Letter to Our Shareholders:
Cabletron Systems just completed its twelfth successful year as a leading
provide of internetworking solutions. Worldwide sales for fiscal 1996 grew to
$1,069.7 million, a 32% increase over our fiscal 1995 mark of $810.7 million.
The Company continues to grow as we build the next generation of network
infrastructures. Our Research and Development effort is guided by listening to
our customers and delivering what we promise. This simple, powerful philosophy
is one we've used since the founding of Cabletron, and is what helped us become
the billion-dollar company we are today.
In the past year, we've introduced faster, more intelligent SmartSwitches(TM) to
help companies move toward Asynchronous Transfer Mode (ATM) and launched a full
line of Fast Ethernet products for small to mid-size companies looking for a
common-sense upgrade from legacy Ethernet networks. Because enterprise
management is becoming critical for network availability, accounting and
control, this past year we provided customers with SPECTRUM 4.0. Our enhanced
network management platform has been widely embraced by customers and is rapidly
gaining market share.
Since the inception of our Synthesis(TM) framework for migrating from
shared-access and mainframe environments to true switched-based virtual
networks, business managers and network administrators are well on their way to
a more automated, controllable computer environment. With this control will come
network use accounting that's as simple as reading a telephone bill, adds, moves
and changes that are as easy as the click of a mouse, and a more fluid and
responsive computing environment that costs less to operate and maintain.
Synthesis is a strategy for the long term - a revolutionary concept in an
industry loaded with companies peddling stopgap solutions under the "more
bandwidth" banner.
This is an exciting time for Cabletron Systems and the networking industry.
Organizations the world over are getting into the intranet revolution, employing
powerful internet and Web technologies to build better internal communication
networks. Intranets are ushering in a new era of collaboration by breaking down
walls, both technical and departmental, providing employees with point-and-click
access to company databases, graphics, and video information regardless of where
it resides or what type of computer or workstation is being used to access it.
Building intranets requires a robust network architecture with sufficient speed,
bandwidth and management control to deliver the network performance users
expect. Cabletron's end-to-end networking solutions have the bandwidth and
performance to create an intranet that will dramatically increase productivity
as it reduces system operating costs.
There is much work ahead, but we are confident that Cabletron's 5,700 employees
worldwide have the talent and heart to get it done. We thank them and you, our
investors and customers, for an outstanding year.
Sincerely,
S. Robert Levine Craig R. Benson
President and Chief Executive Officer Chairman and Chief Operating Officer
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . to . . . . .
Commission File Number 1-10228
CABLETRON SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2797263
(State or other jurisdiction of (I.R.S. Employee
incorporation or organization) identification no.)
35 Industrial Way, Rochester, New Hampshire 03867
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (603) 332-9400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Common Stock, Name of each exchange on which registered:
$0.01 par value New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
As of May 24, 1996, 72,378,427 shares of the Registrant's common stock were
outstanding. The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of May 24, 1996 was approximately $4.0
billion.
Indicate by check mark if disclosure of delinquent filers
pursuant to item 405 of Regulation S-K (229.405) is not contained
herein and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
Part III Proxy Statement to be filed with Securities and Exchange Commission in
connection with the 1995 Annual Meeting of Stockholders.
<PAGE>
TABLE OF CONTENTS
PART I
Item Page
1. Business 3
2. Properties 6
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security Holders 7
4a. Executive Officers of the Registrant 7
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters 8
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
8. Consolidated Financial Statements and Supplementary Data 13-23
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 25
PART III
10. Directors and Executive Officers of the Registrant 25
11. Executive Compensation 25
12. Security Ownership of Certain Beneficial Owners and
Management 25
13. Certain Relationships and Related Transactions 25
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 26
2
<PAGE>
PART I
1. ITEM 1. Business
General
Cabletron develops, manufactures, markets, installs and supports a wide range of
standards-based LAN and WAN connectivity hardware and software products. The
Company's approach to networking is based on a strategy known as Synthesis, a
strategic framework which combines infrastructure products and technologies,
automated management tools, and support services to allow users to smoothly
migrate from traditional router-based internetworks to switch-based virtual
enterprise internetworks. An integral part of Synthesis is the MMAC product
family, which includes the MMAC, the Company's wiring closet smart hub, and the
MMAC Plus, the Company's modular advanced switching intelligent hub. All of the
Company's intelligent networking products are managed by SPECTRUM, Cabletron's
sophisticated enterprise-wide network management system. The Company also
produces and supports other networking products, such as adapter cards, other
interconnection equipment, wiring cables, and file server products, and provides
a wide range of networking services. The Company believes that its broad product
line and its ability to provide full service enable it to offer its customers
"The Complete Networking Solution."
Cabletron is a Delaware corporation organized in 1988. The
executive offices of the Company are located at 35 Industrial
Way, Rochester, New Hampshire 03867 (telephone: (603) 332-9400).
Products and Services
The Company's operations are grouped into the product line areas discussed
below.
Network Management Software
As enterprise networks grow in number, become more diverse and complex and
incorporate increasing bandwidth capacity, organizations require more
sophisticated network management systems. SPECTRUM, Cabletron's enterprise-wide
network management software, allows network administrators to monitor and
control all of the physical layer components making up a worldwide network.
SPECTRUM, which integrates a graphical user interface and a UNIX-based
client/server architecture, provides powerful network management tools in an
easy-to-use, scalable and distributed environment. SPECTRUM incorporates IMT, a
form of artificial intelligence that provides SPECTRUM with the ability to model
every element of the network, including physical cables, network devices, and
applications. SPECTRUM is designed to enable network administrators to view
worldwide enterprise networks and diagnose, actively anticipate and correct
problems at many levels, including the individual node level. The Company has
developed SPECTRUM modules for a wide range of network products, including over
110 applications for third-party products. The Company plans to continue to
develop SPECTRUM system enhancements and modules to increase the number of
third-party network products for which SPECTRUM is applicable.
The Company believes that SPECTRUM has helped to establish Cabletron as a leader
in the field of network management software and contributes to the market
acceptance of the Company's interconnectivity hardware. SPECTRUM is sold
principally to purchasers of Cabletron's MMAC family of products, although
increasingly Cabletron is selling SPECTRUM on a stand-alone basis as a network
management platform.
Smart Hubs and Switches, and Related Products
The MMAC product family is designed to be used in large or multi-story buildings
or in a campus setting. The MMAC Plus is a high-bandwidth (60 GB) modular
switching intelligent hub for networks with large numbers of nodes and one or
more types of transmission media. It contains a flexible backplane that allows
ATM (Asynchronous Transfer Mode) and switched media interfaces to interact with
each other, regardless of their technology (ATM, FDDI, Token Ring or Ethernet).
The MMAC, a smart hub, integrates FDDI, Token Ring and Ethernet into its
flexible backplane and also provides ATM connectivity. The MMAC Plus and the
MMAC are both highly fault tolerant.
Cabletron has recently started shipping MMAC products containing the
SmartSwitch(R), Cabletron's smart switch-on-a-chip ASIC (Application Specific
Integrated Circuit) technology. The SmartSwitch ASIC incorporates numerous
functions on a single chip, increasing speed and functionality.
The Company produces a variety of ATM, FDDI, Token Ring and Ethernet modules for
incorporation directly into the MMAC Plus and MMAC. These modules support direct
connection of various devices to each of the commonly used transmission media.
3
<PAGE>
Recent Product Line Acquisition
In order to broaden the range of switching products offered by the Company, in
January 1996 Cabletron acquired the Enterprise Networks Business Unit from
Standard Microsystems Corporation for $85.7 million, which included the which
included $67.8 million for in-process R & D and $17.9 million for nonrecurring
charges which included adjustments to bring certain reserves in line with
Company accounting policies. These products, the ATX, FN10 and FN100, are Fast
Ethernet switching products which complement Cabletron's high-end
SmartSwitch-based products. The Company had a one-time after-tax expense of
$52.3 million (or $0.73 per share) in the fourth quarter of fiscal 1996 for
in-process research and development and acquisition related expenses.
Network Interconnection Equipment
The Company manufactures a line of dual-port and multiport stand-alone
repeaters, which are designed to connect up to eight Ethernet/IEEE 802.3
segments together or to an Etnernet backbone. The Company also produces Desktop
Network Interface ("DNI") cards, which enable the user to connect directly to
10BASE-T unshielded twisted pair, fiber optic or coaxial cabling via a built-in
transceiver on the card, and provide high-speed Ethernet and Token Ring data
connections for various personal computer platforms.
Services
The Company is one of the few companies that, in addition to manufacturing a
broad line of network equipment, also offers a wide range of services for
networks, including service maintenance; consulting, design and configuration;
project planning; project management; training; testing, certification and
documentation; and performance analysis. The Company's service group forms an
integral part of the Company's marketing strategy, since network users often
seek one company to attend to all of their networking needs. The Company
believes that the combination of its broad line of networking products, its
emphasis on service, and its close acquaintance with customers' needs enable it
to compete effectively.
Other Products
The Company's other products include test equipment designed to analyze networks
and protocols, and to verify proper installation and operation of the network,
cabling, transceivers, repeaters and other devices. The Company also sells
electronically-tested Ethernet coaxial cable, shielded twisted pair (IBM-type)
wire, unshielded twisted-pair wire and optical fiber cut to specific lengths.
Distribution and Marketing
Cabletron distributes its products primarily through a direct sales force to
end-users supplemented by several international distributors. The Company's
direct sales are made by approximately 200 sales representatives located in 29
countries around the world. This direct sales force is supplemented by
approximately 2,300 persons in our headquarters and regional in-house technical
services and sales support staff. The Company believes that its ratio of
in-house sales, marketing and technical services and sales support staff to
field sales force is among the highest in the LAN industry and contributes
significantly to the effectiveness of the Company's field sales force.
The Company actively employs several methods to market its products, including
regular participation in trade shows as both a vendor and networker, frequent
advertisement in trade journals, regular attendance by corporate officers at
press briefings and trade seminars, submission of demonstration products to
selected customers for evaluation, and direct mailings and telemarketing
efforts.
Customers
Cabletron's end-user customers include industrial and manufacturing companies;
Federal, state and local government agencies; brokerage and investment banking
firms; insurance companies and other financial institutions; universities; and
leading accounting and law firms.
In fiscal year 1996, no single customer represented more than 4% of Cabletron's
net sales, and the Company's top ten customers represented, in the aggregate,
approximately 15% of its net sales. Net sales on Government Service
Administration and other direct and indirect contracts to various agencies of
the United States Government accounted for approximately 6% of the Company's
sales during the last fiscal year. Most of the Company's contracts with the
Government are on a fixed-price basis. The books and records of the Company are
subject to audit by the General Services Administration, the Department of Labor
and other government agencies.
4
<PAGE>
Competition
The LAN industry is intensely competitive and is significantly affected by
product introductions and the market activities of industry participants.
Cabletron's competition in the market for network interconnection products comes
from three types of firms: independent LAN and WAN vendors, large computer
manufacturing companies and manufacturers of specific LAN and WAN devices.
Competition in the LAN and WAN industry could increase in the future due to the
expansion of product lines by these competitors or the entry into the field of
new competitors. Additionally, competitors in the LAN industry may merge to form
companies with greater combined financial positions and product offerings.
The market for Ethernet LAN equipment has been characterized by declining prices
on a per-port basis during the past several years and this trend is expected to
continue for the foreseeable future. The Company believes that it has been able
to compete successfully in this environment by emphasizing product functionality
and feature enhancements, state-of-the-art technology, product quality, and
customer service. The Company's ability to compete successfully with current and
potential competitors will depend to a significant extent on its ability to
continue developing technologically superior products to adapt to changes in its
market.
Research and Development
The LAN industry is characterized by rapid technological advances, frequent
product introductions and evolving industry standards. Cabletron believes that
its future success depends on its ability to continue to enhance its existing
products and to develop on a timely basis technologically advanced new products
that meet industry standards, perform successfully and achieve market
acceptance. Currently, the Company is developing and selling next- generation
intelligent switching hubs that will integrate existing LAN-based technologies
with ATM (a switching technique that would satisfy voice and video as well as
data packet and cell switching technologies), which appears to be the next
emerging technology. Because of the nature of the Company's distribution system,
which places heavy reliance on direct sales to end-users, Cabletron believes it
has been able to react quickly to changes in customer demand and users' needs.
Additionally, the Company has representatives on many of the industry committees
drafting evolving standards. In recent years, Cabletron has substantially
increased its research and development expenses and its staff of software and
hardware engineers. There can, however, be no assurance that the Company will be
successful in selecting, developing, manufacturing and marketing new products
that will perform satisfactorily and achieve market acceptance or in enhancing
its existing products. Nor can there be any assurance that the Company will be
able to respond effectively to technological changes or new product
announcements by others or that the Company will be successful in augmenting its
software capability. In addition, technological changes may render portions of
the Company's inventory obsolete.
During fiscal years 1996, 1995 and 1994, research and development expenses were
$115.0 million, $84.4 million and $60.2 million, respectively. The Company
believes that as LANs grow larger and more complex, end-users' evaluation of LAN
technology will increasingly be based on the software component of products,
particularly in the area of network control management. As of February 29, 1996
approximately 65% of the personnel in the Company's research and development
department consisted of software development personnel and the rest were
involved in hardware development. The Company intends to continue to increase
both its research and development budget and engineering staff.
Supply of Components
Cabletron's network interconnection products are manufactured principally in
printed circuit board format produced from Company designs together with
standard and semi-custom components. Certain components used in Cabletron's
products are presently available from only one source and others are available
only from a limited number of sources.
Many of the connectors, power supplies, and ASICs used in Cabletron's products
are sole sourced. These sole sourced products are either proprietary or patented
by the manufacturer, or designed to Cabletron's specifications. Cabletron
utilizes the design and manufacturing capabilities of many of the leading
companies in these industries. The Company believes current agreements with
these suppliers will adequately meet its design and production requirements for
the foreseeable future.
The supply of critical integrated circuits, which are often proprietary and are
used in the Company's DNI cards and bridging products, remains steady. The
demand for critical DRAM, SRAM and Flash products has decreased, but is
monitored carefully. Sources of supply are in place to meet manufacturing and
engineering requirements. Agreements with strategically sourced silicon vendors
are in place and continue to be updated for changes in design and manufacturing
volumes.
5
<PAGE>
The Company believes it is well positioned to meet its raw material
requirements. Most other parts are multiple sourced. The Company continues to
improve its materials support by utilizing world class suppliers and effectively
managing raw material flows. The Company believes its relationship with its
suppliers is good, but the inability to develop alternatives if and as required
in the future, or to obtain sufficient sole or limited source components as
required in the future, could result in delays or reductions in product
shipments, which could adversely affect the Company's operating results.
Manufacturing
Since the Company manufactures and assembles virtually all of its products, it
maintains direct control over production, quality and product availability. By
controlling its manufacturing process, Cabletron is able to maintain a strict
quality control program, respond to changes in market demand and offer its
customers modified or customized products.
Intellectual Property
The Company relies upon US and foreign patents, copyright and trademark laws,
and upon trade secret laws to establish its proprietary rights to its products.
The Company holds a number of US and foreign trademark registration and patent
rights. The Company currently has several US and foreign trademark registrations
and patent applications pending.
Backlog
The Company's backlog at February 29, 1996, was approximately $129.5 million,
compared with backlog at February 28, 1995, of approximately $120.0 million. In
general, orders included in backlog may be canceled or rescheduled by the
customer without significant penalty. Therefore, backlog as of any particular
date may not be indicative of the Company's actual sales for any succeeding
fiscal period. The Company does not anticipate any problems in fulfilling its
backlog within the upcoming fiscal year.
Inventory and Working Capital
The Company's policy is to maintain a sufficient inventory of products to permit
the shipping of most customer orders that require rapid delivery within 24 to 48
hours of receipt. This delivery policy requires higher levels of inventory than
those of other companies in the LAN industry. Additional financial information
on inventories and working capital is contained in "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" at pages 10 to 12 of
this document.
Employees
As of February 29, 1996, the Company had 5,377 full-time employees. The
Company's employees are not represented by a union or other collective
bargaining agent, and the Company considers its relations with its employees to
be good.
Domestic and Foreign Financial Information
Financial information concerning foreign and domestic operations is contained in
Note 13 of "Notes to the Consolidated Financial Statements" included at page 24
of this document.
ITEM 2. Properties
The Company owns and occupies a number of buildings including a 206,000
square-foot manufacturing facility in Rochester, New Hampshire, which also
accommodates a portion of manufacturing and corporate engineering. Next to its
Rochester manufacturing facility, the Company owns two buildings totaling
122,000 square feet which accommodate sales, marketing, administration and
technical support personnel. The Company also owns and occupies a warehousing
and distribution facility, totaling 221,000 square feet, in Rochester, New
Hampshire. The Company owns a 114,000 square-foot engineering building in
Merrimack, New Hampshire.
The Company leases three manufacturing buildings totaling 87,000 square feet in
Ironton, Ohio, a 100,000 square-foot manufacturing facility in Limerick,
Ireland, and a 25,000 square-foot distribution center in Shannon, Ireland, to
support its European sales activities. The Company also leases a 62,000
square-foot research and development facility in Durham, New Hampshire and a
34,000 square-foot engineering office in Nashua, New Hampshire. Cabletron also
leases sales and technical support offices that range from 1,000 to 20,000
square feet at various locations throughout the world.
6
<PAGE>
The Company believes that its facilities are adequate to support anticipated
sales growth over the next 12 to 18 months. Such growth, however, will require
additional production employees and capital equipment. The Company believes that
adequate supplies of labor are available in the areas where the Company's
manufacturing operations are located.
Financial information regarding leases and lease commitments are contained in
Note 8 of "Notes to the Consolidated Financial Statements" included at page 20
of this document.
ITEM 3. Legal Proceedings
The Company is involved in various legal proceedings and claims arising in the
ordinary course of business. Management believes that the disposition of these
matters would not have a material adverse effect on the consolidated financial
position or results of operations of the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of the Company's security holders.
ITEM 4a. Executive Officers of the Registrant
The executive officers of the Company are as follows:
Name Age Position
S. Robert Levine 38 President, Chief Executive Officer and Director
Craig R. Benson 41 Chairman, Chief Operating Officer,
Treasurer and Director
Christopher J. Oliver 35 Director of Engineering and Manufacturing
David J. Kirkpatrick 44 Director of Finance and Chief Financial Officer
S. Robert Levine founded the Company in March 1983 and has been President
and Chief Executive Officer and a director of the Company since
that date.
Craig R. Benson was Director of Operations from November 1984 until April of
1989, when he became Chairman, Chief Operating Officer and Treasurer.
Christopher J. Oliver has been Director of Engineering and Manufacturing of the
Company since February 1985.
David J. Kirkpatrick has been Director of Finance and Chief Financial Officer of
the Company since August 1990. From 1986 to 1990 he was the Vice President of
Zenith Data Systems, a subsidiary of Zenith Electronics Corporation.
The Company's success is dependent in large part on S. Robert Levine, President
and Chief Executive Officer, Craig R. Benson, Chairman and Chief Operating
Officer, Christopher J. Oliver, Director of Engineering and Manufacturing, and
other key technical, sales and management personnel, the loss of one or more of
whom could adversely affect Cabletron's business.
7
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
STOCK PRICE HISTORY
The following table sets forth the high and low sale prices for the Company's
Common Stock as reported on the New York Stock Exchange (symbol - CS) during the
last three fiscal years. As of February 29, 1996, the Company had approximately
2,400 stockholders of record. The Company has paid no dividends on its Common
Stock and anticipates it will continue to reinvest earnings to finance future
growth.
Fiscal 1996 High Low
First quarter $55.75 $38.88
Second quarter 59.62 48.63
Third quarter 86.75 52.00
Fourth quarter $83.25 $65.88
Fiscal 1995 High Low
First quarter $53.00 $35.70
Second quarter 43.85 33.05
Third quarter 52.86 41.00
Fourth quarter $49.25 $37.63
Fiscal 1994 High Low
First quarter $42.80 $30.60
Second quarter 47.60 38.40
Third quarter 43.90 35.00
Fourth quarter $50.50 $41.95
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
CABLETRON SYSTEMS, INC.
- -------------------------------------------------------------------------------
Income Statement Data: FISCAL YEAR ENDED
February February February February February
29, 28, 28, 28, 29,
(in thousands, except per 1996 1995 1994 1993 1992
share data) ---------------------------------------------------
Net sales $1,069,715 $810,684 $598,112 $418,203 $290,543
Cost of sales
433,776 329,843 243,568 170,104 117,325
---------- -------- -------- -------- ---------
Research and development 115,018 84,404 60,192 41,318 27,298
Selling, general and
administrative 207,669 158,074 116,843 81,480 57,983
Nonrecurring items 85,690 --- --- --- ---
---------- -------- -------- -------- --------
Income from operations 227,562 238,363 177,509 125,301 87,937
Interest income 17,061 9,597 5,838 4,558 3,910
---------- -------- -------- -------- --------
Income before taxes 244,623 247,960 183,347 129,859 91,847
Income taxes 80,205 85,986 64,129 46,405 33,848
---------- -------- -------- -------- --------
Net income $ 164,418 $161,974 $119,218 $ 83,454 $ 57,999
========== ======== ======== ======== ========
Net income per share $ 2.29 $ 2.27 $ 1.68 $ 1.18 $ 0.83
========== ======== ======== ======== ========
Weighted average shares
outstanding 71,839 71,494 71,018 70,375 69,858
========== ======== ======== ======== ========
Note: Net income for fiscal 1996 included a net of tax charge of
approximately $52.3 million or $0.73 per share related to the acquisition of the
Enterprise Networks Buiness Unit of Standard Microsystems Corporation (SMC) (see
note 3). Excluding the nonrecurring items noted above, pro forma net income per
share would have been as follows:
February
29,
1996
--------
(in thousands, except per
share data)
Pro forma net income $216,691
Pro forma net income per $3.02
common share
Balance Sheet Data: February February February February February
29, 28, 28, 28, 29,
(in thousands) 1996 1995 1994 1993 1992
----------------------------------------------------
Working capital $476,474 $374,825 $255,752 $233,325 $162,127
Total assets 951,269 689,920 499,073 343,214 236,226
Stockholders' equity 777,829 587,520 423,792 288,753 203,614
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Results of Operations
This table sets forth Cabletron's net sales, cost of sales, expenses by
category, income from operations, interest income, income before income taxes
and net income expressed as percentages of net sales, for the fiscal years ended
February 29, 1996, and February 28, 1995 and 1994:
1996 1995 1994
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 40.6 40.7 40.7
------ ------ ------
Gross profit 59.4 59.3 59.3
Research and development 10.7 10.4 10.1
Selling, general and administrative 19.4 19.5 19.5
Nonrecurring items 8.0 --- ---
------- ------- ------
Income from operations 21.3 29.4 29.7
Interest income 1.6 1.2 0.9
------- ------- -------
Income before income taxes 22.9 30.6 30.6
------- ------- -------
Net income 15.4% 20.0% 19.9%
======= ======= =======
Acquisition
During the fiscal year ended February 29, 1996, Cabletron augmented its high-end
SmartSwitch(R) family allowing the Company to deliver a broad line of Fast
Ethernet products for enterprise-wide switching applications. The Company
completed the acquisition of the Enterprise Networks Business Unit from SMC on
January 12, 1996. The acquisition was accounted for as a purchase and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair market value at the date of the acquisition. A total charge of
$85.7 million was taken which included $67.8 million for in-process research and
development and $17.9 million for nonrecurring charges which included
adjustments to conform the ENBU accounting policies with the Company's
accounting policies. The Company's consolidated results of operations for the
year ended February 29, 1996 include the operating results of the acquired
product line from its date of acquisition.
Revenues
Net sales in fiscal 1996 increased by 32.0%, to $1,069.7 million from $810.7
million in fiscal 1995, a 35.5% increase from $598.1 million in fiscal 1994. The
increase in revenues in fiscal 1996 and 1995 was primarily the result of
increases in sales of network interconnection products to end users.
Net sales outside the United States in fiscal 1996 were $312.5 million or 29.2%
of net sales, compared to $233.1 million or 28.8% of net sales in fiscal 1995
and $163.5 million or 27.3% of net sales in fiscal 1994. In addition to its
direct international sales force, the Company sells its products through several
international distributors. Management anticipates that foreign shipments will
continue to increase in absolute dollars during the coming fiscal year.
The Company currently has 21 foreign subsidiaries throughout the world. The
impact of fluctuations in foreign exchange rates on operations was not
significant in fiscal 1996.
Net sales of network interconnection products in fiscal 1996 increased to $965.2
million or 90.2% of net sales, from $741.3 million or 91.4% of net sales in
fiscal 1995 and $554.3 million or 92.7% in fiscal 1994. During fiscal 1996,
within the network interconnection products, MMAC-Plus, next generation
intelligent switching hubs, token ring management interface modules for the MMAC
and the MMAC-Plus, small stackable hubs, bridges and routers, and network
management software such as SPECTRUM accounted for the largest sales growth.
During fiscal 1995, MMAC, a line of active manageable data centers or "smart
hubs" and related products, inclusive of token ring modules, SPECTRUM and other
network management software, accounted for the largest sales growth.
Net sales of cable assemblies and related components were $6.7 million or 0.6%
of net sales in fiscal 1996, compared to $9.7 million or 1.2% of net sales in
fiscal 1995 and $9.7 million or 1.6% of net sales in fiscal 1994. Cable revenues
in all fiscal years reflected the Company's shift in market strategy toward
active manageable data centers. Management anticipates the relative importance
of cable revenues to total revenues will decline further during fiscal 1997.
10
<PAGE>
Net sales of diagnostic test instruments, installation and maintenance services,
and other products were $97.8 million or 9.1% of net sales in fiscal 1996,
compared to $59.7 million or 7.4% of net sales in fiscal 1995 and $34.1 million
or 5.7% of net sales in fiscal 1994. The sales of diagnostic instruments are on
a downward trend due to greater functionality being incorporated into the smart
hub devices. Management anticipates diagnostic and test instruments to decrease
as a percentage of sales in the next fiscal year. Installation and maintenance
services are an integral part of Cabletron's customer development and support
activities. Management anticipates that sales of such services and other
products will increase in absolute sales dollars in the future year.
Costs, Expenses and Interest Income
Cost of sales was $433.8 million or 40.6% of net sales in fiscal 1996, compared
to $329.8 million or 40.7% of net sales in fiscal 1995 and $243.6 million or
40.7% of net sales in fiscal 1994. The Company was able to maintain its gross
margins in fiscal 1996 and 1995 by introducing and selling products with
improved functionality, further developing a service maintenance program and
improving purchasing and manufacturing efficiencies.
Research and development ("R&D") expenses in fiscal 1996 increased to $115.0
million or 10.7% of net sales, compared to $84.4 million or 10.4% of net sales
in fiscal 1995. In fiscal 1994, R&D expenses were $60.2 million or 10.1% of net
sales. The increased R&D spending in fiscal 1996 reflected increased hiring of
software and hardware engineers and associated costs related to the development
of new products, such as the Application Specific Integrated Circuit (ASIC)
components for the Company's new switching family of products, known as
SmartSwitches. The increased expenditures in R&D over the past three fiscal
years in both absolute spending and as a percentage of sales are indicative of
the commitment the Company has made to remain in the forefront of developing new
and innovative products for the networking industry, specifically for the
Company's flagship product the MMAC-Plus.
Selling, general and administrative ("SG&A") expenses were $207.7 million or
19.4% of net sales in fiscal 1996, compared to $158.1 million or 19.5% of net
sales in fiscal 1995 and $116.8 million or 19.5% of net sales in fiscal 1994.
Increases in SG&A spending resulted from expanding the sales and support
workforce, establishing additional office locations domestically and
internationally and increased administrative spending primarily due to increases
in volume.
For fiscal 1996 an $85.7 million nonrecurring charge was taken for the purchase
of the Enterprise Networks Business Unit of SMC.
Interest income in fiscal 1996 was $17.1 million compared to $9.6 million in
fiscal 1995 and $5.8 million in fiscal 1994. The increase in interest income
reflects the earnings associated with increased cash and marketable securities
acquired from favorable operating results and fluctuating interest rates.
Income
Income before income taxes was $244.6 million or 22.9% of net sales in fiscal
1996, compared to $248.0 million or 30.6% of net sales in fiscal 1995 and $183.3
million or 30.6% of net sales in fiscal 1994. The decrease in income before
income taxes as a percentage of sales from fiscal 1995 was due primarily to
expenses related to the acquisition of the Enterprise Networks Business Unit of
SMC that was completed in the fourth quarter of fiscal 1996. The tax rate for
fiscal 1996 was 32.8%, a 1.8% decrease from a tax rate of 34.6% for fiscal 1995,
which was due to the aforementioned acquisition.
Net income was $164.4 million in fiscal 1996, compared to $162.0 million in
fiscal 1995 and $119.2 million in fiscal 1994. Excluding the above one-time
nonrecurring charges the Company would have realized net income of $216.7
million in fiscal 1996.
Liquidity and Capital Resources
Accounts receivable, net of allowance for doubtful accounts, were $147.9 million
at February 29, 1996 or 42 days of sales outstanding, compared to $91.4 million
or 33 days of sales in accounts receivable at February 28, 1995. This increase
in receivables reflects higher sales and the timing of collections. The higher
days' sales outstanding will be more typical of the Company's business
activities in future periods as international sales increase.
The Company has historically maintained higher levels of inventory than its
competitors in the LAN industry in order to implement its policy of shipping
most orders requiring immediate delivery within 24 to 48 hours. World-wide
inventories were $153.6 million at February 29, 1996 or 111 days of inventory,
compared to $103.0 million or 104 days of inventory as of the end of the
preceding fiscal year. The increase of days in inventory and absolute inventory
were the result of increasing inventories in support of global sales growth
somewhat offset by improving inventory control procedures.
Net cash provided by operating activities was $100.3 million in fiscal 1996,
compared to $152.5 million in fiscal 1995 and $125.1 million in fiscal 1994.
11
<PAGE>
Capital investment for fiscal 1996 of $65.0 million included $9.8 million for
building costs of which $3.4 was for the purchase of an engineering building,
$21.4 million for engineering computer and computer related software and
equipment, $5.5 million for manufacturing and related equipment and $19.0
million for expanding global sales operations. During fiscal 1995, capital
expenditures of $63.1 million included approximately $8.2 million for building
costs related to expanding manufacturing and distribution capacities and
enlarging worldwide sales operations, $12.5 million for manufacturing and
manufacturing support equipment and $15.0 million for engineering computer and
computer related equipment. Another $15.0 million was spent in support of
expanded global sales activities. During fiscal 1994, capital expenditures of
$39.4 million included $3.9 million on buildings, $10.1 million on engineering
equipment, $7.8 million on manufacturing capacity expansions and $2.0 million to
equip new sales offices.
Cash, cash equivalents and marketable securities increased during fiscal 1996 to
$407.0 million, from $345.9 million in the prior fiscal year. State and local
municipal bonds of approximately $264.2 million, maturing in approximately 1.5
years, were being held by the Company at February 29, 1996.
At February 29, 1996, the Company did not have any short or long term borrowing
or any significant financial commitments outstanding, other than those required
in the normal course of business.
In the opinion of management, internally generated funds from operations and
existing cash, cash equivalents and marketable securities will be adequate to
support Cabletron's working capital and capital expenditure requirements for
both short and long term needs.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which established financial
accounting and reporting standards for stock-based employee compensation plans.
Companies are encouraged, rather than required, to adopt a new method that
accounts for stock compensation awards based on their fair value using an option
pricing model. Companies that do not adopt this new method will be required to
make pro forma footnote disclosures of net income as if the fair value-based
method of accounting required by SFAS No. 123 had been applied. The Company is
required to adopt SFAS No. 123 beginning in fiscal 1997. Adoption of this
pronouncement is not expected to have a material impact on the Company's
financial position or results of operations because the Company intends to make
pro forma footnote disclosures instead of adopting the new accounting method.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CABLETRON SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
February 29, 1996 and February 28, 1995
(in thousands)
Assets 1996 1995
---- ----
Currents assets:
Cash and cash $ 98,713 $114,032
equivalents
Short-term
investments (note 4) 154,827 130,563
Accounts receivable, net of
allowance for doubtful accounts
($6,396 and $6,037 in 1996 and
1995, respectively) 147,934 91,411
Inventories (note 5) 153,625 103,030
Deferred taxes (note 9) 38,315 20,062
Prepaid expenses and other assets 30,930 12,728
--------- --------
Total current assets 624,344 471,826
--------- --------
Long-term investments (note 4) 153,424 101,333
Long-term deferred taxes (note 9) 23,473 ---
Property, plant and equipment,
net(note 6) 150,028 116,761
-------- --------
Total assets $951,269 $689,920
======== ========
Liabilities and Stockholders' Equity
Current
liabilities:
Accounts payable $ 32,811 $ 28,924
Accrued expenses (note 7) 113,005 52,366
Income taxes payable 18,536 14,982
-------- --------
Total current liabilities 164,352 96,272
Deferred taxes (note 9) 9,088 6,128
-------- --------
Total liabilities 173,440 102,400
-------- --------
Commitments and contingencies (notes 8 and 10)
Stockholders' equity (notes 11 and 12):
Preferred stock, $1.00 par value.
Authorized
2,000 shares; none
issued --- ---
Common stock, $0.01 par value.
Authorized 240,000 shares; issued
and outstanding 72,234 and
71,469 shares in 1996 and
1995, respectively 722 715
Additional paid-in capital 135,943 110,564
Retained earnings 642,197 477,779
-------- --------
778,862 589,058
Cumulative translation adjustment (1,033) (1,364)
Notes receivable, stockholders (174) ---
-------- --------
Total stockholders' equity 777,829 587,520
-------- --------
Total liabilities and
stockholders' equity $951,269 $689,920
======== ========
See accompanying notes to consolidated financial statements.
13
<PAGE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended February 29, 1996, and February 28, 1995 and 1994 (in thousands,
except per share amounts)
1996 1995 1994
---- ---- ----
Net sales (note 13) $1,069,715 $810,684 $598,112
Cost of sales 433,776 329,843 243,568
---------- -------- --------
Gross profit 635,939 480,841 354,544
Operating expenses:
Research and development 115,018 84,404 60,192
Selling, general and administrative 207,669 158,074 116,843
Nonrecurring items (note 3) 85,690 --- ---
---------- -------- --------
Income from operations 227,562 238,363 177,509
Interest income 17,061 9,597 5,838
---------- -------- --------
Income before income taxes 244,623 247,960 183,347
Income taxes (note 9) 80,205 85,986 64,129
---------- -------- --------
Net income $ 164,418 $161,974 $119,218
========== ======== ========
Net income per common share $ 2.29 $ 2.27 $ 1.68
========== ======== ========
Weighted average number of shares
outstanding 71,839 71,494 71,018
========== ======== ========
See accompanying notes to consolidated financial statements.
14
<PAGE>
<TABLE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended February 29, 1996,
and February 28, 1995 and 1994
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
Additional Cumulative Notes Total
Common paid-in Retained translation receivable- stockholders'
stock capital earnings adjustment stockholders equity
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Balances at February 28, 1993 $282 $94,980 $197,016 ($3,124) ($401) $288,753
- ----------------------------------------------------------------------------------------------------------------
Repayments of notes
receivable, stockholders . --- --- --- --- 66 66
Exercise of options for
702 shares of common stock 3 7,182 --- --- --- 7,185
Tax benefit for options
exercised ................ --- 6,980 --- --- --- 6,980
Issuance of 55 shares
under employee stock
purchase plan ............ 1 1,636 --- --- --- 1,637
Effect of foreign
currency translation ..... --- --- --- (47) --- (47)
Net income ............... --- --- 119,218 --- --- 119,218
- ----------------------------------------------------------------------------------------------------------------
Balances at February 28, 1994 286 110,778 316,234 (3,171) (335) 423,792
- ----------------------------------------------------------------------------------------------------------------
Repayments of notes
receivable, stockholders . --- --- --- --- 131 131
Cancelled 19 shares upon
employee terminations, net --- (30) --- --- 30 ---
Exercise of options for
369 shares of common stock 3 4,884 --- --- --- 4,887
Tax benefit for options
exercised ................ --- 5,712 --- --- --- 5,712
Issuance of 68 shares
under employee stock
purchase plan ............ --- 2,287 --- --- --- 2,287
Stock split in the form
of stock dividend, net
of fractional share
buy-back ................. 429 (11) (429) --- --- (11)
Stock repurchased and
retired .................. (3) (13,056) --- --- --- (13,059)
Effect of foreign
currency translation ..... --- --- --- 1,807 --- 1,807
Net income ............... --- --- 161,974 --- --- 161,974
- ----------------------------------------------------------------------------------------------------------------
Balances at February 28, 1995 715 110,564 477,779 (1,364) (174) 587,520
- ----------------------------------------------------------------------------------------------------------------
Repayments of notes
receivable, stockholders . --- --- --- --- 174 174
Exercise of options for
727 shares of common stock 7 16,014 --- --- --- 16,021
Tax benefit for options
exercised ................ --- 7,215 --- --- --- 7,215
Issuance of 77 shares
under employee stock
purchase plan ............ --- 3,323 --- --- --- 3,323
Stock repurchased and
retired .................. --- (1,173) --- --- --- (1,173)
Effect of foreign
currency translation ..... --- --- --- 331 --- 331
Net income ............... --- --- 164,418 --- --- 164,418
- ----------------------------------------------------------------------------------------------------------------
Balances at February 29, 1996 $722 $135,943 $642,197 ($1,033) --- $777,829
================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended February 29, 1996, and February 28, 1995 and 1994
(in thousands)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $164,418 $161,974 $119,218
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 32,061 26,832 17,335
Provision for losses on
accounts receivable 356 72 1,734
Loss on disposals of property, plant
and equipment 93 174 113
Deferred taxes (38,766) (4,434) (6,151)
Changes in assets and liabilities:
Accounts receivables (55,101) (27,698) (17,707)
Inventories (50,483) (23,080) (8,758)
Prepaid expenses and other assets (18,844) (3,123) 1,211
Accounts payable and accrued expenses 62,908 11,336 22,003
Income taxes payable 3,705 10,476 (3,924)
-------- -------- --------
Net cash provided by operating
activities 100,347 152,529 125,074
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (65,035) (63,091) (39,399)
Purchase of available-for-sale
securities (79,427) (71,598) (30,097)
Purchase of held-to-maturity
securities (205,852) (282,712) (258,517)
Maturities of marketable securities 208,922 323,682 197,406
-------- -------- --------
Net cash used in investing
activities (141,392) (93,719) (130,607)
-------- -------- --------
Cash flows from financing activities:
Repayments of notes receivable from
stockholders 174 131 66
Repurchase of common stock (1,173) (13,070) ---
Tax benefit of options exercised 7,215 5,712 6,980
Common stock issued to employee stock
purchase plan 3,323 2,287 1,637
Proceeds from stock option exercise 16,021 4,887 7,185
-------- -------- --------
Net cash provided by (used for)
financing activities 25,560 (53) 15,868
-------- -------- --------
Effect of exchange rate changes on cash 166 712 161
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents (15,319) 59,469 10,496
Cash and cash equivalents, beginning of
year 114,032 54,563 44,067
-------- -------- --------
Cash and cash equivalents, end of year $ 98,713 $114,032 $ 54,563
======== ======== ========
Cash paid during the year for:
Income taxes $105,233 $ 68,420 $ 67,263
======== ======== ========
See accompanying notes to consolidated financial statements.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note (1) Business Operations
The Company develops, manufactures, markets, designs, installs and supports a
broad range of standards-based local and wide area network connectivity hardware
and software products.
Note (2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Cabletron Systems,
Inc. (the "Company") and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
(b) Investments
In the past the Company had managed its own investment portfolio. However,
during fiscal 1996 and 1995 the Company placed $20 million and $40 million of
securities with various investment management firms.
Held-to-maturity securities are those investments in which the Company has the
ability and intent to hold the security until maturity. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization of
premiums and discounts which approximates market value. Available-for-sale
securities are also recorded at amortized cost, adjusted for the amortization of
premiums and discounts. Due to the nature of the Company's investments and the
resulting low volatility, the difference between fair value and amortized cost
is not material.
(c) Inventories
Inventories are stated at the lower of cost or market. Costs are determined at
standard which approximates the first-in, first-out method.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided on
straight-line and accelerated methods over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of the lives of
the related assets or the term of the lease. In accordance with Financial
Accounting Standards Board No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," the Company reviews its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If it is
determined that the carrying amount of an asset cannot be fully recovered, an
impairment loss is recognized.
(e) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company has reinvested earnings of its foreign subsidiaries and, therefore,
has not provided income taxes which could result from the remittance of such
earnings. The unremitted earnings at February 29, 1996 amounted to approximately
$88.3 million. Furthermore, any taxes paid to foreign governments on those
earnings may be used, in whole or in part, as credits against the US tax on any
dividends distributed from such earnings. It is not practicable to estimate the
amount of unrecognized deferred US taxes on these undistributed earnings.
(f) Earnings Per Share
Earnings per share of common stock are based on the weighted average number of
shares outstanding during the period. The effect of outstanding stock options is
excluded from the computation because the dilutive effect is not material.
17
<PAGE>
(g) Foreign Currency Translation and Transaction Gains and Losses
Assets and liabilities of the Company's foreign operations are translated into
US dollars at the exchange rate in effect at the balance sheet date and revenue
and expenses are translated at average rates in effect during the period. The
resultant translation adjustment is reflected as a separate component of
stockholders' equity on the consolidated balance sheets. Transaction gains
(losses) are reflected in the consolidated statements of income and were not
material.
(h) Statements of Cash Flows
Cash and cash equivalents consist of cash in banks and short-term investments
with original maturities of three months or less.
(i) Revenue Recognition
Sales are recognized upon shipment of products and software. In the case of
design, consulting, installation, support services and evaluations, revenues are
recognized upon completion and acceptance of such products and services.
Revenues from service contracts are recognized ratably over the period the
services are performed. Warranty costs and sales returns and allowances are
accrued at the time of shipment.
(j) Derivatives
The Company uses derivative financial instruments, principally forward exchange
contracts and options in its management of foreign currency exposure. These
financial instruments are designed to minimize exposure and reduce risk from
exchange rate fluctuations in the regular course of the Company's international
business operations. Market value gains and losses are included in income as
incurred and effectively offset gains and losses on foreign currency assets or
liabilities that are hedged.
(k) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(l) New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which established financial
accounting and reporting standards for stock-based employee compensation plans.
Companies are encouraged, rather than required, to adopt a new method that
accounts for stock compensation awards based on their fair value using an option
pricing model. Companies that do not adopt this new method will be required to
make pro forma footnote disclosures of net income as if the fair value-based
method of accounting required by SFAS No. 123 had been applied. The Company is
required to adopt SFAS No. 123 beginning in fiscal 1997. Adoption of this
pronouncement is not expected to have a material impact on the Company's
financial position or results of operations because the Company intends to make
pro forma footnote disclosures instead of adopting the new accounting method.
Note (3) Business Combination
The Company completed the acquisition of the Enterprise Networks Business Unit
from Standard Microsystems Corporation on January 12, 1996. The acquisition was
accounted for as a purchase and, accordingly, the acquired assets and
liabilities were recorded at their estimated fair market value at the date of
the acquisition. The total charge of approximately $85.7 million, included $67.8
million for in-process research and development and $17.9 million for
nonrecurring charges which included adjustments to conform the ENBU accounting
policies with the Company's accounting policies. The Company's consolidated
results of operations include the operating results of the acquired business
from its acquisition date. The following unaudited pro forma combined results of
operations for fiscal 1996 and fiscal 1995 have been prepared assuming that the
acquisition of the Enterprise Networks Business Unit of Standard Microsystems
Corporation occurred at the beginning of each such period. The following
unaudited pro forma financial information is not necessarily indicative of
results of operations that would have occurred had the transaction taken place
at the beginning of each of fiscal 1996 or fiscal 1995 or of the future results
of the combined companies.
1996 1995
---- ----
(in thousands)
Net sales $1,085,708 $832,797
Operating income 209,513 231,067
18
<PAGE>
Note (4) Investments
Investments are summarized as follows at February 29, 1996 and February 28,
1995:
1996 1995
-------------------------- -----------------------
(in thousands) Long Long
Current Term Total Current Term Total
-------- ------- -------- ------- ------- --------
Held-to-maturity $130,079 $115,500 $245,579 $90,414 $ 86,816 $177,230
Available-for-sale
24,748 37,924 62,672 40,149 14,517 54,666
-------- -------- -------- ------- ------- --------
Total $154,827 $153,424 $308,251 $130,563 $101,333 $231,896
======== ======== ======== ======== ======== ========
Note (5) Inventories
Inventories consist of the following at February 29, 1996 and February 28,
1995:
(in thousands) 1996 1995
---- ----
Raw materials $ 50,843 $ 22,420
Work-in-process 39,176 22,869
Finished goods 63,606 57,741
-------- --------
Total $153,625 $103,030
======== ========
Note (6) Property, Plant and Equipment
Property, plant and equipment consist of the following at February 29, 1996 and
February 28, 1995:
Estimated useful
(in thousands) 1996 1995 lives
---- ---- ---------------
Land and land improvements $ 1,760 $ 1,438 ---
Buildings and building
improvements 36,658 23,799 30-40 years
Construction in progress --- 3,265 ---
Equipment 190,485 141,107 3-5 years
Furniture and fixtures 9,447 6,811 5-7 years
Leasehold improvements 6,263 3,201 3-5 years
Motor vehicles 3,651 3,854 3-5 years
-------- --------
248,264 183,475
Less accumulated
depreciation and amortization 98,236 66,714
-------- --------
$150,028 $116,761
======== ========
Note (7) Accrued Expenses
Accrued expenses consist of the following at February 29, 1996:
(in thousands) 1996 1995
---- ----
Salaries and benefits $17,647 $9,696
Deferred revenue 37,885 21,752
Warranty --- 18,486
Other 38,987 20,918
------- -------
Total $113,005 $52,366
======== =======
19
<PAGE>
Note (8) Leases
The Company leases manufacturing and office facilities under noncancelable
operating leases expiring through the year 2020. The leases provide for
increases based on the consumer price index and increases in real estate taxes.
Rent expense associated with operating leases was approximately $8,990,000,
$7,122,000 and $6,983,000 for the years ended February 29, 1996, and February
28, 1995 and 1994, respectively.
Total future minimum lease payments under all noncancelable operating leases as
of February 29, 1996, are as follows:
(in thousands) Year
1997 $ 6,983
1998 5,596
1999 3,588
2000 2,976
2001 1,701
Thereafter 8,501
------
$29,345
=======
Note (9) Income Taxes
Income before income taxes and income tax expense are summarized as follows:
(in thousands) 1996 1995 1994
---- ---- ----
Total US domestic income $193,312 $207,99 $170,899
Total foreign subsidiaries income 51,311 39,968 12,448
-------- ------- --------
Income before income taxes $244,623 $247,96 $183,347
======== ======= ========
Currently payable:
Federal $91,973 $63,916 $53,672
State 20,807 19,286 14,448
Foreign 11,519 7,218 1,922
Deferred tax benefit (44,094) (4,434) (5,913)
------- ------- -------
Total tax provision $80,205 $85,986 $64,129
======= ======= =======
The following is a reconciliation of the effective tax rates to the statutory
federal tax rate:
1996 1995 1994
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income tax (net of
federal tax benefit) 3.8 4.7 4.6
Exempt income of foreign sales
corporation, net of tax (1.1) (0.7) (0.9)
Research and experimentation credit --- (1.1) (1.1)
Foreign operations (1.6) (2.7) (1.3)
Other (3.3) (0.6) (1.3)
----- ----- -----
32.8% 34.6% 35.0%
===== ===== =====
20
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at February 29, 1996 and
February 28, 1995 are presented below:
(in thousands) 1996 1995
---- ----
Deferred tax assets:
Accounts receivable $ 2,019 $ 3,841
Inventories 27,993 12,214
Other reserves and accruals 5,454 4,007
Acquired research and development 26,322 ---
Foreign net operating
loss carryforwards 3,268 1,071
------- -------
Total gross deferred
tax assets 65,056 21,133
Less valuation allowance (3,268) (1,071)
------- -------
Net deferred tax assets 61,788 20,062
------- -------
Deferred tax liabilities:
Property, plant and equipment (9,088) (6,128)
------- -------
Total gross deferred
liabilities (9,088) (6,128)
------- -------
Net deferred tax assets $52,700 $13,934
======= =======
The net change in the total valuation allowance for the year ended February 29,
1996 was an increase of $2,197,000. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Based upon the
level of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences, not of the existing valuation allowance at
February 29, 1996.
Note (10) Financial Instruments and Concentration of Credit Risk
The Company uses derivative financial instruments, principally forward contracts
and options, in its management of foreign currency exposures arising from its
international operations. These contracts primarily require the Company to
purchase or sell certain foreign currencies either with or for US dollars at
contractual rates. The Company's foreign currency hedging activities are used to
minimize adverse foreign exchange movements on the eventual dollar net cash
inflows of its foreign denominated net assets. The Company does not hold or
issue derivative financial instruments for trading purposes.
At February 29, 1996 and February 28, 1995, the Company had forward contracts
and purchased option contracts, all having maturities less than two years, in
the contractual amount of $93.5 million (forward contracts $47.5 million and
option contracts $46.0 million) and $44.7 million (forward contracts $21.7
million and option contracts $23.0 million), respectively.
Realized and unrealized foreign exchange gains and losses are recognized in
operating income and offset foreign exchange gains and losses on the underlying
exposures. The Company's derivative financial instruments are revalued at the
balance sheet date and the carrying amount approximates the fair value of the
instruments.
Several major international financial institutions are counterparties to the
Company's financial instruments. It is Company practice to monitor the financial
standing of the counterparties and limit the amount of exposure with any one
institution. The Company may be exposed to credit loss in the event of
nonperformance by the counterparties to these contracts, but believes that the
risk of such loss is remote and that it would not be material to its financial
position and results of operations.
With respect to trade receivables, concentration of credit risk is limited, due
to the diverse areas covered by the Company's operations. Any probable bad debt
loss has been provided for in the allowance for doubtful accounts. The carrying
amounts for cash, short-term and long-term investments, receivables, accounts
payable and accrued liabilities approximate fair value because of the short
maturity of these instruments.
Note (11) Common Stock
On September 12, 1994, the Company's common stock split 2.5-for-1 and was
distributed as a stock dividend. All share and per share amounts have been
adjusted accordingly.
21
<PAGE>
Note (12) Stock Plans
(a) Equity Incentive and Directors Plans
The Company has an Equity Incentive Plan which provides for the availability of
12,500,000 shares of common stock for the granting of a variety of incentive
awards to eligible employees. As of February 29, 1996, the Company had issued
7,034,831 stock options under the Equity Incentive Plan, which were granted at
fair market value at the date of grant, vest over a three to five year period
and expire within six to ten years from the date of grant.
The Company has a Directors Option Plan which provides for the availability of
625,000 shares of common stock for purchase by the nonemployee directors of the
Company. The Directors Option Plan provides for issuance of options at their
fair market value on the date of grant. The options vest over a period of three
years and expire six years from the date of grant. A total of 445,000 stock
options have been issued under the Directors Option Plan.
A summary of option transactions under the two plans follows:
Option
Price
Per
Shares Share
------ -------
Options outstanding at
February 28, 1993 2,803,612 $ 4.00-35.45
--------- ------------
Granted 1,112,125 36.55-48.45
Exercised (701,650) 4.00-24.95
Cancelled (139,300) 4.00-42.95
--------- ------------
Options outstanding at
February 28, 1994 3,074,787 4.00-48.45
--------- ------------
Granted 1,223,255 34.75-49.60
Exercised (369,487) 4.00-42.95
Cancelled (251,877) 6.45-47.125
--------- ------------
Options outstanding at
February 28, 1995 3,676,678 4.00-49.60
--------- ------------
Granted 1,669,900 38.75-82.50
Exercised (726,701) 4.00-48.45
Cancelled (178,395) 6.20-67.50
--------- ------------
Options outstanding at
February 29, 1996 4,441,482 $ 4.00-82.50
========= =============
Options exercisable at
February 29, 1996 875,161 $ 4.00-49.60
========= =============
(b) Emplouyee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (ESPP) which provides for the
availability of 1,250,000 shares of common stock to be purchased by employees
who have completed a minimum period of employment. Under this plan, options are
granted to eligible employees twice yearly and are exercisable through the
accumulation of employee payroll deductions from two to ten percent of employee
compensation as defined in the plan, to a maximum of $1,904 (adjusted to reflect
increases in the consumer price index) which may be used to purchases stock at
85 percent of the fair market value of the common stock at the beginning of the
option period or the end of the option period, whichever is lower. In fiscal
1996, 76,884 shares were purchased at a weighted average price of $42.86 (68,349
at $33.49 and 55,783 at $29.33, for 1995 and 1994, respectively). The remaining
balance of the ESPP available for purchase by employees at February 29, 1996 was
856,100 shares.
22
<PAGE>
Note (13) Geographic Area Information
(in thousands) % of % of % of
1996 Total 1995 Total 1994 Total
---- ----- ---- ----- ---- -----
Net Sales:
US $ 757,256 70.8% $577,609 71.2% $434,578 72.7%
Direct Foreign
Export 35,378 3.3 37,889 4.7 28,404 4.7
-------- ------ -------- ------ -------- ------
Total US Source 792,634 74.1 615,498 75.9 462,982 77.4
Europe 214,720 20.1 155,467 19.2 119,823 20.0
Other (1) 62,361 5.8 39,719 4.9 15,307 2.6
-------- ------ -------- ------ -------- ------
Total Sales $1,069,715 100.0% $810,684 100.0% $598,112 100.0%
========== ====== ======== ====== ======== ======
Income from Operations:
US $181,425 79.7% $198,498 83.3% $165,179 93.0%
Europe 34,451 15.1 39,343 16.5 11,880 6.7
Other (1) 11,686 5.2 522 0.2 450 0.3
Total Income -------- ------ -------- ------ -------- -----
From Operations $227,562 100.0% $238,363 100.0% $177,509 100.0%
======== ====== ======== ====== ======== ======
Identifiable
Assets:
US $801,760 84.3% $577,876 83.8% $431,105 86.4%
Europe 111,059 11.7 92,450 13.4 54,363 10.9
Other (1) 38,450 4.0 19,594 2.8 13,605 2.7
-------- ------ -------- ------ -------- -----
Total Assets $951,269 100.0% $689,920 100.0% $499,073 100.0%
======== ====== ======== ====== ======== ======
Note (14) Quarterly Financial Data (unaudited)
(in thousands, except per share amounts)
Income Net
Net Gross From Net Income
Sales Profit Operations Income Per Share(a)
1996
First Quarter $ 240,754 $143,321 $ 70,004 $ 48,301 $0.68
Second Quarter 257,299 153,179 76,388 52,766 0.74
Third Quarter 275,464 163,791 80,563 55,863 0.78
Fourth Quarter 296,198 175,648 606 (b) 7,489 0.10
---------- -------- ------- ------- -----
Total Year $1,069,715 $635,939 $227,562 $164,418 $2.29
========== ======== ======== ======== =====
1995
First Quarter $180,655 $107,057 53,415 $ 36,160 $0.51
Second Quarter 194,044 115,115 56,827 38,465 0.54
Third Quarter 210,013 124,578 61,539 41,830 0.59
Fourth Quarter 225,972 134,091 66,583 45,520 0.64
-------- -------- -------- -------- -----
Total Year $810,684 $480,841 $238,363 $161,974 $2.27
======== ======== ======== ======== =====
(a) Due to rounding some totals will not add.
(b) Includes $85.7 million nonrecurring charge related to acquisition of SMC's
Enterprise Networks Business Unit.
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cabletron Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Cabletron
Systems, Inc. and subsidiaries as of February 29, 1996 and February 28, 1995,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended February 29, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cabletron Systems,
Inc. and subsidiaries as of February 29, 1996 and February 28, 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended February 29, 1996, in conformity with generally accepted
accounting principles.
KMPG Peat Marwick LLP
Boston, Massachusetts
March 20, 1996
24
<PAGE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information relating to the Directors of the Company is set forth in the section
entitled "Election of Directors," appearing in the Company's Proxy Statement for
its 1996 Annual Meeting of Stockholders, which is incorporated by reference.
Information relating to the executive officers of the Company is included in
Item 4a, "Executive Officers of the Registrant," appearing in Part I hereof.
ITEM 11. Executive Compensation
See the information set forth in the section entitled "Executive Compensation,"
appearing in the Company's Proxy Statement for its 1996 Annual Meeting of
Stockholders, which is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
See the information set forth in the sections entitled "Election of Directors
Beneficial Ownership," appearing in the Company's Proxy Statement for its 1996
Annual Meeting of Stockholders, which is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
See the information set forth in the sections entitled "Certain Transactions,"
appearing in the Company's Proxy Statement for its 1996 Annual Meeting of
Stockholders, which is incorporated herein by reference.
25
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
1. Consolidated financial statements (see item 8)
The consolidated financial statements of Cabletron Systems,
Inc. can be found in this document on the following pages:
page(s)
Independent Auditors' Report 25
Consolidated Balance Sheets at February 29, 1996 and
February 28, 1995 13
Consolidated Statements of Income for fiscal years 1996,
1995 and 1994 14
Consolidated Statements of Stockholders' Equity for fiscal
years 1996, 1995 and 1994 15
Consolidated Statements of Cash Flows for fiscal years
1996, 1995 and 1994 16
Notes to Consolidated Financial Statements 17-23
2. Consolidated financial statement schedule
The consolidated financial statement schedule of Cabletron Systems,
Inc. is included in Part IV of this report:
Independent Auditors' Report 28
Schedule II - Valuation and Qualifying Accounts 29
All other schedules have been omitted since they are not required, not
applicable or the information has been included in the consolidated
financial statements or the notes thereto.
26
<PAGE>
3. Exhibits
The following exhibits unless herein filed are incorporated by reference.
3.1 Restated Certificate of Incorporation of Cabletron Systems, Inc., a
Delaware corporation, which is incorporated by reference to Exhibit
3.1 of the Company's Registration Statement on Form S-1, No.
33-28055, (the First Form S-1).
3.2 Certificate of Correction of the Company's Restated Certificate of
Incorporation, which is incorporated by reference to Exhibit 3.1.2 of
the Company's Registration Statement on Form S-1, No.33-42534 (the
Third Form S-1).
3.3 Certificate of Amendment of the Restated Certificate of Incorporation
of Cabletron Systems, Inc., incorporated by reference to Exhibit 4.3
of the Company's Registration Statement on Form S-3, No.33-54466,
(the First Form S-3).
3.4 Amended bylaws of Cabletron Systems, Inc., which is incorporated by
reference to Exhibit 3.2 of the Company's Registration Statement on
the Third Form S-1.
10.1 1989 Restricted Stock Purchase Plan, which is incorporated by
reference to Exhibit 10.1 of the First Form S-1.
10.2 1989 Restricted Stock Plan, which is incorporated by reference to
Exhibit 10.2 of the First Form S-1.
10.3 1989 Equity Incentive Plan, as amended, which is incorporated by
reference to Exhibit 4 of the Company's Registration Statement on
Form S-8, No. 33-50454.
10.4 1989 Employee Stock Purchase Plan, as amended, which is incorporated
by reference to Exhibit 4.1 of the Company's Registration Statement
on Form S-8, No. 33-31572.
10.5 1989 Stock Option Plan for Directors, as amended, which is
incorporated by reference to Exhibit 10.5 of the Third Form S-1.
10.6 Agency Agreement between the Registrant and International Cable
Networks Inc., which is incorporated by reference to Exhibit 10.6 of
the First Form S-1.
10.7 Lease dated October 29, 1989, between the Registrant and Blue, Inc.,
(the "Blue, Inc. Lease"), relating to leased premises in Ironton,
Ohio, which is incorporated by reference to Exhibit 10.9 of the
Company's Registration Statement on the Second Form S-1, No.
33-37816.
10.8 Modification dated October 1990, of the Blue, Inc. Lease, relating to
leased premises in Ironton, Ohio, which is incorporated by reference
to Exhibit 10.8 of the First Form S-3.
10.9 Lease dated October 19, 1992 between the Registrant and Heidelberg
Harris, Inc., relating to leased premises in Durham, New Hampshire,
which is incorporated by reference to Exhibit 10.9 of the First Form
S-3.
10.10 Lease dated December 1, 1991 between the Registrant and George L.
Beattie, Ruth V. Blomstedt and Dan A. Wooley, as trustees of the
Execpark Realty Trust, relating to leased premises in Merrimack, New
Hampshire, which I s incorporated by reference to Exhibit 10.10 of
the First Form S-3.
10.11 Lease dated August 14, 1992 between the Registrant and Schafer's
Super Markets, Inc., relating to leased premises in Ironton, Ohio,
which is incorporated by reference to Exhibit 10.11 of the First Form
S-3.
10.12 Lease dated July 3, 1992 between the Registrant and Shannon Free
Airport Development Company Limited, relating to leased premises in
Limerick, Ireland, which is incorporated by reference to Exhibit
10.12 of the Company's Registration Statement on the First Form S-3.
11.1 Statement regarding computation of per share earnings.
22.1 Subsidiaries of Cabletron Systems, Inc.
23.1 Consent of Independent Auditors.
(b) The Registrant filed on Form 8-K during the last quarter of the fiscal year
ended February 29, 1996, as follows:
A report on form 8-K filed on January 12, 1996, reporting under item 2 the
completion of the acquisition of the Enterprise Networks Business Unit of
Standard Microsystems Corporation.
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cabletron Systems, Inc.:
Under date of March 20, 1996, we reported on the consolidated balance sheets of
Cabletron Systems, Inc. and subsidiaries as of February 29, 1996 and February
28, 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the years in the three-year period ended
February 29, 1996. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related consolidated
financial statement schedule as listed in item 14(a)2 of this Form 10-K. This
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this consolidated
financial statement schedule based on our audits.
In our opinion, the consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 20, 1996
28
<PAGE>
SCHEDULE II
CABLETRON SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended February 29, 1996, and February 28, 1995 and 1994
(in thousands)
Amounts
attributable
to
Balance changes in
at Charged foreign Amounts Balance
beginning to currency written at end
Description of period expenses rates off of period
Allowance for
doubtful accounts
February 29, 1996 $6,037 $2,618 $2 $2,261 $6,396
February 28, 1995 $5,810 $1,260 $14 $1,047 $6,037
February 28, 1994 $4,063 $2,485 $24 $762 $5,810
29
<PAGE>
Signatures
Pursuant to the requirement of Section 13 or 15(d) 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.
CABLETRON SYSTEMS, Inc.
Date: May 28, 1996 By: /s/ S. Robert Levine
------------ --------------------
S. Robert Levine
President and Chief Executive Officer
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 Titles Date
/s/ S. Robert Levine President, Chief Executive Officer, May 28, 1996
S. Robert Levine and Director
/s/ Craig R. Benson Chairman, Chief Operating Officer May 28, 1996
Craig R. Benson Treasurer and Director
/s/ David J. Kirkpatrick Director of Finance and May 28, 1996
David J. Kirkpatrick Chief Financial Officer
/s/ Michael D. Myerow Secretary and Director May 28, 1996
Michael D. Myerow
/s/ Paul R. Duncan Director May 28, 1996
Paul R. Duncan
/s/ Donald F. McGuinness Director May 28, 1996
Donald F. McGuinness
30
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
11.1 Statement regarding computation of per share earnings 32
22.1 Subsidiaries of Cabletron Systems, Inc. 33
23.1 Consent of Independent Auditors 34
31
<PAGE>
EXHIBIT 11.1
CABLETRON SYSTEMS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For Years Ended February 29, 1996, and February 28, 1995 and 1994
1996 1995 1994
---- ---- ----
(in thousands, except per share data)
Net Income Per Common Share -
(non-dilutive)
Net income $164,418 $161,974 $119,218
======== ======== =======
Weighted average number of common
shares outstanding 71,839 71,494 71,018
======== ======== =======
Net income per common share $2.29 $2.27 $1.68
======== ======== =======
Net Income Per Common Share -
(full dilution)
Net income $164,418 $161,974 $119,218
======== ======== =======
Weighted average number of common
shares outstanding 71,839 71,494 71,018
Add net additional common shares upon
exercise of common stock options 1,823 946 1,150
-------- -------- -------
Adjusted average common shares
outstanding 73,662 72,440 72,168
======== ======== =======
Net income per common share $2.23 $2.24 $1.65
======== ======== =======
32
<PAGE>
EXHIBIT 22.1
SUBSIDIARIES OF CABLETRON SYSTEMS, INC.
Cabletron Systems Acquisition, Inc. (Delaware)
Cabletron Systems Sales and Service, Inc. (Delaware)
Cabletron Systems, Ltd. (England)
Cabletron Systems, GmbH (Germany)
Cabletron Systems, S.A. (France)
Cabletron Systems, A.B. (Sweden)
Cabletron Systems, S.A. (Spain)
Cabletron Systems, Pty Limited (Australia)
Cabletron Systems of Canada Limited (Canada)
Cabletron Systems Limited (Bermuda)
Cabletron Systems Benelux B.V. (Netherlands)
Cabletron Systems de Venezuela, C.A. (Venezuela)
Cabletron Systems do Brasil (Brazil)
Cabletron Systems, PTE. LTD. (Singapore)
Cabletron Systems, S.A. de C.V. (Mexico)
Cabletron Systems, K.K. (Japan)
Cabletron Systems, S.r.l. (Italy)
Cabletron Systems de Argentina (Argentina)
International Cable Networks, Inc. (Virgin Islands)
Cabletron Systems, Sdn Bhd. (Malaysia)
Cabletron Systems, Inc. of USA (China)
Cabletron Systems, Inc. (Hong Kong)
Cabletron Systems, [Distribution] Ltd. (Ireland)
33
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Cabletron Systems, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-50454, 33-31572 and 33-42490) on Form S-8 of Cabletron Systems, Inc. of our
reports dated March 20, 1996, relating to the consolidated balance sheets of
Cabletron Systems, Inc. and subsidiaries as of February 29, 1996 and February
28, 1995 and the related consolidated statements of income, stockholders' equity
and cash flows and the related schedule for each of the years in the three-year
period ended February 29, 1996, which reports are included in the February 29,
1996 Annual Report to Stockholders on Form 10-K of Cabletron Systems, Inc.
KPMG Peat Marwick LLP
Boston, Massachusetts
May 28, 1996
34
<PAGE>
DIRECTORS AND OFFICERS
Board of Directors Officers
S. Robert Levine S. Robert Levine
President and Chief Executive Officer, President and Chief Executive Officer
Cabletron Systems, Inc.
Craig R. Benson
Craig R. Benson Chairman of the Board
Chairman of the Board, Chief Operating Officer and Treasurer
Chief Operating Officer and Treasurer,
Cabletron Systems, Inc. Christopher J. Oliver
Director of Engineering and
Michael D. Myerow Manufacturing
Partner in law firm of Myerow & Poirier
David J. Kirkpatrick
Paul R. Duncan Director of Finance and
Executive Vice President Chief Financial Officer
and President, Specialty Business Group,
Reebok International, Ltd. Michael D. Myerow
Secretary
Donald F. McGuinness
Chairman of the Board,
Electronic Designs, Inc.
STOCKHOLDER INFORMATION
Annual Meeting of Stockholders Transfer Agent
The Annual Meeting of Stockholders will State Street Bank and Trust Company
take place at 10:00 a.m. on Wednesday, is the Transfer Agent and Registrar
July 17, 1996 at the Cabletron Systems, of the Company's Common stock.
Training Facility, Pease International Inquiries regarding lost certif-
Tradeport, Newington NH 03801. icates, change of address, name
or ownership should beaddressed to:
Stockholder Inquiries Boston EquiServe
Inquiries relating to financial information PO Box 8200
of Cabletron Systems, Inc. should be Boston, MA 02266-8200
addressed to:
Investor Relations Independent Auditors
PO Box 5005 KPMG Peat Marwick LLP
Rochester, NH 03867-0505 99 High Street
Telephone: (603) 337-4225 Boston, MA 02110
Listing Legal Counsel
Cabletron Systems, Inc. common stock is Ropes & Gray
traded on the New York Stock Exchange - One International Place
symbol CS. Boston, MA 02110
35
<PAGE>
WORLDWIDE LOCATIONS
Corporate Headquarters
Cabletron Systems, Inc.
35 Industrial Way
Rochester, NH 03867-0505
Phone: (603) 332-9400
North America
ALABAMA
One Chase Corporate Drive
Suite 490
Birmingham, AL 35244
Phone: (205) 733-1772
ARIZONA
11811 N. Tatum Blvd.
Suite P145
Phoenix, AZ 85028
Phone: (602) 953-8500
CALIFORNIA
9920 La Cienega Blvd.
Suite 911
Inglewood, CA 90301
Phone: (310) 342-5942
7676 Hazard Ctr. Drive #38
San Diego, CA 92108
Phone: (619) 497-2546
174 Component Drive
San Jose, CA 95131
Phone: (408) 383-1550
980 Ninth Street
16th Floor
Sacramento, CA 95814
Phone: (916) 449-9622
5000 Birch St., Suite 420
Newport Beach, CA 92660
Phone: (714) 852-4126
COLORADO
400 S. Colorado Blvd.
Suite 840
Denver, CO 80222
Phone: (303) 331-0990
CONNECTICUT
10 Columbus Blvd.
Hartford, CT 06106
Phone: (203) 947-7684
FLORIDA
1500 Northwest 49th Street
Suite 517
Ft. Lauderdale, FL 33309
Phone: (305) 776-2004
550 N. Reo St., Suite 103
Tampa, FL 33609
Phone: (813) 282-1227
GEORGIA
1117 Perimeter Center West
Suite E-101
Atlanta, GA 30338
Phone: (404) 395-9909
HAWAII
7 Waterfront Plaza
Suite 407
500 Ala Moana Blvd.
Honolulu, HI 96813
Phone: (808) 532-9830
IDAHO
570 South Clearwater West
Post Falls, ID 83854
Phone: (208) 773-1711
ILLINOIS
125 S. Wacker Drive
Suite 300
Chicago, IL 60606
Phone: (312) 214-2595
1600 Golf Road, Suite 925
Rolling Meadows, IL 60008
Phone: (708) 364-4555
INDIANA
3850 Priority Way S. Drive S
Suite 102
Indianapolis, IN 46240
Phone: (317) 587-1600
KANSAS 8500 College Blvd.
Suite 155
Overland Park, KS 66210
Phone: (913) 338-7119
KENTUCKY
333 W. Vine St, Suite 300
Lexington, KY 40507
Phone: (606) 225-8518
LOUISIANA
1 Galleria Blvd.
Suite 912
Metaire, LA 70001
Phone: (504) 836-5526
MARYLAND
111 S. Calvert Street
Suite 2700
Baltimore, MD 21202
Phone: (410) 385-5224
MICHIGAN
4180 44th Street SE
Suite A
Grand Rapids, MI 49512
Phone: (313) 953-1334
38701 Seven Mile Road
Suite 280
Livonia, MI 48152
Phone: (313) 953-8510
MINNESOTA
601 Lake Shore Pkwy.
Suite 1050
Mibbetoonka, MI 55343
Phone: (612) 449-5214
MISSOURI
111 West Port Plaza
Suite 600
St. Louis, MO 63146
Phone:( 314) 542-3142
NEBRASKA
3321 N. 107th Street
Omaha, NE 68134
Phone: (402) 496-9390
NEVADA
3753 Howard Hughes Pkwy
Suite 58
Las Vegas, NV 89109
Phone: (702) 892-3775
NEW YORK
1 Penn Plaza
Suite 1700
New York, NY 10119
Phone: (212) 643-9560
190 Linden Oaks Drive
Suite B
Rochester, NY 14625
Phone: (716) 383-4240
NORTH CAROLINA
1135 Kildaire Farm Road
Suite 200
Cary, NC 27511
Phone: (919) 481-1256
9101 Southern Pine Road
Suite 200
Charlotte, NC 28217
Phone: (704) 525-4895
5601 Roanne Way
Suite 3105
Greensboro, NC 27409
Phone: (910) 299-2928
OHIO
250 E. Fifth Street
Cincinnati, OH 45202
Phone: (513) 762-7646
445 Hutchinson Ave.
Suite 600
Columbus, OH 43235
Phone: (614) 785-6416
5005 Rockside Road
Independence, OH 44131
Phone: (216) 573-3709
36
<PAGE>
WORLDWIDE LOCATIONS CONTINUED
OKLAHOMA
1831 E. 71st Street
Suite 127
Tulsa, OK 74136
Phone: (918) 492-2895
OREGON 6627 Northeast 82nd Ave.
Suite 202
Portland, OR 97220
Phone: (503) 251-7407
PENNSYLVANIA
11 Penn Center
Suite 777
Philadelphia, PA 19103
Phone: (215) 569-5100
651 Holiday Drive
Suite 300
Pittsburgh, PA 15220
Phone: (412) 928-4999
PUERTO RICO 270 Munoz Rivera Ave.
Suite 634
Hato Rey, PR 00918
Phone: (809) 759-2734
RHODE ISLAND 670 George Washington Hwy.
Lincoln, RI 02865
Phone: (401) 334-1600
SOUTH CAROLINA
1201 Main Street
Suite 1980
Columbia, SC 29201
Phone: (803) 748-1232
TENNESSEE
1 Northchase
Suite 250
Goodlesville, TN 37072
Phone: (615) 859-7797
TEXAS
8911 Capitol of Texas Hwy.
Suite 4140
Austin, TX 78759
Phone: (512) 794-9166
16479 Dallas Parkway
Suite 220
Dallas, TX 75248
Phone: (214) 931-6222
12 Greenway Plaza
Suite 1134
Houston, TX 77046
Phone: (713) 871-3134
613 NW Loop 410, Suite 685
San Antonio, TX 78216
Phone: (210) 344-7241
UTAH
5 Triad Center, Suite 750
Salt Lake City, UT 84180
Phone: (801) 350-9480
VIRGINIA
590 Herndon Pkwy.
Suite 300
Herndon, VA 22070
Phone: (703) 736-9100
300 Aboretum Place
Suite 300
Richmond, VA 23236
WASHINGTON
800 Bellevue Way NE
Suite 400
Bellevue, WA 98004
Phone: (206) 637-2977
WISCONSIN
1110 N. Old World Third St.
Suite 352
Milwaukee, WI 53203
Phone: (414) 347-7843
Canada
CALGARY
840 6th Avenue SW
Suite 300
Calgary, AB T2P 3E5
Phone: (403) 234-8012
VANCOUVER
1300-666 Burrard St.
Vancouver, BC V6C 3J8
Phone: (604) 688-2550
OTTAWA 4400 Laurier Avenue W.
Suite 200
Ottawa, ON K1R 7X6
Phone: (613) 782-2320
TORONTO
180 Attwell Drive
Suite 101
Toronto, ON M9W 6H8
Phone: (416) 213-8222
MONTREAL
1376 St. Catherine Quest
Suite 201
Montreal, PQ H3G 1P8
Phone: (514) 395-4949
EUROPE
BELGIUM
Bessenveldstraat 25A
B-1831 Diegem - Bussels
Belgium
Phone: 011-32-2176-4901
CZECH REPUBLIC
Rytirska 11000
Praha 1 Ceska Republika
Phone: 011-42-2-2423-8127
ENGLAND
Network House
Newbury Business Park
London Road, Newbury
Berkshire, England RG13 2PZ
Phone: 011-44--635-580000
Sixth Floor
Ingersoll House
9 Kingsway
London, England WC2B 6XF
Phone: 011-44-171-312-0210
Unit 1 King's Court
Manor Park, Runcorn
Cheshire, England WA7 1HR
Phone: 011-44-928-579013
FRANCE
Baitment Paul Henri Spaak
ZAC de Nanteuil
Parc des Algorithemes
12 Rue Jules Ferry
93561 Rosny-Sous-Bois
Cedex, France
Phone: 011-33-148-947072
GERMANY
Dreiech Park
1m Gefierth 13d
D-6072 Dreieich
Frankfurt, Germany
Phone: 011-49-610-339900
Alt-Moabit 96C
10559 Berlin, Germany
Phone: 011-49-30-399-5939
Siemensstrasse 1
85716 Untershleiheim
Munich, Germany
Phone: 011-49-89-3177450
ITALY
Strada 2, Palazzo C1
Milanofiori 20090 Assago (MI)
Italy
Phone: 011-39-2-892-2021
37
<PAGE>
WORLDWIDE LOCATIONS CONTINUED
NETHERLANDS
Korenmolenlaan IA
3447 CG Woerden
Phone: 011-31-348-433155
SCOTLAND
Unit 8, Innovation Park
Sterling University
Sterling, Scotland
Phone: 011-44-1786-449-264
SPAIN
c/Albacete No. 5
Edificio AGF Seguros
28027 Madrid, Spain
Phone: 011-34-1326-4320
RUSSIA
Buiness Center "Olympic"
Suite 6, Olimpiyskly Prospect, 16
Moscow, Russia 129090
Phone: 011-7501-258-7673
SWEDEN
Taby Centrum
Entre S. Plan 11
S-18321 Taby, Sweden
Phone: 011-46-8792-6040
SWITZERLAND
World Trade Center/Regus
Leutshcenbachstr, 95
CH 8050 Zurich
Switzerland
Phone: 011-41-1308-3610
Latin America
ARGENTINA
Paraguay 390, 5to. Piso
Buenos Aires, Argentina 1057
Phone: 011-54-13-42777
BRASIL
Av. Paulista, 949-7 Andar
CEP 01011
Sao Paulo-SP Brasil
Phone: 011-55-11-2513422
Av. Nilo Pecanha
50 Grupo 1917
Rio de Janeiro RJ CED 20011-900 Brasil
Phone: 011-55-21-5321504
Rua Marechal Deodoro, 713
6 Andar
Curitiba, PR CEP 8020-320
Brasil
Phone: 011-55-41-232-7154
CHILE
Av Andres Bello 2777
Of. 604 Las Condes
Santiago, Chile
Phone: 011-56-2203-3733
COLUMBIA
Carrera 18 No. 86a-14
Santa fe de Bogata
Columbia
Phone: 011-57-1-2960009
MEXICO
Tiacoquemactl 21
Despacho 601
Colonia del Valle
03100 D.F., Mexico
Phone: 011-525-629-9904
Prolongacion Avenida de las
Americas #1600
Guadalajara, Jalicso 44610
Phone: 011-52-3678-9224
Av. Morones Prieto 2805 Pte
Suite 824
Col Loma Larga CP 64710
Monterrey N.L., Mexico
Phone: 011-52-83-990124
VENEZUELA
Av. Francisco de Miranda
Edif. Cavendes Piso,
1 Office 104
Los Palos, Grandes
Caracas, Venezuela
Phone: 011-58-2285-6267
Pacific Rim
AUSTRALIA
Unit 8
Allambie Grove Estate
25 Frenchs Forest Road East
Frenchs Forest NSW 2086
Sydney, Australia
Phone: 011-61-29950-5900
Unit 2, Rockwell Building
99 Northbourne Avenue
Turner ACT 2601
Australia
Phone: 011-61-6257-2422
580 S. Kilda Road, 11th Fl.
Melbourne VIC 3004
Melbourne, Australia
Phone: 011-61-3526-3639
One Park Road
Milton QLD 4064
Australia
Phone: 011-61-7367-1750
1 Havelock Street
West Perth, WA 6005
Australia
Phone: 011-61-9429-8844
213 West Green Hill Road
Eastwood, SA 5063
Australia
Phone: 011-61-8274-3718
CHINA
Rm. 454 Office Tower
New Century Hotel
6 Southern Capital Gym Rd.
Haidain District
Beijing, China
Phone: 011-86-1-8492748
HONG KONG
905 Cityplaza 3
Taikoo Shing Quarry Bay
Hong Kong
Phone: 011-852-539-6882
INDIA
Center Point #6
Centre 1, 30th Floor
World Trade Center
Cuffe Parade Bombay 400-055
Phone: 011-91-22-2184-434
F41 South Extension Part 1
Ring Road
New Delhi 110049
Phone: 011-91-11-462-1586
JAPAN
Shinbashi Yamane Bldg. 4F
2-5-14 Higashi-Shinbashi
Minato-Ku, Tokyo 105
Phone: 011-81-3-3459-1981
KOREA
Suite 400-33, Leema Bldg 146-1
Soosong-Dong, Chongro-Ku
Seoul 110, Korea
Phone: 011-822-739-5257
MALAYSIA
Rooms 124 & 125
Innovation & Consultancy Centre
Universiti Sains Malaysia
11800 Minden, Penang
Malaysia
Phone: 011-60-3754-4388
38
<PAGE>
WORLDWIDE LOCATIONS CONTINUED
Lot 4.01, 4th Floor
Menara Choy Fook On
No. 1B Jalan Yong Shook Lin
46050 Petaling Jaya
Selangor Darul Ehsan
Kuala Lumpur, Malaysia
Phone: 011-60-3754-4388
SINGAPORE
85 Science Park Drive
#03-03/04
The Cavendish
Singapore 0511
Phone: 011-65-775-5355
Middle East
BAHRAIN
Gulf Business Centre
Level 1, Bahrain Tower
AL Kahlifa Avenue
Manana, Bahrain
Phone: 011-973-214642
Africa
SOUTH AFRICA
New Lands Dimension Data Oval
Sloane Street & Meadowbrook Ln
Epsom Downs, Soundton
Johannesburg, South Africa 2123
Phone: 011-27-11-709-1300
39
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000846909
<NAME> CABLETRON SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-1-1995
<PERIOD-END> FEB-29-1996
<CASH> 98,713
<SECURITIES> 154,827
<RECEIVABLES> 154,328
<ALLOWANCES> 6,396
<INVENTORY> 153,625
<CURRENT-ASSETS> 624,344
<PP&E> 247,845
<DEPRECIATION> 97,817
<TOTAL-ASSETS> 951,269
<CURRENT-LIABILITIES> 164,352
<BONDS> 0
0
0
<COMMON> 722
<OTHER-SE> 777,829
<TOTAL-LIABILITY-AND-EQUITY> 951,269
<SALES> 1,069,715
<TOTAL-REVENUES> 1,069,715
<CGS> 433,776
<TOTAL-COSTS> 433,776
<OTHER-EXPENSES> 408,377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,061
<INCOME-PRETAX> 244,623
<INCOME-TAX> 80,205
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164,418
<EPS-PRIMARY> 2.29
<EPS-DILUTED> 2.23
</TABLE>
