##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
   Form 10-K
  (mark one)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2007o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file
    number: 000-26689
   FOUNDRY NETWORKS,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

77-0431154(State or jurisdiction of
    incorporation or organization)

(I.R.S. Employer
    Identification Number)4980 Great America Parkway
    Santa Clara, CA 95054(Address of principal
    executive offices, including zip code)(408) 207-1700(Registrants telephone
    number, including area code)Securities registered pursuant to Section 12(b) of the
    Act:Common Stock, $0.0001 par value(Title of each class)

The Nasdaq Stock Market LLC
    (Nasdaq Global Select Market)(Name of each exchange on which
    registered)   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  o
    þ o o o
  o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





FOUNDRY
    NETWORKS, INC.
  TABLE OF
    CONTENTS
  PagePART IItem 1.

Business


2Item 1A.

Risk Factors


9Item 1B.

Unresolved Staff Comments


22Item 2.

Properties


22Item 3.

Legal Proceedings


22Item 4.

Submission of Matters to a Vote of Security
    Holders


25PART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters, and Issuer Purchases of Equity
    Securities


25Item 6.

Selected Consolidated Financial Data


27Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


29Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


42Item 8.

Financial Statements and Supplementary Data


44Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


81Item 9A.

Controls and Procedures


81Item 9B.

Other Information


82PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


84Item 11.

Executive Compensation


84Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


84Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


84Item 14.

Principal Accounting Fees and Services


84PART IVItem 15.

Exhibits and Financial Statement Schedules


85SIGNATURES


87EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   1




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##### Table of Contents



PART I  Item 1.
    Business.  Overview
      Transport Set
  
    Layer 1: Physical This is the level of the
    actual hardware. It defines the physical characteristics of the
    network such as connections, voltage levels and timing.
    Layer 2: Data In this layer, the appropriate
    physical protocol is assigned to the data. Also, the type of
    network and the packet sequencing is defined.
    Layer 3: Network The way that the data will
    be sent to the recipient device is determined in this layer.
    Logical protocols, routing and addressing are handled here.
    Layer 4: Transport This layer maintains flow
    control of data and provides for error checking and recovery of
    data between the devices. Flow control means that the Transport
    layer looks to see if data is coming from more than one
    application and integrates each applications data into a
    single stream for the physical network.  Application Set
  
    Layer 5: Session Layer 5 establishes,
    maintains and ends communication with the receiving device.
    Layer 6: Presentation Layer 6 takes the data
    provided by the Application layer and converts it into a
    standard format that the other layers can understand.
    Layer 7: Application This is the layer that
    actually interacts with the operating system or application
    whenever the user chooses to transfer files, read messages or
    perform other network-related activities.    Layer 2/3 Switches
  Layer 4-7 Switches
  Metro and Internet Routers
 2




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e-commerce. end-to-end ® ® ® ® tm tm ® ® tm 10/100/1000 ® ®
  Market
    Trends and Business Drivers
  2008-2010,
      Convergence
  Mobility
 3




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Security
  Strategy
    Continue to Deliver Products that Meet the Needs of the
    High-End Switching Market.
    
    10-Gigabit Ethernet Our 10GbE solutions have
    achieved commercial success in the marketplace. 10GbE addresses
    the key concerns facing data networking businesses
    today  the continued need for additional bandwidth
    while building a reliable network. Our 10GbE offerings include
    the EdgeIron, FastIron, BigIron, ServerIron and NetIron product
    families. The FastIron SuperX family of modular switches began
    shipment in 2006 as an edge aggregation switch for both the
    traditional enterprise and VoIP market segments. The BigIron RX
    modular switch began shipment in July 2005 as an enterprise core
    router, high performance computing core switch, and as a data
    center and infrastructure router for service providers. The
    introduction of these products is central to our strategy of
    offering high performance 10 GbE capable switches and routers
    from the enterprise edge to the Internet core.
    Mobility Our
    IronPointtm
    family of wireless products have been designed to meet mobility
    requirements and support a diverse set of environments. The
    IronPoint Access Point is a cost-effective solution that allows
    enterprise networks to quickly and easily enable safe and secure
    wireless access. The IronPoint Access Point can also be
    connected to the IronPoint-FES Wireless Switch for enhanced
    management, mobility and security.
    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 a network foundation
    that provides superior performance, high availability and
    secure, guaranteed voice quality. Our strategy is to provide
    high-performance networking products and the tools necessary to
    configure and optimize a converged environment. Our adherence to
    industry and international standards allows customers to
    successfully use a wide variety of IP phones from industry
    providers such as Avaya Inc., Cisco Systems, Inc., Mitel
    Networks Corp., Nortel Networks, Shoretel Inc., and Siemens AG.
    Our FastIron SuperX and FastIron Edge switch support legacy and
    industry standard 802.3af Power over Ethernet, automated Quality
    of Service (QoS), redundant and hot swappable power supplies,
    wireless mobility, and a range of VoIP security features. These
    provide customers the technology needed to power new devices
    such as IP phones, optimize 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. Securing
    this infrastructure against debilitating attacks from malicious
    users is necessary to ensure sustained business operations.
    Mobility, convergence, and Web-centric applications are
    rendering centralized security 4




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models less effective. Today, organizations require distributed,
    network-wide, security architectures to protect against threats
    from outside the network and to minimize vulnerabilities inside
    the network. Our security offerings are both embedded into our
    standard switching platforms and complimented by a stand-alone
    security platform offered within the SecureIron product family.  
    Internet Protocol version 6 (IPv6) Although
    interest in and adoption of IPv6 is gaining momentum in
    international markets, we believe 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 2006, we delivered new IPv6 interface modules for
    the BigIron RX Series, NetIron MLX Series and NetIron XMR
    Series. We intend to further develop and deliver IPv6 solutions.  Continue to Expand our Metro and Internet Router Capabilities
    to Address this Market and Deliver a New Level of
    Price/Performance.
  Continue to Leverage our Product Capabilities to Address
    Emerging Markets. non-networking
  Continue to Deliver High-Performance Application Traffic
    Management Systems.
  Expand Global Sales Organization.
  Deliver World Class Service and
    Support. on-site 24-hour, days-a-week
  Sales and
    Marketing
    Domestic field sales.
 5




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Domestic resellers.
  International sales.
  Marketing programs.
  Customer
    Service and Support
  24-hour
  90-day on-site
  Centers-of-Excellence Centers-of-Excellence Centers-of-Excellence
  Significant
    Customers
   6




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Manufacturing
    back-up
      Research
    and Development
     7




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Competition
        Seasonality
    Backlog
    Intellectual
    Property
     8




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Employees
    Available
    Information
  http://www.foundrynet.com/company/ir/. Form 10-K, Form 10-Q, Form 8-K Form 10-K 1-800-SEC-0330. http://www.sec.gov.
  Item 1A.
    Risk
    Factors.  Intense
    competition in the market for networking solutions could prevent
    us from maintaining or increasing revenue and sustaining
    profitability.
     9




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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.
      Our
    gross margins and average selling prices of our products have
    decreased in the past and could decrease as a result of
    competitive pressures and other factors.
     10




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Weak
    economic and market conditions or geopolitical turmoil may
    adversely affect our revenue, gross margins and
    expenses.
    Our
    investments in adjustable rate securities are subject to risks
    which may cause losses and affect the liquidity of these
    investments.
      We
    depend on large, recurring purchases from certain significant
    customers, and a loss, cancellation or delay in purchases by
    these customers could negatively affect our
    revenue.
      
    our reseller agreements generally do not require substantial
    minimum purchases; 11




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
    our customers can stop purchasing and our resellers can stop
    marketing our products at any time; and
    our reseller agreements generally are not exclusive and are for
    one-year terms, with no obligation of the resellers to renew the
    agreements.    The
    United States government is a significant customer and has been
    one key to our financial success. However, government demand is
    unpredictable and there is no guarantee of future contract
    awards.
    We
    purchase several key components for our products from sole
    sources; if these components are not available, our revenue may
    be adversely affected.
     12




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The
    matters relating to our Special Committee investigation into our
    stock option granting practices and the restatement of our
    financial statements have exposed us to civil litigation claims,
    regulatory proceedings and government proceedings which could
    burden Foundry and have a material adverse effect on
    us.
  1999-2005
  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.
     13




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If we
    fail to protect our intellectual property, our business and
    ability to compete could suffer.
      Our
    reliance on third-party manufacturing vendors to manufacture our
    products may cause a delay in our ability to fill orders which
    could cause us to lose revenue.
       14




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Our
    ability to increase our revenue depends on expanding our direct
    sales operations and reseller distribution channels and
    providing excellent customer support.
      Our
    operations in international markets involve inherent risks that
    we may not be able to control. As a result, our business may be
    harmed if we are unable to successfully address these
    risks.
    
    seasonal reductions in business activity;
    potential recessions in economies outside the United States;
    adverse fluctuations in currency exchange rates;
    difficulties in managing operations across disparate geographic
    areas;
    export restrictions;
    unexpected changes in regulatory requirements;
    higher costs of doing business in foreign countries;
    longer accounts receivable collection cycles;
    potential adverse tax consequences;
    difficulties associated with enforcing agreements through
    foreign legal systems;
    infringement claims on foreign patents, copyrights, or trademark
    rights;
    natural disasters and widespread medical epidemics;
    military conflict and terrorist activities; and
    political instability. 15




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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.
            period-to-period
 16




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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.
  and/or and/or
    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.
    We are
    required to expense equity compensation given to our employees,
    which has reduced our reported earnings, will significantly
    impact our operating results in future periods and may reduce
    our stock price and our ability to effectively utilize equity
    compensation to attract and retain employees.
   17




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If we
    do not adequately manage and evolve our financial reporting and
    managerial systems and processes, our ability to manage and grow
    our business may be harmed.
    We had
    a material weakness in our internal control over financial
    reporting in the past, and we cannot assure you that additional
    material weaknesses will not be identified in the future. If our
    internal control over financial reporting or disclosure controls
    and procedures are not effective, there may be errors in our
    financial statements that could require a restatement or our
    filings may not be timely and investors may lose confidence in
    our reported financial information, which could lead to a
    decline in our stock price.
  Form 10-K.
       18




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We may
    engage in acquisitions that could result in dilution for 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;
    exposure to third party intellectual property infringement
    claims; and
    potential loss of key employees of acquired organizations.    The
    timing of the adoption of industry standards may negatively
    affect widespread market acceptance of our
    products.
    If our
    products do not interoperate with our customers networks,
    our sales may be delayed or cancelled and our business could be
    harmed.
   19




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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.
    Our
    products may not continue to comply with the regulations
    governing their sale, which may harm our business.
   20




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Our
    stock price has been volatile historically, which may make it
    more difficult to sell shares when needed at attractive
    prices.
    Anti-takeover
    provisions could make it more difficult for a third party to
    acquire us.
    Our
    operations could be significantly hindered by the occurrence of
    natural disasters, terrorist acts or other catastrophic
    events.
    Changes
    in our provision for income taxes or adverse outcomes resulting
    from examination of our income or other tax returns could
    adversely affect our results.
  Accounting for
    Uncertainty in Income Taxes
 21




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Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.    Americas

EMEA

APACPhoenix, Arizona



London, England



Sydney, AustraliaIrvine, California



Paris, France



Beijing, ChinaDenver, Colorado



Frankfurt, Germany



Hong Kong, ChinaFt. Lauderdale, Florida



Munich, Germany



Shanghai, ChinaAlpharetta, Georgia



Milan, Italy



Bangalore, IndiaHonolulu, Hawaii



Rome, Italy



Hyderabad, IndiaChicago, Illinois



Amsterdam, Netherlands



Tokyo, JapanBoston, Massachusetts



Stockholm, Sweden



Auckland, New ZealandNew York City, New York



Dubai, United Arab Emirates



SingaporeDallas, Texas







Seoul, South KoreaHouston, Texas







Taipei, TaiwanHerndon, VirginiaBothell, WashingtonSao Paulo, BrazilKanata, CanadaMexico City, Mexico     Item 3.
    Legal
    Proceedings.  Intellectual Property Proceedings.
 22




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Securities Litigation. In re
    Foundry Networks, Inc. Initial Public Offering Securities
    Litigation, No. 01-CV-10640 related to In re Initial Public Offering
    Securities Litigation,
  In re Initial Public
    Offering Securities Litigation,
  In re Foundry Networks, Inc. Derivative Litigation No. 1-06-CV
 23




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and/or
  Patel v. Akin, et al. No. 1-07-CV Patel Patel Patel v. Akin, et al. No. 3036- and/or
  In re Foundry Networks, Inc. Derivative
    Litigation No. 5:06-CV-05598-RMW).
  No. 2:07-CV-01566-JCC).
   24




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SEC Information Inquiry.
  United States Attorneys Office Subpoena for Production
    of Documents.
  General. and/or Accounting for
    Contingencies,
  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
   25




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High


Low2007Fourth quarter

$
21.77


$
16.06Third quarter

$
19.16


$
16.84Second quarter

$
17.53


$
13.41First quarter

$
15.84


$
13.322006Fourth quarter

$
15.04


$
12.06Third quarter

$
13.43


$
9.07Second quarter

$
17.78


$
9.85First quarter

$
18.16


$
13.58   Stock
    Performance Graph
    5-year 12/31/2002 12/31/2007.
  
  12/02



3/03



6/03



9/03



12/03



3/04



6/04



9/04



12/04



3/05



6/05



9/05



12/05



3/06



6/06



9/06



12/06



3/07



6/07



9/07



12/07Foundry Networks, Inc.



100




114




203




305




388




244




200




135




187




141




122




180




196




258




151




187




213




193




237




252




249NASDAQ Composite



100




99




120




134




150




150




154




144




165




152




155




164




169




180




167




175




188




188




202




210




205NASDAQ Computer Manufacturers



100




101




128




140




162




162




166




146




170




158




161




157




159




174




152




173




197




193




220




255




247   The stock price performance included in this graph is not
    necessarily indicative of future stock price performance.
 26




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Dividend
    Policy
    Unregistered
    Securities Sold in 2007
    Issuer
    Purchases of Equity Securities
        MaximumTotal Number


Approximate DollarTotal Number


Average Price


of Shares


Value of Shares Thatof Shares


Paid per


Purchased as


May Yet Be PurchasedPeriod

Purchased


Share


Part of Plan


Under the PlanJuly 1  31


100,000


$
17.80



100,000


$
198,220,070August 1  31


2,028,900



17.84



2,128,900



162,024,615September 1  30










2,128,900



162,024,615October 1  31


144,900



20.76



2,273,800



159,016,367November 1  30


2,107,315



19.91



4,381,115



117,069,659December 1  31










4,381,115



117,069,659Total


4,381,115


$
18.93



4,381,115


$
117,069,659   Item 6.
    Selected
    Consolidated Financial Data.   27




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Year Ended December 31,Consolidated Statements of Income Data:

2007(a)


2006(b)


2005(c)


2004(d)


2003(e)(In millions, except share and per share amounts)Net revenue

$
607.2


$
473.3


$
403.9


$
409.1


$
399.6Cost of revenue


236.4



188.5



155.4



143.2



146.4Gross margin


370.8



284.8



248.5



265.9



253.2Operating expenses


287.9



256.3



186.5



186.6



215.3Income from operations


82.9



28.5



62.0



79.3



37.9Interest and other income, net


43.5



34.4



18.1



9.9



5.2Income before provision for income taxes and cumulative effect
    of change in accounting principle


126.4



62.9



80.1



89.2



43.1Provision for income taxes


45.3



24.7



26.5



31.4



12.0Net income before cumulative effect of change in accounting
    principle


81.1



38.2



53.6



57.8



31.1Cumulative effect of change in accounting principle, net of taxes






0.5











Net income

$
81.1


$
38.7


$
53.6


$
57.8


$
31.1Basic net income per share

$
0.55


$
0.27


$
0.38


$
0.43


$
0.25Weighted-average shares used in computing basic net income per
    share (in thousands)


148,143



145,167



139,176



135,442



125,681Diluted net income per share (in thousands)

$
0.52


$
0.26


$
0.37


$
0.40


$
0.23Weighted-average shares used in computing diluted net income per
    share


155,520



150,509



143,974



143,363



137,476     (a)
    
    Includes pre-tax stock-based compensation expense of
    $46.0 million and pre-tax stock option investigation costs
    of $5.7 million.(b)
    
    Includes pre-tax stock-based compensation expense of
    $50.8 million, pre-tax stock option investigation costs of
    $7.4 million, and pre-tax operating expense of
    $5.5 million relating to our litigation settlement with
    Alcatel-Lucent.(c)
    
    Includes pre-tax stock-based compensation expense of
    $4.6 million.(d)
    
    Includes pre-tax stock-based compensation benefit of
    $17.6 million and pre-tax operating expense of
    $30.2 million relating to our litigation settlement with
    Nortel.(e)
    
    Includes pre-tax stock-based compensation expense of
    $74.5 million.  Year Ended December 31,Consolidated Balance Sheet Data:

2007


2006


2005


2004


2003(In millions)Cash, cash equivalents and investments

$
965.7


$
886.4


$
746.4


$
617.4


$
505.7Working Capital


990.8



736.1



617.7



536.3



443.2Total assets


1,235.7



1,097.6



941.0



830.5



691.7Long-term liabilities


40.1



24.7



21.8



17.6



7.7Total stockholders equity


1,058.6



958.1



811.9



722.7



622.1  28




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Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  This discussion and analysis contains forward-looking
    statements within the meaning of Section 27A of the
    Securities Act of 1933 and Section 21E of the Securities
    Exchange Act of 1934. These statements include, among other
    things, statements concerning our expectations:
  
    that 10GbE switch port shipments will represent the strongest
    growth segment of the Ethernet switch market;
    that we will develop new products and improve the performance
    and functionality of our current product offerings;
    that we will continue to grow our worldwide sales
    organization;
    that we will expand our service and support
    infrastructure;
    that we will leverage our relationship with key resellers to
    penetrate select vertical markets;
    that we will continue to support emerging industry
    standards;
    that we will expand our market presence through marketing and
    sales efforts;
    concerning the amount of stock-based compensation expense we
    expect to record in connection with amended option grants;
    that remaining costs related to the review of our stock
    option practices will not be material; and
    regarding the impact of the recent auction market failures on
    our liquidity,  as well as other statements regarding our future operations,
    financial condition and prospects and business strategies. These
    forward-looking statements are subject to certain risks and
    uncertainties that could cause our actual results to differ
    materially from those reflected in the forward-looking
    statements. Factors that could cause or contribute to such
    differences include, but are not limited to, those discussed in
    Item 1A  Risk Factors. 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.
  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 Annual Report on
    Form 10-K.
  Business
    Environment
     29




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2007
    Financial Performance
  
    2007 marked the seventh year that we have operated profitably in
    the eight years since our initial public offering.
    Our total net revenue for 2007 increased 28% to
    $607.2 million from $473.3 million in 2006 due to the
    increased breadth and depth of the solutions we are now
    delivering to both the service provider and enterprise markets
    and the expansion of our sales organization.
    Net income in 2007 was $81.1 million, or 13% of total net
    revenue, compared to $38.7 million, or 8% of total net
    revenue, in 2006. Our profitability in 2007 was reduced by
    stock-based compensation expense of $46.0 million and
    increased professional and legal fees associated with the
    restatement of our prior period financial statements of
    $5.7 million.
    Our balance sheet remains debt-free, with cash and investments
    of $965.7 million, an increase of $79.2 million from
    2006. During 2007, we generated $105.9 million of cash from
    operations, received $54.7 million of cash from net
    issuances of common stock and spent $82.9 million to
    repurchase 4.4 million shares of our common stock at an
    average price of $18.93 per share.
    In the fourth quarter of 2007 our annualized revenue per
    employee increased to approximately $688,000 from $647,000 in
    the fourth quarter of 2006.  Stock
    Option Investigation and Tender Offer
       30




---



##### Table of Contents



gross-up
  Critical
    Accounting Policies and Use of Estimates
    Revenue
    Recognition
  Revenue Recognition
    Bulletin 90-1, Accounting for Separately Priced Extended Warranty and
    Product Maintenance Contracts.
  No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21) , EITF 00-21. EITF 00-21
   31




---



##### Table of Contents



Reserves
    for Warranty
    Allowance
    for Doubtful Accounts
    Inventories
     32




---



##### Table of Contents



Stock-Based
    Compensation
    Income
    Taxes
      Accounting for
    Uncertainty in Income Taxes  an interpretation of
    FASB Statement No. 109 Accounting for Income Taxes
 33




---



##### Table of Contents



Share-Based
    Payment
  Loss
    Contingencies
    Recent
    Accounting Pronouncements
  No. 07-3, (EITF 07-3). EITF 07-03 EITF 07-03 EITF 07-03 EITF 07-3
    available-for-sale held-to-maturity instrument-by-instrument
 34




---



##### Table of Contents



Accounting for Uncertainty in
    Income Taxes, an interpretation of FASB Statement No. 109,
    Accounting for Income Taxes
  No. 06-2, Accounting for Sabbatical Leave and Other Similar Benefits
    Pursuant to FASB Statement No. 43, (EITF 06-2). EITF 06-2 EITF 06-2
  Results
    of Operations
  Net
    Revenue
      Year Ended December 31,% of Net





% of Net





% of Net


Percentage Change2007


Revenue


2006


Revenue


2005


Revenue


2007 to 2006


2006 to 2005Net revenue:Product

$
517,637



85
%

$
395,701



84
%

$
338,784



84
%


31
%


17
%Service


89,568



15
%


77,579



16
%


65,072



16
%


15
%


19
%Total net revenue

$
607,205



100
%

$
473,280



100
%

$
403,856



100
%


28
%


17
%Chassis

$
370,121



72
%

$
264,515



67
%

$
213,434



63
%


40
%


24
%Stackable


147,516



28
%


131,186



33
%


125,350



37
%


12
%


5
%Total net product revenue

$
517,637



100
%

$
395,701



100
%

$
338,784



100
%


31
%


17
%    35




---



##### Table of Contents



2007


2006


2005Americas


67%



63%



64%EMEA


18%



18%



18%Japan


9%



11%



10%Asia Pacific


6%



8%



8%           Gross
    Margins
    Year Ended December 31,Gross





Gross





Gross2007


Margin%


2006


Margin%


2005


Margin%Gross margins:Product

$
302,577



58
%

$
221,175



56
%

$
195,370



58
%Service


68,210



76
%


63,652



82
%


53,151



82
%Total gross margin

$
370,787



61
%

$
284,827



60
%

$
248,521



62
%    36




---



##### Table of Contents



Operating
    Expenses
    Year Ended December 31,% of Net





% of Net





% of Net


Percentage Change2007


Revenue


2006


Revenue


2005


Revenue


2007 to 2006


2006 to 2005Research and development

$
77,052



13
%

$
70,658



15
%

$
53,041



13
%


9
%


33
%Sales and marketing


160,220



26
%


128,985



27
%


105,701



26
%


24
%


22
%General and administrative


44,935



7
%


43,854



9
%


27,765



7
%


2
%


58
%Other charges, net


5,714



1
%


12,807



3
%










(55
)%


100
%   Research and development
 37




---



##### Table of Contents



Sales and marketing
      General and administrative
 38




---



##### Table of Contents



Other charges, net
  
    Litigation settlement charges of $5.5 million were
    recognized for the year ended December 31, 2006 in
    connection with settlement agreements reached separately with
    Lucent and Alcatel-Lucent. Litigation settlement charges
    pertained primarily to the accrual of costs incurred and payable
    to Lucent and Alcatel-Lucent related to past periods.
    For the year ended December 31, 2007 and 2006, we incurred
    $5.7 million and $7.4 million, respectively, of
    expense related to the independent review of our stock option
    practices. We do not expect that the remaining costs associated
    with this review will be material.  Interest and other income, net.
    Provision for Income Taxes.
   39




---



##### Table of Contents



Accelerated Vesting of Stock Options.
  Liquidity
    and Capital Resources
  Year Ended December 31,2007


2006


2005(In thousands)Cash and cash equivalents

$
331,961


$
258,137


$
291,511Short-term investments


575,645



434,182



280,868Long-term investments


58,062



194,114



173,988Total

$
965,668


$
886,433


$
746,367Net cash provided by operating activities

$
105,937


$
95,181


$
109,905Net cash provided by (used in) investing activities


(12,507
)


(181,713
)


40,411Net cash provided by (used in) financing activities


(19,300
)


53,685



28,426      40




---



##### Table of Contents



41




---



##### Table of Contents



Disclosures
    about Contractual Obligations and Commercial
    Commitments
    Less Than








More ThanTotal


1 Year


1-3 Years


3-5 Years


5 YearsOperating leases of facilities

$
15,416


$
5,777


$
8,864


$
775


$
Purchase commitments with contract manufacturers


70,120



70,120











Total contractual cash obligations

$
85,536


$
75,897


$
8,864


$
775


$
       Off-Balance
    Sheet Arrangements
    Indemnifications
    Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk.  Interest
    rate risk
    held-to-maturity
 42




---



##### Table of Contents



Foreign
    currency exchange rate risk
     43




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data.  FOUNDRY
    NETWORKS, INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
   
 PageReport of Independent Registered Public
    Accounting Firm


45Consolidated Balance Sheets


46Consolidated Statements of Income


47Consolidated Statements of Stockholders
    Equity


48Consolidated Statements of Cash Flows


49Notes to Consolidated Financial Statements


50   44




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Share Based
    Payment Accounting for
    Uncertainty in Income Taxes
    Ernst &
    Young LLP
    45




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
 CONSOLIDATED
    BALANCE SHEETS  December 31,2007


2006(In thousands, except per share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
331,961


$
258,137Short-term investments


575,645



434,182Accounts receivable, net of allowances for doubtful accounts of
    $2,107 and $2,493 and sales returns of $2,626 and $2,910 at
    December 31, 2007 and 2006, respectively


121,139



75,392Inventories


42,384



34,856Deferred tax assets


44,207



39,455Prepaid expenses and other assets


12,439



8,978Total current assets


1,127,775



851,000Property and equipment, net


9,658



11,103Investments


58,062



194,114Deferred tax assets


35,007



35,150Other assets


5,234



6,270Total assets

$
1,235,736


$
1,097,637LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
23,892


$
25,258Accrued payroll and related expenses


50,806



27,878Income taxes payable






5,661Other accrued expenses


12,382



14,368Deferred support revenue


49,886



41,706Total current liabilities


136,966



114,871Deferred support revenue


27,786



23,858Income taxes payable


11,860



Other long-term liabilities


475



813Total liabilities


177,087



139,542Commitments and contingenciesStockholders equity:Preferred stock, $0.0001 par value:Authorized  5,000 shares at December 31,
    2007 and 2006; None issued and outstanding as of
    December 31, 2007 and 2006






Common stock, $0.0001 par value:Authorized  300,000 shares at December 31,
    2007 and 2006:Issued and outstanding  148,700 and
    147,034 shares at December 31, 2007 and 2006,
    respectively


15



15Additional paid-in capital


829,910



727,358Accumulated other comprehensive loss


(789
)


(483
)Retained earnings


229,513



231,205Total stockholders equity


1,058,649



958,095Total liabilities and stockholders equity

$
1,235,736


$
1,097,637    46




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
 CONSOLIDATED
    STATEMENTS OF INCOME  Year Ended December 31,2007


2006


2005(In thousands, except per share data)Net revenue:Product

$
517,637


$
395,701


$
338,784Service


89,568



77,579



65,072Total net revenue


607,205



473,280



403,856Cost of revenue:Product


215,060



174,526



143,414Service


21,358



13,927



11,921Total cost of revenue


236,418



188,453



155,335Gross margin


370,787



284,827



248,521Operating expenses:Research and development


77,052



70,658



53,041Sales and marketing


160,220



128,985



105,701General and administrative


44,935



43,854



27,765Other charges, net


5,714



12,807



Total operating expenses


287,921



256,304



186,507Income from operations


82,866



28,523



62,014Interest and other income, net


43,536



34,407



18,078Income before provision for income taxes and cumulative effect
    of change in accounting principle


126,402



62,930



80,092Provision for income taxes


45,259



24,671



26,530Income before cumulative effect of change in accounting principle


81,143



38,259



53,562Cumulative effect of change in accounting principle, net of taxes






439



Net income

$
81,143


$
38,698


$
53,562Basic net income per share:Before cumulative effect of change in accounting principle

$
0.55


$
0.26


$
0.38Cumulative effect of change in accounting principle






0.01



Net income per share  basic

$
0.55


$
0.27


$
0.38Weighted-average shares used in computing basic net income per
    share


148,143



145,167



139,176Diluted net income per share:Before cumulative effect of change in accounting principle

$
0.52


$
0.25


$
0.37Cumulative effect of change in accounting principle






0.01



Net income per share  diluted

$
0.52


$
0.26


$
0.37Weighted-average shares used in computing diluted net income per
    share


155,520



150,509



143,974    47




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
 CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY  AccumulatedAdditional


Deferred


Other





TotalCommon Stock


Paid-In


Stock


Comprehensive


Retained


Stockholders


ComprehensiveShares


Amount


Capital


Compensation


Income (Loss)


Earnings


Equity


Income(In thousands)BALANCES AT DECEMBER 31, 2004


137,226



14



591,560



(7,405
)


(451
)


138,945



722,663


$
57,294Issuances of common stock under stock plans


3,923







28,425















28,425Stock-based compensation 










(39
)


4,645











4,606Tax benefit from stock option exercises










2,179















2,179Foreign currency translation adjustments


















495







495


$
495Net income






















53,562



53,562



53,562BALANCES AT DECEMBER 31, 2005


141,149


$
14


$
622,125


$
(2,760
)

$
44


$
192,507


$
811,930


$
54,057Elimination of unearned deferred compensation upon adoption of
    SFAS 123R










(2,760
)


2,760











Issuances of common stock under stock plans


5,885



1



47,091















47,092Stock-based compensation










50,855















50,855Tax benefit from stock option exercises










10,486















10,486Cumulative effect of change in accounting principle










(439
)














(439
)Foreign currency translation adjustments


















(527
)






(527
)

$
(527
)Net income






















38,698



38,698



38,698BALANCES AT DECEMBER 31, 2006


147,034


$
15


$
727,358


$



$
(483
)

$
231,205


$
958,095


$
38,171Cumulative effect upon adoption of FIN 48










(4,182
)










777



(3,405
)Cumulative effect upon adoption of EITF
    06-02






















(683
)


(683
)Repurchases and retirement of common stock


(4,381
)


(1
)














(82,929
)


(82,930
)Issuances of common stock under stock plans, net of repurchases


6,047



1



54,888















54,889Stock-based compensation










40,219















40,219Tax benefit from stock option exercises










11,627















11,627Foreign currency translation adjustments


















(306
)






(306
)

$
(306
)Net income






















81,143



81,143



81,143BALANCES AT DECEMBER 31, 2007


148,700


$
15


$
829,910


$



$
(789
)

$
229,513


$
1,058,649


$
80,837    48




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2007


2006


2005(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
81,143


$
38,698


$
53,562Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


11,135



10,190



9,124Stock-based compensation expense


46,021



50,269



4,549Provision for doubtful accounts


(386
)


106



(730
)Provision for sales returns


(283
)


1,126



157Inventory provisions


6,385



9,414



15,116(Benefit)/provision for deferred income taxes


(8,781
)


(15,948
)


3,181Tax benefit from stock option exercises










2,179Excess tax benefits from stock-based compensation


(8,895
)


(6,001
)


Changes in operating assets and liabilities:Accounts receivable


(45,079
)


1,727



13,725Inventories


(13,838
)


(11,811
)


(8,865
)Prepaid expenses and other assets


(4,867
)


(3,581
)


(3,274
)Accounts payable


(1,366
)


2,951



4,069Accrued payroll and related expenses


15,486



3,746



1,770Income taxes payable


19,034



3,690



10,598Other accrued expenses


(1,880
)


5,521



497Deferred support revenue


12,108



5,084



4,247Net cash provided by operating activities


105,937



95,181



109,905CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of
    available-for-sale
    investments


(48,925
)


(85,625
)


(150,700
)Purchases of
    held-to-maturity
    investments


(954,053
)


(665,511
)


(256,022
)Proceeds from sales of
    available-for-sale
    investments


59,200



87,725



314,625Proceeds from maturities of
    held-to-maturity
    investments


938,367



489,971



142,408Purchases of property and equipment, net


(7,096
)


(8,273
)


(9,900
)Net cash provided by (used in) investing activities


(12,507
)


(181,713
)


40,411CASH FLOWS FROM FINANCING ACTIVITIES:Excess tax benefits from stock-based compensation


8,895



6,001



Proceeds from issuances of common stock under stock plans, net
    of repurchases


54,735



47,684



28,426Repurchase and retirement of common stock


(82,930
)






Net cash provided by (used in) financing activities


(19,300
)


53,685



28,426Increase (decrease) in cash and cash equivalents


74,130



(32,847
)


178,742Effect of exchange rate changes on cash


(306
)


(527
)


495Cash and cash equivalents, beginning of year


258,137



291,511



112,274Cash and cash equivalents, end of year

$
331,961


$
258,137


$
291,511SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for income taxes, net of refunds

$
37,489


$
36,914


$
10,813    49




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    DESCRIPTION
    OF BUSINESS  end-to-end e-commerce
  2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Principles
    of Consolidation and Foreign Currency Translation
    Reclassifications
    Use of
    Estimates
    Cash
    Equivalents and Investments
  held-to-maturity
   50




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    available-for-sale held-to-maturity held-to-maturity other-than-temporary.
  other-than-temporary other-than-temporary, other-than-temporary,
   51




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31, 2007Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueCash equivalents:Money market funds

$
158,080


$



$



$
158,080Government-sponsored enterprise securities


114,445



29







114,474Available-for-sale:Auction rate municipal bonds


82,500











82,500Held-to-maturity:Municipal bonds


42,362



133







42,495Government-sponsored enterprise securities


508,845



551



(9
)


509,387$
906,232


$
713



(9
)

$
906,936Cash equivalents

$
272,525



29






$
272,554Short-term investments


575,645



550



(9
)


576,186Long-term investments


58,062



134







58,196$
906,232


$
713


$
(9
)

$
906,936   December 31, 2006Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueCash equivalents:Money market funds

$
89,299


$



$



$
89,299Government-sponsored enterprise securities


104,425



32







104,457Available-for-sale:Auction rate municipal bonds


92,774











92,774Held-to-maturity:Municipal bonds


46,377



13



(29
)


46,361Government-sponsored enterprise securities


500,092



8



(1,145
)


498,955$
832,967


$
53



(1,174
)

$
831,846Cash equivalents

$
204,671



32



(6
)

$
204,697Short-term investments


434,182



2



(860
)


433,324Long-term investments


194,114



19



(308
)


193,825$
832,967


$
53


$
(1,174
)

$
831,846   Government-sponsored enterprise securities
    (GSEs).
 52




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  No. 03-1, The Meaning of
    Other-Than-Temporary
    Impairment and Its Application to Certain Investments (EITF 03-1), held-to-maturity
  Loss Less Than


Loss Greater Than12 months


12 months


TotalGross





Gross





GrossUnrealized





Unrealized





UnrealizedFair Value


Losses


Fair Value


Losses


Fair Value


LossesGovernment-sponsored enterprise securities


63,073



(9
)










63,073



(9
)$
63,073


$
(9
)

$



$



$
63,073


$
(9
)   other-than-temporarily
  Allowance
    for Doubtful Accounts
    Inventories
  first-in,
  December 31,2007


2006Purchased parts

$
4,279


$
5,758Work-in-process


17,195



13,193Finished goods


20,910



15,905$
42,384


$
34,856    53




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair
    Value of Financial Instruments
    Concentrations
      Property
    and Equipment
      December 31,2007


2006Computers, software and equipment

$
53,070


$
46,052Leasehold improvements


5,518



5,440Furniture and fixtures


109



10958,697



51,601Less accumulated depreciation


(49,039
)


(40,498
)Property and equipment, net

$
9,658


$
11,103  54




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Purchased
    Intangible Assets
      Weighted-AverageUseful LifeYear Acquired:

(in Years)


Amount2007


5.0


$
3,4212006


5.0


$
1,883     Gross





NetCarrying


Accumulated


CarryingAs of December 31, 2007:

Amount


Amortization


AmountPurchased intangible assets

$
2,371


$
196


$
2,175Patent cross-license agreements


9,633



6,095



3,538Total

$
12,004


$
6,291


$
5,713   Gross





NetCarrying


Accumulated


CarryingAs of December 31, 2006:

Amount


Amortization


AmountPurchased intangible assets

$
150


$



$
150Patent cross-license agreements


8,433



3,698



4,735Total

$
8,583


$
3,698


$
4,885     Fiscal Years:2008

$
2,4342009


1,0612010


1,0612011


8592012


298$
5,713     Impairment
  held-for-use
 55




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Revenue
    Recognition
  General. Revenue Recognition,
  No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21), EITF 00-21.
  Product.
    Services. when-and-if
  Bulletin 90-1, Accounting for Separately Priced Extended Warranty and
    Product Maintenance Contracts.
  Returns.
 56




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Segment
    and Geographic Information
  end-to-end
    2007


2006


2005Americas


67%



63%



64%EMEA


18%



18%



18%Japan


9%



11%



10%Asia Pacific


6%



8%



8%       Advertising
    Costs
    Sales
    Taxes
    Income
    Taxes
   57




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting for
    Uncertainty in Income Taxes  an interpretation of
    FASB Statement No. 109 Accounting for Income Taxes
  Computation
    of Per Share Amounts
  in-the-money in-the-money
  58




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31,2007


2006


2005(In thousands, except per share amounts)Net income

$
81,143


$
38,698


$
53,562Basic:Weighted-average shares outstanding


148,143



145,167



139,176Basic EPS

$
0.55


$
0.27


$
0.38Diluted:Weighted-average shares outstanding


148,143



145,167



139,176Add: Weighted-average dilutive potential shares


7,377



5,342



4,798Weighted-average shares used in computing diluted EPS


155,520



150,509



143,974Diluted EPS

$
0.52


$
0.26


$
0.37   Stock-Based
    Compensation
  Share-Based Payment Accounting for Stock Issued to Employees, Accounting for Stock-Based
    Compensation
      Accounting for Income Taxes No. D-32, Intraperiod Tax Allocation of the Effect of Pretax Income
    from Continuing Operations
 59




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      expected-to-vest
   60




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,2005Net income

$
53,562Add: Total stock-based compensation expense (benefit) included
    in reported net income, net of tax effect


2,852Deduct: Total stock-based compensation expense determined using
    the fair value method for all awards, net of related tax effect


(60,922
)Pro forma net loss

$
(4,508
)Basic net income (loss) per share:As reported

$
0.38Pro forma

$
(0.03
)Diluted net income (loss) per shareAs reported

$
0.37Pro forma

$
(0.03
)Weighted-average shares for basic EPS


139,176Weighted-average shares for diluted EPS


143,974   Valuation
    of Stock-Based Compensation
      Stock Option Plan


Employee Stock Purchase PlanYear Ended December 31,


Year Ended December 31,2007


2006


2005


2007


2006


2005Average risk free interest rate


4.31
%


4.71
%


3.72
%


4.89
%


4.40
%


2.48
%Average expected life of the options


3.6 years



3.4 years



3.0 years



1.3 years



1.4 years



1.3 yearsDividend yield


0
%


0
%


0
%


0
%


0
%


0
%Volatility of common stock


39.6
%


46.6
%


61.9
%


41.8
%


48.3
%


63.2
%Estimated annual forfeitures


11
%


11
%






11
%


11
%


Weighted average fair value

$
6.24


$
5.44


$
4.33


$
3.88


$
3.96


$
4.33   Expected Term.
 61




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Expected Volatility.
  Expected Dividend.
  Risk-Free Interest Rate.
  Estimated Forfeitures.
  Recent
    Accounting Pronouncements
  No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or
    Services to Be Used in Future Research and Development
    Activities, (EITF 07-3). EITF 07-03 EITF 07-03 EITF 07-03 EITF 07-3
    The
    Fair Value Option for Financial Assets and Financial
    Liabilities-including an amendment of FASB Statement
    No. 115 available-for-sale held-to-maturity instrument-by-instrument
 62




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for Uncertainty in
    Income Taxes, an interpretation of FASB Statement No. 109,
    Accounting for Income Taxes
  No. 06-2, Accounting for Sabbatical Leave and Other Similar Benefits
    Pursuant to FASB Statement No. 43, (EITF 06-2). EITF 06-2 EITF 06-2
  3.
    COMMITMENTS
    AND CONTINGENCIES  Guarantees
    and Product Warranties
  90-day and/or
    Balance, December 31, 2006

$
1,546Liabilities accrued for warranties issued during the period


2,413Warranty claims settled during the period


(1,708
)Balance, December 31, 2007

$
2,251     Deferred support revenue at December 31, 2006

$
65,564New support arrangements


99,858Recognition of support revenue


(87,750
)Ending balance at December 31, 2007

$
77,672    63




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Leases
    OperatingLeases2008

$
5,7772009


5,1302010


3,7342011


6752012


100Thereafter


Total lease payments

$
15,416   Purchase
    Commitments with Suppliers and Third-Party
    Manufacturers
    Settlement
    and Patent License Agreements
   64




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Litigation
  Intellectual Property Proceedings.
   65




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Securities Litigation. In re
    Foundry Networks, Inc. Initial Public Offering Securities
    Litigation, No. 01-CV-10640 related to In re Initial Public Offering
    Securities Litigation,
  In re Initial Public
    Offering Securities Litigation,
  In re Foundry Networks, Inc. Derivative Litigation No. 1-06-CV and/or
 66




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Patel v. Akin, et al. No. 1-07-CV Patel Patel Patel v. Akin, et al. No. 3036-VCL) and/or
  In re Foundry Networks, Inc. Derivative
    Litigation No. 5:06-CV-05598-RMW).
  No. 2:07-CV-01566-JCC).
   67




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    SEC Information Inquiry.
  United States Attorneys Office Subpoena for Production
    of Documents.
  General. and/or Accounting for
    Contingencies,
  4.
    INCOME
    TAXES  Accounting for Income Taxes
 68




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006Deferred Tax Assets:Accrued payroll and related expenses

$
3,858


$
3,034Inventory valuation reserve


17,735



17,574Accrued warranty


884



605Allowance for doubtful accounts


828



976Write-down of minority interest






979Depreciation


3,496



2,953Stock-based compensation


33,553



28,196Research and development credits


4,827



7,866Deferred support revenue


8,728



7,687Other temporary differences


5,305



6,536Total deferred tax assets


79,214



76,406Valuation allowance


0



(979
)Total deferred tax assets, net of valuation allowance


79,214



75,427Deferred Tax Liability:Litigation settlement tax liability






(822
)Net deferred tax assets

$
79,214


$
74,605         2007


2006


2005Current:Federal

$
46,876


$
37,240


$
30,758Foreign


517



366



405State


7,145



5,754



4,583Total current


54,538



43,360



35,746Deferred:Federal


(7,791
)


(16,132
)


(8,459
)Foreign and state


(1,488
)


(2,557
)


(757
)Total deferred


(9,279
)


(18,689
)


(9,216
)Total provision

$
45,259


$
24,671


$
26,530  69




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Provision at U.S. statutory rate of 35%

$
44,241



35.0
%

$
22,025



35.0
%

$
28,032



35.0
%State income taxes, net of federal benefit


5,268



4.2
%


2,728



4.3
%


3,444



4.3
%Federal and state research and development credits


(4,470
)


(3.5
)%


(3,161
)


(5.0
)%


(2,665
)


(3.3
)%Nondeductible stock compensation


2,333



1.8
%


5,482



8.7
%






Export sales incentive










(1,373
)


(2.2
)%


(1,654
)


(2.1
)%Tax-exempt interest


(4,168
)


(3.3
)%


(1,465
)


(2.3
)%


(1,523
)


(1.9
)%U.S. production activities deduction


(944
)


(0.8
)%


(165
)


(0.3
)%


(400
)


(0.5
)%Other


2,999



2.4
%


600



1.0
%


1,297



1.6
%Total

$
45,259



35.8
%

$
24,671



39.2
%

$
26,531



33.1
%         Balance at January 1, 2007

$
14,134Increase related to prior year tax positions


1,661Decrease related to prior year tax positions


(1,002
)Increase related to current year tax positions


1,975Settlements with tax authorities


Lapse of statute of limitations


(149
)Balance at December 31, 2007

$
16,619        70




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    5.
    STOCKHOLDERS
    EQUITY  Share
    Repurchase Program
    Preferred
    Stock
    Common
    Stock
        2006 Stock Incentive Plan


24,361,9911999 Directors Stock Option Plan


2,862,7501999 Employee Stock Purchase Plan


6,628,7762000 Non-Executive Stock Option Plan


1,561,9341996 Stock Plan


20,480,228Total


55,895,679  71




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2006
    Stock Incentive Plan
    1996
    Stock Plan
    1999 Directors
    Stock Option Plan
   72




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2000
    Non-Executive Stock Option Plan
      Weighted-Weighted-


Average


AggregateOptions


Average


Remaining


IntrinsicOutstanding


Exercise Price


Contractual Term


Value(In thousands)Balance, December 31, 2004


30,038,512


$
14.00Granted


6,526,700



9.71Exercised


(2,945,346
)


6.85Cancelled


(1,832,239
)


14.44Balance, December 31, 2005


31,787,627



13.75Granted


6,502,300



14.07Exercised


(4,798,821
)


7.86Cancelled


(1,741,194
)


19.29Balance, December 31, 2006


31,749,912



14.40Granted


6,508,358



18.10Exercised


(5,844,350
)


9.63Cancelled


(1,885,683
)


16.93Balance, December 31, 2007


30,528,237



16.38



4.44


$
123,895Vested and expected to vest at December 31, 2007


28,355,622



16.44



4.45


$
118,662Exercisable at December 31, 2007


20,962,759



16.64



4.46


$
103,191         in-the-money
 73




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Restricted
    Stock Awards
        Restricted Stock


Weighted AverageOutstanding


Grant Date Fair ValueBalance, December 31, 2006


627,750


$
14.58Granted


647,500


$
17.54Vested


(309,875
)

$
14.59Forfeited


(12,000
)

$
14.21Balance, December 31, 2007


953,375


$
16.59     Restricted
    Stock Units
     74




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    RemainingContractual


AggregateShares


Life (Years)


Intrinsic Value(In thousands)Balance, December 31, 2006


Awarded


1,665,000Released


Forfeited/expired


(26,000
)Balance, December 31, 2007


1,639,000



1.68


$
28,715Vested and expected to vest at December 31, 2007


1,304,358



1.60


$
22,852Exercisable at December 31, 2007









$
     1999
    Employee Stock Purchase Plan
       75




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Year Ended December 31,2007


2006


2005(In thousands)Cost of revenue  Product

$
1,457


$
1,858


$
179Cost of revenue  Service


2,029



2,175



201Research and development


16,518



17,542



1,733Sales and marketing


17,916



20,680



1,808General and administrative


8,101



8,519



684Total

$
46,021


$
50,774


$
4,605   Extension
    of Stock Option Exercise Periods for Former Employees
  Form S-8 30-day mark-to-market mark-to-market
  Amendment
    of Certain Stock Options
   76




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accelerated
    Vesting of Stock Options
    Retained
    Earnings
    Balance at December 31, 2006

$
231,205Cumulative effect of adoption of FIN 48


777Cumulative effect of adoption of EITF
    06-2


(683
)Repurchase and retirement of common stock


(82,929
)Net income


81,143Balance December 31, 2007

$
229,513   6.  401(K)
    PLAN
  U.S.-based
 77




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    7.
    SELECTED
    QUARTERLY FINANCIAL DATA (UNAUDITED)    Year Ended December 31, 2007

Fourth Quarter


Third Quarter


Second Quarter


First QuarterNet revenue

$
168.7


$
159.5


$
143.2


$
135.8Cost of revenue


63.3



59.4



57.1



56.6Gross margin


105.4



100.1



86.1



79.2Operating expenses:Research and development


19.5



18.4



17.9



21.3Sales and marketing


43.2



38.5



38.5



40.0General and administrative


11.9



10.2



11.8



10.9Other charges, net


0.1



0.1



3.0



2.6Total operating expenses


74.7



67.2



71.2



74.8Income from operations


30.7



32.9



14.9



4.4Interest and other income, net


11.2



11.4



10.5



10.4Income before provision for income taxes


41.9



44.3



25.4



14.8Provision for income taxes


13.0



16.8



9.8



5.7Net income

$
28.9


$
27.5


$
15.6


$
9.1Basic net income per share

$
0.19


$
0.19


$
0.11


$
0.06Diluted net income per share

$
0.18


$
0.18


$
0.10


$
0.06Shares used in computing earnings per share (in thousands):Basic


149,240



148,897



147,285



147,202Diluted


156,632



156,486



154,034



153,386     78




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31, 2006

Fourth Quarter


Third Quarter


Second Quarter


First QuarterNet revenue

$
132.0


$
118.8


$
108.4


$
114.0Cost of revenue


53.7



46.9



42.9



44.9Gross margin


78.3



71.9



65.5



69.1Operating expenses:Research and development


16.9



16.8



17.0



20.0Sales and marketing


32.9



30.4



31.3



34.3General and administrative


10.0



10.7



12.1



11.1Other charges, net


2.9



4.2



5.7



Total operating expenses


62.7



62.1



66.1



65.4Income from operations


15.6



9.8



(0.6
)


3.7Interest and other income, net


9.9



9.1



8.4



6.9Income before provision for income taxes and cumulative effect
    of change in accounting principle


25.5



18.9



7.8



10.6Provision for income taxes


9.8



6.7



3.4



4.6Income before cumulative effect of change in accounting principle


15.7



12.2



4.4



6.0Cumulative effect of change in accounting principle, net of taxes














0.4Net income

$
15.7


$
12.2


$
4.4


$
6.4Basic net income per share

$
0.11


$
0.08


$
0.03


$
0.04Diluted net income per share

$
0.10


$
0.08


$
0.03


$
0.04Shares used in computing earnings per share (in thousands):Basic


146,764



146,082



145,279



142,477Diluted


152,364



149,830



150,968



149,333   8.
    SUBSEQUENT
    EVENTS  Investments
     79




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Share
    Repurchase Program
   80




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
  Balance at


Charged to





Balance atBeginning


Costs and





End ofDescription

of Period


Expenses


Deductions(1)


Period(In thousands of dollars)Year ended December 31, 2005:Allowance for doubtful accounts


3,117



154



884



2,387Allowance for sales returns


1,627



2,353



2,196



1,784Year ended December 31, 2006:Allowance for doubtful accounts


2,387



1,027



921



2,493Allowance for sales returns


1,784



5,680



4,554



2,910Year ended December 31, 2007:Allowance for doubtful accounts


2,493



118



504



2,107Allowance for sales returns


2,910



3,460



3,744



2,626   (1)
    
    Deductions for allowance for doubtful accounts refer to
    write-offs and deductions for allowance for sales returns refer
    to actual returns.  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures.  Conclusion
    Regarding the Effectiveness of Disclosure Controls and
    Procedures
  Rule 13a-15
    Managements
    Report on Internal Control over Financial
    Reporting
  Rule 13a-15(f).
   81




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##### Table of Contents



Inherent
    Limitations of Internal Controls
    
    pertain to the maintenance of records that, in reasonable
    detail, accurately and fairly reflect the transactions and
    dispositions of our assets;
    provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that our receipts and expenditures are being made only in
    accordance with authorizations of our management and
    directors; and
    provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use, or disposition of
    our assets that could have a material effect on the financial
    statements.    Changes
    in Internal Control over Financial Reporting
    Item 9B.
    Other
    Information.   82




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                 Ernst &
    Young LLP
    83




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##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance.      Item 11.
    Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.    Item 14.
    Principal
    Accounting Fees and Services.   84




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules.  Form 10-K:
      Schedule II-Valuation
  Regulation S-K)
  Number

Description3
.1

Amended and Restated Certificate of Incorporation of Foundry
    Networks, Inc. (Amended and Restated Certificate of
    Incorporation filed as Exhibit 3.2 to registrants
    Registration Statement on
    Form S-1
    (Commission File
    No. 333-82577)
    and incorporated herein by reference; Certificate of Amendment
    to the foregoing filed as Exhibit 3.1 to registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2000 and incorporated herein
    by reference.)3
.2

Amended and Restated Bylaws of Foundry Networks, Inc. (Filed as
    Exhibit 3.2 to registrants Current Report on
    Form 8-K
    filed on April 24, 2007 and incorporated herein by
    reference.)3
.3

Amendment No. 1 to the Amended and Restated Bylaws of
    Foundry Networks, Inc., dated April 19, 2007.*(10)10
.1

1996 Stock Plan.*(1)10
.2

Form of Stock Option Agreement under registrants 1996
    Stock Plan.*(1)10
.3

1999 Employee Stock Purchase Plan, as amended.*(8)10
.4

1999 Directors Stock Option Plan (including related
    form agreements), as amended.*(8)10
.5

Form of Indemnification Agreement.(2)10
.6

OEM Purchase Agreement dated January 6, 1999 between
    Foundry Networks, Inc. and Hewlett-Packard Company, Workgroup
    Networks Division.(3)10
.7

Reseller Agreement dated July 1, 1997 between Foundry
    Networks, Inc. and Mitsui & Co., Ltd.(3)10
.8

2000 Non-Executive Stock Option Plan.*(4)10
.9

Form of Stock Option Agreement under registrants 2000
    Non-Executive Stock Option Plan.*(4)10
.10

Lease agreement dated September 28, 1999, between Foundry
    Networks, Inc., and Legacy Partners Commercial Inc., for offices
    located at 2100 Gold Street, San Jose, CA 95002.(5)10
.11

Confidential Settlement Agreement and Release, effective
    October 25, 2004, by and between Nortel Networks Limited,
    Nortel Networks, Inc., Foundry Networks, Inc., Bobby R. Johnson,
    Jr., H. Earl Ferguson, deceased, and Jeffrey Prince.(6)10
.12

Sublease agreement dated March 25, 2005, between Foundry
    Networks, Inc. and Hyperion Solutions Corporation, for offices
    located at 4980 Great America Parkway, Santa Clara, CA
    95054.(7)10
.13

Form of Restricted Stock Purchase Agreement under the
    registrants 1996 Stock Plan.*(1)10
.14

2006 Stock Incentive Plan.*(9)10
.15

2006 Stock Incentive Plan-Form of Stock Grant Agreement*(9)10
.16

2006 Stock Incentive Plan-Form of Notice of Stock Option Grant
    and Stock Option Agreement.*(9)10
.17

2006 Stock Incentive Plan-Form of Stock Unit Agreement.*(9)10
.18

2006 Stock Incentive Plan-Form of Stock Appreciation Right
    Agreement.*(9)10
.19

First Amendment to Lease Agreement between the Company and Bixby
    Technology Center, LLC dated December 3, 2007.*(10)10
.20

Third Amendment to Lease Amendment between the Company and Bixby
    Technology Center, LLC dated December 3, 2007.*(10) 85




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##### Table of Contents



Number

Description10
.21

Form of Severance Agreement by and between the Company and its
    executive officers.*(10)21
.1

List of Subsidiaries.23
.1

Consent of Independent Registered Public Accounting Firm.31
.1

Certification of Chief Executive Officer pursuant to
    Rule 13a-14(a)
    and 15d-14(a) of the Securities Exchange Act of 1934.31
.2

Certification of Chief Financial Officer pursuant to
    Rule 13a-14(a)
    and 15d-14(a) of the Securities Exchange Act of 1934.32
.1

Certification of Chief Executive Officer pursuant to
    Section 18 U.S.C. Section 1350.32
.2

Certification of Chief Financial Officer pursuant to
    Section 18 U.S.C. Section 1350.   *
    
    Indicates management contract or compensatory plan or
    arrangement.(1)
    
    Copy of original 1996 Stock Plan and related form of Stock
    Option Agreement incorporated herein by reference to the exhibit
    filed with registrant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 registrant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 registrants Definitive Proxy Statement for
    such meeting (Commission File
    No. 000-26689).
    Copy of Form of Restricted Stock Purchase Agreement under the
    1996 Stock Plan is incorporated herein by reference to the
    exhibit filed with registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005 (Commission File
    No. 000-26689).(2)
    
    Incorporated herein by reference to the exhibit filed with
    registrants Registration Statement on
    Form S-1
    (Commission File No.
    333-82577).(3)
    
    Incorporated herein by reference to the exhibit filed with
    registrant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.(4)
    
    Incorporated herein by reference to the exhibit filed with
    registrants Registration Statement on
    Form S-8
    filed on October 25, 2000 (Commission File
    No. 333-48560).(5)
    
    Incorporated herein by reference to the exhibit filed with
    registrants
    Form 10-Q
    for the quarter ended September 30, 1999 (Commission File
    No. 000-26689).(6)
    
    Incorporated by reference from registrants Annual Report
    on Form 10-K
    filed on March 11, 2005 (Commission File
    No. 000-26689).(7)
    
    Incorporated herein by reference to the exhibit filed with
    registrants
    Form 10-Q
    for the quarter ended March 31, 2005 (Commission File
    No. 000-26689).(8)
    
    Incorporated herein by reference to the exhibit filed with
    registrants
    Form 10-K
    on June 14, 2007 (Commission File No.
    000-26689).(9)
    
    Copy of 2006 Stock Incentive Plan approved at the 2006 Annual
    Meeting of Stockholders incorporated by reference to the
    exhibits filed with registrants
    Form 8-K
    on June 22, 2006 (Commission File No.
    000-26689).(10)
    
    Incorporated herein by reference to the exhibit filed with
    registrants
    Form 8-K
    on December 7, 2007 (Commission File No.
    000-26689). 86




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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.
  
  By:
    /s/  Daniel
    W. Fairfax   Daniel W. Fairfax
 Vice President, Finance & Administration
 Chief Financial Officer
 (Principal Financial Officer &
 Principal Accounting Officer)
    POWER OF
    ATTORNEY
  Form 10-K,
  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/  Alfred
    J. AmorosoAlfred
    J. Amoroso

Chairman of the Board of Directors

February 26, 2008/s/  Bobby
    R. Johnson, Jr.Bobby
    R. Johnson, Jr.

President and Chief Executive Officer (Principal Executive
    Officer)

February 26, 2008/s/  Daniel
    W. FairfaxDaniel
    W. Fairfax

Vice President, Finance & Administration, Chief
    Financial Officer (Principal Financial Officer and Principal
    Accounting Officer)

February 25, 2008/s/  C.
    Nicholas Keating, Jr.C.
    Nicholas Keating, Jr.

Director

February 26, 2008/s/  J.
    Steven YoungJ.
    Steven Young

Director

February 25, 2008/s/  Alan
    L. EarhartAlan
    L. Earhart

Director

February 22, 2008/s/  Celeste
    Volz FordCeleste
    Volz Ford

Director

February 22, 2008  87




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##### Table of Contents



INDEX TO
    EXHIBITS
  Number

Description21
.1

List of Subsidiaries.23
.1

Consent of Independent Registered Public Accounting Firm.31
.1

Certification of Chief Executive Officer pursuant to
    Rule 13a-14(a)
    and 15d-14(a) of the Securities Exchange Act of 1934.31
.2

Certification of Chief Financial Officer pursuant to
    Rule 13a-14(a)
    and 15d-14(a) of the Securities Exchange Act of 1934.32
.1

Certification of Chief Executive Officer pursuant to
    Section 18 U.S.C. Section 1350.32
.2

Certification of Chief Financial Officer pursuant to
    Section 18 U.S.C. Section 1350.  88