SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A(2)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): February 7, 1998
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CABLETRON SYSTEMS, INC
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(Exact name of Registrant as Specified in Charter)
DELAWARE 0-10228 04-2797263
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(State or Other Jurisdiction (Commission File (I.R.S. Employer
of Incorporation) Number) Identification No.)
35 Industrial Way, Rochester, NH 03867
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(Address of Principal Executive Offices) (Zip Code)
(603) 332-9400
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(Registrant's telephone number including area code)
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<PAGE>
The undersigned Registrant hereby amends Item 7 Exhibit 7 (c) of its Current
Report on Form 8-K/A for an event occurring on February 7, 1998 and filed on
March 4, 1998.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CABLETRON SYSTEMS, INC.
Date: July 23, 1999 By: /s/ David J. Kirkpatrick
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David J. Kirkpatrick
Corporate Executive Vice President of
Finance and Chief Financial Officer
<PAGE>
TYPE: EX-7.(C)
SEQUENCE: 7
DESCRIPTION: NOTES TO FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
EXHIBIT 7(C)
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
1. BACKGROUND:
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Pursuant to an Asset Purchase Agreement (the "Agreement") between Digital
Equipment Corporation ("Digital") and Cabletron Systems, Inc. ("Cabletron"),
dated November 24, 1997 and amended February 7, 1998, Digital sold to Cabletron
certain assets consisting principally of Property, plant and Equipment and
inventory of the Network Products Business of Digital (the "Business"). Digital
and Cabletron are also entering into certain related service and supply
agreements.
The Network Products Business is involved in the design, production and
marketing of computer networking products.
2. BASIS OF PRESENTATION:
---------------------
The statement of assets sold and the statement of revenue and direct operating
expenses (the "Statements") are derived from the historical books and records of
Digital and present assets sold and revenue and direct operating expenses of the
Business. With the exception of plant, property and certain equipment as
specified in the Agreement, the assets and the revenue and direct operating
expenses in the Statements represent the assets and the revenues and direct
operating expenses of the Business sold pursuant to the Agreement. Certain
direct operating expenses presented in these statements have been allocated
based on management's estimates of the cost of services provided to the Business
by Digital. Such expenses include manufacturing costs such as distribution and
logistics and corporate overhead. Management believes that these allocations are
based on assumptions that are reasonable under the circumstances. The Business
is not a separate taxable entity for federal, state or local income tax
purposes. The Business' operations are included in the consolidated Digital tax
returns. No income tax provision/(benefit) has been allocated. As a result of
the foregoing, the Statements presented may not be indicative of the results of
operations that would have been achieved had the Business been operated as a
nonaffiliated entity.
The Statements are not full financial statements. The Company is not presenting
full financial statements for several reasons. First, obtaining all of the
information necessary to present full financial statements would have been
difficult, time-consuming and costly. To the Company's knowledge, the Business
prepared only management reports, not financial statements and these management
reports did not include a balance sheet or cash flows or any allocations for
corporate resources provided by Digital. Second, in order to present full
financial statements, the Company believes that Digital would have had to rely
to such a degree on estimates for intercompany costs and allocation of assets
and liabilities that there was a substantial risk that the financial statements
would have become uninformative, at best, or misleading at worst. Finally, the
Statements, which reflect the assets and liabilities of the Business sold
pursuant to the Agreement, more accurately portray the effect of the transaction
on both Digital and the Company than full financial statements would have.
The Statements of the Business as of September 27, 1997 and for the three months
then ended are unaudited. All adjustments (consisting only of normal recurring
adjustments) have been made which, in the opinion of management, are necessary
for a fair presentation. Results of operations for the three months ended
September 27, 1997 are not necessarily indicative of the results that may be
expected for any future period.
Continued
<PAGE>
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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The following policies were followed in the Statements presented:
USE OF ESTIMATES
The preparation of the Statements requires management to make estimates and
judgments that affect the reported assets sold of the Business and its revenues
and direct operating expense related disclosures. Such estimates include
inventory reserves and allowance for sales returns. Actual results could differ
from those estimates.
FISCAL YEAR
The fiscal year of Digital is the fifty-two/fifty-three week period ending
the Saturday nearest the last day of June. The fiscal year ended June 28, 1997
included 52 weeks.
TRANSLATION OF FOREIGN CURRENCIES
For non-U.S. operations, the U.S. dollar is the functional currency.
Monetary assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at current exchange rates. Nonmonetary assets and liabilities such as
inventories and property, plant and equipment are translated at historical
rates. Income and expense items are translated at average exchange rates
prevailing during the year, except that inventories and depreciation charged to
operations are translated at historical rates.
REVENUE RECOGNITION
Revenue from external sales is recognized at the time the product is
shipped. Provisions for product sales returns and allowances are recorded in the
same period as the related revenue.
Continued
<PAGE>
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
Revenue from affiliates is recognized at the point of transfer to
affiliates at a transfer price negotiated by the business units of Digital.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are routinely subject to changes in value, resulting from
rapid technological change, intense price competition and changes in customer
demand patterns. While Digital has provided for estimated declines in market
value of inventories, no estimate can be made of the rate of amounts of loss
that are reasonably possible under various competitive conditions.
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
SEPTEMBER 27, 1997 JUNE 28, 1997
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Raw materials $ 4,645 $ 5,422
Finished goods 53,441 57,077
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Total inventories $58,086 $62,499
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RESEARCH AND ENGINEERING COSTS
Research and engineering costs are charged to expense when incurred.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, subject to review for
impairment for significant assets whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable.
SEPTEMBER 27, 1997 JUNE 28, 1997
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Land $ 1,783 $ 1,783
Buildings 17,423 17,365
Machinery and equipment 53,836 53,126
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Total property, plant and equipment 73,042 72,274
Less accumulated depreciation 47,826 46,637
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Net property, plant and equipment $25,216 $25,637
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Depreciation expense was approximately $1,500,000 and $5,950,000 for the
three months ended September 27, 1997 and the year ended June 28, 1997,
respectively.
Continued
<PAGE>
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
Depreciation expense is computed principally on the following bases:
CLASSIFICATION DEPRECIATION LIVES AND METHODS
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Buildings 33 years (straight-line)
Leasehold improvements Life of assets or term of lease whichever
is shorter (straight-line)
Machinery and equipment 2 to 10 years (principally accelerated
methods)
When assets are retired, or otherwise disposed of, the assets and related
accumulated depreciation are removed from the accounts. Resulting gains and
losses are included in income.
4. POSTRETIREMENT AND OTHER POSTEMPLOYMENT BENEFITS:
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PENSION PLANS
The Business participates in Digital's defined benefit and defined
contribution pension plans (the "Retirement Plan") covering substantially all
employees. Those Digital Employees who accept employment with Cabletron will
terminate from Digital and will maintain their vested rights in the Retirement
Plan, with liability remaining with Digital. The benefits are based on years of
service and compensation during the employee's career. Pension cost is based on
estimated benefit payment formulas. It is Digital's policy to make tax-
deductible contributions to the plans in accordance with local laws. The
projected benefit obligation was determined using discount rates of 7.75% for
both the three months ended September 27, 1997 and the year ended June 28, 1997.
For the U.S. pension plan, there was no contribution in the fiscal year. The
assets of the plans include corporate equity and debt securities, government
securities and the real estate.
The statement of revenue and direct operating expenses includes allocated
costs as fringe benefits based upon an average cost per employee for the
Retirement Plan of approximately $701,000 and $2,757,000 for the three months
ended September 27, 1997 and the year ended June 28, 1997, respectively. These
costs are reported as cost of sales for direct labor and selling, general
Continued
<PAGE>
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
and administrative for indirect labor. The measurement dates for all plans were
within 90 days of year-end.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Business participates in Digital's defined benefit postretirement plans
that provide medical and dental benefits for U.S. retirees and their eligible
dependents. Substantially all of Digital's U.S. employees may become eligible
for postretirement benefits if they reach retirement age while working for
Digital. During the second quarter of fiscal 1997, Digital amended its U.S.
postretirement medical plan to provide full retiree medical benefits only to
employees working ten years after age 45. As a result of the amendment, Digital
recognized a one-time curtailment gain. The majority of Digital's non-U.S.
subsidiaries do not offer postretirement benefits other than pensions to
retirees.
Digital's postretirement benefit plans other than pensions are funded as
costs are incurred. The postretirement benefit obligation was determined using
discount rates of 7.75% for both the three months ended September 27, 1997 and
the year ending June 28, 1997.
The statement of revenue and direct operating expenses includes allocated
costs/(credits) of fringe benefits (based upon an average cost/(credit) per
employee) for the postretirement benefits of approximately $(417,000) and
$(3,208,000) the three months ended September 27, 1997 and the year ended June
28, 1997, respectively.
5. INTEREST EXPENSE:
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There was no direct interest expense incurred by the Business. However, the
interest expense reflected in the statement of revenue and direct operating
expenses is an allocation of Digital's worldwide interest expense based upon the
ratio of the Business' assets sold to total Digital assets as of September 27,
1997 and June 28, 1997. Management believes that this method provides a
reasonable basis for allocation within the Business' historical statement of
revenue and direct operating expenses.
Continued
<PAGE>
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
6. DEPENDENCE ON CONTRACT ASSEMBLY MANUFACTURER:
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The Business currently relies on a single contract manufacturer to assemble
certain products including switches. Although a number of contract manufacturers
exist, the interruption or termination of the Business' current manufacturing
relationship could have a short-term adverse effect on its operations. Under the
Agreement, all of Digital's rights associated with this contract manufacturer
are assigned to Cabletron.
7. SUBSEQUENT EVENTS:
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In December 1997, the Business sold its other investment to a third party
for $5,000,000. The agreement was amended to include in the assets sold to
Cabletron, the proceeds from the sale of the investment.
Digital is also selling to Cabletron a certain building with a net book
value of $8,845,000 as of December 27, 1997. The building was occupied under an
operating lease at June 28, 1997 and was purchased by Digital in November 1997.
