       |  | 2004               |         |  | 2003 |   |         | 2002 |  |   | 2001    |  |  | 2000 |        
|                                       |  |                    |         |  |      |   |         |      |  |   |         |  |  |      |        
|                                       |  | (In thousands)     |        
|Consolidated Balance Sheet Data:       |  |                    |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|Cash, cash equivalents and investments |  | $                  | 617,441 |  |      | $ | 505,684 |      |  | $ | 326,453 |  |  | $    | 274,734 |  |  | $ | 252,245 | 
|Working capital                        |  |                    | 519,144 |  |      |   | 430,038 |      |  |   | 390,543 |  |  |      | 354,054 |  |  |   | 339,369 | 
|Total assets                           |  |                    | 811,192 |  |      |   | 658,144 |      |  |   | 451,535 |  |  |      | 412,138 |  |  |   | 398,466 | 
|Long-term liabilities                  |  |                    | 17,613  |  |      |   | 7,707   |      |  |   |        |  |  |      |        |  |  |   |        | 
|Total stockholders equity             |  |                    | 706,338 |  |      |   | 590,495 |      |  |   | 398,099 |  |  |      | 361,832 |  |  |   | 345,016 | 






|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 2004 includes an operating expense of $18.7 million, net of
    tax, related to our litigation settlement with Nortel in the
    third quarter of 2004.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | 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 consolidated financial statements and related notes
appearing elsewhere in this Form 10-K. 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 the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Risk Factors
That May Affect Future Results and the Market Price of Our
Stock. Readers are cautioned to not 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 file such
reports with the SEC.


Overview






| |                     
| | --------------------
| | Business Environment





15



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| |                           
| | --------------------------
| | 2004 Financial Performance



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 2004 marked our sixth consecutive year with net income since we
    went public in September 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Our revenues for 2004 increased to $409.1 million, from
    $399.6 million in 2003, due to an increase of
    $11.8 million in service revenue. Despite increased sales
    volume in 2004, our product revenues were nearly flat as a
    result of price erosion and a shift in sales mix to lower-priced
    stackable products. Our customer base grew to 7,800 customers at
    the end of 2004, from 6,500 customers at the end of 2003.                                                                                                      
|
| |  | In October 2004, we entered into a settlement agreement and
    patent cross-license agreement with Nortel, pursuant to which we
    paid $35.0 million to Nortel and recorded an operating
    expense of $30.2 million in the third quarter of 2004. The
    remaining amount paid to Nortel represents consideration for a
    four-year patent cross-license with Nortel and is being
    amortized ratably to cost of product revenue over the license
    term. The litigation settlement reduced net income by
    $18.7 million, net of tax.
|
| |  | Net income in 2004 was $48.0 million, or 12% of total net
    revenues, compared to $75.1 million, or 19% of total net
    revenues, in 2003. In 2004, we expanded our sales organization
    and research and development team. This investment in our
    infrastructure, as well as a litigation settlement expense of
    $30.2 million and related legal fees, reduced our
    profitability in 2004.                                                                                                                                          
|
| |  | Our balance sheet remains debt-free, with cash and investments
    of $617.4 million, an increase of $111.8 million from
    2003. During 2004, we generated $81.5 million of cash from
    operations and received $38.7 million of cash from employee
    stock option exercises.                                                                                                                                                                                                                                                                 

Critical Accounting Policies and Estimates






| |                    
| | -------------------
| | Revenue Recognition





16



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| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |            
| | -----------
| | Inventories



17



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##### Table of Contents







| |                                       
| | --------------------------------------
| | Deferred Tax Asset Valuation Allowance





| |                   
| | ------------------
| | Loss Contingencies



Recent Accounting Pronouncements




18



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##### Table of Contents







Results of Operations




| |             
| | ------------
| | Net Revenues





|                   |  |                         |         |          |          |  |     |      |          |   |          |  |  |          |     |   |          |   |         |  |  |  |     |  
|------------------ |  | ----------------------- | ------- | -------- | -------- |  | --- | ---- | -------- | - | -------- |  |  | -------- | --- | - | -------- | - | ------- |  |  |  | --- | -
|                   |  | Year Ended December 31, |        
|                   |  |                         |        
|                   |  |                         |         | % of Net |          |  |     |      | % of Net |   |          |  |  | % of Net |    
|                   |  | 2004                    |         |          | Revenues |  |     | 2003 |          |   | Revenues |  |  | 2002     |     |   | Revenues |  
|                   |  |                         |         |          |          |  |     |      |          |   |          |  |  |          |     |   |          |  
|Net revenues:      |  |                         |         |          |          |  |     |      |          |   |          |  |  |          |     |   |          |   |         |  |  |  |     |  
|Product            |  | $                       | 349,019 |          |          |  | 85  | %    |          | $ | 351,325  |  |  |          | 88  | % |          | $ | 264,998 |  |  |  | 88  | %
|Service            |  |                         | 60,085  |          |          |  | 15  | %    |          |   | 48,303   |  |  |          | 12  | % |          |   | 35,744  |  |  |  | 12  | %
|                   |  |                         |         |          |          |  |     |      |          |   |          |  |  |          |     |   |          |  
|Total net revenues |  | $                       | 409,104 |          |          |  | 100 | %    |          | $ | 399,628  |  |  |          | 100 | % |          | $ | 300,742 |  |  |  | 100 | %
|                   |  |                         |         |          |          |  |     |      |          |   |          |  |  |          |     |   |          |  
|Chassis            |  | $                       | 306,828 |          |          |  | 75  | %    |          | $ | 315,706  |  |  |          | 79  | % |          | $ | 231,571 |  |  |  | 77  | %
|Stackable          |  |                         | 102,276 |          |          |  | 25  | %    |          |   | 83,922   |  |  |          | 21  | % |          |   | 69,171  |  |  |  | 23  | %
|                   |  |                         |         |          |          |  |     |      |          |   |          |  |  |          |     |   |          |  
|Total net revenues |  | $                       | 409,104 |          |          |  | 100 | %    |          | $ | 399,628  |  |  |          | 100 | % |          | $ | 300,742 |  |  |  | 100 | %
|                   |  |                         |         |          |          |  |     |      |          |   |          |  |  |          |     |   |          |  





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|             |  |      |    |   |      |  |    |      |  |  |    |  
|------------ |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|             |  | 2004 |    |   | 2003 |  |    | 2002 | 
|             |  |      |    |   |      |  |    |      | 
|Americas     |  |      | 62 | % |      |  | 63 | %    |  |  | 61 | %
|EMEA         |  |      | 19 | % |      |  | 14 | %    |  |  | 14 | %
|Japan        |  |      | 11 | % |      |  | 15 | %    |  |  | 13 | %
|Asia Pacific |  |      | 8  | % |      |  | 8  | %    |  |  | 12 | %





| |              
| | -------------
| | Gross Margins



|                   |  |                         |         |       |          |  |    |      |       |   |          |  |  |       |    |   |          |   |         |  |  |  |    |  
|------------------ |  | ----------------------- | ------- | ----- | -------- |  | -- | ---- | ----- | - | -------- |  |  | ----- | -- | - | -------- | - | ------- |  |  |  | -- | -
|                   |  | Year Ended December 31, |        
|                   |  |                         |        
|                   |  |                         |         | Gross |          |  |    |      | Gross |   |          |  |  | Gross |   
|                   |  | 2004                    |         |       | Margin % |  |    | 2003 |       |   | Margin % |  |  | 2002  |    |   | Margin % |  
|                   |  |                         |         |       |          |  |    |      |       |   |          |  |  |       |    |   |          |  
|Gross margins:     |  |                         |         |       |          |  |    |      |       |   |          |  |  |       |    |   |          |   |         |  |  |  |    |  
|Product            |  | $                       | 219,830 |       |          |  | 63 | %    |       | $ | 218,213  |  |  |       | 62 | % |          | $ | 130,350 |  |  |  | 49 | %
|Service            |  |                         | 45,851  |       |          |  | 76 | %    |       |   | 40,557   |  |  |       | 84 | % |          |   | 30,200  |  |  |  | 84 | %
|                   |  |                         |         |       |          |  |    |      |       |   |          |  |  |       |    |   |          |  
|Total gross margin |  | $                       | 265,681 |       |          |  | 65 | %    |       | $ | 258,770  |  |  |       | 65 | % |          | $ | 160,550 |  |  |  | 53 | %
|                   |  |                         |         |       |          |  |    |      |       |   |          |  |  |       |    |   |          |  





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| |                   
| | ------------------
| | Operating Expenses



|                           |  |                         |        |          |          |  |    |      |          |   |          |  |  |          |    |   |          |   |        |  |  |  |    |  
|-------------------------- |  | ----------------------- | ------ | -------- | -------- |  | -- | ---- | -------- | - | -------- |  |  | -------- | -- | - | -------- | - | ------ |  |  |  | -- | -
|                           |  | Year Ended December 31, |       
|                           |  |                         |       
|                           |  |                         |        | % of Net |          |  |    |      | % of Net |   |          |  |  | % of Net |   
|                           |  | 2004                    |        |          | Revenues |  |    | 2003 |          |   | Revenues |  |  | 2002     |    |   | Revenues |  
|                           |  |                         |        |          |          |  |    |      |          |   |          |  |  |          |    |   |          |  
|Research and Development   |  | $                       | 43,905 |          |          |  | 11 | %    |          | $ | 40,473   |  |  |          | 10 | % |          | $ | 34,933 |  |  |  | 12 | %
|Sales and Marketing        |  |                         | 98,614 |          |          |  | 24 | %    |          |   | 88,439   |  |  |          | 22 | % |          |   | 82,924 |  |  |  | 28 | %
|General and Administrative |  |                         | 29,604 |          |          |  | 7  | %    |          |   | 17,570   |  |  |          | 4  | % |          |   | 14,451 |  |  |  | 5  | %
|Litigation Settlement      |  |                         | 30,193 |          |          |  | 7  | %    |          |   |         |  |  |          |   |   |          |   |       |  |  |  |   |  

Research and development


Sales and marketing


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General and administrative


Litigation settlement.


Amortization of deferred stock compensation.


Interest and other income, net.


Income taxes.




Liquidity and Capital Resources




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| |                                                                         
| | ------------------------------------------------------------------------
| | Disclosures about Contractual Obligations and Commercial
    Commitments



|                                                 |  |       |        |           |        |   |        |           |      |   |         |  |  |   |       | 
|------------------------------------------------ |  | ----- | ------ | --------- | ------ | - | ------ | --------- | ---- | - | ------- |  |  | - | ----- | 
|                                                 |  |       |        |           |        |   |        | More      |     
|                                                 |  |       |        | Less Than |        |   |        |           | Than |  
|                                                 |  | Total |        |           | 1 Year |   |        | 13 Years |      |   | 5 Years | 
|                                                 |  |       |        |           |        |   |        |           |      |   |         | 
|Operating leases of facilities                   |  | $     | 11,747 |           |        | $ | 4,736  |           |      | $ | 5,730   |  |  | $ | 1,281 | 
|Purchase commitments with contract manufacturers |  |       | 40,042 |           |        |   | 40,042 |           |      |   |        |  |  |   |      | 
|                                                 |  |       |        |           |        |   |        |           |      |   |         | 
|Total contractual cash obligations               |  | $     | 51,789 |           |        | $ | 44,778 |           |      | $ | 5,730   |  |  | $ | 1,281 | 
|                                                 |  |       |        |           |        |   |        |           |      |   |         | 





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| |                               
| | ------------------------------
| | Off-Balance Sheet Arrangements





| |                 
| | ----------------
| | Indemnifications



Risk Factors That May Affect Future Results and the Market
Price of Our Stock




| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Weak economic and market conditions or geopolitical
    turmoil may adversely affect our revenues, gross margins and
    expenses.





| |                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Although our customer base has increased, we still 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.



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| |                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.











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| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | Intense competition in the market for network 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.



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| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | If we fail to protect our intellectual property, our
    business and ability to compete could suffer.







| |                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





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| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our ability to increase our revenues depends on expanding
    our direct sales operations and reseller distribution channels
    and continuing to provide excellent customer support.







| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our gross margins may decline over time and the average
    selling prices of our products may decrease as a result of
    competitive pressures and other factors.





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| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.







| |                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | potential recessions in economies outside the United States;                        
|
| |  | longer accounts receivable collection cycles;                                       
|
| |  | seasonal reductions in business activity;                                           
|
| |  | higher costs of doing business in foreign countries;                                
|
| |  | infringement claims on foreign patents, copyrights, or trademark
    rights;        
|
| |  | difficulties in managing operations across disparate geographic
    areas;          
|
| |  | difficulties associated with enforcing agreements through
    foreign legal systems;
|
| |  | political instability and export restrictions;                                      
|
| |  | potential adverse tax consequences;                                                 
|
| |  | unexpected changes in regulatory requirements;                                      

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| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | military conflict and terrorist activities; and                  
|
| |  | natural disasters and widespread medical epidemics, such as SARS.







| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | We purchase several key components for our products from
    sole sources; if these components are not available, our
    revenues may be harmed.









| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | Our reliance on third-party manufacturing vendors to
    manufacture our products may cause a delay in our ability to
    fill orders.



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| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Recent legislation requires us to undertake an annual
    evaluation of our internal controls over financial reporting
    that may identify internal control weaknesses requiring
    remediation, which could harm our reputation.





| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Beginning July 1, 2005, we will be required to record
    compensation expense for stock options. As a result, our
    profitability will be reduced significantly.



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| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | The timing of the adoption of industry standards may
    negatively affect widespread market acceptance of our
    products.





| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;
|
| |  | product returns;                                       
|
| |  | lost sales; and                                        
|
| |  | unexpected expenses to remedy defects or errors.       



| |                                                                           
| | --------------------------------------------------------------------------
| | We may incur liabilities that are not subject to maximum
    loss clauses.



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| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | 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.                                                            





| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | Our stock price has been volatile historically, which may
    make it more difficult to sell shares when needed at attractive
    prices.



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| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | 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 7A. | Quantitative and Qualitative Disclosures about Market
    Risk.



| |                   
| | ------------------
| | Interest rate risk







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| |                                    
| | -----------------------------------
| | Foreign currency exchange rate risk





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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements And Supplementary Data

FOUNDRY NETWORKS, INC.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                     |  |      |    | 
|-------------------------------------------------------------------- |  | ---- | -- | 
|                                                                     |  | Page |   
|                                                                     |  |      |   
|Managements Report on Internal
    Control Over Financial Reporting |  |      | 37 | 
|Report of Independent Registered Public
    Accounting Firm          |  |      | 38 | 
|Report of Independent Registered Public
    Accounting Firm          |  |      | 39 | 
|Consolidated Balance Sheets                                          |  |      | 40 | 
|Consolidated Statements of Income                                    |  |      | 41 | 
|Consolidated Statements of
    Stockholders Equity                  |  |      | 42 | 
|Consolidated Statements of Cash Flows                                |  |      | 43 | 
|Notes to Consolidated Financial
    Statements                       |  |      | 44 | 
|Quarterly Summary                                                    |  |      | 61 | 



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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING






|                                                                                                                    |  |                                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                   
|/s/ Bobby R. Johnson,
    Jr.Bobby
    R. Johnson, Jr.
    Chief Executive Officer and President
    March 11, 2005 |  | /s/ Timothy D. Heffner--------------------------------------------
    Timothy D. Heffner
    Chief Financial Officer,
    Vice President Finance and Administration
    March 11, 2005

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




















| |                          
| | -------------------------
| | /s/ ERNST & YOUNG
    LLP





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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















| |                          
| | -------------------------
| | /s/ ERNST & YOUNG
    LLP





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FOUNDRY NETWORKS, INC.





CONSOLIDATED BALANCE SHEETS


|                                       |                                                                                                                                                                              |                                                                                                         |         |         |         |  |         |         |         | 
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|                                       |                                                                                                                                                                              | December 31,                                                                                            |        
|                                       |                                                                                                                                                                              |                                                                                                         |        
|                                       |                                                                                                                                                                              | 2004                                                                                                    |         |         | 2003    | 
|                                       |                                                                                                                                                                              |                                                                                                         |         |         |         | 
|                                       |                                                                                                                                                                              | (In thousands, except per                                                                               |        
|                                       |                                                                                                                                                                              | share amounts)                                                                                          |        
|ASSETS                                
|Current assets:                        |                                                                                                                                                                              |                                                                                                         |         |         |         |  |         |        
|                                       | Cash and cash equivalents                                                                                                                                                    |                                                                                                         | $       | 112,274 |         |  | $       | 161,718 |        
|                                       | Short-term investments                                                                                                                                                       |                                                                                                         |         | 331,202 |         |  |         | 184,859 |        
|                                       | Accounts receivable, net of allowances for doubtful accounts of
    $3,117 and $4,151 and sales returns of $1,627 and $2,020 at
    December 31, 2004 and 2003, respectively |                                                                                                         |         | 91,502  |         |  |         | 77,077  |        
|                                       | Inventories                                                                                                                                                                  |                                                                                                         |         | 38,743  |         |  |         | 28,017  |        
|                                       | Deferred tax assets                                                                                                                                                          |                                                                                                         |         | 25,799  |         |  |         | 33,308  |        
|                                       | Prepaid expenses and other assets                                                                                                                                            |                                                                                                         |         | 6,865   |         |  |         | 5,001   |        
|                                       |                                                                                                                                                                              |                                                                                                         |         |         |         | 
|                                       |                                                                                                                                                                              | Total current assets                                                                                    |         |         | 606,385 |  |         |         | 489,980 | 
|Property and equipment, net            |                                                                                                                                                                              |                                                                                                         | 8,852   |         |         |  | 7,866   |        
|Investments                            |                                                                                                                                                                              |                                                                                                         | 173,965 |         |         |  | 159,107 |        
|Deferred tax assets                    |                                                                                                                                                                              |                                                                                                         | 16,479  |         |         |  |        |        
|Other assets                           |                                                                                                                                                                              |                                                                                                         | 5,511   |         |         |  | 1,191   |        
|                                       |                                                                                                                                                                              |                                                                                                         |         |         |         | 
|                                       |                                                                                                                                                                              | Total assets                                                                                            |         | $       | 811,192 |  |         | $       | 658,144 | 
|                                       |                                                                                                                                                                              |                                                                                                         |         |         |         | 
|                                      
|LIABILITIES AND STOCKHOLDERS EQUITY  
|Current liabilities:                   |                                                                                                                                                                              |                                                                                                         |         |         |         |  |         |        
|                                       | Accounts payable                                                                                                                                                             |                                                                                                         | $       | 18,238  |         |  | $       | 10,080  |        
|                                       | Accrued payroll and related expenses                                                                                                                                         |                                                                                                         |         | 21,682  |         |  |         | 16,650  |        
|                                       | Other accrued expenses                                                                                                                                                       |                                                                                                         |         | 8,700   |         |  |         | 5,804   |        
|                                       | Deferred support revenue                                                                                                                                                     |                                                                                                         |         | 38,621  |         |  |         | 27,408  |        
|                                       |                                                                                                                                                                              |                                                                                                         |         |         |         | 
|                                       |                                                                                                                                                                              | Total current liabilities                                                                               |         |         | 87,241  |  |         |         | 59,942  | 
|Deferred support revenue               |                                                                                                                                                                              |                                                                                                         | 17,613  |         |         |  | 7,707   |        
|                                       |                                                                                                                                                                              |                                                                                                         |         |         |         | 
|                                       |                                                                                                                                                                              | Total liabilities                                                                                       |         |         | 104,854 |  |         |         | 67,649  | 
|                                       |                                                                                                                                                                              |                                                                                                         |         |         |         | 
|Commitments and contingencies (Note 3) |                                                                                                                                                                              |                                                                                                         |         |         |         |  |         |        
|Stockholders equity:                  |                                                                                                                                                                              |                                                                                                         |         |         |         |  |         |        
|                                       | Preferred stock, $0.0001 par value:                                                                                                                                          |                                                                                                         |         |         |         |  |         |         |        
|                                       | Authorized  5,000 shares at December 31,
    2004 and 2003; None issued and outstanding as of
    December 31, 2004 and 2003                                                |                                                                                                         |         |        |         |  |         |        |        
|                                       | Common stock, $0.0001 par value:                                                                                                                                             |                                                                                                         |         |         |         |  |         |         |        
|                                       | Authorized  300,000 shares at December 31,
    2004 and 2003:                                                                                                               |                                                                                                         |         |         |         |  |         |         |        
|                                       |                                                                                                                                                                              | Issued and outstanding  137,226 and
    131,623 shares at December 31, 2004 and 2003,
    respectively |         |         | 14      |  |         |         | 13      | 
|                                       | Additional paid-in capital                                                                                                                                                   |                                                                                                         |         | 467,682 |         |  |         | 399,789 |        
|                                       | Note receivable from stockholder                                                                                                                                             |                                                                                                         |         |        |         |  |         | (480    | )      
|                                       | Accumulated other comprehensive income (loss)                                                                                                                                |                                                                                                         |         | (451    | )       |  |         | 47      |        
|                                       | Retained earnings                                                                                                                                                            |                                                                                                         |         | 239,093 |         |  |         | 191,126 |        
|                                       |                                                                                                                                                                              |                                                                                                         |         |         |         | 
|                                       |                                                                                                                                                                              | Total stockholders equity                                                                              |         |         | 706,338 |  |         |         | 590,495 | 
|                                       |                                                                                                                                                                              |                                                                                                         |         |         |         | 
|                                       |                                                                                                                                                                              | Total liabilities and stockholders equity                                                              |         | $       | 811,192 |  |         | $       | 658,144 | 
|                                       |                                                                                                                                                                              |                                                                                                         |         |         |         | 



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FOUNDRY NETWORKS, INC.





CONSOLIDATED STATEMENTS OF INCOME


|                                                                           |                                             |                                       |         |         |         |   |         |         |         |   |         |         |         | 
|-------------------------------------------------------------------------- | ------------------------------------------- | ------------------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                           |                                             | Year Ended December 31,               |        
|                                                                           |                                             |                                       |        
|                                                                           |                                             | 2004                                  |         |         | 2003    |   |         | 2002    |        
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|                                                                           |                                             | (In thousands, except per share data) |        
|Net revenues:                                                              |                                             |                                       |         |         |         |   |         |         |         |   |         |        
|                                                                           | Product                                     |                                       | $       | 349,019 |         |   | $       | 351,325 |         |   | $       | 264,998 |        
|                                                                           | Service                                     |                                       |         | 60,085  |         |   |         | 48,303  |         |   |         | 35,744  |        
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|                                                                           |                                             | Total net revenues                    |         |         | 409,104 |   |         |         | 399,628 |   |         |         | 300,742 | 
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|Cost of revenues:                                                          |                                             |                                       |         |         |         |   |         |         |         |   |         |        
|                                                                           | Product                                     |                                       |         | 129,189 |         |   |         | 133,112 |         |   |         | 134,648 |        
|                                                                           | Service                                     |                                       |         | 14,234  |         |   |         | 7,746   |         |   |         | 5,544   |        
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|                                                                           |                                             | Total cost of revenues                |         |         | 143,423 |   |         |         | 140,858 |   |         |         | 140,192 | 
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|                                                                           | Gross margin                                |                                       |         | 265,681 |         |   |         | 258,770 |         |   |         | 160,550 |        
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|Operating expenses:                                                        |                                             |                                       |         |         |         |   |         |         |         |   |         |        
|                                                                           | Research and development                    |                                       |         | 43,905  |         |   |         | 40,473  |         |   |         | 34,933  |        
|                                                                           | Sales and marketing                         |                                       |         | 98,614  |         |   |         | 88,439  |         |   |         | 82,924  |        
|                                                                           | General and administrative                  |                                       |         | 29,604  |         |   |         | 17,570  |         |   |         | 14,451  |        
|                                                                           | Litigation settlement                       |                                       |         | 30,193  |         |   |         |        |         |   |         |        |        
|                                                                           | Amortization of deferred stock compensation |                                       |         |        |         |   |         | 231     |         |   |         | 1,071   |        
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|                                                                           |                                             | Total operating expenses              |         |         | 202,316 |   |         |         | 146,713 |   |         |         | 133,379 | 
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|Income from operations                                                     |                                             |                                       | 63,365  |         |         |   | 112,057 |         |         |   | 27,171  |        
|Interest and other income, net                                             |                                             |                                       | 9,868   |         |         |   | 5,168   |         |         |   | 5,025   |        
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|Income before provision for income taxes                                   |                                             |                                       | 73,233  |         |         |   | 117,225 |         |         |   | 32,196  |        
|Provision for income taxes                                                 |                                             |                                       | 25,266  |         |         |   | 42,143  |         |         |   | 9,659   |        
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|                                                                           |                                             | Net income                            |         | $       | 47,967  |   |         | $       | 75,082  |   |         | $       | 22,537  | 
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|Basic net income per share                                                 |                                             | $                                     | 0.35    |         |         | $ | 0.60    |         |         | $ | 0.19    |        
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|Weighted average shares used in computing basic net income per
    share   |                                             |                                       | 135,445 |         |         |   | 125,133 |         |         |   | 119,482 |        
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|Diluted net income per share                                               |                                             | $                                     | 0.34    |         |         | $ | 0.55    |         |         | $ | 0.18    |        
|                                                                           |                                             |                                       |         |         |         |   |         |         |        
|Weighted average shares used in computing diluted net income per
    share |                                             |                                       | 143,118 |         |         |   | 135,631 |         |         |   | 123,780 |        
|                                                                           |                                             |                                       |         |         |         |   |         |         |        



41



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FOUNDRY NETWORKS, INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                              |                                                       |                |         |        |                |   |    |            |  |  |            |        |             |          |         |        |               |   |         |              |   |       |               |     |  |               |        |       |        |   |      |        |   |   |         |        |  |   |         |        |   |   |        |        |  
|----------------------------- | ----------------------------------------------------- | -------------- | ------- | ------ | -------------- | - | -- | ---------- |  |  | ---------- | ------ | ----------- | -------- | ------- | ------ | ------------- | - | ------- | ------------ | - | ----- | ------------- | --- |  | ------------- | ------ | ----- | ------ | - | ---- | ------ | - | - | ------- | ------ |  | - | ------- | ------ | - | - | ------ | ------ | -
|                              |                                                       |                |         |        |                |   |    | Note       |  |  |            |        | Accumulated |          |         |        |               |   |         |             
|                              |                                                       | Common Stock   |         |        | Treasury Stock |   |    | Additional |  |  | Receivable |        |             | Deferred |         |        | Other         |   |         |              |   | Total |               |     | 
|                              |                                                       |                |         |        |                |   |    | Paid-In    |  |  | From       |        |             | Stock    |         |        | Comprehensive |   |         | Retained     |   |       | Stockholders |     |  | Comprehensive |       
|                              |                                                       | Shares         |         |        | Amount         |   |    | Shares     |  |  | Amount     |        |             | Capital  |         |        | Stockholder   |   |         | Compensation |   |       | Income        |     |  | Earnings      |        |       | Equity |   |      | Income |  
|                              |                                                       |                |         |        |                |   |    |            |  |  |            |        |             |          |         |        |               |   |         |              |   |       |               |     |  |               |        |       |        |   |      |        |  
|                              |                                                       | (In thousands) |        
|BALANCES AT DECEMBER 31, 2001 |                                                       |                | 119,299 |        |                | $ | 12 |            |  |  | 1,522      |        |             | $        | (14,996 | )      |               | $ | 284,740 |              |   | $     | (480          | )   |  | $             | (1,302 | )     |        | $ | 351  |        |   | $ | 93,507  |        |  | $ | 361,832 |        |   |   |        |       
|                              | Issuances of common stock under stock plans           |                |         | 2,067  |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         | 8,253        |   |       |               |    |  |               |        |      |        |   |      |       |   |   |         |       |  |   |         | 8,253  |   |   |        |        |  
|                              | Repurchases of common stock from terminated employees |                |         | (37    | )              |   |    |           |  |  |            |       |             |          |         |       |               |   |         | (106         | ) |       |               |    |  |               |        |      |        |   |      |       |   |   |         |       |  |   |         | (106   | ) |   |        |        |  
|                              | Issuances of stock repurchased from open market       |                |         |       |                |   |    |           |  |  |            | (1,522 | )           |          |         | 14,996 |               |   |         | (14,996      | ) |       |               |    |  |               |        |      |        |   |      |       |   |   |         |       |  |   |         |       |   |   |        |        |  
|                              | Amortization of deferred stock compensation           |                |         |       |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         |             |   |       |               |    |  |               |        | 1,071 |        |   |      |       |   |   |         |       |  |   |         | 1,071  |   |   |        |        |  
|                              | Tax benefit from stock option exercises               |                |         |       |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         | 4,808        |   |       |               |    |  |               |        |      |        |   |      |       |   |   |         |       |  |   |         | 4,808  |   |   |        |        |  
|                              | Foreign currency translation adjustments              |                |         |       |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         |             |   |       |               |    |  |               |        |      |        |   |      | (296   | ) |   |         |       |  |   |         | (296   | ) |   |        | (296   | )
|                              | Net income                                            |                |         |       |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         |             |   |       |               |    |  |               |        |      |        |   |      |       |   |   |         | 22,537 |  |   |         | 22,537 |   |   |        | 22,537 |  
|                              |                                                       |                |         |        |                |   |    |            |  |  |            |        |             |          |         |        |               |   |         |              |   |       |               |     |  |               |        |       |        |   |      |        |  
|BALANCES AT DECEMBER 31, 2002 |                                                       |                | 121,329 |        |                |   | 12 |            |  |  |           |        |             |          |        |        |               |   | 282,699 |              |   |       | (480          | )   |  |               | (231   | )     |        |   | 55   |        |   |   | 116,044 |        |  |   | 398,099 |        |   |   | 22,241 |       
|                              |                                                       |                |         |        |                |   |    |            |  |  |            |        |             |          |         |        |               |   |         |              |   |       |               |     |  |               |        |       |        |   |      |        |  
|                              | Issuances of common stock under stock plans           |                |         | 10,295 |                |   |    | 1          |  |  |            |       |             |          |         |       |               |   |         | 70,625       |   |       |               |    |  |               |        |      |        |   |      |       |   |   |         |       |  |   |         | 70,626 |   |   |        |        |  
|                              | Repurchase of common stock from terminated employee   |                |         | (1     | )              |   |    |           |  |  |            |       |             |          |         |       |               |   |         | (17          | ) |       |               |    |  |               |        |      |        |   |      |       |   |   |         |       |  |   |         | (17    | ) |   |        |        |  
|                              | Amortization of deferred stock compensation           |                |         |       |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         |             |   |       |               |    |  |               |        | 231   |        |   |      |       |   |   |         |       |  |   |         | 231    |   |   |        |        |  
|                              | Tax benefit from stock option exercises               |                |         |       |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         | 46,482       |   |       |               |    |  |               |        |      |        |   |      |       |   |   |         |       |  |   |         | 46,482 |   |   |        |        |  
|                              | Foreign currency translation adjustments              |                |         |       |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         |             |   |       |               |    |  |               |        |      |        |   |      | (8     | ) |   |         |       |  |   |         | (8     | ) |   |        | (8     | )
|                              | Net income                                            |                |         |       |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         |             |   |       |               |    |  |               |        |      |        |   |      |       |   |   |         | 75,082 |  |   |         | 75,082 |   |   |        | 75,082 |  
|                              |                                                       |                |         |        |                |   |    |            |  |  |            |        |             |          |         |        |               |   |         |              |   |       |               |     |  |               |        |       |        |   |      |        |  
|BALANCES AT DECEMBER 31, 2003 |                                                       |                | 131,623 |        |                |   | 13 |            |  |  |           |        |             |          |        |        |               |   | 399,789 |              |   |       | (480          | )   |  |               |       |       |        |   | 47   |        |   |   | 191,126 |        |  |   | 590,495 |        |   |   | 75,074 |       
|                              |                                                       |                |         |        |                |   |    |            |  |  |            |        |             |          |         |        |               |   |         |              |   |       |               |     |  |               |        |       |        |   |      |        |  
|                              | Issuances of common stock under stock plans           |                |         | 5,603  |                |   |    | 1          |  |  |            |       |             |          |         |       |               |   |         | 38,675       |   |       |               |    |  |               |        |      |        |   |      |       |   |   |         |       |  |   |         | 38,676 |   |   |        |        |  
|                              | Tax benefit from stock option exercises               |                |         |       |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         | 29,218       |   |       |               |    |  |               |        |      |        |   |      |       |   |   |         |       |  |   |         | 29,218 |   |   |        |        |  
|                              | Repayment of note receivable from stockholder         |                |         |       |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         |             |   |       |               | 480 |  |               |        |      |        |   |      |       |   |   |         |       |  |   |         | 480    |   |   |        |        |  
|                              | Foreign currency translation adjustments              |                |         |       |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         |             |   |       |               |    |  |               |        |      |        |   |      | (498   | ) |   |         |       |  |   |         | (498   | ) |   |        | (498   | )
|                              | Net income                                            |                |         |       |                |   |    |           |  |  |            |       |             |          |         |       |               |   |         |             |   |       |               |    |  |               |        |      |        |   |      |       |   |   |         | 47,967 |  |   |         | 47,967 |   |   |        | 47,967 |  
|                              |                                                       |                |         |        |                |   |    |            |  |  |            |        |             |          |         |        |               |   |         |              |   |       |               |     |  |               |        |       |        |   |      |        |  
|BALANCES AT DECEMBER 31, 2004 |                                                       |                | 137,226 |        |                | $ | 14 |            |  |  |           |        |             | $        |        |        |               | $ | 467,682 |              |   | $     |              |     |  | $             |       |       |        | $ | (451 | )      |   | $ | 239,093 |        |  | $ | 706,338 |        |   | $ | 47,469 |       
|                              |                                                       |                |         |        |                |   |    |            |  |  |            |        |             |          |         |        |               |   |         |              |   |       |               |     |  |               |        |       |        |   |      |        |  



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FOUNDRY NETWORKS, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                      |                                                |                                                   |         |          |          |   |         |          |          |   |         |          |        | 
|------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------------- | ------- | -------- | -------- | - | ------- | -------- | -------- | - | ------- | -------- | ------ | 
|                                                                                      |                                                | Year Ended December 31,                           |        
|                                                                                      |                                                |                                                   |        
|                                                                                      |                                                | 2004                                              |         |          | 2003     |   |         | 2002     |         
|                                                                                      |                                                |                                                   |         |          |          |   |         |          |         
|                                                                                      |                                                | (In thousands)                                    |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                 |                                                |                                                   |         |          |          |   |         |          |          |   |         |         
|Net income                                                                            |                                                | $                                                 | 47,967  |          |          | $ | 75,082  |          |          | $ | 22,537  |         
|Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                |                                                   |         |          |          |   |         |          |          |   |         |         
|                                                                                      | Depreciation and amortization                  |                                                   |         | 7,439    |          |   |         | 5,333    |          |   |         | 4,936    |       
|                                                                                      | Amortization of deferred stock compensation    |                                                   |         |         |          |   |         | 231      |          |   |         | 1,071    |       
|                                                                                      | (Reduction of) provision for doubtful accounts |                                                   |         |         |          |   |         | (862     | )        |   |         | 344      |       
|                                                                                      | Provision for sales returns                    |                                                   |         | 2,080    |          |   |         | 3,709    |          |   |         | 1,527    |       
|                                                                                      | Inventory provisions                           |                                                   |         | 13,485   |          |   |         | 9,007    |          |   |         | 16,445   |       
|                                                                                      | Deferred tax assets                            |                                                   |         | (8,970   | )        |   |         | (4,748   | )        |   |         | 1,096    |       
|                                                                                      | Tax benefit from stock option exercises        |                                                   |         | 29,218   |          |   |         | 46,482   |          |   |         | 4,808    |       
|Changes in operating assets and liabilities:                                          |                                                |                                                   |         |          |          |   |         |          |          |   |         |         
|                                                                                      | Accounts receivable                            |                                                   |         | (16,505  | )        |   |         | (28,028  | )        |   |         | (1,937   | )     
|                                                                                      | Inventories                                    |                                                   |         | (24,211  | )        |   |         | (3,545   | )        |   |         | (6,647   | )     
|                                                                                      | Prepaid expenses and other assets              |                                                   |         | (6,184   | )        |   |         | (1,425   | )        |   |         | 1,558    |       
|                                                                                      | Accounts payable                               |                                                   |         | 8,158    |          |   |         | (1,604   | )        |   |         | (3,616   | )     
|                                                                                      | Accrued payroll and related expenses           |                                                   |         | 5,032    |          |   |         | 4,902    |          |   |         | 816      |       
|                                                                                      | Other accrued expenses                         |                                                   |         | 2,896    |          |   |         | (3,966   | )        |   |         | 1,477    |       
|                                                                                      | Deferred support revenue                       |                                                   |         | 21,119   |          |   |         | 14,881   |          |   |         | 4,453    |       
|                                                                                      |                                                |                                                   |         |          |          |   |         |          |         
|                                                                                      |                                                | Net cash provided by operating activities         |         |          | 81,524   |   |         |          | 115,449  |   |         |          | 48,868 | 
|                                                                                      |                                                |                                                   |         |          |          |   |         |          |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                 |                                                |                                                   |         |          |          |   |         |          |          |   |         |         
|                                                                                      | Purchases of investments                       |                                                   |         | (599,027 | )        |   |         | (461,339 | )        |   |         | (295,267 | )     
|                                                                                      | Maturities of investments                      |                                                   |         | 437,826  |          |   |         | 256,107  |          |   |         | 333,057  |       
|                                                                                      | Purchases of property and equipment, net       |                                                   |         | (8,425   | )        |   |         | (6,819   | )        |   |         | (5,000   | )     
|                                                                                      |                                                |                                                   |         |          |          |   |         |          |         
|                                                                                      |                                                | Net cash (used)/ provided by investing activities |         |          | (169,626 | ) |         |          | (212,051 | ) |         |          | 32,790 | 
|                                                                                      |                                                |                                                   |         |          |          |   |         |          |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                 |                                                |                                                   |         |          |          |   |         |          |          |   |         |         
|                                                                                      | Proceeds from issuances of common stock        |                                                   |         | 38,676   |          |   |         | 70,626   |          |   |         | 8,253    |       
|                                                                                      | Repayment of note receivable from stockholder  |                                                   |         | 480      |          |   |         |         |          |   |         |         |       
|                                                                                      | Repurchases of common stock                    |                                                   |         |         |          |   |         | (17      | )        |   |         | (106     | )     
|                                                                                      |                                                |                                                   |         |          |          |   |         |          |         
|                                                                                      |                                                | Net cash provided by financing activities         |         |          | 39,156   |   |         |          | 70,609   |   |         |          | 8,147  | 
|                                                                                      |                                                |                                                   |         |          |          |   |         |          |         
|(DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS                                     |                                                |                                                   | (48,946 | )        |          |   | (25,993 | )        |          |   | 89,805  |         
|                                                                                      | Effect of exchange rate changes on cash        |                                                   |         | (498     | )        |   |         | (8       | )        |   |         | (296     | )     
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                          |                                                |                                                   | 161,718 |          |          |   | 187,719 |          |          |   | 98,210  |         
|                                                                                      |                                                |                                                   |         |          |          |   |         |          |         
|CASH AND CASH EQUIVALENTS, END OF YEAR                                                |                                                | $                                                 | 112,274 |          |          | $ | 161,718 |          |          | $ | 187,719 |         
|                                                                                      |                                                |                                                   |         |          |          |   |         |          |         
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                   |                                                |                                                   |         |          |          |   |         |          |          |   |         |         
|                                                                                      | Cash paid for income taxes, net of refunds     |                                                   | $       | 5,321    |          |   | $       | 4,202    |          |   | $       | 976      |       



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FOUNDRY NETWORKS, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                        
|-- | -----------------------
|1. | DESCRIPTION OF BUSINESS





|   |                                           
|-- | ------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Foreign Currency
Translation




Reclassifications




Use of Estimates




Cash Equivalents and Investments








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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                           |  |                   |         |       |            |   |       |            |  |   |            |   |  |   |         | 
|------------------------------------------ |  | ----------------- | ------- | ----- | ---------- | - | ----- | ---------- |  | - | ---------- | - |  | - | ------- | 
|                                           |  | December 31, 2004 |        
|                                           |  |                   |        
|                                           |  |                   |         | Gross |            |   | Gross |            |  |  
|                                           |  | Amortized         |         |       | Unrealized |   |       | Unrealized |  |   | Estimated  |  
|                                           |  | Cost              |         |       | Gains      |   |       | Losses     |  |   | Fair Value |  
|                                           |  |                   |         |       |            |   |       |            |  |   |            |  
|Money market funds                         |  | $                 | 72,203  |       |            | $ |      |            |  | $ |           |   |  | $ | 72,203  | 
|Municipal bonds                            |  |                   | 288,232 |       |            |   | 5     |            |  |   | (157       | ) |  |   | 288,080 | 
|Corporate bonds                            |  |                   | 11,941  |       |            |   |      |            |  |   | (58        | ) |  |   | 11,883  | 
|Government-sponsored enterprise securities |  |                   | 204,994 |       |            |   | 2     |            |  |   | (1,443     | ) |  |   | 203,553 | 
|                                           |  |                   |         |       |            |   |       |            |  |   |            |  
|                                           |  | $                 | 577,370 |       |            | $ | 7     |            |  | $ | (1,658     | ) |  | $ | 575,719 | 
|                                           |  |                   |         |       |            |   |       |            |  |   |            |  
|Cash equivalents                           |  | $                 | 72,203  |       |            | $ |      |            |  | $ |           |   |  | $ | 72,203  | 
|Short-term investments                     |  |                   | 331,202 |       |            |   | 3     |            |  |   | (588       | ) |  |   | 330,617 | 
|Long-term investments                      |  |                   | 173,965 |       |            |   | 4     |            |  |   | (1,070     | ) |  |   | 172,899 | 
|                                           |  |                   |         |       |            |   |       |            |  |   |            |  
|                                           |  | $                 | 577,370 |       |            | $ | 7     |            |  | $ | (1,658     | ) |  | $ | 575,719 | 
|                                           |  |                   |         |       |            |   |       |            |  |   |            |  

|                           |  |                   |         |       |            |   |       |            |  |   |            |   |  |   |         | 
|-------------------------- |  | ----------------- | ------- | ----- | ---------- | - | ----- | ---------- |  | - | ---------- | - |  | - | ------- | 
|                           |  | December 31, 2003 |        
|                           |  |                   |        
|                           |  |                   |         | Gross |            |   | Gross |            |  |  
|                           |  | Amortized         |         |       | Unrealized |   |       | Unrealized |  |   | Estimated  |  
|                           |  | Cost              |         |       | Gains      |   |       | Losses     |  |   | Fair Value |  
|                           |  |                   |         |       |            |   |       |            |  |   |            |  
|Money market funds         |  | $                 | 84,952  |       |            | $ |      |            |  | $ |           |   |  | $ | 84,952  | 
|Corporate securities       |  |                   | 14,388  |       |            |   | 4     |            |  |   |           |   |  |   | 14,392  | 
|Corporate commercial paper |  |                   | 21,983  |       |            |   |      |            |  |   |           |   |  |   | 21,983  | 
|Government securities      |  |                   | 338,741 |       |            |   | 293   |            |  |   | (56        | ) |  |   | 338,978 | 
|                           |  |                   |         |       |            |   |       |            |  |   |            |  
|                           |  | $                 | 460,064 |       |            | $ | 297   |            |  | $ | (56        | ) |  | $ | 460,305 | 
|                           |  |                   |         |       |            |   |       |            |  |   |            |  
|Cash equivalents           |  | $                 | 116,098 |       |            | $ |      |            |  | $ |           |   |  | $ | 116,098 | 
|Short-term investments     |  |                   | 184,859 |       |            |   | 1     |            |  |   | (34        | ) |  |   | 184,826 | 
|Long-term investments      |  |                   | 159,107 |       |            |   | 296   |            |  |   | (22        | ) |  |   | 159,381 | 
|                           |  |                   |         |       |            |   |       |            |  |   |            |  
|                           |  | $                 | 460,064 |       |            | $ | 297   |            |  | $ | (56        | ) |  | $ | 460,305 | 
|                           |  |                   |         |       |            |   |       |            |  |   |            |  

Municipal and corporate bonds.


Government-sponsored enterprise securities (GSEs).


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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Allowance for Doubtful Accounts




Inventories




|                |  |              |        |  |      |   |        | 
|--------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                |  | December 31, |       
|                |  |              |       
|                |  | 2004         |        |  | 2003 |  
|                |  |              |        |  |      |  
|Purchased parts |  | $            | 11,713 |  |      | $ | 9,495  | 
|Work-in-process |  |              | 19,795 |  |      |   | 13,528 | 
|Finished goods  |  |              | 7,235  |  |      |   | 4,994  | 
|                |  |              |        |  |      |  
|                |  | $            | 38,743 |  |      | $ | 28,017 | 
|                |  |              |        |  |      |  



Concentrations




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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Property and Equipment






|                              |  |              |         |   |      |   |         |  
|----------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                              |  | December 31, |        
|                              |  |              |        
|                              |  | 2004         |         |   | 2003 |  
|                              |  |              |         |   |      |  
|Computers and equipment       |  | $            | 31,259  |   |      | $ | 22,927  |  
|Leasehold improvements        |  |              | 2,060   |   |      |   | 1,967   |  
|Furniture and fixtures        |  |              | 109     |   |      |   | 109     |  
|                              |  |              |         |   |      |  
|                              |  |              | 33,428  |   |      |   | 25,003  |  
|Less accumulated depreciation |  |              | (24,576 | ) |      |   | (17,137 | )
|                              |  |              |         |   |      |  
|Property and equipment, net   |  | $            | 8,852   |   |      | $ | 7,866   |  
|                              |  |              |         |   |      |  

Revenue Recognition


General.




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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Product.




Services.






Segment and Geographic Information






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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|             |  |      |    |   |      |  |    |      |  |  |    |  
|------------ |  | ---- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|             |  | 2004 |    |   | 2003 |  |    | 2002 | 
|             |  |      |    |   |      |  |    |      | 
|Americas     |  |      | 62 | % |      |  | 63 | %    |  |  | 61 | %
|EMEA         |  |      | 19 | % |      |  | 14 | %    |  |  | 14 | %
|Japan        |  |      | 11 | % |      |  | 15 | %    |  |  | 13 | %
|Asia Pacific |  |      | 8  | % |      |  | 8  | %    |  |  | 12 | %





|           |  |      |     |   |      |  |    |      |  |  |     |  
|---------- |  | ---- | --- | - | ---- |  | -- | ---- |  |  | --- | -
|           |  | 2004 |     |   | 2003 |  |    | 2002 | 
|           |  |      |     |   |      |  |    |      | 
|Customer A |  |      | <10 | % |      |  | 14 | %    |  |  | 12  | %
|Customer B |  |      | <10 | % |      |  | 12 | %    |  |  | <10 | %

Advertising Costs




Computation of Per Share Amounts




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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|            |                                                       |                                       |        |         |      |   |        |         |  |   |        |         |  
|----------- | ----------------------------------------------------- | ------------------------------------- | ------ | ------- | ---- | - | ------ | ------- |  | - | ------ | ------- | -
|            |                                                       | Year Ended December 31,               |       
|            |                                                       |                                       |       
|            |                                                       | 2004                                  |        |         | 2003 |   |        | 2002    | 
|            |                                                       |                                       |        |         |      |   |        |         | 
|            |                                                       | (In thousands, except per share data) |       
|Net income  |                                                       | $                                     | 47,967 |         |      | $ | 75,082 |         |  | $ | 22,537 |        
|            |                                                       |                                       |        |         |      |   |        |         | 
|Basic:      |                                                       |                                       |        |         |      |   |        |         |  |   |        |        
|            | Weighted average shares outstanding                   |                                       |        | 135,445 |      |   |        | 125,133 |  |   |        | 119,861 |  
|            | Less: Weighted average shares subject to repurchase   |                                       |        |        |      |   |        |        |  |   |        | (379    | )
|            |                                                       |                                       |        |         |      |   |        |         | 
|            | Weighted average shares used in computing basic EPS   |                                       |        | 135,445 |      |   |        | 125,133 |  |   |        | 119,482 |  
|            |                                                       |                                       |        |         |      |   |        |         | 
|Basic EPS   |                                                       | $                                     | 0.35   |         |      | $ | 0.60   |         |  | $ | 0.19   |        
|            |                                                       |                                       |        |         |      |   |        |         | 
|Diluted:    |                                                       |                                       |        |         |      |   |        |         |  |   |        |        
|            | Weighted average shares outstanding                   |                                       |        | 135,445 |      |   |        | 125,133 |  |   |        | 119,861 |  
|            | Add: Weighted average dilutive potential shares       |                                       |        | 7,673   |      |   |        | 10,498  |  |   |        | 3,919   |  
|            |                                                       |                                       |        |         |      |   |        |         | 
|            | Weighted average shares used in computing diluted EPS |                                       |        | 143,118 |      |   |        | 135,631 |  |   |        | 123,780 |  
|            |                                                       |                                       |        |         |      |   |        |         | 
|Diluted EPS |                                                       | $                                     | 0.34   |         |      | $ | 0.55   |         |  | $ | 0.18   |        
|            |                                                       |                                       |        |         |      |   |        |         | 

Accounting for Stock-Based Compensation






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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                    |             |                                 |         |      |      |   |         |      |  |   |         |       |  
|----------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------------------- | ------- | ---- | ---- | - | ------- | ---- |  | - | ------- | ----- | -
|                                                                                                                                    |             | Year Ended December 31,         |        
|                                                                                                                                    |             |                                 |        
|                                                                                                                                    |             | 2004                            |         |      | 2003 |   |         | 2002 | 
|                                                                                                                                    |             |                                 |         |      |      |   |         |      | 
|                                                                                                                                    |             | (In thousands, except per share |        
|                                                                                                                                    |             | amounts)                        |        
|Net income as reported                                                                                                              |             | $                               | 47,967  |      |      | $ | 75,082  |      |  | $ | 22,537  |      
|Add: Total stock-based compensation expense included in reported
    net income, net of tax effect                                  |             |                                 |        |      |      |   | 150     |      |  |   | 750     |      
|Deduct: Total stock-based compensation expense determined using
    the fair value method for all awards, net of related tax effect |             |                                 | (42,206 | )    |      |   | (32,962 | )    |  |   | (78,677 | )    
|                                                                                                                                    |             |                                 |         |      |      |   |         |      | 
|Pro forma net income (loss)                                                                                                         |             | $                               | 5,761   |      |      | $ | 42,270  |      |  | $ | (55,390 | )    
|                                                                                                                                    |             |                                 |         |      |      |   |         |      | 
|Basic net income (loss) per share:                                                                                                  |             |                                 |         |      |      |   |         |      |  |   |         |      
|                                                                                                                                    | As reported |                                 | $       | 0.35 |      |   | $       | 0.60 |  |   | $       | 0.19  |  
|                                                                                                                                    | Pro forma   |                                 | $       | 0.04 |      |   | $       | 0.34 |  |   | $       | (0.46 | )
|Diluted net income (loss) per share:                                                                                                |             |                                 |         |      |      |   |         |      |  |   |         |      
|                                                                                                                                    | As reported |                                 | $       | 0.34 |      |   | $       | 0.55 |  |   | $       | 0.18  |  
|                                                                                                                                    | Pro forma   |                                 | $       | 0.04 |      |   | $       | 0.31 |  |   | $       | (0.46 | )



|                                     |  |                   |           |  |                              |  |           |      |  |  |           |  |  |      |           |  |      |  |           |  |  |  |           | 
|------------------------------------ |  | ----------------- | --------- |  | ---------------------------- |  | --------- | ---- |  |  | --------- |  |  | ---- | --------- |  | ---- |  | --------- |  |  |  | --------- | 
|                                     |  | Stock Option Plan |           |  | Employee Stock Purchase Plan | 
|                                     |  |                   |           |  |                              | 
|                                     |  | 2004              |           |  | 2003                         |  |           | 2002 |  |  | 2004      |  |  | 2003 |           |  | 2002 | 
|                                     |  |                   |           |  |                              |  |           |      |  |  |           |  |  |      |           |  |      | 
|Average risk free interest rate      |  |                   | 2.93%     |  |                              |  | 2.16%     |      |  |  | 3.15%     |  |  |      | 2.12%     |  |      |  | 1.88%     |  |  |  | 2.23%     | 
|Average expected life of the options |  |                   | 3.5 years |  |                              |  | 3.8 years |      |  |  | 3.6 years |  |  |      | 1.4 years |  |      |  | 2.0 years |  |  |  | 0.5 years | 
|Dividend yield                       |  |                   | 0%        |  |                              |  | 0%        |      |  |  | 0%        |  |  |      | 0%        |  |      |  | 0%        |  |  |  | 0%        | 
|Volatility of common stock           |  |                   | 71.9%     |  |                              |  | 75.0%     |      |  |  | 75.0%     |  |  |      | 67.1%     |  |      |  | 73.7%     |  |  |  | 81.1%     | 

Recent Accounting Pronouncements




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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|   |                              
|-- | -----------------------------
|3. | COMMITMENTS AND CONTINGENCIES

Guarantees and Product Warranties




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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                           |                                                                                                          |   |       |       |  
|-------------------------- | -------------------------------------------------------------------------------------------------------- | - | ----- | ----- | -
|Balance, December 31, 2003 |                                                                                                          | $ | 1,781 |      
|                           | Liabilities accrued for warranties issued during the period                                              |   |       | 1,008 |  
|                           | Warranty claims settled during the period                                                                |   |       | (710  | )
|                           | Changes in liabilities for pre-existing warranties during the
    period, including changes in estimates |   |       | (581  | )
|                           |                                                                                                          |   |      
|Balance, December 31, 2004 |                                                                                                          | $ | 1,498 |      
|                           |                                                                                                          |   |      



|                                              |                                |   |        |         |  
|--------------------------------------------- | ------------------------------ | - | ------ | ------- | -
|Deferred support revenue at December 31, 2003 |                                | $ | 35,115 |        
|                                              | New support arrangements       |   |        | 79,874  |  
|                                              | Recognition of support revenue |   |        | (58,755 | )
|                                              |                                |   |       
|Ending balance at December 31, 2004           |                                | $ | 56,234 |        
|                                              |                                |   |       



Leases




|                     |  |           |        | 
|-------------------- |  | --------- | ------ | 
|                     |  | Operating |       
|                     |  | Leases    |       
|                     |  |           |       
|2005                 |  | $         | 4,736  | 
|2006                 |  |           | 2,337  | 
|2007                 |  |           | 2,138  | 
|2008                 |  |           | 1,255  | 
|2009                 |  |           | 576    | 
|Thereafter           |  |           | 705    | 
|                     |  |           |       
|Total lease payments |  | $         | 11,747 | 
|                     |  |           |       

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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Purchase Commitments with Suppliers and Third-Party
Manufacturers




Litigation




In
re Foundry Networks, Inc. Securities Litigation.


In re Foundry Networks, Inc. Initial Public Offering
Securities Litigation, related to In re Initial Public Offering
Securities Litigation,


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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |             
|-- | ------------
|4. | INCOME TAXES



|                     |                                      |                           |   |        |        |   |   |        |        |  
|-------------------- | ------------------------------------ | ------------------------- | - | ------ | ------ | - | - | ------ | ------ | -
|                     |                                      | December 31,              |  
|                     |                                      |                           |  
|                     |                                      | 2004                      |   |        | 2003   |  
|                     |                                      |                           |   |        |        |  
|Deferred Tax Assets: |                                      |                           |   |        |        |   |   |       
|                     | Accrued payroll and related expenses |                           | $ | 3,580  |        |   | $ | 2,135  |       
|                     | Inventory valuation reserve          |                           |   | 13,844 |        |   |   | 12,090 |       
|                     | Accrued warranty                     |                           |   | 597    |        |   |   | 715    |       
|                     | Allowance for doubtful accounts      |                           |   | 1,243  |        |   |   | 1,665  |       
|                     | Write-down of minority interest      |                           |   | 997    |        |   |   | 2,120  |       
|                     | Depreciation                         |                           |   | 1,229  |        |   |   | 1,491  |       
|                     | Research and development credits     |                           |   | 18,482 |        |   |   | 11,635 |       
|                     | Deferred support revenue             |                           |   | 2,255  |        |   |   |       |       
|                     | Litigation settlement tax liability  |                           |   | (1,795 | )      |   |   |       |       
|                     | Other temporary differences          |                           |   | 2,843  |        |   |   | 2,460  |       
|                     |                                      |                           |   |        |        |  
|                     |                                      | Total deferred tax assets |   |        | 43,275 |   |   |        | 34,311 |  
|                     |                                      | Valuation allowance       |   |        | (997   | ) |   |        | (1,003 | )
|                     |                                      |                           |   |        |        |  
|                     |                                      | Net deferred tax assets   |   | $      | 42,278 |   |   | $      | 33,308 |  
|                     |                                      |                           |   |        |        |  





|                |         |      |        |        |      |   |        |        |   |   |       |       |  
|--------------- | ------- | ---- | ------ | ------ | ---- | - | ------ | ------ | - | - | ----- | ----- | -
|                |         | 2004 |        |        | 2003 |   |        | 2002   |  
|                |         |      |        |        |      |   |        |        |  
|Current:        |         |      |        |        |      |   |        |        |   |   |       |      
|                | Federal |      | $      | 24,432 |      |   | $      | 40,934 |   |   | $     | 7,801 |  
|                | Foreign |      |        | 165    |      |   |        | 464    |   |   |       | 189   |  
|                | State   |      |        | 3,496  |      |   |        | 5,493  |   |   |       | 560   |  
|                |         |      |        |        |      |   |        |        |  
|Total           |         |      | 28,093 |        |      |   | 46,891 |        |   |   | 8,550 |      
|                |         |      |        |        |      |   |        |        |  
|Deferred:       |         |      |        |        |      |   |        |        |   |   |       |      
|                | Federal |      |        | (2,600 | )    |   |        | (2,830 | ) |   |       | 1,201 |  
|                | State   |      |        | (227   | )    |   |        | (1,918 | ) |   |       | (92   | )
|                |         |      |        |        |      |   |        |        |  
|Total           |         |      | (2,827 | )      |      |   | (4,748 | )      |   |   | 1,109 |      
|                |         |      |        |        |      |   |        |        |  
|Total provision |         | $    | 25,266 |        |      | $ | 42,143 |        |   | $ | 9,659 |      
|                |         |      |        |        |      |   |        |        |  

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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                   |  |      |        |   |      |  |      |      |  |   |        |   |  |  |      |    |  |   |        |   |  |  |      |   
|-------------------------------------------------- |  | ---- | ------ | - | ---- |  | ---- | ---- |  | - | ------ | - |  |  | ---- | -- |  | - | ------ | - |  |  | ---- | --
|                                                   |  | 2004 |        |   | 2003 |  |      | 2002 | 
|                                                   |  |      |        |   |      |  |      |      | 
|Provision at U.S. statutory rate of 35%            |  | $    | 25,632 |   |      |  | 35.0 | %    |  | $ | 41,029 |   |  |  | 35.0 | %  |  | $ | 11,269 |   |  |  | 35.0 | % 
|State income taxes, net of federal benefit         |  |      | 3,587  |   |      |  | 4.9  | %    |  |   | 6,044  |   |  |  | 5.2  | %  |  |   | 1,657  |   |  |  | 5.1  | % 
|Federal and state research and development credits |  |      | (2,248 | ) |      |  | (3.1 | )%   |  |   | (2,118 | ) |  |  | (1.8 | )% |  |   | (1,895 | ) |  |  | (5.9 | )%
|Nondeductible deferred stock compensation          |  |      |       |   |      |  |     |      |  |   | 92     |   |  |  | 0.0  | %  |  |   | 424    |   |  |  | 1.3  | % 
|Export sales incentive                             |  |      | (1,413 | ) |      |  | (1.9 | )%   |  |   | (1,884 | ) |  |  | (1.6 | )% |  |   | (620   | ) |  |  | (1.9 | )%
|Tax-exempt interest                                |  |      | (1,185 | ) |      |  | (1.6 | )%   |  |   | (616   | ) |  |  | (0.5 | )% |  |   | (1,126 | ) |  |  | (3.5 | )%
|Valuation allowance                                |  |      |       |   |      |  |     |      |  |   | 1,003  |   |  |  | 0.9  | %  |  |   |       |   |  |  |     |   
|Other                                              |  |      | 893    |   |      |  | 1.2  | %    |  |   | (1,407 | ) |  |  | (1.2 | )% |  |   | (50    | ) |  |  | (0.1 | )%
|                                                   |  |      |        |   |      |  |      |      |  |   |        |   |  |  |      |    |  |  
|Total                                              |  | $    | 25,266 |   |      |  | 34.5 | %    |  | $ | 42,143 |   |  |  | 36.0 | %  |  | $ | 9,659  |   |  |  | 30.0 | % 
|                                                   |  |      |        |   |      |  |      |      |  |   |        |   |  |  |      |    |  |  





|   |                     
|-- | --------------------
|5. | STOCKHOLDERS EQUITY

Preferred Stock




Stock Option Exchange Program




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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Common Stock






|                                     |       |  |            |            | 
|------------------------------------ | ----- |  | ---------- | ---------- | 
|1996 Stock Plan                      |       |  | 26,362,685 |           
|1999 Directors Stock Option Plan    |       |  | 3,280,000  |           
|1999 Employee Stock Purchase Plan    |       |  | 5,692,990  |           
|2000 Non-Executive Stock Option Plan |       |  | 2,536,734  |           
|                                     |       |  |           
|                                     | Total |  |            | 37,872,409 | 
|                                     |       |  |           

1996 Stock Plan




1999 Directors Stock Option Plan


1 4 1 48


2000 Non-Executive Stock Option Plan




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FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                           |           |             |            |            |          |  |       |       | 
|-------------------------- | --------- | ----------- | ---------- | ---------- | -------- |  | ----- | ----- | 
|                           |           |             |            | Weighted   |         
|                           |           |             |            | Average    |         
|                           |           | Options     |            |            | Exercise | 
|                           |           | Outstanding |            |            | Price($) | 
|                           |           |             |            |            |          | 
|Balance, December 31, 2001 |           |             | 25,460,623 |            |          |  | 30.44 |      
|                           | Granted   |             |            | 12,496,950 |          |  |       | 6.24  | 
|                           | Exercised |             |            | (1,472,887 | )        |  |       | 3.00  | 
|                           | Cancelled |             |            | (9,273,434 | )        |  |       | 57.14 | 
|                           |           |             |            |            |          | 
|Balance, December 31, 2002 |           |             | 27,211,252 |            |          |  | 11.72 |      
|                           | Granted   |             |            | 9,945,464  |          |  |       | 11.23 | 
|                           | Exercised |             |            | (9,477,396 | )        |  |       | 6.92  | 
|                           | Cancelled |             |            | (1,162,761 | )        |  |       | 18.55 | 
|                           |           |             |            |            |          | 
|Balance, December 31, 2003 |           |             | 26,516,559 |            |          |  | 12.96 |      
|                           | Granted   |             |            | 11,358,800 |          |  |       | 15.30 | 
|                           | Exercised |             |            | (4,483,154 | )        |  |       | 7.00  | 
|                           | Cancelled |             |            | (3,353,693 | )        |  |       | 19.53 | 
|                           |           |             |            |            |          | 
|Balance, December 31, 2004 |           |             | 30,038,512 |            |          |  | 14.00 |      
|                           |           |             |            |            |          | 





|                         |       |                           |           |            |                           |  |           |          |  |  |             |           |  |          |           |            |  |  |       |       | 
|------------------------ | ----- | ------------------------- | --------- | ---------- | ------------------------- |  | --------- | -------- |  |  | ----------- | --------- |  | -------- | --------- | ---------- |  |  | ----- | ----- | 
|                         |       | Stock Options Outstanding |           |            |                          
|                         |       |                           |           |            | Stock Options Exercisable | 
|                         |       |                           |           | Weighted-  |                           |  |           |          |  | 
|                         |       |                           |           | Average    |                           |  | Weighted- |          |  |  |             | Weighted- | 
|                         |       |                           |           | Remaining  |                           |  | Average   |          |  |  |             | Average   | 
|                         |       | Shares                    |           |            | Contractual               |  |           | Exercise |  |  | Shares      |           |  | Exercise |          
|Range of Exercise Prices |       | Outstanding               |           |            | Life (years)              |  |           | Price $  |  |  | Exercisable |           |  | Price $  |          
|                         |       |                           |           |            |                           |  |           |          |  |  |             |           |  |          |          
|$0.03$6.14              |       |                           | 4,791,398 |            |                           |  | 6.23      |          |  |  | 4.92        |           |  |          | 4,051,232 |            |  |  | 4.82  |      
|$6.30$7.76              |       |                           | 5,203,294 |            |                           |  | 7.74      |          |  |  | 7.34        |           |  |          | 2,731,351 |            |  |  | 7.33  |      
|$7.94$9.71              |       |                           | 5,051,440 |            |                           |  | 8.92      |          |  |  | 8.96        |           |  |          | 894,639   |            |  |  | 8.10  |      
|$9.76$13.16             |       |                           | 4,608,372 |            |                           |  | 7.68      |          |  |  | 11.24       |           |  |          | 2,502,692 |            |  |  | 11.23 |      
|$13.35$18.06            |       |                           | 4,332,078 |            |                           |  | 8.83      |          |  |  | 15.13       |           |  |          | 1,221,248 |            |  |  | 15.44 |      
|$18.88$23.89            |       |                           | 4,524,530 |            |                           |  | 8.89      |          |  |  | 21.80       |           |  |          | 486,856   |            |  |  | 21.04 |      
|$26.21$108.13           |       |                           | 1,527,400 |            |                           |  | 5.99      |          |  |  | 63.75       |           |  |          | 1,415,063 |            |  |  | 66.67 |      
|                         |       |                           |           |            |                           |  |           |          |  |  |             |           |  |          |          
|                         | Total |                           |           | 30,038,512 |                           |  |           | 7.93     |  |  |             | 14.00     |  |          |           | 13,303,081 |  |  |       | 14.91 | 
|                         |       |                           |           |            |                           |  |           |          |  |  |             |           |  |          |          

59



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##### Table of Contents



FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                          |  |             |            |  |               |  |            |                     |  |  |             |  |  |  |     |  
|------------------------- |  | ----------- | ---------- |  | ------------- |  | ---------- | ------------------- |  |  | ----------- |  |  |  | --- | -
|                          |  |             |            |  |               |  |            | Percentage of Total | 
|                          |  |             |            |  |               |  |            | Options             | 
|                          |  | Exercisable |            |  | Unexercisable |  |            | Total               |  |  | Outstanding | 
|                          |  |             |            |  |               |  |            |                     |  |  |             | 
|In-the-Money              |  |             | 10,179,914 |  |               |  | 9,474,590  |                     |  |  | 19,654,504  |  |  |  | 65  | %
|Out-of-the-Money          |  |             | 3,123,167  |  |               |  | 7,260,841  |                     |  |  | 10,384,008  |  |  |  | 35  | %
|                          |  |             |            |  |               |  |            |                     |  |  |             | 
|Total Options Outstanding |  |             | 13,303,081 |  |               |  | 16,735,431 |                     |  |  | 30,038,512  |  |  |  | 100 | %
|                          |  |             |            |  |               |  |            |                     |  |  |             | 

1999 Employee Stock Purchase Plan






Deferred Stock Compensation






|   |            
|-- | -----------
|6. | 401(k) PLAN



60



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##### Table of Contents



FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


FOUNDRY NETWORKS, INC.





Quarterly Summary (Unaudited)




|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |        |  |   |        |         |  |   |        |         | 
|----------------------------------------------- | ------------------------------------------- | ---------------------------------------- | ------ | ------ | -------- | - | ------ | -------- |  | - | -------- | ------- |  | -------- | ------ | ------- | -------- | - | ------ | -------- |  | - | -------- | ------ |  | - | ------ | ------- |  | - | ------ | ------- | 
|                                                |                                             | Quarter Ended                            |       
|                                                |                                             |                                          |       
|                                                |                                             | Mar. 31,                                 |        |        | Jun. 30, |   |        | Sep. 30, |  |   | Dec. 31, |         |  | Mar. 31, |        |         | Jun. 30, |   |        | Sep. 30, |  |   | Dec. 31, |       
|                                                |                                             | 2003                                     |        |        | 2003     |   |        | 2003     |  |   | 2003     |         |  | 2004     |        |         | 2004     |   |        | 2004     |  |   | 2004     |       
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       
|                                                |                                             | (In thousands, except per share amounts) |       
|Statement of Operations Data (unaudited):       |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |        |  |   |        |         |  |   |        |        
|Net revenues:                                   |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |        |  |   |        |         |  |   |        |        
|                                                | Product                                     |                                          | $      | 81,013 |          |   | $      | 83,444   |  |   | $        | 89,450  |  |          | $      | 97,418  |          |   | $      | 89,300   |  |   | $        | 83,489 |  |   | $      | 87,450  |  |   | $      | 88,780  | 
|                                                | Service                                     |                                          |        | 10,125 |          |   |        | 12,268   |  |   |          | 12,233  |  |          |        | 13,677  |          |   |        | 14,716   |  |   |          | 14,338 |  |   |        | 15,061  |  |   |        | 15,970  | 
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       
|                                                | Total net revenues                          |                                          |        | 91,138 |          |   |        | 95,712   |  |   |          | 101,683 |  |          |        | 111,095 |          |   |        | 104,016  |  |   |          | 97,827 |  |   |        | 102,511 |  |   |        | 104,750 | 
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       
|Cost of revenues:                               |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |        |  |   |        |         |  |   |        |        
|                                                | Product                                     |                                          |        | 35,442 |          |   |        | 32,428   |  |   |          | 31,754  |  |          |        | 33,488  |          |   |        | 31,994   |  |   |          | 30,442 |  |   |        | 33,194  |  |   |        | 33,559  | 
|                                                | Service                                     |                                          |        | 2,061  |          |   |        | 2,196    |  |   |          | 1,688   |  |          |        | 1,801   |          |   |        | 3,126    |  |   |          | 3,566  |  |   |        | 3,785   |  |   |        | 3,757   | 
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       
|                                                | Total cost of revenues                      |                                          |        | 37,503 |          |   |        | 34,624   |  |   |          | 33,442  |  |          |        | 35,289  |          |   |        | 35,120   |  |   |          | 34,008 |  |   |        | 36,979  |  |   |        | 37,316  | 
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       
|                                                | Gross margin                                |                                          |        | 53,635 |          |   |        | 61,088   |  |   |          | 68,241  |  |          |        | 75,806  |          |   |        | 68,896   |  |   |          | 63,819 |  |   |        | 65,532  |  |   |        | 67,434  | 
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       
|Operating expenses:                             |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |        |  |   |        |         |  |   |        |        
|                                                | Research and development                    |                                          |        | 9,921  |          |   |        | 10,045   |  |   |          | 10,432  |  |          |        | 10,075  |          |   |        | 10,012   |  |   |          | 10,003 |  |   |        | 11,686  |  |   |        | 12,204  | 
|                                                | Sales and marketing                         |                                          |        | 19,981 |          |   |        | 23,415   |  |   |          | 21,428  |  |          |        | 23,615  |          |   |        | 23,168   |  |   |          | 25,094 |  |   |        | 23,228  |  |   |        | 27,124  | 
|                                                | General and administrative                  |                                          |        | 3,999  |          |   |        | 2,948    |  |   |          | 4,852   |  |          |        | 5,771   |          |   |        | 5,425    |  |   |          | 6,268  |  |   |        | 10,204  |  |   |        | 7,707   | 
|                                                | Litigation settlement                       |                                          |        |       |          |   |        |         |  |   |          |        |  |          |        |        |          |   |        |         |  |   |          |       |  |   |        | 30,193  |  |   |        |        | 
|                                                | Amortization of deferred stock compensation |                                          |        | 122    |          |   |        | 72       |  |   |          | 21      |  |          |        | 16      |          |   |        |         |  |   |          |       |  |   |        |        |  |   |        |        | 
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       
|                                                | Total operating expenses                    |                                          |        | 34,023 |          |   |        | 36,480   |  |   |          | 36,733  |  |          |        | 39,477  |          |   |        | 38,605   |  |   |          | 41,365 |  |   |        | 75,311  |  |   |        | 47,035  | 
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       
|Income (loss) from operations                   |                                             |                                          | 19,612 |        |          |   | 24,608 |          |  |   | 31,508   |         |  |          | 36,329 |         |          |   | 30,291 |          |  |   | 22,454   |        |  |   | (9,779 | )       |  |   | 20,399 |        
|Interest income                                 |                                             |                                          | 1,065  |        |          |   | 1,229  |          |  |   | 1,475    |         |  |          | 1,399  |         |          |   | 1,807  |          |  |   | 1,720    |        |  |   | 2,568  |         |  |   | 3,773  |        
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       
|Income (loss) before provision for income taxes |                                             |                                          | 20,677 |        |          |   | 25,837 |          |  |   | 32,983   |         |  |          | 37,728 |         |          |   | 32,098 |          |  |   | 24,174   |        |  |   | (7,211 | )       |  |   | 24,172 |        
|Provision (benefit) for income taxes            |                                             |                                          | 7,237  |        |          |   | 9,043  |          |  |   | 12,204   |         |  |          | 13,659 |         |          |   | 12,197 |          |  |   | 9,186    |        |  |   | (3,593 | )       |  |   | 7,476  |        
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       
|Net income (loss)                               |                                             | $                                        | 13,440 |        |          | $ | 16,794 |          |  | $ | 20,779   |         |  | $        | 24,069 |         |          | $ | 19,901 |          |  | $ | 14,988   |        |  | $ | (3,618 | )       |  | $ | 16,696 |        
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       
|Basic net income (loss) per share               |                                             | $                                        | 0.11   |        |          | $ | 0.14   |          |  | $ | 0.16     |         |  | $        | 0.18   |         |          | $ | 0.15   |          |  | $ | 0.11     |        |  | $ | (0.03  | )       |  | $ | 0.12   |        
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       
|Diluted net income (loss) per share             |                                             | $                                        | 0.11   |        |          | $ | 0.13   |          |  | $ | 0.15     |         |  | $        | 0.17   |         |          | $ | 0.14   |          |  | $ | 0.11     |        |  | $ | (0.03  | )       |  | $ | 0.12   |        
|                                                |                                             |                                          |        |        |          |   |        |          |  |   |          |         |  |          |        |         |          |   |        |          |  |   |          |       

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##### Table of Contents



FOUNDRY NETWORKS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |       |   |  |      |       |   |  |      |       |  
|----------------------------------------------- | ------------------------------------------- | ---------------------------------------- | ---- | ----- | -------- |  | ---- | -------- | - |  | -------- | ----- | - | -------- | ---- | ----- | -------- |  | ---- | -------- | - |  | -------- | ----- | - |  | ---- | ----- | - |  | ---- | ----- | -
|                                                |                                             | Quarter Ended                            |     
|                                                |                                             |                                          |     
|                                                |                                             | Mar. 31,                                 |      |       | Jun. 30, |  |      | Sep. 30, |   |  | Dec. 31, |       |   | Mar. 31, |      |       | Jun. 30, |  |      | Sep. 30, |   |  | Dec. 31, |      
|                                                |                                             | 2003                                     |      |       | 2003     |  |      | 2003     |   |  | 2003     |       |   | 2004     |      |       | 2004     |  |      | 2004     |   |  | 2004     |      
|                                                |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |      
|                                                |                                             | (In thousands, except per share amounts) |     
|Percentage of Revenue (unaudited):              |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |       |   |  |      |       |   |  |      |      
|Net revenues                                    |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |       |   |  |      |       |   |  |      |      
|                                                | Product                                     |                                          |      | 88.9  | %        |  |      | 87.2     | % |  |          | 88.0  | % |          |      | 87.7  | %        |  |      | 85.9     | % |  |          | 85.3  | % |  |      | 85.3  | % |  |      | 84.8  | %
|                                                | Service                                     |                                          |      | 11.1  |          |  |      | 12.8     |   |  |          | 12.0  |   |          |      | 12.3  |          |  |      | 14.1     |   |  |          | 14.7  |   |  |      | 14.7  |   |  |      | 15.2  |  
|                                                |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |      
|                                                | Total net revenues                          |                                          |      | 100.0 |          |  |      | 100.0    |   |  |          | 100.0 |   |          |      | 100.0 |          |  |      | 100.0    |   |  |          | 100.0 |   |  |      | 100.0 |   |  |      | 100.0 |  
|                                                |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |      
|Cost of revenues:                               |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |       |   |  |      |       |   |  |      |      
|                                                | Product                                     |                                          |      | 38.9  |          |  |      | 33.9     |   |  |          | 31.2  |   |          |      | 30.2  |          |  |      | 30.8     |   |  |          | 31.1  |   |  |      | 32.4  |   |  |      | 32.0  |  
|                                                | Service                                     |                                          |      | 2.3   |          |  |      | 2.3      |   |  |          | 1.7   |   |          |      | 1.6   |          |  |      | 3.0      |   |  |          | 3.7   |   |  |      | 3.7   |   |  |      | 3.6   |  
|                                                |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |      
|                                                | Total cost of revenues                      |                                          |      | 41.2  |          |  |      | 36.2     |   |  |          | 32.9  |   |          |      | 31.8  |          |  |      | 33.8     |   |  |          | 34.8  |   |  |      | 36.1  |   |  |      | 35.6  |  
|                                                |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |      
|                                                | Gross margin                                |                                          |      | 58.8  |          |  |      | 63.8     |   |  |          | 67.1  |   |          |      | 68.2  |          |  |      | 66.2     |   |  |          | 65.2  |   |  |      | 63.9  |   |  |      | 64.4  |  
|                                                |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |      
|Operating expenses:                             |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |       |   |  |      |       |   |  |      |      
|                                                | Research and development                    |                                          |      | 10.9  |          |  |      | 10.5     |   |  |          | 10.2  |   |          |      | 9.0   |          |  |      | 9.6      |   |  |          | 10.2  |   |  |      | 11.4  |   |  |      | 11.6  |  
|                                                | Sales and marketing                         |                                          |      | 21.9  |          |  |      | 24.4     |   |  |          | 21.1  |   |          |      | 21.3  |          |  |      | 22.3     |   |  |          | 25.6  |   |  |      | 22.6  |   |  |      | 25.9  |  
|                                                | General and administrative                  |                                          |      | 4.4   |          |  |      | 3.1      |   |  |          | 4.8   |   |          |      | 5.2   |          |  |      | 5.2      |   |  |          | 6.4   |   |  |      | 10.0  |   |  |      | 7.4   |  
|                                                | Litigation settlement                       |                                          |      |      |          |  |      |         |   |  |          |      |   |          |      |      |          |  |      |         |   |  |          |      |   |  |      | 29.4  |   |  |      |      |  
|                                                | Amortization of deferred stock compensation |                                          |      | 0.1   |          |  |      | 0.1      |   |  |          |      |   |          |      |      |          |  |      |         |   |  |          |      |   |  |      |      |   |  |      |      |  
|                                                |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |      
|                                                | Total operating expenses                    |                                          |      | 37.3  |          |  |      | 38.1     |   |  |          | 36.1  |   |          |      | 35.5  |          |  |      | 37.1     |   |  |          | 42.2  |   |  |      | 73.4  |   |  |      | 44.9  |  
|                                                |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |      
|Income (loss) from operations                   |                                             |                                          | 21.5 |       |          |  | 25.7 |          |   |  | 31.0     |       |   |          | 32.7 |       |          |  | 29.1 |          |   |  | 23.0     |       |   |  | (9.5 | )     |   |  | 19.5 |      
|Interest income                                 |                                             |                                          | 1.1  |       |          |  | 1.3  |          |   |  | 1.4      |       |   |          | 1.3  |       |          |  | 1.7  |          |   |  | 1.7      |       |   |  | 2.5  |       |   |  | 3.6  |      
|                                                |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |      
|Income (loss) before provision for income taxes |                                             |                                          | 22.6 |       |          |  | 27.0 |          |   |  | 32.4     |       |   |          | 34.0 |       |          |  | 30.8 |          |   |  | 24.7     |       |   |  | (7.0 | )     |   |  | 23.1 |      
|Provision (benefit) for income taxes            |                                             |                                          | 7.9  |       |          |  | 9.4  |          |   |  | 12.0     |       |   |          | 12.3 |       |          |  | 11.7 |          |   |  | 9.4      |       |   |  | (3.5 | )     |   |  | 7.2  |      
|                                                |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |      
|Net income (loss)                               |                                             |                                          | 14.7 | %     |          |  | 17.6 | %        |   |  | 20.4     | %     |   |          | 21.7 | %     |          |  | 19.1 | %        |   |  | 15.3     | %     |   |  | (3.5 | )%    |   |  | 15.9 | %    
|                                                |                                             |                                          |      |       |          |  |      |          |   |  |          |       |   |          |      |       |          |  |      |          |   |  |          |      

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FOUNDRY NETWORKS, INC.


SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


|                                |  |                           |       |  |            |   |       |               |  |            |        |  |  |   |       | 
|------------------------------- |  | ------------------------- | ----- |  | ---------- | - | ----- | ------------- |  | ---------- | ------ |  |  | - | ----- | 
|                                |  | Balance at                |       |  | Charged to |   |       |               |  | Balance at |       
|                                |  | Beginning                 |       |  | Costs and  |   |       |               |  | End of     |       
|Description                     |  | of Period                 |       |  | Expenses   |   |       | Deductions(1) |  |            | Period | 
|                                |  |                           |       |  |            |   |       |               |  |            |        | 
|                                |  | (In thousands of dollars) |      
|Year ended December 31, 2002:   |  |                           |       |  |            |   |       |               |  |            |        |  |  |   |       | 
|Allowance for doubtful accounts |  | $                         | 6,648 |  |            | $ | 344   |               |  | $          | 1,159  |  |  | $ | 5,833 | 
|Allowance for sales returns     |  |                           | 1,501 |  |            |   | 1,527 |               |  |            | 1,444  |  |  |   | 1,584 | 
|Year ended December 31, 2003:   |  |                           |       |  |            |   |       |               |  |            |        |  |  |   |       | 
|Allowance for doubtful accounts |  |                           | 5,833 |  |            |   | (862  | )             |  |            | 820    |  |  |   | 4,151 | 
|Allowance for sales returns     |  |                           | 1,584 |  |            |   | 3,709 |               |  |            | 3,273  |  |  |   | 2,020 | 
|Year ended December 31, 2004:   |  |                           |       |  |            |   |       |               |  |            |        |  |  |   |       | 
|Allowance for doubtful accounts |  |                           | 4,151 |  |            |   |      |               |  |            | 1,034  |  |  |   | 3,117 | 
|Allowance for sales returns     |  |                           | 2,020 |  |            |   | 2,080 |               |  |            | 2,473  |  |  |   | 1,627 | 






|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Deductions for allowance for doubtful accounts refer to
    write-offs and deductions for allowance for sales returns refer
    to actual returns.

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##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures








Item 9B.     Other
Information







PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant










|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions



64



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##### Table of Contents








|         |                                    
|-------- | -----------------------------------
|Item 14. | Principal Auditor Fees and Services






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules





| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | (1) Consolidated Financial Statements and Reports of
    Independent Registered Public Accounting Firm
|
| | (2) Financial Statement Schedules                                                                     





| |                                                                          
| | -------------------------------------------------------------------------
| | (3) Exhibits (numbered in accordance with
    Item 601 of Regulation S-K)

|       |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 3  | .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.*(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      
|       | 10 | .4          |  | 1999 Directors Stock Option Plan.*(3)                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      
|       | 10 | .5          |  | Form of Stock Option Agreement under the registrants
    1999 Directors Stock Option Plan.*(3)                                                                                                                                                                                                                                                                                                                                                                                                    
|      
|       | 10 | .6          |  | Form of Indemnification Agreement.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|      
|       | 10 | .7          |  | OEM Purchase Agreement dated January 6, 1999 between
    Foundry Networks, Inc. and Hewlett-Packard Company, Workgroup
    Networks Division.(4)                                                                                                                                                                                                                                                                                                                                                    
|      
|       | 10 | .8          |  | Reseller Agreement dated July 1, 1997 between Foundry
    Networks, Inc. and Mitsui & Co., Ltd.(4)                                                                                                                                                                                                                                                                                                                                                                                                  
|      
|       | 10 | .9          |  | 2000 Non-Executive Stock Option Plan.*(5)                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      
|       | 10 | .10         |  | Form of Stock Option Agreement under the registrants 2000
    Non-Executive Stock Option Plan.*(5)                                                                                                                                                                                                                                                                                                                                                                                                 
|      
|       | 10 | .11         |  | 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 | .12         |  | 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.                                                                                                                                                                                                                                            
|      
|       | 21 | .1          |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      
|       | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      
|       | 31 | .1          |  | Rule 13a-14(a) Certification (CEO)                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|      
|       | 31 | .2          |  | Rule 13a-14(a) Certification (CFO)                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

65



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##### Table of Contents



|       |    |    |             |                                 
|------ | -- | -- | ----------- | --------------------------------
|Number |    |    | Description
|       |    |    |            
|      
|       | 32 | .1 |             | Section 1350 Certification (CEO)
|       | 32 | .2 |             | Section 1350 Certification (CFO)






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | 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 Registration Statement on Form S-1
    (Commission File No. 333-82577). Copy of Directors
    Plan reflecting the amendment 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).                                                                                                                                                                                                                                                                                                                               
|   
|(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 Report on
    Form 8-K filed on July 3, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

66



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##### Table of Contents






SIGNATURES


Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.




| |                       
| | ----------------------
| | Foundry Networks, Inc.
| | (Registrant)          



| |     |                       
| | --- | ----------------------
| | By: | /s/ Timothy D. Heffner

| |                                             
| | --------------------------------------------
| |                                             
| | Timothy D. Heffner                          
| | Vice President, Finance & Administration,   
| | Chief Financial Officer                     
| | (Principal Financial and Accounting Officer)



POWER OF ATTORNEY




Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.


|                                                      |  |                                                                                                                    |  |                |  | 
|----------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | -------------- |  | 
|Signature                                             |  | Title                                                                                                              |  | Date          
|                                                      |  |                                                                                                                    |  |               
|                                                     
|/s/ Bobby R. Johnson, Jr.
    (Bobby R. Johnson, Jr.) |  | President, Chief Executive Officer and Chairman of the Board of
    Directors (Principal Executive Officer)        |  | March 11, 2005
|                                                     
|/s/ Timothy D. Heffner
    (Timothy D. Heffner)       |  | Vice President, Finance & Administration, Chief
    Financial Officer (Principal Financial and Accounting Officer) |  | March 11, 2005
|                                                     
|/s/ Andrew K. Ludwick
    (Andrew K. Ludwick)         |  | Director                                                                                                           |  | March 11, 2005
|                                                     
|/s/ Alfred J. Amoroso
    (Alfred J. Amoroso)         |  | Director                                                                                                           |  | March 11, 2005
|                                                     
|/s/ C. Nicholas Keating
    (C. Nicholas Keating)     |  | Director                                                                                                           |  | March 11, 2005
|                                                     
|/s/ J. Steven Young
    (J. Steven Young)             |  | Director                                                                                                           |  | March 11, 2005
|                                                     
|/s/ Alan L. Earhart
    (Alan L. Earhart)             |  | Director                                                                                                           |  | March 11, 2005

67



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##### Table of Contents



INDEX TO EXHIBITS


|       |    |             |  |                                                                                                                                                                                                                                                          
|------ | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 10 | .12         |  | 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
|       | 21 | .1          |  | List of Subsidiaries                                                                                                                                                                                                                                     
|       | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                                                 
|       | 31 | .1          |  | Rule 13a-14(a) Certification (CEO)                                                                                                                                                                                                                       
|       | 31 | .2          |  | Rule 13a-14(a) Certification (CFO)                                                                                                                                                                                                                       
|       | 32 | .1          |  | Section 1350 Certification (CEO)                                                                                                                                                                                                                         
|       | 32 | .2          |  | Section 1350 Certification (CFO)                                                                                                                                                                                                                         

68