SAN JOSE, Calif. -- Foundry Networks(TM), Inc. (NASDAQ:FDRY) , today reported financial results for its first quarter ended March 31, 2003. Revenues for the first quarter of 2003 increased to $91.1 million, compared to $86.7 million in the previous quarter, and to $62.4 million in the same period last year. Foundry earned net income of $13.4 million, or $0.11 per diluted share, in the March 2003 quarter, compared with net income of $10.5 million, or $0.08 per diluted share, in the prior quarter, and net income of $1.0 million, or $0.01 per diluted share, for the same period in 2002. "Our results demonstrate that Foundry's focus on profitable growth, supported by its ability to deliver innovative, differentiated and cost-effective solutions, is proving to be a strategic success," stated Bobby Johnson, President and CEO of Foundry. "Sales to the U.S. Federal Government were strong during the quarter and added unusual strength to what is typically a seasonally soft period." During the first quarter of 2003, Foundry Networks introduced: -- The FastIron Edge Switch 2402POE and 4802POE, two Power-over-Ethernet stackables specifically designed to enable Voice-over-IP -- The EdgeIron 2402CF and 4802CF, two new Layer 2 stackables -- The FastIron Edge Switch 12GCF, a new stackable with 12 ports of Gigabit Ethernet with unique media flexibility of both copper and fiber connectivity -- The NetIron 4802, a new Internet-class Ipv6 enabled router -- The FastIron F10Gx2 and BigIron B10Gx2, our second generation 10 Gigabit Ethernet line card -- The JetCore BigIron J-B24FX and FastIron J-F24FX, two new line cards with 24 ports of 100 Megabit Ethernet over multi-mode or single-mode fiber "We continue to profitably invest in the future of our business with increased levels of R&D investment," continued Johnson. "We believe maintaining a robust product development pipeline, which we consider the lifeblood of our Company, is key to emerging from the uncertain economic environment with a stronger competitive position." FOUNDRY NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share data) Three Months Ended March 31, 2003 2002 Net revenues: Product $81,013 $54,687 Support 10,125 7,733 Total revenues 91,138 62,420 Cost of revenues: Product 35,442 28,308 Support 2,061 1,533 Total cost of revenues 37,503 29,841 Gross profit 53,635 32,579 Operating expenses: Research and development 9,921 8,528 Sales and marketing 19,981 20,590 General and administrative 3,999 3,011 Amortization of deferred stock compensation 122 382 Total operating expenses 34,023 32,511 Income from operations 19,612 68 Interest income 1,065 1,475 Income before provision for income taxes 20,677 1,543 Income tax provision 7,237 494 Net income $13,440 $1,049 Basic net income per share $0.11 $0.01 Weighted average shares used in computing basic net income per share 121,501 118,742 Diluted net income per share $0.11 $0.01 Weighted average shares used in computing diluted net income per share 126,740 123,085 FOUNDRY NETWORKS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) March 31, December 31, 2003 2002 (unaudited) (A) ASSETS Cash and short-term investments $351,315 $326,453 Accounts receivable, net 65,086 51,896 Inventories 27,773 33,479 Deferred tax assets 28,564 28,547 Prepaid expenses and other current assets 3,693 3,604 Total current assets 476,431 443,979 Property and equipment, net 6,233 6,380 Other long-term assets 1,188 1,176 $483,852 $451,535 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 13,680 11,684 Income taxes payable 10,282 3,868 Accrued payroll and related benefits 10,478 11,748 Accrued warranty 2,793 2,305 Other accrued liabilities 4,490 3,597 Deferred support revenue 25,907 20,234 Total current liabilities 67,630 53,436 Stockholders' equity: Additional paid-in capital 287,327 282,766 Note receivable from stockholder (480) (480) Deferred stock compensation (109) (231) Retained earnings 129,484 116,044 Total stockholders' equity 416,222 398,099 $483,852 $451,535 (A) Derived from audited consolidated financial statements FOUNDRY NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Three Months Ended March 31, 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $13,440 $1,049 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,241 1,169 Amortization of deferred stock compensation 122 382 Recovery of allowance for doubtful accounts -- (222) Inventory provision 1,268 2,494 Tax benefit from stock option exercises 612 411 Change in operating assets and liabilities: Accounts receivable (13,190) 6,854 Inventories 4,438 (3,981) Prepaid expenses and other assets (118) 3,926 Accounts payable 1,996 (4,144) Accrued payroll and related expenses (1,270) (1,422) Other accrued expenses 1,381 (638) Income taxes payable 6,414 117 Deferred support revenue 5,673 690 Net cash provided by operating activities 22,007 6,685 CASH FLOWS FROM INVESTING ACTIVITIES: Maturities and (purchases) of short-term investments, net (39,871) 5,312 Purchases of property and equipment (1,094) (583) Net cash provided (used) by investing activities (40,965) 4,729 CASH FLOWS FROM FINANCING ACTIVITY: Proceeds from issuance of common stock 3,827 2,874 Net cash provided by financing activities 3,827 2,874 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (15,131) 14,288 Effect of exchange rate changes on cash 122 (400) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 187,719 98,210 CASH AND CASH EQUIVALENTS, END OF YEAR $172,710 $112,098