<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 ............ $286 $98,026 $194,492 ($3,124) ($401) $289,279
- ------------------------------------------------------------------------------------------------------------------------
Repayments of notes receivable,
stockholders .......................... -- -- -- -- 66 66
Issuance of common stock, net ............ 4 1,880 -- -- -- 1,884
Exercise of options for 729
shares of common stock ................ 4 7,546 -- -- -- 7,550
Other .................................. -- -- 49 -- -- 49
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 ............................... -- -- 118,321 -- -- 118,321
- ------------------------------------------------------------------------------------------------------------------------
Balances at February 28, 1994 ............ 295 116,068 312,862 (3,171) (335) 425,719
- ------------------------------------------------------------------------------------------------------------------------
Repayments of notes receivable,
stockholders .......................... -- -- -- -- 131 131
Canceled 19 shares upon employee
terminations, net ..................... -- (30) -- -- 30 --
Issuance of common stock, net ............ 10 2,843 -- -- (195) 2,658
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 ............................... -- -- 162,595 -- -- 162,595
- ------------------------------------------------------------------------------------------------------------------------
Balances at February 28, 1995 ............ 734 118,697 475,028 (1,364) (369) 592,726
- ------------------------------------------------------------------------------------------------------------------------
Repayments of notes receivable,
stockholders .......................... -- -- -- -- 174 174
Issuance of common stock, net . .......... 9 41,765 -- -- -- 41,774
Issuance of common stock for Fivemere
acquisition ........................... 1 2,564 -- -- -- 2,565
Repayment of notes receivable ............ -- -- -- -- 44 44
Exercise of options for 762
shares of common stock ................ 8 17,213 -- -- -- 17,221
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 ... -- -- -- 315 -- 315
Net income ............................... -- -- 147,101 -- -- 147,101
- ------------------------------------------------------------------------------------------------------------------------
Balances at February 29, 1996 ............ $752 $189,604 $622,129 ($1,049) (151) $811,285
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
<TABLE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended February 29, 1996, and February 28, 1995 and 1994
(in thousands)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................... $147,101 $162,595 $118,321
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ..................... 32,528 26,995 17,455
Provision for losses on accounts receivable ....... 356 72 1,734
Forgiveness of notes receivable from shareholders . -- -- 224
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 ........................... (54,982) (29,399) (18,493)
Inventories .................................... (55,183) (23,314) (9,607)
Prepaid expenses and other assets .............. (19,026) (3,463) 1,186
Accounts payable and accrued expenses .......... 66,034 12,669 22,527
Income taxes payable ........................... 3,705 10,476 (3,924)
-------- ------- --------
Net cash provided by operating activities .... 81,860 152,371 123,385
-------- ------- --------
Cash flows from investing activities:
Capital expenditures .............................. (67,385) (63,816) (39,575)
Purchase of available-for-sale securities ......... (124,968) (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
Sales of available for sale securities ............ 27,471 -- --
-------- ------- --------
Net cash used in investing activities ........ (161,812) (94,444) (130,783)
-------- ------- --------
Cash flows from financing activities:
Repayments of notes receivable from stockholders .. 217 131 66
Repurchase of common stock ........................ (1,173) (13,070) --
Tax benefit of options exercised .................. 7,215 5,712 6,980
Proceeds of issuance of common stock, net ......... 41,831 2,508 1,980
Common stock issued to employee stock purchase plan 3,323 2,287 1,637
Proceeds from stock option exercise ............... 17,164 4,887 7,356
-------- -------- --------
Net cash provided by financing
activities ................................... 68,577 2,455 18,019
-------- -------- --------
Effect of exchange rate changes on cash ............. 159 712 161
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (11,216) 61,094 10,782
Cash and cash equivalents, beginning of year ........ 116,683 55,589 44,807
-------- -------- --------
Cash and cash equivalents, end of year .............. $105,467 $116,683 $ 55,589
======== ======== ========
Cash paid during the year for:
Income taxes ...................................... $142,733 $ 68,420 $ 67,263
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE>
Note (3) Business Combination
On November 17, 1995, Network Express acquired the entire capital of Fivemere
Limited located in Aldershot, England. The total purchase price of $13.5 million
included a cash payment of $10 million, the issuance of 66,000 shares and
acquisition costs of $917,000. The acquisition has been accounted for by the
purchase method of accounting and, accordingly, the accompanying consolidated
financial statements include the results of operations that are combined with
Network Express. The fair value of the net assets and acquired in-process
research and development was $2.2 million and $8.7 million respectively. Because
the technological feasibility of the acquired in-process research and
development had not yet been established and the in-process technology had no
alternative use, this amount was immediately charged to operations in the fourth
quarter of Network Express financial statements. The excess of $2.6 million of
the acquisition price over such fair value has been recorded as goodwill.
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 $1,109,100 $846,789
Operating income $191,208 $231,657
The Company completed the acquisitions of Zeitnet, Inc. and Network Express,
Inc. on July 26, 1996 and August 1, 1996, respectively, by issuing approximately
3,349,000 shares of Cabletron common stock in exchange for all the outstanding
shares of ZeitNet and Network Express. These acquisitions were accounted for as
poolings of interests. In connection with these acquisitions the Company
recorded a nonrecurring charge of $43 million in the quarter ended August 31,
1996 (unaudited), which related to direct transaction costs, consisting
primarily of investment banking fees and costs associated with combining the
operations of the two companies, the majority of which relates to redundant
assets and facilities. These consolidated financial statements for fiscal years
1996, 1995 and 1994 have been prepared assuming that the acquisitions of
ZeitNet, Inc. and Network Express, Inc. occurred at the beginning of each such
period.
-10-
<PAGE>
Note (6) Property, Plant and Equipment
<TABLE>
Property, plant and equipment consist of the following at February 29, 1996 and
February 28, 1995:
<CAPTION>
Estimated useful
(in thousands) 1996 1995 lives
---- ---- -----------------
<S> <C> <C> <C>
Land and land improvements ........... $ 1,760 $ 1,438 --
Building and building
improvements ...................... 37,058 23,799 30-40 years
Construction in progress ............. -- 3,265 --
Equipment ............................ 194,200 142,201 3-5 years
Furniture and fixtures ............... 10,374 6,958 5-7 years
Leasehold improvements ............... 6,304 3,201 3-5 years
Motor vehicles ....................... 3,651 3,854 3-5 years
-------- --------
253,347 184,716
Less accumulated depreciation and
amortization ...................... 100,136 67,162
-------- --------
$153,211 $117,554
======== ========
</TABLE>
-11-
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CABLETRON SYSTEMS, Inc.
Dated: October 24, 1996 By: /S/ CRAIG R. BENSON
-------------------
Craig R. Benson
Chairman and Chief Operating Officer
-18-
