##### 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, 2005
  Commission file number:
    000-26689
  FOUNDRY NETWORKS,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware(State or
    jurisdiction of
    incorporation or organization)

77-0431154(I.R.S. Employer
    Identification Number)   4980
    Great America Parkway
    Santa Clara, CA 95054
    Website: www.foundrynetworks.com (Address
    of principal executive offices, including zip
    code)
  Registrants telephone number, including area code:
 (408) 207-1700
  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
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 þ o o
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE
  (Items 10-14)




---



##### 



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

Business


3Item 1A.

Risk Factors


11Item 1B.

Unresolved Staff
    Comments


22Item 2.

Properties


22Item 3.

Legal
    Proceedings


23Item 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


26Item 7.

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


26Item 7A.

Quantitative and
    Qualitative Disclosures about Market Risk


37Item 8.

Financial
    Statements and Supplementary Data


39Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


68Item 9A.

Controls and
    Procedures


68Item 9B.

Other
    Information


68PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


68Item 11.

Executive
    Compensation


68Item 12.

Security Ownership
    of Certain Beneficial Owners and Management


68Item 13.

Certain
    Relationships and Related Transactions


68Item 14.

Principal Auditor
    Fees and Services


68PART IVItem 15.

Exhibits and
    Financial Statement Schedules


69SIGNATURES


71EXHIBIT 10.14EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



PART I  Form 10-K we us or
    Foundry Form 10-Q
  Item 1.
    Business  Overview
  end-to-end
  e-commerce, end-to-end ® ® ® ® tm ® ® tm ® ®
 3




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##### Table of Contents



Market
    Trends and Business Drivers
  10-Gigabit
      
    Convergence
    Mobility
    Security  Convergence
  Mobility
  Security
 4




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##### Table of Contents



Strategy
    Continue to Deliver Products that Meet the Needs of the
    High-End Switching Market.
    
    10 Gigabit Ethernet  Our 10-GbE solutions
    have achieved commercial success in the marketplace. Our 10-GbE
    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 few management and operational requirements.
    10-GigE addresses the key concerns facing businesses
    today  the continued need for additional
    bandwidth while building a reliable network. Foundrys new
    10 Gigabit Ethernet offerings include the FastIron SuperX, the
    BigIron RX and the NetIron XMR product series. The FastIron
    SuperX modular switch began shipping in the first quarter and
    gained rapid acceptance as an edge aggregation switch for both
    the traditional enterprise and VoIP market segments. The BigIron
    RX modular switch began shipment in July 2005 and delivered
    strong growth as an enterprise core router, high performance
    computing core switch, and as a data center and infrastructure
    router for service providers. The NetIron XMR series was
    delivered for beta testing by service provider customers in the
    fourth quarter of 2005. The introduction of these products fills
    out Foundrys strategy of offering high performance Layer
    2/3 10 Gigabit Ethernet capable switches from the enterprise
    edge to the Internet core.
    Mobility  Our wireless product offerings,
    the IronPoint 200 and IronWare-IP operating system for FastIron
    Edge switches, deliver strong security, mobility, enhanced user
    policies, centralized management, ease of use, and integration
    with our wired networks. The IronPoint 200 wireless access point
    offers enterprises flexibility with optimal controls for
    increased productivity and secure deployments. Effective and
    efficient management of networking resources is key to cost
    containment and reliability. In response, we 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 a network foundation
    that provides superior performance, high availability and
    secure, guaranteed voice quality. We deliver 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 from industry
    best-of-breed
    providers such as Avaya Inc., Cisco Systems, Inc., Mitel
    Networks Corp., Nortel Networks, Shoretel Inc., and Siemens AG.
    In 2005, we delivered the new chassis-based FastIron SuperX and
    the stackable FastIron Edge switch, each with support for both
    legacy and industry standard 802.3af power over Ethernet,
    automated Quality of Service (QoS), redundant & 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. 5




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##### Table of Contents




    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.
    Organizations increasingly rely on IP networks to deliver
    applications that are critical to business productivity and
    profits. 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 models
    ineffective. Today, organizations require distributed,
    network-wide, security architectures to protect against threats
    from outside the network and to minimize vulnerabilities inside
    the network. Furthermore, the line between Internet and intranet
    is fading fast as users become more mobile and less
    identifiable. In such an open infrastructure, the threats are
    not concentrated at a single entry point at the network
    perimeter, but are network wide. Attacks are also becoming more
    sophisticated and exploiting application-level vulnerabilities
    to cripple critical IP services.  The foundation for our security model is our reliable, robust,
    high-performance security architecture. Our architecture is
    based on our layered
    IronShieldtm
    Security Model, with advanced device, network, and service
    protection features. 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 provides network security for our Layer 2-7 switches,
    routers, and intelligent traffic management devices. We intend
    to continue our investment in security and best practices, and
    remain committed to a strategy of standard-based implementations
    and product offerings so that our customers will benefit from
    ease of use and interoperability.In 2005, Foundry introduced the
    SecureIrontm
    product family. SecureIron traffic managers deliver
    high-performance Layer 2 through 7 switching and security,
    enabling organizations to achieve a highly secure and scalable
    network and application infrastructure. These security traffic
    managers are designed to protect against network- and
    application-layer threats network wide, at the network
    perimeter, inside the data center, and within the enterprise
    LAN. The SecureIron traffic managers are built for inline
    network-wide deployment to provide perimeter-like security
    enforcement inside the LAN against threats within the enterprise
    network.  
    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 2005, we delivered new IPv6
    interface modules for the BigIron RX Series, NetIron IMR and
    NetIron XMR family. We intend to further develop and deliver
    IPv6 solutions.  Continue to Expand our Metro Router Capabilities to Address
    this Market and Deliver a New Level of
    Price/Performance. state-of-the-art
  Continue to Leverage our Product Capabilities to Address
    Emerging Markets.
  Continue to Deliver High-Performance Internet Traffic
    Management Systems.
 6




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Expand Global Sales Organization.
  Deliver World Class Service and
    Support. on-site 24-hour, days-a-week
  Sales and
    Marketing
    Domestic field sales.
  Domestic resellers.
  International sales.
  OEM/Co-Branding.
  Marketing programs.
 7




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Customer
    Service and Support
  24-hour
  90-day on-site
  Centers-of-Excellence Centers-of-Excellence Centers-of-Excellence Centers-of-Excellence end-to-end
  Significant
    Customers
      Manufacturing
   8




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back-up
      Research
    and Development
      Competition
   9




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Seasonality
    Backlog
    Intellectual
    Property
     10




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Employees
   Item 1A.  Risk
    Factors  Intense
    competition in the market for networking solutions could prevent
    us from maintaining or increasing revenue and sustaining
    profitability.
       11




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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.
      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.   12




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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.
    We may
    be subject to litigation risks and intellectual property
    infringement claims that are costly to defend and could limit
    our ability to use certain technologies in the future.
    Additionally, we may be found to infringe on intellectual
    property rights of others.
        If we
    fail to protect our intellectual property, our business and
    ability to compete could suffer.
   13




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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
    reported results of operations will be materially and adversely
    affected by our adoption of SFAS 123R.
  Form 10-K
 14




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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
  Weak
    economic and market conditions or geopolitical turmoil may
    adversely affect our revenue, gross margins and
    expenses.
   15




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Our
    gross margins and average selling prices of our products have
    decreased in the past and may continue to decrease as a result
    of competitive pressures and other factors.
      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.
       16




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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;
    adverse fluctuations in currency exchange rates;
    political instability and export restrictions;
    potential adverse tax consequences;
    unexpected changes in regulatory requirements;
    military conflict and terrorist activities; and
    natural disasters and widespread medical epidemics.      We
    purchase several key components for our products from sole
    sources; if these components are not available, our revenue may
    be harmed.
     17




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Our
    reliance on third-party manufacturing vendors to manufacture our
    products may cause a delay in our ability to fill
    orders.
      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.
   18




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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.
    If our
    internal controls over financial reporting do not comply with
    the requirements of the
    Sarbanes-Oxley
    Act, our business and stock price could be adversely
    affected.
        The
    timing of the adoption of industry standards may negatively
    affect widespread market acceptance of our
    products.
   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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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.
    Anti-takeover
    provisions could make it more difficult for a third party to
    acquire us.
   21




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Our
    operations may encounter disruptions as we relocate certain
    activities to another facility.
    Our
    operations could be significantly hindered by the occurrence of
    a natural disaster, terrorist acts or other catastrophic
    events.
   Item 1B.  Unresolved
    Staff Comments    Item 2.
    Properties    Americas

EMEA

APACIrvine, California

London, England

Tokyo, JapanAtlanta, Georgia

Munich, Germany

SingaporeFort Lauderdale, Florida

Paris, France

Hong KongHonolulu, Hawaii

Amsterdam, Netherlands

Sydney, AustraliaChicago, Illinois

Milan, Italy

Beijing, ChinaNew York City, New York

Stockholm, Sweden

Shanghai, ChinaHerndon, Virginia

Dubai, United Arab Emirates

Seoul, South KoreaTacoma, WashingtonToronto, Canada    22




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Item 3.
    Legal
    Proceedings  In re Foundry
    Networks, Inc. Initial Public Offering Securities
    Litigation No. 01-CV-10640 related to In re Initial Public Offering
    Securities Litigation
       23




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24




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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
    High


Low2005Fourth quarter

$
14.61


$
11.55Third quarter

$
12.70


$
8.56Second quarter

$
9.79


$
8.12First quarter

$
12.51


$
9.902004Fourth quarter

$
13.96


$
9.91Third quarter

$
13.57


$
8.50Second quarter

$
18.84


$
11.30First quarter

$
33.75


$
15.80   Dividend
    Policy
    Unregistered
    Securities Sold in 2005
    Issuer
    Purchases of Equity Securities
   25




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Item 6.
    Selected
    Consolidated Financial Data  Form 10-K.
  Year Ended
    December 31,2005


2004


2003


2002


2001(Dollars in thousands, except
    per share amounts)Consolidated Statement of
    Operations Data:Revenue, net

$
403,856


$
409,104


$
399,628


$
300,742


$
311,176Gross margin


248,662



265,681



258,770



160,550



153,035Gross margin percentage


62
%


65
%


65
%


53
%


49
%Income (loss) from operations(1)


66,426



63,365



112,057



27,171



(1,591
)Net income(1)


56,013



47,967



75,082



22,537



2,886Basic net income per share(1)

$
0.40


$
0.35


$
0.60


$
0.19


$
0.02Diluted net income per share(1)

$
0.39


$
0.34


$
0.55


$
0.18


$
0.02   As of
    December 31,2005


2004


2003


2002


2001(In thousands)Consolidated Balance Sheet
    Data:Cash, cash equivalents and
    investments

$
746,367


$
617,441


$
505,684


$
326,453


$
274,734Working capital


616,055



519,144



430,038



390,543



354,054Total assets


921,924



811,192



658,144



451,535



412,138Long-term liabilities


21,828



17,613



7,707







Total stockholders equity


796,020



706,338



590,495



398,099



361,832     (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.
  Business
    Environment
   26




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2005
    Financial Performance
  
    2005 marked our seventh consecutive year with net income since
    we went public in September 1999.
    Our total net revenue for 2005 decreased slightly to
    $403.9 million from $409.1 million in 2004 due to a
    dramatic slowdown in the first quarter of 2005. In March 2005,
    the networking market experienced a short, but sharp slowdown in
    enterprise spending. Our business recovered in April and we
    experienced consecutive revenue growth in the remaining quarters
    of 2005.
    Net income in 2005 was $56.0 million, or 14% of total net
    revenue, compared to $48.0 million, or 12% of total net
    revenue, in 2004. A pre-tax 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 $746.4 million, an increase of $128.9 million from
    2004. During 2005, we generated $109.7 million of cash from
    operations and received $28.6 million of cash from employee
    stock issuances.
    On November 3, 2005, we accelerated the vesting of unvested
    out-of-the-money
    stock options for approximately 2.2 million shares held by
    employees and officers under our equity compensation plans. For
    purposes of the acceleration, options with an exercise price
    greater than $20.00 per share were deemed
    out-of-the-money
    given our stock price of $12.44 on November 3, 2005. The
    accelerated options, which are considered fully vested as of
    November 3, 2005, have exercise prices ranging from $21.50
    to $27.33 per share. The Board of Directors made the
    decision to immediately vest these options based in part on the
    issuance of SFAS 123R. Absent the acceleration of these
    options, upon adoption of SFAS 123R, we would have been
    required to recognize approximately $25.0 million in
    pre-tax compensation expense from these options over their
    remaining vesting terms as of December 31, 2005. We also
    believe that because the options that were accelerated had
    exercise prices in excess of the current market value of our
    common stock, the options were not fully achieving their
    original objective of incentive compensation and employee
    retention.  Critical
    Accounting Estimates
   27




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Form 10-K.
  Revenue
    Recognition
      Bulletin 90-1, Accounting for Separately Priced Extended Warranty and
    Product Maintenance Contracts.
  00-21 (EITF 00-21), Revenue Arrangements with Multiple Deliverables EITF 00-21. EITF 00-21
    Allowance
    for Doubtful Accounts
   28




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Inventories
      Deferred
    Tax Asset Valuation Allowance
    Loss
    Contingencies
    Recent
    Accounting Pronouncements
  FAS 115-1 FAS 124-1, The Meaning of
    Other-Than-Temporary
    Impairment and Its Application to Certain Investments.
 29




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other-than-temporary
  Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to
    Employees. Statement of Cash Flows
    FAS 123R-3, Transition Election to Accounting for the Tax Effects of
    Share-Based Payment Awards.
  No. FAS 143-1 143-1), Accounting for Electronic Equipment Waste Obligations 143-1
 30




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143-1 143-1 143-1
  Accounting Changes and Error
    Corrections. Accounting Changes Reporting Accounting Changes in
    Interim Financial Statements  An Amendment of
    APB Opinion No. 28
  Inventory Costs   An
    Amendment of ARB No. 43, Chapter 4. Inventory Pricing
  Results
    of Operations
  Net
    Revenue
      Year Ended
    December 31,


Percentage Change% of Net





% of Net





% of Net


2005 to


2004 to2005


Revenue


2004


Revenue


2003


Revenue


2004


2003Net revenue:Product

$
338,784



84
%

$
349,019



85
%

$
351,325



88
%


(3
%)


(1
%)Service


65,072



16
%


60,085



15
%


48,303



12
%


8
%


24
%Total net revenue

$
403,856



100
%

$
409,104



100
%

$
399,628



100
%


(1
%)


2
%Chassis

$
269,210



67
%

$
306,828



75
%

$
315,706



79
%


(12
%)


(3
%)Stackable


134,646



33
%


102,276



25
%


83,922



21
%


32
%


22
%Total net revenue

$
403,856



100
%

$
409,104



100
%

$
399,628



100
%


(1
%)


2
%  31




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##### Table of Contents



2005


2004


2003Americas


64
%


64
%


63
%EMEA


18
%


18
%


14
%Japan


10
%


10
%


15
%Asia Pacific


8
%


8
%


8
%      32




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##### Table of Contents



Gross
    Margins
    Year Ended
    December 31,Gross





Gross





Gross2005


Margin %


2004


Margin %


2003


Margin %Gross margins:Product

$
195,311



58
%

$
219,830



63
%

$
218,213



62
%Service


53,351



82
%


45,851



76
%


40,557



84
%Total gross margin

$
248,662



62
%

$
265,681



65
%

$
258,770



65
%            33




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##### Table of Contents



Operating
    Expenses
    Year Ended
    December 31,


Percentage Change% of Net





% of Net





% of Net


2005 to


2004 to2005


Revenue


2004


Revenue


2003


Revenue


2004


2003Research and Development

$
51,289



13
%

$
43,905



11
%

$
40,473



10
%


17
%


8
%Sales and Marketing


103,876



26
%


98,614



24
%


88,439



22
%


5
%


12
%General and Administrative


27,071



7
%


29,604



7
%


17,570



4
%


(9
)%


68
%Litigation Settlement










30,193



7
%










N/a



N/a   Research and development
    Sales and marketing
    General and administrative
   34




---



##### Table of Contents



Litigation settlement.
  Interest and other income, net. year-to-year
  Income taxes.
    Accelerated Vesting of Stock Options.
  Expensing of Stock Awards. fair-value-based fair-value-based
 35




---



##### Table of Contents



Liquidity
    and Capital Resources
  Year Ended
    December 31,2005


2004


2003(In thousands)Cash and cash equivalents

$
291,511


$
112,274


$
161,718Short-term investments


280,868



331,202



184,859Long-term investments


173,988



173,965



159,107Total

$
746,367


$
617,441


$
505,684Net cash provided by operating
    activities

$
109,686


$
81,524


$
115,449Net cash provided by (used in)
    investing activities


40,411



(169,626
)


(212,051
)Net cash provided by financing
    activities


28,645



39,156



70,609          36




---



##### Table of Contents



Disclosures
    about Contractual Obligations and Commercial
    Commitments
    Less Than


1-3


3-5


More ThanTotal


1 Year


Years


Years


5 YearsOperating leases of facilities

$
18,682


$
5,535


$
8,927


$
4,010


$
210Purchase commitments with contract
    manufacturers


45,019



45,019











Total contractual cash obligations

$
63,701


$
50,554


$
8,927


$
4,010


$
210       Off-Balance
    Sheet Arrangements
    Indemnifications
    Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk.  Interest
    rate risk
    held-to-maturity
 37




---



##### Table of Contents



Foreign
    currency exchange rate risk
     38




---



##### Table of Contents



Item 8.
    Consolidated
    Financial Statements And Supplementary Data  FOUNDRY
    NETWORKS, INC.
   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
  PageManagements
    Report on Internal Control Over Financial Reporting


40Report of
    Independent Registered Public Accounting Firm


41Report of
    Independent Registered Public Accounting Firm


42Consolidated
    Balance Sheets


43Consolidated
    Statements of Income


44Consolidated
    Statements of Stockholders Equity


45Consolidated
    Statements of Cash Flows


46Notes to
    Consolidated Financial Statements


47  39




---



##### Table of Contents



MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING    Form 10-K,
  /s/  Bobby R.
    Johnson, Jr. Chief
    Executive Officer and President

/s/  Timothy D.
    HeffnerChief
    Financial Officer,
    Vice President Finance and AdministrationMarch 15, 2006

March 15, 2006  40




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                     41




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                 42




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  CONSOLIDATED BALANCE SHEETS
  December 31,2005


2004(In thousands, except per share
    amounts)ASSETSCurrent assets:Cash and cash equivalents

$
291,511


$
112,274Short-term investments


280,868



331,202Accounts receivable, net of
    allowances for doubtful accounts of $2,387 and $3,117 and sales
    returns of $1,784 and $1,627 at December 31, 2005 and 2004,
    respectively


78,351



91,502Inventories


32,309



38,743Deferred tax assets


29,268



25,799Prepaid expenses and other assets


7,824



6,865Total current assets


720,131



606,385Property and equipment, net


10,986



8,852Investments


173,988



173,965Deferred tax assets


10,351



16,479Other assets


6,468



5,511Total assets

$
921,924


$
811,192LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
22,307


$
18,238Accrued payroll and related expenses


23,410



21,682Income taxes payable


10,161



Other accrued expenses


9,545



8,700Deferred support revenue


38,653



38,621Total current liabilities


104,076



87,241Deferred support revenue


21,828



17,613Total liabilities


125,904



104,854Commitments and contingencies
    (Note 3)Stockholders equity:Preferred stock, $0.0001 par
    value:Authorized  5,000 shares
    at December 31, 2005 and 2004; None issued and outstanding
    as of December 31, 2005 and 2004






Common stock, $0.0001 par
    value:Authorized  300,000 shares
    at December 31, 2005 and 2004:Issued and
    outstanding  141,149 and 137,226 shares at
    December 31, 2005 and 2004, respectively


14



14Additional paid-in capital


500,856



467,682Accumulated other comprehensive
    income (loss)


44



(451
)Retained earnings


295,106



239,093Total stockholders equity


796,020



706,338Total liabilities and
    stockholders equity

$
921,924


$
811,192    43




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  CONSOLIDATED STATEMENTS OF INCOME
  Year Ended
    December 31,2005


2004


2003(In thousands, except per share
    data)Net revenue:Product

$
338,784


$
349,019


$
351,325Service


65,072



60,085



48,303Total net revenue


403,856



409,104



399,628Cost of revenue:Product


143,473



129,189



133,112Service


11,721



14,234



7,746Total cost of revenue


155,194



143,423



140,858Gross margin


248,662



265,681



258,770Operating expenses:Research and development


51,289



43,905



40,473Sales and marketing


103,876



98,614



88,439General and administrative


27,071



29,604



17,570Litigation settlement






30,193



Amortization of deferred stock
    compensation










231Total operating expenses


182,236



202,316



146,713Income from operations


66,426



63,365



112,057Interest and other income, net


18,124



9,868



5,168Income before provision for income
    taxes


84,550



73,233



117,225Provision for income taxes


28,537



25,266



42,143Net income

$
56,013


$
47,967


$
75,082Basic net income per share

$
0.40


$
0.35


$
0.60Weighted average shares used in
    computing basic net income per share


139,176



135,445



125,133Diluted net income per share

$
0.39


$
0.34


$
0.55Weighted average shares used in
    computing diluted net income per share


143,323



143,118



135,631    44




---



##### Table of Contents



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





AccumulatedAdditional


Receivable


Deferred


Other





TotalCommon Stock


Paid-In


from


Stock


Comprehensive


Retained


Stockholders


ComprehensiveShares


Amount


Capital


Stockholder


Compensation


Income (Loss)


Earnings


Equity


Income(In thousands)BALANCES AT DECEMBER 31, 2002


121,329



12



282,699



(480
)


(231
)


55



116,044



398,099Issuances of common stock under
    stock plans


10,295



1



70,625



















70,626Repurchase of common stock from
    terminated employee


(1
)






(17
)


















(17
)Amortization of deferred stock
    compensation


















231











231Tax benefit from stock option
    exercises










46,482



















46,482Foreign currency translation
    adjustments






















(8
)






(8
)


(8
)Net income


























75,082



75,082



75,082BALANCES AT DECEMBER 31, 2003


131,623



13



399,789



(480
)






47



191,126



590,495



75,074Issuances of common stock under
    stock plans


5,603



1



38,675



















38,676Tax benefit from stock option
    exercises










29,218



















29,218Repayment of note receivable from
    stockholder














480















480Foreign currency translation
    adjustments






















(498
)






(498
)


(498
)Net income


























47,967



47,967



47,967BALANCES AT DECEMBER 31, 2004


137,226



14



467,682











(451
)


239,093



706,338



47,469Issuances of common stock under
    stock plans


3,923







28,645



















28,645Tax benefit from stock option
    exercises










4,529



















4,529Foreign currency translation
    adjustments






















495







495



495Net income


























56,013



56,013



56,013BALANCES AT DECEMBER 31, 2005


141,149


$
14


$
500,856


$



$



$
44


$
295,106


$
796,020


$
56,508    45




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended
    December 31,2005


2004


2003(In thousands)CASH FLOWS FROM OPERATING
    ACTIVITIES:Net income

$
56,013


$
47,967


$
75,082Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation and amortization


9,124



7,439



5,333Amortization of deferred stock
    compensation










231(Reduction of) provision for
    doubtful accounts


154







(862
)Provision for sales returns


3,083



2,080



3,709Inventory provisions


15,116



13,485



9,007Deferred tax assets


2,659



(8,970
)


(4,748
)Tax benefit from stock option
    exercises


4,529



29,218



46,482Changes in operating assets and
    liabilities:Accounts receivable


9,914



(16,505
)


(28,028
)Inventories


(8,682
)


(24,211
)


(3,545
)Prepaid expenses and other assets


(3,274
)


(6,184
)


(1,425
)Accounts payable


4,069



8,158



(1,604
)Accrued payroll and related
    expenses


1,728



5,032



4,902Other accrued expenses


845



2,834



(160
)Income taxes payable


10,161



62



(3,806
)Deferred support revenue


4,247



21,119



14,881Net cash provided by operating
    activities


109,686



81,524



115,449CASH FLOWS FROM INVESTING
    ACTIVITIES:Purchases of
    available-for-sale
    investments


(150,700
)


(419,425
)


(298,800
)Purchases of
    held-to-maturity
    investments


(256,022
)


(179,602
)


(162,539
)Proceeds from sales of
    available-for-sale
    investments


314,625



326,900



216,000Proceeds from maturities of
    held-to-maturity
    investments


142,408



110,926



40,107Purchases of property and
    equipment, net


(9,900
)


(8,425
)


(6,819
)Net cash provided by /(used in)
    investing activities


40,411



(169,626
)


(212,051
)CASH FLOWS FROM FINANCING
    ACTIVITIES:Proceeds from issuances of common
    stock


28,645



38,676



70,626Repayment of note receivable from
    stockholder






480



Repurchases of common stock










(17
)Net cash provided by financing
    activities


28,645



39,156



70,609INCREASE/(DECREASE) IN CASH AND
    CASH EQUIVALENTS


178,742



(48,946
)


(25,993
)Effect of exchange rate changes on
    cash


495



(498
)


(8
)CASH AND CASH EQUIVALENTS,
    BEGINNING OF YEAR


112,274



161,718



187,719CASH AND CASH EQUIVALENTS, END OF
    YEAR

$
291,511


$
112,274


$
161,718SUPPLEMENTAL CASH FLOW
    INFORMATION:Cash paid for income taxes, net of
    refunds

$
10,813


$
5,321


$
4,202    46




---



##### 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
      available-for-sale available-for-sale. held-to-maturity held-to-maturity other-than-temporary.
 47




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     other-than-temporary other-than-temporary, other-than-temporary,
    December 31, 2005Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueCash equivalents:Money market funds

$
125,441


$



$



$
125,441Government-sponsored enterprise
    securities


102,912



3



(61
)


102,854Available-for-sale:Auction rate municipal bonds


67,575











67,575Held-to-maturity:Municipal bonds


39,974







(86
)


39,888Corporate bonds


1,511







(9
)


1,502Government-sponsored enterprise
    securities


345,796







(2,619
)


343,177$
683,209


$
3


$
(2,775
)

$
680,437Cash equivalents

$
228,353


$
3


$
(61
)

$
228,295Short-term investments


280,868







(1,360
)


279,508Long-term investments


173,988







(1,354
)


172,634$
683,209


$
3


$
(2,775
)

$
680,437   48




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31, 2004Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueCash equivalents:Money market funds

$
72,203


$



$



$
72,203Available-for-sale:Auction rate municipal bonds


231,498











231,498Held-to-maturity:Municipal bonds


62,434



5



(157
)


62,282Corporate bonds


6,241







(58
)


6,183Government-sponsored enterprise
    securities


204,994



2



(1,443
)


203,553$
577,370


$
7


$
(1,658
)

$
575,719Cash equivalents

$
72,203


$



$



$
72,203Short-term investments


331,202



3



(588
)


330,617Long-term investments


173,965



4



(1,070
)


172,899$
577,370


$
7


$
(1,658
)

$
575,719   Municipal and corporate bonds.
  Government-sponsored enterprise securities
    (GSEs).
  EITF 03-1, The Meaning of
    Other-Than-Temporary
    Impairment and Its application to Certain Investments held-to-maturity
  Loss Less Than
    12 months


Loss Greater Than
    12 months


TotalGross





Gross





GrossUnrealized





Unrealized





UnrealizedFair Value


Losses


Fair Value


Losses


Fair Value


LossesMunicipal bonds

$
15,838


$
(50
)

$
6,004


$
(36
)

$
21,842


$
(86
)Corporate bonds


1,502



(9
)










1,502



(9
)Government-sponsored enterprise
    securities


291,251



(1,469
)


144,788



(1,211
)


436,039



(2,680
)$
308,591


$
(1,528
)

$
150,792


$
(1,247
)

$
459,383


$
(2,775
)    49




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  other-than-temporarily
  Allowance
    for Doubtful Accounts
    Inventories
  first-in,
  December 31,2005


2004Purchased parts

$
8,008


$
11,713Work-in-process


11,475



19,795Finished goods


12,826



7,235$
32,309


$
38,743     Concentrations
     50




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Property
    and Equipment
      December 31,2005


2004Computers, software and equipment

$
39,198


$
31,259Leasehold improvements


4,021



2,060Furniture and fixtures


109



10943,328



33,428Less accumulated depreciation


(32,342
)


(24,576
)Property and equipment, net

$
10,986


$
8,852   Revenue
    Recognition
  General.
  00-21 (EITF 00-21), Revenue Arrangements with Multiple Deliverables EITF 00-21.
  Product.
 51




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Services. when-and-if
  Bulletin 90-1, Accounting for Separately Priced Extended Warranty and
    Product Maintenance Contracts.
  Segment
    and Geographic Information
  end-to-end
    2005


2004


2003Americas


64%



64%



63%EMEA


18%



18%



14%Japan


10%



10%



15%Asia Pacific


8%



8%



8%      52




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Advertising
    Costs
    Computation
    of Per Share Amounts
  in-the-money in-the-money
  Year Ended
    December 31,2005


2004


2003(In thousands, except per share
    data)Net income

$
56,013


$
47,967


$
75,082Basic:Weighted average shares used in
    computing basic EPS


139,176



135,445



125,133Basic EPS

$
0.40


$
0.35


$
0.60Diluted:Weighted average shares outstanding


139,176



135,445



125,133Add: Weighted average dilutive
    potential shares


4,147



7,673



10,498Weighted average shares used in
    computing diluted EPS


143,323



143,118



135,631Diluted EPS

$
0.39


$
0.34


$
0.55   Accounting
    for Stock-Based Compensation
  Accounting for Stock-Based
    Compensation Accounting
    for Stock Issued to Employees.
   53




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Accelerated Vesting of Stock Options.
    Year Ended
    December 31,2005


2004


2003(In thousands, except per share
    amounts)Net income as reported

$
56,013


$
47,967


$
75,082Add: Total stock-based
    compensation expense included in reported net income, net of tax
    effect










150Deduct: Total stock-based
    compensation expense determined using the fair value method for
    all awards, net of related tax effect


(54,034
)


(42,206
)


(32,962
)Pro forma net income

$
1,979


$
5,761


$
42,270Basic net income per share:As reported

$
0.40


$
0.35


$
0.60Pro forma

$
0.01


$
0.04


$
0.34Diluted net income per share:As reported

$
0.39


$
0.34


$
0.55Pro forma

$
0.01


$
0.04


$
0.31    54




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Stock Option Plan


Employee Stock Purchase
    Plan2005


2004


2003


2005


2004


2003Average risk free interest rate


3.72
%


2.93
%


2.16
%


2.48
%


2.12
%


1.88
%Average expected life of the
    options


3.0 years



3.5 years



3.8 years



1.3 years



1.4 years



2.0 yearsDividend yield


0
%


0
%


0
%


0
%


0
%


0
%Volatility of common stock


61.9
%


71.9
%


75.0
%


63.2
%


67.1
%


73.7
%   Recent
    Accounting Pronouncements
  FAS 115-1 FAS 124-1, The Meaning of
    Other-Than-Temporary
    Impairment and Its Application to Certain Investments. other-than-temporary
  Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to
    Employees. Statement of Cash Flows
   55




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    FAS 123R-3, Transition Election to Accounting for the Tax Effects of
    Share-Based Payment Awards.
  No. FAS 143-1 143-1), Accounting for Electronic Equipment Waste Obligations 143-1 143-1 143-1 143-1
  Accounting Changes and Error
    Corrections. Accounting Changes Reporting Accounting Changes in
    Interim Financial Statements An
    Amendment of APB Opinion No. 28
  Inventory
    Costs  An Amendment of ARB No. 43,
    Chapter 4. Inventory Pricing
 56




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    3.
    COMMITMENTS
    AND CONTINGENCIES  Guarantees
    and Product Warranties
  Guarantors Accounting and Disclosure Requirements for
    Guarantees, Including Indirect Guarantees of Indebtedness of
    Others
  90-day and/or
    Balance, December 31, 2004

$
1,498Liabilities accrued for warranties
    issued during the period


1,058Warranty claims settled during the
    period


(1,015
)Changes in liabilities for
    pre-existing warranties during the period, including changes in
    estimates


(30
)Balance, December 31, 2005

$
1,511     Deferred support revenue at
    December 31, 2004

$
56,234New support arrangements


67,662Recognition of support revenue


(63,415
)Ending balance at
    December 31, 2005

$
60,481    57




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Leases
    OperatingLeases2006

$
5,5352007


5,2282008


3,6992009


2,6832010


1,327Thereafter


210Total lease payments

$
18,682   Purchase
    Commitments with Suppliers and Third-Party
    Manufacturers
    Settlement
    and Patent License Agreements
     58




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Litigation
  In re Foundry
    Networks, Inc. Initial Public Offering Securities
    Litigation No. 01-CV-10640 related to In re Initial Public Offering
    Securities Litigation,
     59




---



##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            60




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    4.
    INCOME
    TAXES  Accounting for Income Taxes.
  December 31,2005


2004Deferred Tax Assets:Accrued payroll and related
    expenses

$
2,167


$
3,580Inventory valuation reserve


17,204



13,844Accrued warranty


594



597Allowance for doubtful accounts


938



1,243Write-down of minority interest


983



997Depreciation


1,332



1,229Research and development credits


8,964



18,482Deferred support revenue


6,033



2,255Other temporary differences


3,684



2,843Total deferred tax assets


41,899



45,070Valuation allowance


(983
)


(997
)Total deferred tax assets, net of
    valuation allowance

$
40,916


$
44,073Deferred Tax Liability:Litigation settlement tax liability


1,297



1,795Net deferred tax assets

$
39,619


$
42,278      61




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2005


2004


2003Current:Federal

$
30,940


$
24,432


$
40,934Foreign


405



165



464State


4,605



3,496



5,493Total current


35,950



28,093



46,891Deferred:Federal


(6,853
)


(2,600
)


(2,830
)State


(560
)


(227
)


(1,918
)Total deferred


(7,413
)


(2,827
)


(4,748
)Total provision

$
28,537


$
25,266


$
42,143     2005


2004


2003Provision at U.S. statutory
    rate of 35%

$
29,592



35.0
%

$
25,632



35.0
%

$
41,029



35.0
%State income taxes, net of federal
    benefit


3,637



4.3
%


3,587



4.9
%


6,044



5.2
%Federal and state research and
    development credits


(2,664
)


(3.1
)%


(2,248
)


(3.1
)%


(2,118
)


(1.8
)%Nondeductible deferred stock
    compensation


















92



0.0
%Export sales incentive


(1,654
)


(2.0
)%


(1,413
)


(1.9
)%


(1,884
)


(1.6
)%Tax-exempt interest


(1,523
)


(1.8
)%


(1,185
)


(1.6
)%


(616
)


(0.5
)%U.S. production activities
    deduction


(399
)


(0.5
)%














Valuation allowance


















1,003



0.9
%Other


1,548



1.9
%


893



1.2
%


(1,407
)


(1.2
)%Total

$
28,537



33.8
%

$
25,266



34.5
%

$
42,143



36.0
%    62




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   5.
    STOCKHOLDERS
    EQUITY  Preferred
    Stock
    Stock
    Option Exchange Program
    Common
    Stock
      1996 Stock Plan


28,662,1751999 Directors Stock
    Option Plan


3,280,0001999 Employee Stock Purchase Plan


6,214,8522000 Non-Executive Stock Option
    Plan


2,291,898Total


40,448,925   1996
    Stock Plan
   63




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      1999 Directors
    Stock Option Plan
    2000
    Non-Executive Stock Option Plan
   64




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##### Table of Contents



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


ExerciseOutstanding


Price($)Balance, December 31, 2002


27,211,252



11.72Granted


9,945,464



11.23Exercised


(9,477,396
)


6.92Cancelled


(1,162,761
)


18.55Balance, December 31, 2003


26,516,559



12.96Granted


11,358,800



15.30Exercised


(4,483,154
)


7.00Cancelled


(3,353,693
)


19.53Balance, 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



13.75       Stock Options
    Outstanding


Stock Options
    ExercisableWeighted-Average


Weighted-





Weighted-Remaining


Average





AverageShares


Contractual


Exercise


Shares


ExerciseRange of Exercise
    Prices

Outstanding


Life (Years)


Price $


Exercisable


Price $$ 0.03 - $  6.84


4,911,472



5.68



5.49



4,343,906



5.37$ 6.86 - $  8.30


4,745,071



6.93



7.81



3,854,091



7.79$ 8.40 - $  9.71


5,760,750



6.31



8.97



3,061,624



9.19$ 9.76 - $ 11.50


4,857,924



5.56



10.73



3,077,357



10.97$11.70 - $ 16.00


5,679,965



7.37



14.08



2,380,924



14.66$17.17 - $ 36.88


4,568,545



7.77



21.97



4,429,393



22.09$59.69 - $108.13


1,263,900



4.64



70.40



1,263,900



70.40Total


31,787,627



6.52



13.75



22,411,195



15.04   1999
    Employee Stock Purchase Plan
   65




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##### Table of Contents



FOUNDRY
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      6.  401(k)
    Plan
  U.S.-based
  7.
    Selected
    Quarterly Financial Data (Unaudited)    Quarter EndedMar. 31,


Jun. 30,


Sep. 30,


Dec. 31,


Mar. 31,


Jun. 30,


Sep. 30,


Dec. 31,2004


2004


2004


2004


2005


2005


2005


2005(In thousands, except per share
    amounts)Total net revenue

$
104,016


$
97,827


$
102,511


$
104,750


$
84,636


$
96,588


$
106,564


$
116,067Gross margin


68,896



63,819



65,532



67,434



52,701



58,791



66,028



71,142Income (loss) from operations


30,291



22,454



(9,779
)


20,399



10,529



10,891



18,305



26,700Net income (loss)

$
19,901


$
14,988


$
(3,618
)

$
16,696


$
9,937


$
9,553


$
15,953


$
20,570Basic net income (loss) per share

$
0.15


$
0.11


$
(0.03
)

$
0.12


$
0.07


$
0.07


$
0.11


$
0.15Diluted net income (loss) per share

$
0.14


$
0.11


$
(0.03
)

$
0.12


$
0.07


$
0.07


$
0.11


$
0.14  66




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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,
    2003:Allowance for doubtful accounts

$
5,833


$
(862
)

$
820


$
4,151Allowance for sales returns


1,584



3,709



3,273



2,020Year ended December 31,
    2004:Allowance for doubtful accounts


4,151







1,034



3,117Allowance for sales returns


2,020



2,080



2,473



1,627Year ended December 31,
    2005:Allowance for doubtful accounts


3,117



154



884



2,387Allowance for sales returns


1,627



3,083



2,926



1,784     (1)
    
    Deductions for allowance for doubtful accounts refer to
    write-offs and deductions for allowance for sales returns refer
    to actual returns. 67




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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  Rules 13a-15(e) 15d-15(e) Form 10-K Form 10-K. Form 10-K
   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    Item 14.
    Principal
    Auditor Fees and Services   68




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Form 10-K:
      Data  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 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.(7)10
.13

Sublease agreement dated
    March 25, 2005, between Foundry Networks, Inc. and Hyperion
    Solutions Corporation, for offices located at 4980 Great America
    Parkway, Santa Clara, CA 95054.(8)10
.14

Form of Restricted Stock Purchase
    Agreement under the registrants 1996 Stock Plan.*(1)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)     *
    
    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 69




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##### Table of Contents



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 Annual Report
    on
    Form 10-K
    filed on March 11, 2005 (Commission File
    No. 000-26689).(8)
    
    Incorporated herein by reference to the exhibit filed with the
    Companys
    Form 10-Q
    for the quarter ended March 31, 2005 (Commission File No.
    000-26689). 70




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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/  Timothy D. Heffner  Timothy D. Heffner
  Vice President, Finance & Administration,
  Chief Financial Officer
  (Principal Financial and Accounting Officer)
    POWER OF
    ATTORNEY
  attorneys-in-fact, Form 10-K, attorneys-in-fact,
  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 15, 2006/s/  Timothy D.
    Heffner(Timothy
    D. Heffner)

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

March 15, 2006/s/  Andrew K.
    Ludwick(Andrew
    K. Ludwick)

Director

March 15, 2006/s/  Alfred J.
    Amoroso(Alfred
    J. Amoroso)

Director

March 15, 2006/s/  C. Nicholas
    Keating(C.
    Nicholas Keating)

Director

March 15, 2006/s/  J. Steven Young(J.
    Steven Young)

Director

March 15, 2006/s/  Alan L. Earhart(Alan
    L. Earhart)

Director

March 15, 2006  71




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##### Table of Contents



INDEX TO
    EXHIBITS
  Number

Description10
.14

Form of Restricted Stock Purchase
    Agreement under the registrants 1996 Stock Plan21
.1

List of Subsidiaries23
.1

Consent of Independent Registered
    Public Accounting Firm31
.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)