<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                  FORM 10-K/A

                               (Amendment No. 1)

             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended May 2, 1999

                        Commission file number  1-13316

                        Newbridge Networks Corporation
            (Exact name of registrant as specified in its charter)


         Canada                                         98-0077506
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)


600 March Road, Kanata, Ontario, Canada                  K2K 2E6
(Address of principal executive offices)                (Zip Code)


Registrant's telephone number, including area code:    (613)  591-3600

          Securities registered pursuant to Section 12(b) of the Act:

  Common Shares, no par value                 New York Stock Exchange
       (Title of class)           (Name of each exchange on which registered)

  The common shares are also listed on The Toronto Stock Exchange in Canada.

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 ___
                         ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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]

At October 1, 1999 the aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately Cdn$5,159,613,000. The number of
common shares of the registrant outstanding as at October 1, 1999 was
181,029,529.
<PAGE>

Newbridge Networks Corporation ("Newbridge" or the "Company") hereby amends
Items 6, 7, 8 and 14 of its Annual Report on Form 10-K for the fiscal year ended
May 2, 1999 (SEC File No. 1-13316) to read in their entirety as follows:

Item 6.  SELECTED FINANCIAL DATA

The income statement data of the Company presented below for each of the five
fiscal years ended May 2, 1999 and the balance sheet data as at fiscal year end
dates in 1999, 1998, 1997, 1996 and 1995 have been derived from the audited
Consolidated Financial Statements of the Company that are included as part of
this Annual Report on Form 10-K and the Company's Annual Reports on Form 10-K
for the prior three fiscal years.

The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
                                                                                        Fiscal Year Ended
                                                                 ----------------------------------------------------------------
                                                                  May 2,      April 30,    April 30,    April 30,    April 30,
                                                                  1999          1998         1997         1996         1995

                                                                      (Canadian dollars, in thousands, except per share data)
Income Statement Data:
<S>                                                              <C>          <C>           <C>          <C>          <C>
Sales                                                            $1,790,705    $1,620,620   $1,376,727   $  921,244    $ 800,523
Cost of sales                                                       751,874       625,065      507,588      319,745      260,471
                                                                 ----------    ----------   ----------   ----------    ---------
Gross margin                                                      1,038,831       995,555      869,139      601,499      540,052

Expenses
  Selling, general and administrative                               531,308       494,429      346,106      231,060      196,073
  Research and development                                          264,421       258,879      155,330       97,205       66,066
  Restructuring costs /(1)/                                         118,030       181,444           --           --           --
  Purchased research and
    development in process /(2)/                                         --        52,762       96,940           --           --
                                                                 ----------    ----------   ----------   ----------    ---------
 Income from operations                                             125,072         8,041      270,763      273,234      277,913
Interest income, net                                                  8,121         9,761       18,605       22,607       15,952
Net gain on investments /(3)/                                       188,726        50,401       (1,564)      12,715           --
Other expenses                                                      (20,802)      (12,889)      (8,051)      (3,443)      (6,512)
                                                                 ----------    ----------   ----------   ----------    ---------
Earnings before income taxes
   and non-controlling interest                                     301,117        55,314      279,753      305,113      287,353
Provision for income taxes                                          121,303        73,001      117,718      100,779       96,944
Non-controlling interest                                                653           631        5,118        1,470        2,019
                                                                 ----------    ----------   ----------   ----------    ---------

Net earnings (loss) /(4)/                                        $  179,161    $  (18,318)  $  156,917   $  202,864    $ 188,390
                                                                 ==========    ==========   ==========   ==========    =========

Earnings (loss) per share
   Basic                                                              $1.01        $(0.10)       $0.92        $1.22    $    1.16
   Fully diluted                                                      $1.01        $(0.10)       $0.91        $1.19    $    1.11

Weighted average number of shares
   Basic                                                            177,630       174,617      170,510      165,842      162,891
   Fully diluted                                                    177,630       174,617      184,595      179,665      175,823

</TABLE>

                                     Page 2
<PAGE>

<TABLE>
<CAPTION>
                                                                                      Fiscal Year Ended
                                                                 ----------------------------------------------------------------
                                                                   May 2,      April 30,    April 30,    April 30,    April 30,
                                                                   1999          1998         1997         1996         1995

                                                                     (Canadian dollars, in thousands, except per share data)
Income Statement Data (continued):
<S>                                                             <C>            <C>        <C>          <C>          <C>
U.S. GAAP /(5)/
   Net earnings (loss)                                             $179,161      $(18,318)    $156,917     $202,864     $188,390

   Earnings (loss) per share
     Basic                                                            $1.01        $(0.10)       $0.92        $1.22    $    1.16
     Diluted                                                          $0.99        $(0.10)       $0.90        $1.19    $    1.13

   Weighted average number of shares
     Basic                                                          177,630       174,617      170,510      165,842      162,891
     Diluted                                                        180,376       174,617      174,525      170,990      166,646

<CAPTION>
                                                                   May 2,      April 30,    April 30,    April 30,    April 30,
                                                                    1999          1998         1997         1996         1995

                                                                                (Canadian dollars in thousands)
Balance Sheet Data:
<S>                                                             <C>           <C>         <C>           <C>          <C>
Working capital                                                   $1,243,991   $  945,892   $  638,392   $  658,087    $ 491,888
Total assets                                                       2,470,624    1,966,825    1,496,703    1,093,417      827,163

Short term debt (including current
 portion of long term obligations)                                    2,869         4,136        7,353        2,302        2,562
Long term obligations                                               384,021       383,311       10,817          860        3,493
Shareholders' equity                                              1,529,219     1,233,620    1,126,499      902,686      674,645
</TABLE>

--------------

(1)  See Note 14 to the Consolidated Financial Statements.
(2)  See Note 15 to the Consolidated Financial Statements.
(3)  See Note 16 to the Consolidated Financial Statements.
(4)  Pro forma net earnings, which exclude net gain on investments and non-
     recurring charges, relating primarily restructuring costs and purchased
     research and development, for the periods presented are disclosed in the
     "Net Earnings (Loss)" section of "Management's Discussion and Analysis of
     Financial Condition and Results of Operations".
(5)  Financial information in this Annual Report on Form 10-K is presented in
     accordance with accounting principles generally accepted in Canada
     ("Canadian GAAP"), which also conform in all material respects with
     accounting principles generally accepted in the United States ("U.S.
     GAAP"), except for the disclosure of certain cash equivalents on the
     Consolidated Balance Sheets and investing activities on the Consolidated
     Statements of Cash Flows, as disclosed in Note 2, the inclusion of certain
     asset impairments in restructuring costs, as disclosed in Note 14, the
     write off of purchased research and development in process, as disclosed in
     Note 15, and the method of calculation of earnings per share, as disclosed
     in Note 18.


                                     Page 3

Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS

Certain parts of the following discussion and analysis may be forward-looking
statements that involve a number of risks and uncertainties. As a consequence,
actual results might differ materially from results forecast or suggested in any
forward-looking statements. See "Market for Registrant's Common Equity and
Related Stockholder Matters -- Cautionary Statement Regarding Forward-Looking
Information".


<PAGE>

RESULTS OF OPERATIONS

The following table sets forth, for the fiscal years indicated, the percentage
of sales represented by certain items in the Company's Consolidated Statements
of Earnings.

<TABLE>
<CAPTION>
                                                  Fiscal Year Ended
                                            -----------------------------
<S>                                         <C>       <C>         <C>
                                            May 2,    April 30,   April 30,
                                             1999       1998        1997

  Sales                                      100.0%     100.0%     100.0%
  Cost of sales                               42.0       38.6       36.9
                                             -----      -----      -----
  Gross margin                                58.0       61.4       63.1

  Expenses
     Selling, general and administrative      29.7      30.5        25.1
     Research and development                 14.7      16.0        11.3
     Restructuring costs /(1)/                 6.6      11.2          --
     Purchased research and
       development in process                   --       3.2         7.0
                                             -----      -----      -----


  Income from operations                       7.0       0.5        19.7

  Interest income, net                         0.5       0.6         1.3
  Net gain on investments                     10.5       3.0          --
  Other expenses                              (1.2)      (0.7)      (0.7)
                                             -----      -----      -----

  Earnings before income taxes
     and non-controlling interest             16.8       3.4        20.3

  Provision for income taxes                   6.8       4.5         8.5

  Non-controlling interest                     0.0       0.0         0.4
                                             -----      -----      -----

  Net earnings (loss)                         10.0%     (1.1)%      11.4%
                                             =====      =====      =====
------------
</TABLE>

(1)  As disclosed in Note 14 to the Consolidated Financial Statements, certain
     asset impairments included in restructuring costs in accordance with
     accounting principles generally accepted in Canada ("Canadian GAAP") would
     be included in the calculation of gross margin under accounting principles
     generally accepted in the United States ("U.S. GAAP"). In accordance with
     U.S. GAAP, the calculation of gross margin would have included
     restructuring costs of $42,290,000 or 2.4% of sales for the year ended May
     2, 1999 and restructuring costs of $67,583,000 or 4.2% of sales for the
     year ended April 30, 1998.

                                     Page 4

Sales


                                                Fiscal Year Ended
                                     ------------------------------------

                                       May 2,    April 30,     April 30,
                                        1999       1998          1997

                                       (Canadian dollars in thousands)


 Sales                               $1,790,705   $1,620,620   $1,376,727
                                     ==========   ==========   ==========

 Increase over prior year                10%          18%          49%


Sales grew in fiscal 1999 compared to fiscal 1998 due to increased sales volume
of products based on packet technologies for wide area network applications (WAN
Packet products) offset in part by a decline in revenues from products based on
packet technologies for local area network applications (LAN Packet products).
Sales grew in fiscal 1998 compared to fiscal 1997 due to increased sales volume
of both WAN Packet and LAN Packet products, offset in part by a decline in sales
of circuit switched networking products.

The following table illustrates, for the periods indicated, the percentage of
sales that comprise each of the Company's major product lines.



<PAGE>

                                                 Fiscal Year Ended
                                       --------------------------------------


                                           May 2,     April 30,    April 30,
                                           1999         1998         1997

  WAN Packet products                        59%         46%          33%
  Circuit switched networking products       38          41           57
  LAN Packet products                         3          13           10
                                            ---         ---          ---
                                            100%        100%         100%
                                            ===         ===          ===


The following table illustrates, for the periods indicated, the annual sales
growth rates for each of the Company's major product lines.


                                                  Fiscal Year Ended
                                          --------------------------------


                                          May 2,     April 30,   April 30,
                                          1999         1998        1997

  WAN Packet                               43%          62%         98%
  Circuit switched networking               2          -15          20
  LAN Packet                              -78           56         673


Growth in sales of WAN Packet products was predominantly the result of increased
acceptance and demand by service providers throughout the world for the
Company's asynchronous transfer mode (ATM) products.

Sales of circuit switched networking products have been and are expected to be
subject to potential declines and quarterly variability as customers throughout
the world increasingly adopt packet technologies.

LAN Packet product revenues declined in fiscal 1999 relative to fiscal 1998 as a
result of sharp decreases in revenue derived from products associated with the
former Ungermann-Bass Networks Inc. ("UB") organization, which the Company
acquired in January 1997. The Company restructured its activities in the LAN
business, including the former UB, in the third

                                     Page 5

quarter of fiscal 1998 and instituted an end of life program in the second
quarter of fiscal 1999 to discontinue the sale and development of LAN Layer 2
Switching products. In fiscal 1998 and in fiscal 1997 LAN Packet product
revenues increased, mainly as a result of the purchase of UB.

The Company expects the proportion of sales derived from WAN Packet products to
continue to increase relative to sales derived from circuit switched networking
products in fiscal 2000 when compared to fiscal 1999. Sales growth, however, may
be impeded due to longer sales cycles often associated with the adoption of
newer, less established technologies.

The Company sells its products to service providers for applications that
provide a range of value-added services, such as Virtual Private Networks
(VPNs), wide area network support and Internet access, and for resale to end
users. Deliveries to original equipment manufacturers (OEMs) for service
provider customers and deliveries under certain large contracts with service
providers contributed significantly to sales in fiscal 1999, fiscal 1998 and
fiscal 1997. Sales to Siemens AG and subsidiaries were generally under OEM
arrangements for resale to end users. Sales to service providers and enterprises
as a percentage of total sales and the proportion of sales to Siemens AG were as
follows.


                                                Fiscal Year Ended
                                          ------------------------------

                                          May 2,   April 30,    April 30,
                                           1999      1998         1997

  Service providers                         75%       69%          66%
  Enterprises                               25        31           34
                                          ----      ----         ----
                                           100%      100%         100%
                                          ====      ====         ====
  Sales to Siemens A.G.                     18%       16%          18%
                                          ====      ====         ====



The proportion of revenue derived from service providers in fiscal 1999
increased relative to fiscal 1998 due to the decline in revenues of former UB
Networks products, which largely serve enterprise customers. The proportion of
revenue derived from service providers in fiscal 1998 increased relative to
fiscal 1997 primarily as a result of increased acceptance and demand by service
providers for the Company's WAN Packet products.


<PAGE>

The following table sets forth, for the periods indicated, the percentage of
consolidated sales derived by sales management in each of the principal
geographic regions in which the Company operates.


                                                Fiscal Year Ended
                                          -------------------------------

                                          May 2,     April 30,   April 30,
                                           1999        1998        1997

  Americas Region                           51%         51%         49%
  European Region                           35%         31%         33%
  Asia Pacific Region                       14%         18%         18%


Sales increased in fiscal 1999 relative to fiscal 1998 in both the Americas
Region and the European Region, although sales decreased in the Asia Pacific
Region during the same period as a result of a downturn in economic activity in
that region. For additional geographic segment information, see Note 20 to the
Consolidated Financial Statements.


Because substantial portions of the Company's sales, cost of sales and other
expenses are denominated in U.S. dollars and Pounds Sterling, the Company's
results of operations are

                                     Page 6

subject to change based on fluctuations in the rates of exchange of those
currencies for the Canadian dollar. The decrease in exchange rates of the
Canadian dollar for the Pound Sterling and the U.S. dollar during fiscal 1999,
relative to exchange rates during fiscal 1998, resulted in a 6% or $91,248,000
positive variance in reported sales as compared to fiscal 1998. The decrease in
exchange rates of the Canadian dollar for the Pound Sterling and the U.S. dollar
during fiscal 1998, relative to exchange rates during fiscal 1997, resulted in a
7% or $95,736,000 positive variance in reported sales as compared to fiscal
1997. As substantial portions of the Company's cost of sales and other expenses
are also incurred in U.S. dollars and Pounds Sterling, the variations in rates
of exchange did not result in a material variance in net earnings for fiscal
1999, fiscal 1998 or fiscal 1997. For information related to the Company's
policies in its management of foreign exchange exposures, see "Quantitative and
Qualitative Disclosures About Market Risk" and Note 10 to the Consolidated
Financial Statements.


The Company derives a significant portion of its sales from products shipped
against orders received in each fiscal quarter and from products shipped against
firm purchase orders released in that fiscal quarter. As is prevalent in
emerging segments of the networking industry, a disproportionate amount of the
Company's shipments occur in the third month of each fiscal quarter. In
addition, customers have the ability to revise or cancel orders and change
delivery schedules without significant penalty. As a result, the Company
operates without significant backlog and schedules some production and budgets
expenses based on forecasts of sales, which are difficult to predict. Unforeseen
delays in product deliveries or closing large sales, introductions of new
products by the Company or its competitors, seasonal patterns of customer
capital expenditures or other conditions affecting the networking industry in
particular or the economy generally during any fiscal quarter could cause
quarterly revenue and, to a greater degree, net earnings, to vary greatly.
Quarterly operating results are consequently difficult to predict, even towards
the end of a given fiscal quarter.

The Company may become subject to sales fluctuations toward the end of calendar
1999 as the issue of Year 2000 date compliance may influence customer buying
patterns. Sales mix shifts may occur due to customers limiting their purchases
of networking equipment to products that they have already tested for Year 2000
Compliance within their networks, which would shift sales mix away from emerging
product offerings and software upgrades. Sales declines could result if
customers decide to delay expansion of their networks to after January 1, 2000.
The majority of the Company's current product offerings have Year 2000 Compliant
versions available and all emerging offerings are designed to be Year 2000
Compliant, so the Company does not anticipate significant sales fluctuations
associated with Year 2000 date compliance. The Company will have a better
indication of potential fluctuations in the second half of calendar 1999. Refer
to the "Year 2000 Date Compliance" section of this report for a summary of the
Company's program for ensuring that all of its products are Year 2000 date
compliant.

                                     Page 7
<PAGE>

Cost of Sales and Gross Margin

                                                Fiscal Year Ended
                                         --------------------------------

                                          May 2,   April 30,   April 30,
                                           1999      1998        1997

                                         (Canadian dollars in thousands)


Gross margin                          $1,038,831    $995,555    $869,139
                                      ==========    ========    ========

 As a percentage of sales                 58%          61%         63%


Cost of sales consists of manufacturing costs, warranty expense and costs
associated with the provision of services. The gross margin as a percentage of
sales declined in fiscal 1999 relative to fiscal 1998 due to the continuing
shift in the mix of sales from higher gross margin circuit switched networking
products to lower margin WAN Packet products. In addition, the gross margin,
expressed as a percentage of sales, was negatively impacted by lower average
selling prices as the Company experienced increased competition on product
pricing, particularly in the market for products based on packet technologies.

The decline in the gross margin as a percentage of sales in fiscal 1998 relative
to fiscal 1997 was primarily the result of the decline in revenues from circuit
switched networking products, which carried gross margins above the average
gross margins earned on the Company's other products.

The impact on product pricing of increased competition, particularly in the
market for products based on packet technologies, may constrain the Company's
ability to maintain gross margins with reductions in per unit costs. As a
result, the gross margin as a percentage of sales may deteriorate in fiscal 2000
compared to fiscal 1999.


For a discussion of the effect of U.S. GAAP on gross margins, refer to the
"Restructuring Costs" section of this report.

Selling, General and Administrative Expenses

                                                     Fiscal Year Ended
                                              ---------------------------------

                                                May 2,   April 30,   April 30,
                                                 1999      1998        1997

                                               (Canadian dollars in thousands)

Selling, general and administrative expenses   $531,308    $494,429    $346,106
                                               ========    ========    ========

As a percentage of sales                          30%         31%         25%

Increase over prior year                           7%         43%         50%


Selling, general and administrative expenses increased in fiscal 1999 relative
to fiscal 1998 principally as a result of increased remuneration costs
associated with salary increases and the addition of sales, marketing and
technical support personnel. Other increases in fiscal 1999 relative to fiscal
1998 included amortization costs associated with upgrading information
technology infrastructure, and increased marketing costs related to the
introduction of new products and expanded advertising programs.

The decrease in selling, general and administrative expenses as a percentage of
sales in fiscal 1999 relative to fiscal 1998 resulted from the lower percentage
increase in expenditures as

                                    Page 8

compared to the larger percentage increase in revenues over the same period.
Management anticipates that selling, general and administrative expenses as a
percentage of sales will continue to decline in fiscal 2000 relative to fiscal
1999.

The increase in selling, general and administrative expenses as a percentage of
sales in fiscal 1998 over fiscal 1997 reflects the higher cost structure of
companies acquired during fiscal 1997 and the impact of sequential sales
declines in the first three quarters of fiscal 1998.

<PAGE>

Research and Development
                                                      Fiscal Year Ended
                                              ---------------------------------

                                                May 2,   April 30,   April 30,
                                                 1999      1998        1997

                                              (Canadian dollars in thousands)

 Gross research and development expenditures  $339,844    $305,357    $195,229

 Investment tax credits                         37,846      34,971      26,400

 Customer, government and other funding         30,013       5,507       9,484

 Net deferral (amortization) of
   software development costs                    7,564       6,000       4,015
                                              --------    --------    --------

 Net research and development expenses        $264,421    $258,879    $155,330
                                              ========    ========    ========

 Gross expenditures as a percentage of sales      19%         19%         14%

 Increase in gross expenditures over prior year   11%         56%         49%

 Recoveries as a percentage of gross expenditures 22%         15%         20%

 Net research and development
  expenses as a percentage of sales               15%         16%         11%

 Increase in net expenditures over prior year      2%         67%         60%


Research and development expenditures consist primarily of software and hardware
engineering personnel expenses, costs associated with equipment and facilities,
and subcontracted research and development costs. The sequential increases in
gross research and development expenditures in fiscal 1999 and fiscal 1998
reflect spending on the development of higher and lower capacity ATM switches
and interfaces, development of switches, forwarding engines, interfaces and
services for IP traffic, and related network management and service software.
The majority of the increase resulted from salary increases for engineering
staff and increased amortization associated with capital deployed in research
and development.

Recoveries increased as a percentage of gross expenditures in fiscal 1999
compared to fiscal 1998 due to an increase in customer, government and other
funding. The increase in customer, government and other funding is mainly as a
result of funding secured for the Company's broadband wireless access product
initiative, as described in Note 13 to the Consolidated Financial Statements.
Management expects the level of recoveries, as a percentage of gross research
and development expenditures, in fiscal 2000 to approximate or exceed the level
in fiscal 1999 based on current levels of committed customer, government and
other funding relative to planned spending levels.

                                     Page 9

Recoveries decreased as a percentage of gross expenditures in fiscal 1998
compared to fiscal 1997 due to declines in investment tax credits and in
customer, government and other funding as a proportion of gross research and
development expenditures.

The markets for the Company's products are characterized by continuing
technological change. The Company plans to increase gross research and
development expenditures in fiscal 2000 relative to fiscal 1999 to address the
requirements of service providers as they invest in new infrastructures to meet
the challenges of growing demand for new communications services and increased
competition.

Restructuring Costs

Restructuring costs are comprised of the following.
                                                        Fiscal Year Ended
                                                    --------------------------

                                                    May 2,  April 30,  April 30,
                                                     1999       1998     1997

     Restructuring programs, April 1999          $ 73,570   $     --      $  --
     Layer 2 Switching End of Life                 37,928         --         --
     Asia Pacific Resources Relocation              6,532         --         --
     LAN business restructuring, November 1997         --    181,444         --
                                                 --------  ---------  ---------
                                                 $118,030   $181,444      $  --
                                                 ========  =========  =========


<PAGE>


In April 1999, the Company decided to streamline the operations of regional
sales and support organizations as well as its marketing and product development
organizations. The restructuring costs associated with the sales, support and
marketing organizations ("Sales and Marketing") consisted primarily of costs
related to workforce and facilities reductions, as the Company has announced a
reduction in the number of locations in which it will have a physical presence
in favour of distributors in certain markets, and subcontractors for certain
functions. Restructuring costs associated with product development relate
primarily to asset impairment losses related to the discontinuation or
divestiture of the development of certain products, and the centralization of
development laboratories to make the development process more efficient. The
components of restructuring costs of $73,570,000 and the related costs incurred
are as follows:
<TABLE>
<CAPTION>
                                               Sales and    Product              Costs    Balance at
                                               Marketing  Development   Total   Incurred  May 2, 1999
<S>                                            <C>        <C>          <C>      <C>       <C>

 Asset impairment losses
  Inventory                                      $ 2,606      $ 8,994  $11,600
  Property, plant and equipment                    6,576       29,104   35,680
  Other current and non-current assets               568        2,249    2,817
                                                 -------      -------  -------
                                                   9,750       40,347   50,097
                                                 -------      -------  -------

 Provision for restructuring
  Reduction in work force                         14,595          427   15,022        --      $15,022
  Reduction in facilities                          6,627           --    6,627        --        6,627
  Other restructuring costs                        1,653          171    1,824        --        1,824
                                                 -------      -------  -------  --------  -----------
                                                  22,875          598   23,473        --      $23,473
                                                 -------      -------  -------  ========  ===========

 Restructuring costs                             $32,625      $40,945  $73,570
                                                 =======      =======  =======
</TABLE>

Asset impairment losses relate to assets affected by the Company's restructuring
plan that could not be deployed within the streamlined organizations or
elsewhere within the Company. Impairment losses were recorded to the extent the
net book value of these assets, including

                                     Page 10

related reserves, exceeded the estimated net realizable value of the underlying
assets. Substantially all of the net book values of the inventory and property,
plant and equipment affected by the restructuring programs have been reflected
as asset impairment losses since the Company estimates that the proceeds of
disposition of these assets will approximate the costs of disposal. These asset
impairment losses will reduce amortization expense in fiscal 2000 by
approximately $11,700,000. The Company anticipates that assets impaired as a
result of the restructuring programs will be disposed of during fiscal 2000.

The amounts included in the provision for restructuring are reflected in accrued
liabilities as at May 2, 1999.

The provision for the reduction in work force includes severance, related
medical and other benefits, and other obligations to employees. The provision
includes termination benefits for 137 employees. The work force reductions will
occur in Japan, Russia and various other countries. The Company anticipates that
these work force reductions will be substantially completed in the first half of
fiscal 2000.

The provision for the reduction in facilities comprises lease payments and fixed
costs associated with the closure of sales, support and administrative
facilities in Europe, Japan and the United States. The Company expects to
complete these facilities closures in fiscal 2000.

The provision for other restructuring costs comprises certain consulting costs
associated with establishing termination benefits for employees in addition to
outplacement and counseling services as well as various other direct incremental
costs associated with the restructuring plan.

In October 1998, the Company decided to discontinue the sale and development of
local area network (LAN) Layer 2 Switching products as part of the enhancement
of the focus on the Company's dominant and more profitable products. The Layer 2
Switching End of Life program created impairment losses associated with certain
assets deployed in this business and obligations related to fulfilling previous
customer commitments. The program was completed during fiscal 1999. End of life
program costs of $37,928,000 and the related costs incurred are as follows:

                                                            Costs    Balance at
                                                  Total   Incurred   May 2, 1999


  Asset impairment losses
     Accounts receivable                         $ 7,762


<PAGE>

     Inventory                                    22,928
                                                 -------
                                                  30,690

  Customer obligations                             7,238    (7,238)      $ --
                                                 -------  ========   ===========

  Layer 2 Switching End of Life program costs    $37,928
                                                 =======

Impairment losses related to accounts receivable and inventory were recorded to
the extent that the net book value of these assets, including related reserves,
exceeded their fair value. The fair value was based on the estimated net
realizable value of the underlying assets. The net carrying amount of inventory
affected by the Layer 2 Switching End of Life program was reduced to $1,458,000
given demand for the affected products and the Company's estimated proceeds of
disposition, net of the costs of disposal. This inventory was substantially
disposed of during fiscal 1999.

                                    Page 11

Customer obligations related to the cost to the Company of acquiring products
from third parties and providing them to customers in order to meet the
Company's commitments with respect to providing certain network functionality.

In October 1998, the Company commenced relocating certain employees and
activities that support the Asia Pacific region from Kanata, Ontario to Hong
Kong and Malaysia in order to provide more efficient and cost effective services
to customers in that region. The charge for relocation of $6,532,000 and the
related costs incurred are as follows:
<TABLE>
<CAPTION>
                                                               Costs    Balance at
                                                     Total   Incurred   May 2, 1999
<S>                                                  <C>     <C>        <C>
  Provision for Asia Pacific Resources relocation
     Workforce terminations                          $3,407   $  (690)       $2,717
     Reduction in facilities                          2,600        --         2,600
     Other relocation costs                             525      (525)           --
                                                     ------   -------        ------

                                                     $6,532   $(1,215)       $5,317
                                                     ======   =======        ======
</TABLE>

The provision for workforce terminations reflects the accrual of involuntary
termination benefits for 27 employees. The provision for reduction in facilities
comprises lease cancellation penalties associated with relocating facilities to
Hong Kong and Malaysia. Other relocation costs consist of direct incremental
costs associated with the relocation. The balance of the provision for Asia
Pacific resources relocation is included in accrued liabilities at May 2, 1999.

Additional costs related to the transfer of personnel and equipment, the
recruitment of new staff and the expansion of facilities in Hong Kong are not
included in the Asia Pacific Resources relocation charge and are being expensed
as incurred. These additional costs are estimated at $9,000,000, with the
majority of the costs to be incurred during the first two quarters of fiscal
2000.


In November 1997, the Company decided to restructure its activities related to
its local area network ("LAN") business. The restructuring plan involved the
discontinuation of certain product lines, termination of employees,
discontinuation of development activities associated with the former UB Networks
and closure of former UB Networks facilities. The Company's restructuring plan
created impairment losses on assets associated with the LAN business and
liabilities associated with restructuring activities. Restructuring costs of
$181,444,000 and the related costs incurred were as follows:
<TABLE>
<CAPTION>
                                                         Costs Incurred   Costs Incurred   Balance at
                                                Total    in Fiscal 1998   in Fiscal 1999   May 2, 1999
<S>                                            <C>       <C>              <C>              <C>
  Asset impairment losses
       Accounts receivable                     $ 12,732
       Inventory                                 54,851
       Property, plant and equipment             11,936
       Goodwill                                  57,125
       Other current and non-current assets       5,162
                                               --------
                                                141,806
                                               --------
  Provision for restructuring
       Reduction in work force                   20,796         (19,614)          (1,182)           --
       Reduction in facilities                    4,753          (4,202)            (551)           --
       Discontinued activities                   13,577         (10,017)          (3,560)           --
       Other restructuring costs                    512            (512)              --            --
                                               --------        --------   --------------   -----------
                                                 39,638        $(34,345)         $(5,293)         $ --
                                               --------        ========   ==============   ===========
Restructuring costs                            $181,444
                                               ========
</TABLE>
                                    Page 12

<PAGE>

Asset impairment losses were recorded to the extent the net book value,
including related reserves, exceeded the fair value of any assets associated
with the Company's restructuring plan. The fair value was based on the estimated
net realizable value of the underlying assets affected by the restructuring.

The net carrying amount of inventory affected by the restructuring activities
was reduced to $19,603,000 given demand for the affected products and the
Company's estimate of the excess of proceeds on disposition over the costs of
disposal. This inventory was substantially disposed of by the end of fiscal
1999.

Substantially all of the net book value of the property, plant and equipment
affected by the restructuring plan was reflected as an asset impairment loss
since the Company estimated the proceeds of disposition of these assets would
approximate the costs of disposal. Asset impairment losses associated with
property, plant and equipment reduced amortization expense in fiscal 1999 by
approximately $4,774,000. The property, plant and equipment impaired as a result
of the restructuring program was substantially disposed of  by the end of fiscal
1999.

The acquisitions of UB Networks, acquired in January 1997, and Ouest Standard
Telematique, acquired in August 1996, related to the Company increasing its
direct presence and participation in the LAN business. The Company's decision to
restructure its activities in the LAN business impaired the value of goodwill
associated with these acquisitions. Accordingly, the Company included the full
net book value of goodwill related to the acquisitions of UB Networks
($18,775,000) and Ouest Standard Telematique ($38,350,000) as restructuring
costs.

The provision for reduction in work force included severance, related medical
and other benefits, relocation costs and other obligations to employees. The
provision included termination benefits for 400 employees. The work force
reductions were in substantially all functions and in all regions in which the
Company operates. The work force reductions were completed in fiscal 1999.

The provision for reduction in facilities comprised lease payments and fixed
costs associated with plans to close sales, support and administrative
facilities in the Americas, Europe and Asia Pacific geographic areas. Certain
facilities closures planned as part of the restructuring plan formulated upon
the acquisition of UB Networks were also part of the restructuring plan defined
in November 1997. Facilities closures were completed in fiscal 1999.

The provision for discontinued activities included costs associated with
acquiring products from third parties and providing them to customers to fulfill
prior commitments related to certain discontinued product lines and activities.
These activities were completed in fiscal 1999.

The provision for other restructuring costs comprised certain consulting costs
associated with workforce reductions including outplacement and counseling
services for employees as well as various other direct incremental costs
associated with the restructuring plan.


In accordance with Canadian GAAP, impairments to accounts receivable and
inventory attributable to restructuring activities have been included in
restructuring costs. Under U.S. GAAP, impairments to accounts receivable and
inventory attributable to restructuring activities would be included in the
calculation of gross margin. In accordance with U.S. GAAP, the calculation of
gross margin would have included restructuring costs of $42,290,000 for fiscal
1999 and restructuring costs of $67,583,000 for fiscal 1998.

                                    Page 13
<PAGE>

Purchased Research and Development In Process


In November 1997, the Company acquired a 49.9% equity interest in RadNet Ltd.,
an Israeli developer and manufacturer of access switches for ATM networks, for
cash consideration of $53,676,000. Associated with this investment, the Company
incurred $52,762,000 in purchased research and development in process expense
("PR&DIP") in fiscal 1998. As of the investment date, the research and
development project in process was for the development of an ATM access switch
designed to aggregate various speeds of voice and data traffic. The initial
product release of the ATM access switch was approximately 65% complete as at
the investment date. The market for ATM access switches was nascent at the time
of investment.

RadNet Ltd. expected to incur approximately $30,000,000 in research and
development expenses to complete the ATM access switch project. The estimated
costs to complete the project were related to software and hardware engineering
personnel expenses, costs associated with equipment and facilities, and
subcontracted research and development costs. Approximately 70% of these
estimated costs were expected to be incurred over the 3 years following the
acquisition. The ATM access switches were expected to be shipped to initial
customers approximately nine months after the acquisition, and in volume fifteen
months after the acquisition.

The ATM access switch market is characterized by rapid technological change,
frequent product introductions and evolving methods used by service providers
and corporations in building and managing networks. For the ATM access switch
market, the key risk identified at the time of acquisition was the time taken to
introduce a fully featured product to the market relative to the competition.
Delays in introducing a fully featured ATM access switch would result in a late
introduction of the product to the market, which would result in a reduction in
planned revenue. The Company was aware of many large customer opportunities at
the time of the investment, but was also aware that delays in introducing the
product would result in these same large customers diverting purchases to
competing products.

The appraisal method used to value the PR&DIP associated with the project was a
discounted cash flow. The projected cash flow was calculated over a period of 6
years, and a risk adjusted discount factor of 19% was used. The discount factor
was based on a risk adjusted weighted average cost of capital.

Significant appraisal assumptions included growth in revenues for the ATM access
switch to approximately $300,000,000 in fiscal 2003. Gross margin, expressed as
a percentage of sales, was projected to be 77% on initial shipments, declining
to 67% by fiscal 2001 and in subsequent years due to market maturation. Selling,
general and administrative expenses were expected to be 47% of sales initially,
declining to 20% due to economies of scale associated with the increase in sales
volume. These projections were based on expense forecasts for the initial stages
of product introduction, and industry averages thereafter. Research and
development expenses were projected based on the project plan, including costs
to correct errors and evolve new versions in the later stages of the planning
horizon. The income tax rate for this Israeli-based initiative was assumed at
25%.

Under accounting principles generally accepted in Canada, the purchased research
and development in process was amortized on a straight line basis over its
estimated useful life of six months. Under U.S. GAAP, purchased research and
development in process acquired by the Company was written off at the time of
acquisition.

                                    Page 14

During fiscal 1999, the Company decided to cease funding of RadNet's ATM access
switch project and the Company's related sales efforts.

During fiscal 1997, the Company incurred $96,940,000 in PR&DIP related to the
acquisition of UB Networks, a manufacturer of LAN equipment based in Santa
Clara, California. As of the acquisition date, the research and development
project in process was for the development of high speed interface cards for its
high capacity LAN switch called GeoLAN 500. The initial release of the interface
cards were 70% to 80% complete as at the acquisition date. The project involved
the development of interface protocols and speeds which existed in the LAN
market, with a high number of network connections per interface card.

The Company expected to incur approximately $38,000,000 in research and
development expenses to complete the high speed interface cards for the GeoLAN
500. The estimated costs to complete the project were associated with software
and hardware engineering personnel expenses, costs associated with equipment and
facilities, and subcontracted research and development costs. Approximately 75%
of these estimated costs were expected to be incurred over the 18 months
following the acquisition. The interface cards were expected to be shipped to
initial customers approximately three months after the acquisition, and in
volume nine months after the acquisition.


<PAGE>


The LAN market is characterized by rapid technological change, frequent product
introductions and evolving methods used by corporations in building and managing
networks. For the high speed interface development project, the key risk
identified at the time of acquisition was the successful and timely completion
of the development of custom ASICs (application specific integrated circuits).
This project task was identified as a critical path item. Delays associated with
the ASICs, or certain other project tasks, would result in a late introduction
of the product to the market. Any late introduction of the interface cards would
result in a reduction in planned revenue for the GeoLAN 500, and potentially for
the entire product portfolio of the former UB Networks. The large majority of
sales for the GeoLAN 500 were targeted at the installed base of customers of the
former UB Networks organization, and therefore a delay in product introduction
would result in a loss of credibility with these customers.

The appraisal method used to value the PR&DIP associated with the project was a
discounted cash flow. The projected cash flow was calculated over a period of 7
years and three months, and a risk adjusted discount factor of 26% was used. The
discount factor was based on a risk adjusted weighted average cost of capital.

Significant appraisal assumptions included growth in revenues for the GeoLAN 500
to over $300,000,000 in fiscal 2001, with declining revenues thereafter until
revenues cease in fiscal year 2004. Gross margin, expressed as a percentage of
sales, was projected to be 58% on initial shipments, improving to 65% eventually
as the Company gained economies of scale and cost reductions. Similarly,
selling, general and administrative expenses were expected to be 29% of sales
initially, declining to 23%. These assumptions were based on historical
information for major product initiatives in the LAN market. Research and
development expenses were projected based on the project plan, including costs
to correct errors and evolve new versions in the later stages of the planning
horizon.

Under U.S. GAAP, PR&DIP acquired by the Company on the acquisition of UB
Networks was written off against net earnings upon acquisition. Under accounting
principles generally accepted in Canada research and development in process
acquired by the Company on the

                                    Page 15

acquisition of UB Networks was capitalized upon acquisition and disclosed on the
Consolidated Balance Sheet at January 26, 1997.

Upon review of the recoverability of the research and development in process,
undertaken during the fourth quarter of the fiscal year ended April 30, 1997,
the Company determined that the PR&DIP no longer met all the criteria for
deferral and accordingly the balance was written off as a charge to earnings for
the fourth fiscal quarter of fiscal 1997. The Company significantly altered
product plans associated with the research and development project and concluded
that recoverability could not be reasonably regarded as assured. In addition,
Management determined that adequate resources may not be made available to
complete the project associated with the PR&DIP, as originally defined. In
October 1998, the Company decided to fully discontinue the sale and development
of LAN products as part of the enhancement of the focus on the Company's
dominant and more profitable products.


Interest and Other Expenses
                                                    Fiscal Year Ended
                                              -----------------------------
                                               May 2,  April 30,  April 30,
                                               1999       1998       1997

                                            (Canadian dollars in thousands)

 Interest income                              $34,248    $11,581    $19,956
 Interest expense on long term obligations     26,127      1,820      1,351
 Other expenses                                20,802     10,448      9,615



Interest income earned in fiscal 1999 increased as compared to fiscal 1998 due
to an increase in the average cash position maintained by the Company. The
primary contributors to the increase in the cash position were proceeds received
from the sale of long term investments and proceeds from the issuance of Senior
Notes in April 1998. Interest income earned in fiscal 1998 decreased as compared
to fiscal 1997 due to declines in the cash position maintained by the Company
and due to declines in interest rates earned on investments. Interest expense on
long term obligations increased in fiscal 1999 relative to fiscal 1998 and
fiscal 1997 primarily due to the issuance of US$225,000,000 in Senior Notes in
April 1998.


<PAGE>

Other expenses increased in fiscal 1999 relative to fiscal 1998 and fiscal 1997
primarily as a result of the Company's equity share of its affiliate companies
losses.

                                    Page 16

Net Gain on Investments

                                                 Fiscal Year Ended
                                      -------------------------------------

                                          May 2,   April 30,   April 30,
                                           1999      1998        1997

                                         (Canadian dollars in thousands)

 Cambrian Systems Corporation           $131,748     $    --     $    --
 Advanced Computer Communications        128,336          --          --
 Vienna Systems Corporation               15,846          --          --
 Tundra Semiconductor Corporation         11,748          --          --
 Broadband Networks Inc.                      --      47,960          --
 Other divestitures                           --       6,528          --
 West End Systems Corp.                  (33,521)         --          --
 Investment impairment write downs       (65,431)     (4,087)     (1,564)
                                        --------     -------     -------
                                        $188,726     $50,401     $(1,564)
                                        ========     =======     =======

In December 1998, the Company sold its minority ownership position in Cambrian
Systems Corporation ("Cambrian") to Northern Telecom Limited ("Nortel") for cash
proceeds of US$95,674,000 (Cdn$147,158,000). The proceeds include an earn-out
payment of US$1,935,000 (Cdn$2,855,000) received by the Company as a result of
certain specified financial performance targets being met by Cambrian. The
proceeds exclude future potential earn-out payments of approximately
US$21,000,000 which will be received by the Company if certain specified
financial performance targets are met by Cambrian.

In October 1998, the Company completed the sale of its majority ownership
position in Advanced Computer Communications ("ACC") to Telefonaktiebolaget LM
Ericsson for cash proceeds of US$167,319,000 (Cdn$258,308,000). ACC's results of
operations were consolidated with the Company's results for the first six months
of fiscal 1999 ended November 1, 1998. The results of operations and the
financial position of ACC were not significant relative to the Company's
consolidated results of operations and financial position for all periods
presented.

In December 1998, the Company sold its minority ownership position in Vienna
Systems Corporation to Nokia Corporation for cash proceeds of $39,716,000.

In February 1999, the Company sold a portion of its minority ownership position
in Tundra Semiconductor Corporation for cash proceeds of $19,498,000 as part of
an initial and secondary share offering by Tundra.

In January 1998, the Company sold its minority interest in Broadband Networks
Inc. to Nortel for proceeds of $66,672,000.  The proceeds received included cash
of $23,775,000 and Nortel shares valued at $42,897,000.

On February 10, 1999 West End Systems Corp., a manufacturer of access and
transmission products for the communications and cable television industries,
filed an assignment in bankruptcy under the Canadian Bankruptcy and Insolvency
Act.  As a result, the Company recorded losses related to the Company's minority
ownership position in West End Systems Corp. and unsecured trade accounts
outstanding.

                                    Page 17

In fiscal 1999, the Company recorded investment impairment write downs of
$65,431,000 attributable to the financial performance of certain investee
companies as well as deteriorating economic conditions in certain geographic
regions. Investment impairment write downs in fiscal 1999 included $17,247,000
related to the carrying value of the Company's investment in a subsidiary
company that developed packet voice technology and network access products. The
Company also divested its ownership position in a Brazilian subsidiary and
recognized a loss of $14,902,000 associated with the carrying value of its
investment and related disposition costs. As a result of deteriorating economic
conditions in Russia, the Company recognized a loss of $11,449,000 attributable
to its investment in a joint venture in that country. The Company recorded
investment impairments of $21,833,000 in fiscal 1999 as a result of the
financial condition of seven investee companies.


<PAGE>

The Company evaluates, on an ongoing basis, the value of its long term
investments considering the evolution of the market segments of investee
companies, any impact of deteriorating economic conditions in various countries,
and any other specific information which indicates impairment of value in these
investments. The Company establishes fair value of its long term investments in
investee companies by referring to quoted market values or reviewing valuations
implicit in recent private financing. The Company also utilizes a variety of
valuation techniques which include assessing potential proceeds that could be
expected to be received on a disposition of the Company's investment,
discounting future cash flows expected to be received from holding the
investment and reviewing recent acquisitions and divestitures of companies in
the industry that are comparable to the investee company.


Income Taxes
                                               Fiscal Year Ended
                                         -------------------------------


                                          May 2,   April 30,   April 30,
                                          1999        1998        1997

  Income tax rate                          40%        132%         42%
  Income tax rate excluding
     non-recurring gains and charges       30%         30%         31%


The income tax rates for fiscal 1999, fiscal 1998 and fiscal 1997 differ from
the income tax rates, excluding non-recurring gains and charges, due to limits
on the deductibility of certain elements of restructuring costs recorded in
fiscal 1999 and fiscal 1998 and purchased research and development in process
recorded in fiscal 1998 and fiscal 1997. The composite rates of income tax,
excluding non-recurring gains and charges, for fiscal 1999, 1998 and 1997 were
reduced from the statutory rate primarily as a result of the application of
certain deductions related to manufacturing and processing activities and to
research and development expenditures in Canada. Future changes in the composite
rates of income tax will be primarily due to the relative profitability of
operations and the national tax policies in each of the various countries in
which the Company operates. Management believes that the composite rate of
income tax, excluding non-recurring gains and charges, will remain lower than
the statutory rate because of the deductibility related to manufacturing and
processing activities and research and development expenditures in Canada as
well as other tax planning measures undertaken by the Company. See Note 17 to
the Consolidated Financial Statements.

                                    Page 18

Non-Controlling Interest

The non-controlling interests' share of net earnings in fiscal 1999, fiscal 1998
and fiscal 1997 represented less than 1% of the Company's sales in fiscal 1999,
fiscal 1998 and fiscal 1997. The non-controlling interests' share of net
earnings in fiscal 1997 of $5,118,000 related primarily to profits from the
operations of Transistemas S.A., an Argentine systems integrator of networking
products. As at May 2, 1999 there are non-controlling interests in three of the
Company's subsidiaries. All three of these subsidiaries are systems integrators
of networking products in Latin America.


<PAGE>

<TABLE>
<CAPTION>

Net Earnings (Loss)
                                                             Fiscal Year Ended
                                                    ------------------------------------
                                                       May 2,   April 30,   April 30,
                                                        1999      1998        1997

                                                      (Canadian dollars in thousands)

 Net earnings (loss)                                $ 179,161    $(18,318)   $156,917
<S>                                                 <C>         <C>         <C>
 Non-recurring gains and charges
   Restructuring costs                                118,030     181,444          --
   Purchased research and
    development in process                                 --      52,762      96,940
   Settlement of litigation/(1)/                           --       2,642          --
   Net gain on investments                           (188,726)    (50,401)      1,564
   Provision for income taxes on
    non-recurring gains and charges                    53,329         767          --
                                                    ---------    --------    --------
 Pro forma net earnings, excluding
  non-recurring gains and charges                   $ 161,794    $168,896    $255,421
                                                    =========    ========    ========

 Pro forma net earnings, excluding non-recurring
  gains and charges, as a percent of sales                  9%         10%         19%

 Pro forma net earnings, excluding non-recurring
  gains and charges, per share
   Canadian GAAP
     Basic                                          $    0.91    $   0.97    $   1.50
     Fully diluted                                  $    0.91    $   0.97    $   1.45
   U.S. GAAP
     Basic                                          $    0.91    $   0.97    $   1.50
     Diluted                                        $    0.90    $   0.95    $   1.46
</TABLE>

(1) Included within selling, general and administrative expenses on the
    Consolidated Statement of Earnings.

                                    Page 19

A reconciliation of the major components of the change in net earnings, as
compared to the prior fiscal year, for each of the fiscal years reported is as
follows.
<TABLE>
<CAPTION>

                                                            Fiscal Year Ended
                                                    ----------------------------------
                                                      May 2,    April 30,   April 30,
                                                       1999       1998        1997

                                                      (Canadian dollars in thousands)
<S>                                                 <C>        <C>          <C>
Gross margin from sales increase                    $104,484    $ 153,972   $ 297,394
 (Decrease) in product gross margins
  as a percentage of sales                           (61,208)     (27,556)    (29,754)
(Increase) in operating expenses                     (45,063)    (249,230)   (173,171)
(Increase) in interest and other expenses, net       (11,994)      (9,677)    (10,174)
Decrease (increase) in income taxes on
    pro forma net earnings                             4,260       45,484     (21,136)
(Increase) decrease in non-controlling interest          (22)       4,487      (3,648)
                                                    --------    ---------   ---------
(Decrease) increase in pro forma net earnings         (9,543)     (82,520)     59,511

Change in non-recurring gains and charges,
  net of income taxes                                207,022      (92,715)   (105,458)
                                                    --------    ---------   ---------
 Increase (decrease) in net earnings                 197,479     (175,235)    (45,947)

 Net earnings (loss) in prior year                   (18,318)     156,917     202,864
                                                    --------    ---------   ---------
 Net earnings (loss)                                $179,161    $ (18,318)  $ 156,917
                                                    ========    =========   =========

</TABLE>
RECONCILIATION OF FINANCIAL RESULTS TO UNITED STATES ACCOUNTING PRINCIPLES

The Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). These
principles are also generally accepted in the United States ("U.S. GAAP") in all
material respects except for the disclosure of certain cash equivalents


<PAGE>

on the Consolidated Balance Sheets and investing activities on the Consolidated
Statements of Cash Flows, as disclosed in Note 2, the inclusion of certain asset
impairments in restructuring costs, as disclosed in Note 14, the write off of
purchased in process research and development, as disclosed in Note 15, and the
method of calculation of earnings per share, as disclosed in Note 18. Other than
the accounting treatment associated with any future acquisitions or mergers, the
Company expects that the differences in future years will not be significant.

                                    Page 20

FINANCIAL CONDITION

During the fiscal year ended May 2, 1999 working capital increased from
$945,892,000 to $1,243,991,000. As at May 2, 1999 the Company had $879,694,000
of cash and cash equivalents, which represented an increase of $380,416,000
during fiscal 1999. The most significant contributing item to the increase in
cash and cash equivalents in fiscal 1999 was proceeds from the sale of long term
investments, which amounted to $456,966,000 (see Note 16 to the Consolidated
Financial Statements). A summary of the major cash flow components by activity
is as follows.

<TABLE>
<CAPTION>
                                                   May 2,    April 30,     April 30,
                                                   1999        1998          1997

                                                 (Canadian dollars in thousands)

<S>                                             <C>         <C>         <C>
  Net earnings (loss)                           $ 179,161   $ (18,318)   $  156,917
  Add back items not affecting cash
     Non recurring (gains) and charges            (73,551)    183,805        96,940
     Amortization and other non-cash charges      235,062     158,474       118,096
  (Increase) decrease in working capital,
     excluding cash and cash equivalents         (121,688)   (222,436)     (148,579)
                                                  -------     -------       -------
  Cash flow from operating activities             218,984     101,525       223,374
                                                  -------     -------       -------

  Additions to property, plant and equipment     (213,903)   (276,778)     (131,641)
  Proceeds on sale of long term investments       456,966      66,672            --
  Long term investments and other                (184,882)   (199,581)     (267,960)
                                                  -------     -------       -------
  Cash flow from investing activities              58,181    (409,687)     (399,601)
                                                  -------     -------       -------

  Proceeds from stock option exercises            112,293      89,430        54,096
  Net increase (decrease) in long term debt         2,533     366,312        (5,218)
                                                  -------     -------       -------
  Cash flow from financing activities             114,826     455,742        48,878
                                                  -------     -------       -------
  Impact of foreign currency translation
     and cash from acquisitions                   (11,575)     17,794         5,504
                                                  -------     -------       -------
  Net cash flow during the period               $ 380,416   $ 165,374    $ (121,845)
                                                  =======     =======      ========
</TABLE>

Principal components of the Company's working capital are accounts receivable,
inventory, and accounts payable. Management believes that the payment terms and
conditions extended to the Company's customers, arrangements with the Company's
suppliers, and the levels of inventory the Company carries relative to its
levels of sales are consistent with practices generally prevailing in the
networking industry. Accounts receivable, as a proportion of revenue, remained
consistent in fiscal 1999 as compared to fiscal 1998. Inventory turns improved
during the year from 3.2 times in fiscal 1998 to 3.6 times in fiscal 1999.

In April 1998 the Company issued US$225,000,000 Senior Notes due April 2003
bearing a coupon rate of 6.51%. The Senior Notes require semi-annual payments of
interest only, with the principal due at maturity. The Company's obligation
under the Senior Notes can be satisfied at any time prior to maturity subject to
a make whole provision. The Senior Notes are unsecured.

In January 1998 the Company entered into and received $50,000,000 under a long
term loan agreement. The loan agreement includes a term loan portion and a
demand loan portion, both due January 2003. The term loan bears interest at the
fixed rate of 5.46% and the demand loan bears interest at a floating rate equal
to the one month's bankers' acceptance rate. The term loan

                                    Page 21

requires semi-annual payments of interest only, with the principal due at
maturity. The Company's obligation under the term loan can be satisfied at any
time prior to maturity subject to a make whole provision. The term loan is
secured by 654,220 Nortel shares. The demand loan, which is unsecured, requires
monthly payments of interest only, with the principal due at maturity.

Existing short term bank credit facilities consist of operating lines of credit
with certain banks in the aggregate amount of $156,258,000, primarily with banks
in Canada, the United Kingdom, the United States and Chile. At May 2, 1999
$5,881,000 was being utilized under these credit facilities, primarily
attributed to non-wholly owned subsidiary Coasin S.A.


<PAGE>


During fiscal 1999 and fiscal 1998 the Company generated cash proceeds of
$456,966,000 and $66,672,000, respectively, on the sale of equity positions in
the following companies. Details of each transaction are described in Note 16 to
the Consolidated Financial Statements.

                                                 May 2,    April 30,  April 30,
                                                  1999        1998      1997

                                                (Canadian dollars in thousands)

  Advanced Computer Communications             $258,308     $  --      $  --
  Cambrian Systems Corporation                  147,158        --         --
  Vienna Systems Corporation                     39,716        --         --
  Tundra Semiconductor Corporation               19,498        --         --
  Broadband Networks Inc.                          --        66,672       --
  Less: escrow provisions                        (7,714)       --         --
                                               --------    --------    -----

  Proceeds on sale of long term investments    $456,966     $66,672    $  --
                                               ========    ========    =====

Capital expenditures for fiscal 1999 of $213,903,000 declined as compared to
those of fiscal 1998 ($276,778,000) because there was no major facilities
expansion cost incurred during fiscal 1999. Capital expenditures for fiscal 1998
exceeded those of fiscal 1997 as the Company invested in new facilities in
Canada, in land in the metropolitan area of Washington, D.C., in research and
development and manufacturing equipment and in information systems. Management
anticipates that the level of capital expenditures for fiscal 2000 will be
approximately consistent with the level of capital expenditures incurred in
fiscal 1999. The Company may also increase its current investments in associated
companies. The Company intends to fund capital expenditures and investments with
existing cash and cash expected to be generated from operations during fiscal
2000, supplemented as appropriate by divestitures or the issuance of shares or
debt. In addition, the Company may use a portion of its cash resources to extend
or enhance its business and diversify its marketing and distribution channels
through acquisitions of or investments in businesses, products or technologies
or through the formation of strategic partnerships with other companies.

Management believes that the Company's liquidity in the form of existing cash
resources, its credit facilities, as well as cash generated from operations and
financing activities, will prove adequate to meet its operating and capital
expenditure requirements through the end of fiscal 2000 and into the foreseeable
future.

Management believes that inflation did not have a material effect on operations
during the fiscal year ended May 2, 1999.

                                    Page 22

RECENT DEVELOPMENTS

In May 1999, the Company completed its investment in TeraBridge Technologies
Corporation ("Terabridge"), which specializes in delivering intelligent call and
service control products to service providers and is headquartered in Gurnee,
Illinois. The Company acquired a 19% equity ownership position for US$60,000,000
(Cdn$90,511,000) and has an option to increase its equity ownership position to
50% for US$10,000,000.

In June 1999, the Company announced a definitive agreement to acquire Stanford
Telecommunications Inc. ("STII") (STII: NASDAQ), a leading supplier of broadband
wireless technology and products. The net purchase price of the acquisition is
estimated at US$280,000,000 (Cdn$ 411,740,000) which represents the gross
purchase price of approximately US$490,000,000 (Cdn$720,545,000) net of proceeds
from the divestiture of divisions of STII that are unrelated to the Company's
core business. The boards of directors of the Company and STII have approved an
agreement and plan of merger, subject to conditions including approval by STII's
stockholders, whereby the Company will acquire all of the outstanding shares of
common stock of STII in a tax-free, stock-for-stock exchange. Under the
agreement STII stockholders will receive for each share of common stock US$30 in
the Company stock plus a contingent value right (CVR) which will give them a
participation in the proceeds on the sale of other operations above a minimum
amount. This participation will also be payable in the form of the Company
common shares. The CVR is expected to have a value of up to US$5 per share.

<PAGE>

YEAR 2000 DATE COMPLIANCE

The Company acknowledges the Year 2000 transition as a serious business issue
and is committed to addressing the challenge of becoming Year 2000 date
compliant. The Company's program ("Year 2000 Date Compliance"), established in
May 1997, addresses compliance both externally, to our customers, suppliers, and
other associates, and internally for the Company's systems and procedures. The
program continues to receive sponsorship and support from the highest levels of
the Company's Management and regular progress meetings are conducted, including
formal quarterly reports to a senior management committee. Despite the extensive
efforts dedicated to the program, there can be no assurance that all Year 2000
Date Compliance activities will be completed before problems associated with the
Year 2000 transition potentially occur.

Various formal messages for conveying Year 2000 Date Compliance information to
customers and other external parties have been developed for Company products.

 .  Year 2000 Date Compliance Statement to Customers and Definition of Terms,
   which indicates how the Company interprets Year 2000 Date Compliance;

 .  The Year 2000 Date Compliance Requirements Specification, which sets forth
   evaluation of products for Year 2000 Date Compliance;

 .  Year 2000 Date Compliance Product List, which lists the Year 2000 Date
   Compliance characterization for the majority of the Company's products and
   releases, including many "discontinued" product offerings.

The Company has completed the evaluation of its major product offerings. The
majority of products have been classified as either Compliant, having Compliant
versions currently available or are Date Compliance Not Applicable. The majority
of older or "discontinued" product offerings have been reviewed, with certain
offerings found to be Non-Compliant, and

                                    Page 23

others that will not be evaluated for Year 2000 Date Compliance. All the formal
messages and Year 2000 Date Compliance Additional Notes are available on the
Company's worldwide web site at http://www.newbridge.com/year2000/.

The Company recognizes that customers view the Year 2000 rollover as a sensitive
time for their networks and are looking for reassurance that their organizations
will continue to receive service support during this time. It is the Company's
intent to fulfill our contractual obligations to customers during this period.
Throughout the Year 2000 and the following leap year rollovers the three
regional Newbridge Technical Assistance Centers will be operating under the
normal practice of 24 hour, 365 days a year service coverage, including
readiness to address Year 2000 issues. The Company will also ensure staffing
during the rollover period of its Strategic Network Services and Network Design
groups during the rollover period as a component of the Year 2000 Date
Compliance Contingency Planning process. The Company is investigating the
various means by which technical information is disseminated to customers to
ensure the most effective delivery of Year 2000 bulletins during the transition
period. Formal messages from the Company's service organizations to customers
and other external parties are available on the Company's worldwide web site at
http://www.newbridge.com/year2000/.

The internal compliance element of Year 2000 Date Compliance includes the
distribution of responsibility among fourteen "Program Areas" of which each of
the Company's operating groups is represented by at least one. Each group is
responsible for eight main activities that address the exposure of their Program
Areas, as follows.

             i)    Awareness - Inform all employees and ensure awareness of Year
                     2000 Date Compliance issues and how they affect the
                     employees, their customers and their suppliers. This
                     includes ensuring support and dedication to the program
                     throughout the Company.

             ii)   Inventory - Take stock of all information technology (IT)
                     systems and equipment and non-IT systems and equipment in
                     use by the Company potentially affected by Year 2000 Date
                     Compliance.

             iii)  Impact Analysis - Assess the significance of each item in the
                     inventory in order to prioritize investigation and testing
                     activities.

<PAGE>

             iv)   Investigation and Testing - Examine items recorded during the
                     inventory stage to determine their state of compliance
                     based on the priority set during the impact analysis stage.
                     This step includes requesting product information from
                     suppliers and the formal testing of systems and equipment
                     under controlled conditions.

             v)    Remedial Activities - After analyzing the compliance status
                     of an item, determine remedial action, if any, to be taken
                     should an item be found to be non-compliant. Actions
                     include fixing errors, following a path to make the item
                     compliant, or complete replacement with a compliant
                     alternative.

             vi)   Implementation/Adoption - Once compliance status has been
                     reached the item is made available for use.

             vii)  Critical Supplier Assessment - Identify, analyze and assess
                     the Year 2000 readiness of critical suppliers of products
                     and services. Actions include judging assurances that
                     equipment supplied is date compliant, the supplier is also
                     diligently undertaking a Year 2000 readiness plan with
                     respect to its own internal systems to minimize the risk of
                     supply disruptions and that contingency planning activities
                     are active. To assist with and to standardize

                                    Page 24

                     this task, a formal Year 2000 Date Compliance Supplier
                     Assessment process is being used of which one part is the
                     use of formal readiness questionnaires. The Company's
                     supplier assessment initiatives commenced in April 1998
                     with a mass mailing to over 11,500 vendors from which the
                     Critical Supplier list was originally built. Further
                     targeted mailings and vendor contacts have since been
                     adopted. The Company has not yet obtained adequate
                     assurances from suppliers with respect to their Year 2000
                     readiness because a significant number (nearly 40% as at
                     end of May, 1999) of questionnaires sent to critical
                     suppliers have not generated a response. The Company will
                     use alternate suppliers in the event that the supplier does
                     not provide satisfactory answers.

              viii)  Contingency Planning - Identify, review and address methods
                     by which the potential of Year 2000 related risks can be
                     further mitigated before they occur. Identify, review and
                     address the criteria for invoking a contingency plan.
                     Identify, review and address the steps which may be
                     necessary to cope with actual operational problems
                     including, as an integral part, increases in service and
                     support resources. To assist with and to standardize this
                     task, a formal Year 2000 Date Compliance Contingency
                     Planning process is being used following a business
                     function review and Year 2000 risk exposure assessment. An
                     essential part of this process is the formulation of Crisis
                     Communications Plans for Year 2000 scenarios.

The Company believes that PC desktop and Unix hardware environments are
substantially compliant. Repeatable automated inventory and remediation
procedures are used to monitor, install and maintain compliance. Adoption of
compliant versions of wide area network equipment is completed and compliance of
office-based local area networks and telephony is proceeding as planned in
accordance with office relocations and infrastructure reinforcement initiatives.
The Company believes that compliance of all business-critical systems has been
substantially completed. To meet changing business requirements the Company
continues to re-evaluate applications that are scheduled for retirement prior to
the Year 2000 rollover and, in some cases, is ensuring their compliance as a
part of ongoing risk mitigation.

The Company's efforts to ensure awareness are on-going throughout the program,
disseminated via the Company's internal web site and through various print
media, which recently included a brochure "The Year 2000 Problem and You"
attached to employee pay stubs.

The costs incurred for Year 2000 Date Compliance are financed internally by the
operating groups within the framework of their operating budgets have not had a
material impact on the Company's financial results (operating expenses as a
percentage of sales, for example). Incremental spending on the Year 2000 Date
Compliance issue is limited to specific program costs which are outside of the
normal course of business and are necessitated purely as a result of Year 2000
date compliance. Incremental spending incurred in fiscal periods reported to
date and projected to be spent in fiscal 2000 associated with the Year 2000
transition represent less than 1% of the Company's revenues and expected
revenues. There can be no assurance that these costs will not be greater than
anticipated, however, as the Company progresses through its program and greater
certainty regarding costs, particularly related to remediation and contingency
plans for identified risks, will be possible.

The Company is still assessing the potential impact of Year 2000 Date Compliance
on its suppliers and customers and currently cannot fully determine the effect
on its operations and financial condition if key suppliers or customers do not
adequately prepare for Year 2000 Date Compliance transition on a timely basis.

<PAGE>


                                    Page 25

Failure of critical suppliers or customers to address the issue on a timely
basis could result in material financial risk to the Company. As a result, the
Company is actively undertaking Year 2000 Date Compliance contingency planning
as an integral part of the overall program, including service and support
requirements for its customers over the Year 2000 rollover period.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements and supplementary data are filed as part of
this Annual Report on Form 10-K:

         Financial Statements

          Auditors' Report to the Shareholders
          Consolidated Statements of Earnings and Retained Earnings
           for the years ended May 2, 1999, April 30, 1998 and 1997
          Consolidated Balance Sheets as at May 2, 1999 and April 30, 1998
          Consolidated Statements of Cash Flows for the
           years ended May 2, 1999, April 30, 1998 and 1997
          Consolidated Statements of Shareholders' Equity for the
           years ended May 2, 1999, April 30, 1998 and 1997
          Notes to the Consolidated Financial Statements

         Selected Quarterly Financial Data (unaudited)

                                    Page 26
<PAGE>

AUDITORS' REPORT



To the Shareholders of Newbridge Networks Corporation:

We have audited the consolidated balance sheets of Newbridge Networks
Corporation as at May 2, 1999 and April 30, 1998 and the consolidated statements
of earnings, shareholders' equity and cash flows for the years ended May 2,
1999, April 30, 1998 and April 30, 1997. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these 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 an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at May 2, 1999 and
April 30, 1998 and the results of its operations and the changes in its
financial position for the years ended May 2, 1999, April 30, 1998 and April 30,
1997 in accordance with accounting principles generally accepted in Canada
which, except as disclosed in Note 2, Note 14, Note 15 and Note 18 to the
consolidated financial statements, also conform in all material respects with
accounting principles generally accepted in the United States.



/s/ Deloitte and Touche LLP


Chartered Accountants
Ottawa, Canada
June 1, 1999, except Note 23
which is as of June 22, 1999

                                    Page 27
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                      CONSOLIDATED STATEMENTS OF EARNINGS

         (Canadian dollars, amounts in thousands except per share data)

<TABLE>
<CAPTION>

                                                        Years Ended
                                             -----------------------------------
                                                May 2,      April 30,    April 30,
                                                1999          1998        1997
<S>                                          <C>          <C>          <C>
Sales                                        $1,790,705   $1,620,620   $1,376,727

Cost of sales                                   751,874      625,065      507,588
                                             ----------   ----------   ----------

Gross margin                                  1,038,831      995,555      869,139

Expenses
  Selling, general and administrative           531,308      494,429      346,106
  Research and development (Note 13)            264,421      258,879      155,330
  Restructuring costs (Note 14)                 118,030      181,444           --
  Purchased research and
     development in process (Note 15)                --       52,762       96,940
                                             ----------   ----------   ----------

Income from operations                          125,072        8,041      270,763

Interest income                                  34,248       11,581       19,956
Interest expense on long term obligations       (26,127)      (1,820)      (1,351)
Net gain on investments (Note 16)               188,726       50,401       (1,564)
Other expenses                                  (20,802)     (12,889)      (8,051)
                                             ----------   ----------   ----------
Earnings before income taxes
  and non-controlling interest                  301,117       55,314      279,753

Provision for income taxes (Note 17)            121,303       73,001      117,718

Non-controlling interest                            653          631        5,118
                                             ----------   ----------   ----------

Net earnings (loss)                          $  179,161   $  (18,318)  $  156,917
                                             ==========   ==========   ==========


Earnings (loss) per share (Note 18)
  Basic                                           $1.01       $(0.10)       $0.92
  Fully diluted                                   $1.01       $(0.10)       $0.91

Weighted average number of shares
  Basic                                         177,630      174,617      170,510
  Fully diluted                                 177,630      174,617      184,595

</TABLE>
        See accompanying Notes to the Consolidated Financial Statements.

                                    Page 28
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                          CONSOLIDATED BALANCE SHEETS

                        (Canadian dollars in thousands)

<TABLE>
<CAPTION>
                                                               May 2,    April 30,
                                                                1999        1998
Assets
<S>                                                          <C>         <C>
Cash and cash equivalents (Note 2)                           $  879,694  $  499,278
Accounts receivable, net of provision for returns and
  doubtful accounts of $16,217 (April 30, 1998 - $13,067)       472,811     428,527
Inventories (Note 3)                                            210,286     196,285
Prepaid expenses                                                 46,753      32,728
Other current assets                                             46,160      44,872
                                                             ----------  ----------
                                                              1,655,704   1,201,690

Property, plant and equipment (Note 4)                          455,483     450,735
Goodwill (Note 5)                                                40,022      72,719
Software development costs (Note 6)                              35,909      28,299
Future tax benefits (Note 17)                                    59,999      50,443
Other assets (Note 7)                                           223,507     162,939
                                                             ----------  ----------
                                                             $2,470,624  $1,966,825
                                                             ==========  ==========

Liabilities and Shareholders' Equity

Current liabilities
  Accounts payable                                           $  190,630  $  127,040
  Accrued liabilities                                           201,361     118,771
  Income taxes                                                   16,853       5,851
  Current portion of long term obligations                        2,869       4,136
                                                             ----------  ----------
                                                                411,713     255,798

Long term obligations (Note 9)                                  384,021     383,311
Future tax obligations (Note 17)                                123,088      71,197
Non-controlling interest                                         22,583      22,899
                                                             ----------  ----------
                                                                941,405     733,205
                                                             ----------  ----------
Share capital (Note 11)
  Common shares - 180,104,582 outstanding
     (April 30, 1998 - 175,686,083 outstanding)                 572,990     456,510
Accumulated foreign currency translation adjustment              27,238      27,280
Retained earnings                                               928,991     749,830
                                                             ----------  ----------
                                                              1,529,219   1,233,620
                                                             ----------  ----------

                                                             $2,470,624  $1,966,825
                                                             ==========  ==========
</TABLE>
        See accompanying Notes to the Consolidated Financial Statements.

                                    Page 29
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                        (Canadian dollars in thousands)
<TABLE>
<CAPTION>

                                                                  Years Ended
                                                       ----------------------------------
                                                          May 2,    April 30,   April 30,
                                                          1999        1998        1997
Operating activities
<S>                                                    <C>         <C>         <C>
Net earnings (loss)                                    $ 179,161   $ (18,318)  $ 156,917

Items not affecting cash
  Amortization                                           182,547     125,429      82,987
  Future tax benefits and obligations                     46,698      27,158      22,989
  Non-controlling interest                                   674      (1,390)      5,118
  Restructuring costs                                    118,030     181,444          --
  Purchased research and development in process               --      52,762      96,940
  Net gain on investments                               (191,581)    (50,401)      1,564
  Other                                                    5,143       7,277       5,438

Cash effect of changes in:
  Accounts receivable                                    (99,291)    (32,931)    (87,976)
  Inventories                                            (70,724)    (86,288)    (20,767)
  Prepaid expenses and other current assets              (16,832)    (13,004)    (13,668)
  Accounts payable and accrued liabilities                49,893     (50,766)    (34,615)
  Income taxes                                            15,266     (39,447)      8,447
                                                       ---------   ---------   ---------
                                                         218,984     101,525     223,374
                                                       ---------   ---------   ---------
Investing activities

Additions to property, plant and equipment              (213,903)   (276,778)   (131,641)
Proceeds on sale of long term investments (Note 16)      456,966      66,672          --
Acquisitions of subsidiaries, excluding
   cash acquired                                              --     (58,936)   (220,645)
Capitalized software development costs                   (20,801)    (16,069)    (12,457)
Additions to other assets                               (164,081)   (124,576)    (34,858)
                                                       ---------   ---------   ---------
                                                          58,181    (409,687)   (399,601)
                                                       ---------   ---------   ---------
Financing activities

Issue of common shares                                   112,293      89,430      54,096
Increase in long term obligations                         44,671     378,628       1,515
Repayment of long term obligations                       (42,138)    (12,316)     (6,733)
                                                       ---------   ---------   ---------
                                                         114,826     455,742      48,878
                                                       ---------   ---------   ---------

Increase (decrease) in cash and cash equivalents         391,991     147,580    (127,349)
Effect of foreign currency translation on cash           (11,575)     15,919      (2,585)
Cash from acquisition of subsidiaries                         --       1,875       8,089
                                                       ---------   ---------   ---------
                                                         380,416     165,374    (121,845)
Cash and cash equivalents, beginning of the year         499,278     333,904     455,749
                                                       ---------   ---------   ---------

Cash and cash equivalents, end of the year             $ 879,694   $ 499,278   $ 333,904
                                                       =========   =========   =========
</TABLE>
        See accompanying Notes to the Consolidated Financial Statements.

                                    Page 30
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                        (Canadian dollars in thousands)
<TABLE>
<CAPTION>


                                                                Accumulated
                                              Common Shares       Foreign   Retained   Shareholders'
                                          ---------------------
                                            Number      Amount   Currency   Earnings       Equity
<S>                                       <C>          <C>       <C>        <C>        <C>

At April 30, 1996                         168,676,280   290,170     1,285    611,231         902,686

Exercise of employees' and
  directors' options                        3,182,704    54,096                               54,096

Income tax benefit related
  to stock options                                        7,122                                7,122

Effect of foreign currency translation                              5,678                      5,678

Net earnings                                                                 156,917         156,917
                                          -----------  --------  --------   --------   -------------

At April 30, 1997                         171,858,984   351,388     6,963    768,148       1,126,499

Exercise of employees' and
  directors' options                        3,827,099    89,430                               89,430

Income tax benefit related
  to stock options                                       15,692                               15,692

Effect of foreign currency translation                             20,317                     20,317

Net loss                                                                     (18,318)        (18,318)
                                          -----------  --------  --------   --------   -------------

At April 30, 1998                         175,686,083   456,510    27,280    749,830       1,233,620

Exercise of employees' and
  directors' options                        4,418,499   112,293                              112,293

Income tax benefit related
  to stock options                                        4,187                                4,187

Effect of foreign currency translation                                (42)                       (42)

Net earnings                                                                 179,161         179,161
                                          -----------  --------  --------   --------   -------------

At May 2, 1999                            180,104,582  $572,990   $27,238   $928,991      $1,529,219
                                          ===========  ========  ========   ========   =============

</TABLE>



        See accompanying Notes to the Consolidated Financial Statements.

                                    Page 31
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


1.  Significant Accounting Policies

The Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). These
principles are also generally accepted in the United States ("U.S. GAAP") in all
material respects except for the disclosure of certain cash equivalents on the
Consolidated Balance Sheets and investing activities on the Consolidated
Statements of Cash Flows, as disclosed in Note 2, the inclusion of certain asset
impairments in restructuring costs, as disclosed in Note 14, the write off of
purchased in process research and development, as disclosed in Note 15, and the
method of calculation of earnings per share, as disclosed in Note 18.

Basis of Consolidation

The Consolidated Financial Statements include the accounts of the Company and
its subsidiaries. Investments in companies in which the Company has significant
influence are accounted for by the equity method. Investments in which the
Company does not control or have significant influence over the investee are
accounted for by the cost method.

Fiscal Year

In fiscal 1998 and years prior the Company's fiscal quarters were 13 weeks long
and closed on a Sunday, except the fourth quarter which closed on April 30.
Commencing in fiscal 1999 the Company adopted the policy of closing its fiscal
years on the Sunday closest to April 30. Accordingly, fiscal 1999 was 52 weeks
long with interim fiscal quarters closing on a Sunday and 13 weeks long.
Occasionally fiscal years will be 53 weeks long, the first occurrence of which
will be for the fiscal year ending May 2, 2004.

Revenue Recognition and Warranties

Revenue from product sales is generally recorded on shipment provided that no
significant obligations remain, with a provision for estimated returns recorded
at that time. In addition, a provision for potential warranty claims is provided
for at the time of sale, based on warranty terms and prior claims experience.
Service revenue is recognized when the service is performed, or, in the case of
maintenance contracts, is recognized as costs are incurred to secure and fulfill
the contract.

Government Incentives and Investment Tax Credits

Government incentives and investment tax credits are recorded as a reduction of
the expense or the cost of the asset acquired to which the incentive applies.
The benefits are recognized when the Company has complied with the terms and
conditions of the approved grant program or the applicable tax legislation.

Software Development Costs

Certain applications and systems software development costs are capitalized once
technical feasibility has been established for the product, the Company has
identified a market for the product and intends to market the developed product.
No other development costs are capitalized. Such capitalized costs are amortized
over the expected life of the related product.

                                    Page 32

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


Inventories

Finished goods are valued at the lower of cost (first in, first out) and net
realizable value. Work in process and raw materials are valued at the lower of
cost and replacement cost.

<PAGE>

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Buildings and equipment are
generally amortized on a declining balance basis at rates calculated to amortize
the cost of the assets over their estimated useful lives. Leasehold improvements
are amortized using a straight line basis over the term of the lease.

Goodwill

Goodwill is stated at the difference between the Company's cost of the
investments less its proportionate share of the fair value of the net assets of
the subsidiaries. Goodwill is amortized on a straight line basis over the
estimated useful life of the goodwill, generally between ten and twenty years.
The recoverability of such costs is reviewed on an ongoing basis.

Foreign Currency Translation

The Consolidated Financial Statements are prepared using Canadian dollars. All
operations whose principal economic activities are undertaken in currencies
other than Canadian dollars have been determined to be self-sustaining.

The assets and liabilities of non-Canadian operations are translated at fiscal
year end exchange rates and the resulting unrealized exchange gains or losses
are accumulated as a separate component of shareholders' equity described in the
Consolidated Balance Sheets as "Accumulated foreign currency translation
adjustment". The statements of earnings of such operations are translated at
exchange rates prevailing during the fiscal year.

Other monetary assets and liabilities, which are denominated in currencies
foreign to the local currency of any one operation, are translated to the local
currency at fiscal year end exchange rates, and transactions included in
earnings are translated at rates prevailing during the fiscal year. Exchange
gains and losses resulting from the translation of these amounts are included in
the Consolidated Statements of Earnings.

Use of Accounting Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires Management to make estimates that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as at the date of the Consolidated Financial Statements and the
reported amounts of sales and expenses during the reporting periods presented.
Actual results could differ from the estimates made by Management.

                                    Page 33

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


Recent Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS 130,
"Reporting Comprehensive Income". SFAS 130 establishes standards for reporting
comprehensive income and its components in the financial statements. The Company
has adopted SFAS 130.

In June 1998, FASB issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS 133 requires all derivatives to be recorded on the
balance sheet at fair value. SFAS 133 is effective for fiscal years beginning
after June 15, 2000. The Company is in the process of evaluating the impact of
the reporting requirements of SFAS 133.

CICA Handbook - Accounting Section 1540, Cash Flow Statements, which replaces
existing Section 1540 Statement of Changes in Financial Position was issued in
June 1998 and is effective for fiscal years beginning after July 31, 1998. The
impact of this standard will be the disclosure of purchases, maturities and
sales of marketable securities as an investing activity on the Statement of Cash
Flows, in a manner consistent with U.S. GAAP, as is described in Note 2 to these
financial statements. Under this new standard, investing and financing
activities that do not require the use of cash or cash equivalents will be
excluded from the Statement of Cash Flows. However, these activities will be
disclosed elsewhere in the consolidated financial statements. The Company will
adopt this standard in the first quarter of fiscal 2000.


<PAGE>

2.  Cash and Cash Equivalents

<TABLE>
<CAPTION>

Components of cash and cash equivalents are:
                                                      May 2, 1999        April 30, 1998
                                                  -------------------  ------------------
                                                  Amortized Market    Amortized Market
                                                   Cost     Value       Cost     Value

<S>                                              <C>        <C>       <C>        <C>
     Cash                                         $666,019  $666,019   $467,464  $467,464

     Held to maturity marketable securities
       Maturing within one year:
         Corporate debt securities                 213,675   213,683     22,447    22,447

     Available for sale marketable securities
         Equity securities                              --        --      9,367     9,367
                                                 ---------  --------   --------  --------

                                                  $879,694  $879,702   $499,278  $499,278
                                                 =========  ========   ========  ========
</TABLE>

Held to maturity marketable securities are investments with original maturities
of three months or more. Available for sale securities are common shares of
publicly traded companies, which have certain resale restrictions, principally
acquired upon the Company's disposition of its minority interest in Broadband
Networks Inc. Under U.S. GAAP held to maturity and available for sale marketable
securities would be disclosed as a separate caption on the Consolidated Balance
Sheets.

Held to maturity marketable securities are carried at amortized cost. The
unrealized gains and losses are not included in the Consolidated Statements of
Earnings as these gains and losses are unlikely to be realized due to the
Company's intent to hold the underlying securities to maturity. During fiscal
1999 there were no realized gains or losses and unrealized gains of

                                    Page 34

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)

$70,000 and unrealized losses of $62,000 on held to maturity securities. During
fiscal 1998 there were no realized or unrealized gains or losses on held to
maturity securities. Available for sale securities are carried at the lower of
cost and market. During fiscal 1999 the Company incurred $707,000 of realized
losses and in fiscal 1998 the Company realized gains of $573,000 from available
for sale securities.

If the Consolidated Statements of Cash Flows were prepared under U.S. GAAP,
purchases, maturities and sales of marketable securities would be disclosed as
an investing activity.

Disclosure in the Consolidated Statements of Cash Flows prepared under U.S.
GAAP would be as follows.

<PAGE>

<TABLE>
<CAPTION>


                                                            Years Ended
                                                -----------------------------------
                                                  May 2,    April 30,    April 30,
                                                   1999        1998        1997
<S>                                             <C>         <C>         <C>
     Investing activities in short
      term marketable securities:
         Held to maturity securities
          Maturities                            $ 287,723   $ 185,958    $ 508,890
          Purchases                              (478,951)    (72,126)    (475,092)
                                                ---------   ---------    ---------
                                                 (191,228)    113,832       33,798
         Available for sale securities
          Sales                                     9,367         569           --
          Purchases                                    --      (9,317)          --
                                                ---------   ---------    ---------
                                                 (181,861)    105,084       33,798
     Investing activities, as reported             58,181    (409,687)    (399,601)
                                                ---------   ---------    ---------

     Investing activities, U.S. GAAP            $(123,680)  $(304,603)   $(365,803)
                                                =========   =========    =========

     Increase (decrease) in cash and
      cash equivalents, as reported             $ 380,416   $ 165,374    $(121,845)

     Investing activities in short
      term marketable securities                 (181,861)    105,084       33,798
                                                ---------   ---------    ---------
     Increase (decrease) in cash and
      cash equivalents, U.S. GAAP               $ 198,555   $ 270,458    $ (88,047)
                                                =========   =========    =========
</TABLE>

3. Inventories

<TABLE>
<CAPTION>
                                                              May 2,     April 30,
                                                               1999        1998
<S>                                                          <C>         <C>

     Finished goods                                          $118,251     $129,850
     Work in process                                           27,807       18,178
     Raw materials                                             64,228       48,257
                                                             --------     --------
                                                             $210,286     $196,285
                                                             ========     ========
</TABLE>

                                    Page 35
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


4. Property, Plant and Equipment

<TABLE>
<CAPTION>
                                            Amortization     May 2,    April 30,
                                                Rate          1999        1998
<S>                                        <C>            <C>         <C>

 Land                                                --   $  16,118   $  14,763
 Buildings                                      2.5%--5%     92,390      88,189
 Equipment                                      10%--50%    803,399     705,744
 Furniture and fixtures                         10%--33%     43,878      45,067
 Leasehold improvements                       Lease term     27,530      27,797
                                                          ---------   ---------

                                                            983,315     881,560

 Accumulated amortization                                  (527,832)   (430,825)
                                                          =========   =========

                                                           $455,483    $450,735
                                                          =========   =========

 Capital leases included above                            $   2,683   $   6,606
                                                          =========   =========
<CAPTION>

                                                        Years Ended
                                               ---------------------------------
                                                 May 2,   April 30,   April 30,
                                                  1999      1998        1997
<S>                                            <C>        <C>         <C>
 Amortization on property,
  plant and equipment                          $163,097   $ 112,175   $  73,364
                                               ========   =========   =========

 Amortization on property, plant and
  equipment under capital leases               $  1,384   $   2,035   $   1,523
                                               ========   =========   =========

5.  Goodwill
                                                             May 2,     April 30,
                                                              1999        1998

  Goodwill, beginning of the year                         $  72,719   $ 125,565
  Additions associated with investments                          --      15,377
  Amortization                                               (2,752)     (5,683)
  Divestitures                                              (29,945)     (1,232)
  LAN business restructuring (Note 14)                           --     (61,308)
                                                          ---------   ---------

  Goodwill, end of the year                               $  40,022   $  72,719
                                                          =========   =========

  Accumulated goodwill amortization                       $   7,131   $  11,098
                                                          =========   =========

</TABLE>

                                    Page 36
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


6. Software Development Costs

                                                          May 2,    April 30,
                                                           1999        1998

     Balance, beginning of the year                      $ 28,299     $22,299
     Amount capitalized                                    20,755      15,627
     Amortization                                         (13,145)     (9,627)
                                                         --------     -------

     Balance, end of the year                            $ 35,909     $28,299
                                                         ========     =======

7. Other Assets

                                                           May 2,   April 30,
                                                            1999      1998

     Long term investments
       Accounted for by the equity method                 $ 29,236   $ 30,163
       Accounted for by the cost method                    161,901    103,980
                                                          --------   --------
                                                           191,137    134,143
     Other assets                                           32,370     28,796
                                                          --------   --------

                                                          $223,507   $162,939
                                                          ========   ========

8. Bank Credit Facilities

At May 2, 1999 short term bank credit facilities consisted of operating lines of
credit in the aggregate amount of $156,258,000, primarily with banks in Canada,
the United Kingdom, the United States, and Chile. At May 2, 1999 $5,881,000 was
being utilized under these credit facilities, primarily attributed to non-wholly
owned Chilean subsidiary Coasin S.A. The Company's primary facility with a
Canadian bank in the amount of $100,000,000 is unsecured. Certain of the other
bank facilities are secured by the accounts receivable and other assets of the
borrowing subsidiary. The Company complies with all covenants and restrictions
contained in the credit facilities agreements.

                                    Page 37

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


9. Long Term Obligations
<TABLE>
<CAPTION>
                                                   May 2,    April 30,
                                                    1999        1998
<S>                                               <C>        <C>

     6.51% Senior Notes, due 2003                 $330,602    $322,098
     Loan agreement, due 2003                       50,000      50,000
     Term loans                                      3,150      11,033
     Capital lease obligations                       3,138       4,316
                                                  --------    --------
                                                   386,890     387,447

     Current portion of long term obligations       (2,869)     (4,136)
                                                  --------    --------

     Long term obligations                        $384,021    $383,311
                                                  ========    ========
</TABLE>

In April 1998 the Company issued US$225,000,000 Senior Notes due April 2003
bearing a coupon rate of 6.51%. Costs associated with the issue totaled
US$1,303,000. Prior to the closing of the Senior Notes the Company entered into
a swap transaction with a major bank under which the effective coupon rate on
US$200,000,000 of the Senior Notes was fixed at 6.678%. The Senior Notes require
semi-annual payments of interest only, with the principal due at maturity. The
Company's obligation under the Senior Notes can be satisfied at any time prior
to maturity subject to a make whole provision. The Senior Notes are unsecured.
The Company complies with all covenants and restrictions contained in the
Senior Notes. The fair value of Senior Notes at May 2, 1999 is estimated at
US$226,369,000

<PAGE>


In January 1998 the Company entered into and received $50,000,000 under a loan
agreement that includes a term loan portion and a demand loan portion, both due
January 2003. The term loan bears interest at the fixed rate of 5.46% and the
demand loan bears interest at a floating rate equal to the one month's bankers'
acceptance rate. The term loan requires semi-annual payments of interest only,
with the principal due at maturity. The Company's obligation under the term loan
can be satisfied at any time prior to maturity subject to a make whole
provision. The demand loan requires monthly payments of interest only, with the
principal due at maturity. The term loan is secured by 654,220 Northern Telecom
Limited (Nortel) shares. The demand loan is unsecured. The Company complies with
all covenants and restrictions contained in the long term loan agreement. The
fair value of the term loan at May 2, 1999 is estimated at $48,510,000.

                                    Page 38
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


Future payments under long term obligations and operating leases at May 2, 1999
are as follows.
<TABLE>
<CAPTION>

                                Principal Amount     Minimum
                                  on Mortgages    Capital Lease   Operating
                                 and Term Loans      Payments      Leases
<S>                           <C>               <C>             <C>

     Fiscal 2000                      $  1,630         $1,335    $ 37,516
     Fiscal 2001                           433          1,663      24,869
     Fiscal 2002                         3,171            302      19,153
     Fiscal 2003                       378,144              9      15,403
     Fiscal 2004                           150             --      14,079
     Thereafter                            224             --      75,523
                                      --------         ------    --------

                                      $383,752          3,309    $186,543
                                      ========                   ========
     Less imputed interest                               (171)
                                                       ------

                                                       $3,138
                                                       ======
</TABLE>

Interest paid on capital leases was $456,000 (fiscal 1998 -- $401,000; fiscal
1997 -- $266,000).


10.  Financial Instruments and Concentration of Credit Risk

The Company uses financial instruments, principally forward exchange contracts,
in its management of foreign currency exposures. Realized and unrealized gains
and losses on foreign exchange contracts are recognized and offset foreign
exchange gains and losses on the underlying net asset or net liability position.
These contracts primarily require the Company to purchase and sell certain
foreign currencies with or for Canadian dollars at contractual rates. At May 2,
1999 the Company had $363,028,000 in outstanding foreign exchange contracts
(April 30, 1998 - $170,084,000).

In January 1998 the Company entered into a Forward Share Price Hedge Agreement
with a major bank in order to fix the value of the Nortel shares pledged as
security against a term loan (see Note 9). In January 1999 the Company amended
the Forward Share Price Hedge Agreement in order to fix the value of a further
108,244 Nortel shares. The terms of the amended Forward Share Price Hedge
Agreement provide the Company with the option of delivering 654,220 Nortel
shares in January 2003 for proceeds of $51,613,000 or the present value of
$51,613,000 if terminated prior to January 2003, or delivering the cash
equivalent of the market value of 654,220 Nortel shares at January 2003 or at
the date of early termination.

Several major 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 to any one institution.
The Company may be exposed to a credit loss in the event of nonperformance by
the counterparties to these contracts, but does not anticipate such
nonperformance.

                                    Page 39
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


With respect to accounts receivable, concentration of credit risk is limited due
to the diverse areas covered by the Company's operations. The Company has credit
evaluation, approval and monitoring processes intended to mitigate potential
credit risks. Anticipated bad debt loss and product returns have been provided
for in the allowance for returns and doubtful accounts. Net additions to the
provision for returns and doubtful accounts (fiscal 1999 -- $3,150,000; fiscal
1998 -- $2,495,000) primarily relate to estimates for products to be returned
and have been charged to sales. The carrying amounts for cash, marketable
securities, accounts receivable, accounts payable and accrued liabilities
approximate fair value because of the short maturity of these instruments.

11.  Share Capital

Authorized

An unlimited number of Common Shares.

An unlimited number of participating preferred shares, ranking in priority upon
distribution of assets over Common Shares, may be issued in series with
additional provisions as fixed by the Board of Directors.

Employee Stock Option Plans

The Company has established the Newbridge Networks Corporation Consolidated Key
Employee Stock Option Plan (the "Plan") applicable to full-time employees,
directors and consultants of the Company and its subsidiaries. The options under
the Plan are granted at the then-current fair market value of the Common Shares
of the Company and generally may be exercised in equal proportions during the
years following the first, second, third and fourth anniversary of the date of
grant, and expire on the fifth anniversary or upon termination of employment.
Options granted under the Plan prior to August 1, 1996 generally may be
exercised in equal proportions during the years following the first, second and
third anniversary of the date of grant, and expire on the fourth anniversary or
upon termination of employment. In addition to the number of options outstanding
as at May 2, 1999, the aggregate number of options which may be granted under
the Plan was 6,624,514.

                                    Page 40
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)
<TABLE>
<CAPTION>


  Activity in the stock option plan is summarized below.
                                                                                Option Price
                                                                     ----------------------------------
                                                                                          Weighted
                                               Options                     Low     High   Average
<S>                                          <C>                          <C>     <C>     <C>

Options outstanding April 30, 1996           13,123,704                   $ 4.73  $43.74    $22.73

  Granted during fiscal 1997                  7,098,800                   $30.18  $46.33    $38.89
  Cancelled and expired                        (785,073)                  $ 4.76  $44.31    $25.74
  Exercised                                  (3,182,704)                  $ 4.73  $34.23    $17.23
                                             ----------

Options outstanding April 30, 1997           16,254,727                   $19.47  $46.33    $30.72

Granted during fiscal 1998                    9,817,645                   $38.86  $64.96    $44.75
  Cancelled and expired                      (1,779,070)                  $19.63  $64.31    $42.46
  Exercised                                  (3,827,099)                  $19.47  $43.74    $23.92
                                             ----------

Options outstanding April 30, 1998           20,466,203                   $19.47  $64.96    $37.70

  Granted during fiscal 1999                  8,841,475                   $24.65  $42.80    $35.21
  Cancelled and expired                      (2,054,355)                  $19.63  $64.31    $40.14
  Exercised                                  (4,418,499)                  $19.47  $55.92    $25.79
                                             ----------

Options outstanding May 2, 1999              22,834,824                   $19.47  $64.96    $38.82
                                             ==========


Options outstanding April 30, 1998
  Vested                                      5,979,342                   $19.47  $46.33    $28.26
  Unvested                                   14,486,861                   $19.47  $64.96    $41.59
                                             ----------
                                             20,466,203                   $19.47  $64.96    $37.70
                                             ==========
Options outstanding by range:
  $19.47 to $30.00                            4,341,730
  $30.01 to $45.00                           11,845,623
  $45.00 to $64.96                            4,278,850
                                             ----------
                                             20,466,203
                                             ==========
  Weighted average remaining
     contractual life                        3.32 years
                                             ==========


Options outstanding May 2, 1999
  Vested                                      5,863,481                   $19.47  $64.96    $37.89
  Unvested                                   16,971,343                   $24.65  $64.96    $39.14
                                             ----------
                                             22,834,824                   $19.47  $64.96    $38.82
                                             ==========
Options outstanding by range:
  $19.47 to $30.00                            2,542,777
  $30.01 to $45.00                           16,474,522
  $45.00 to $64.96                            3,817,525
                                             ----------
                                             22,834,824
                                             ==========
  Weighted average remaining
     contractual life                        3.48 years
                                             ==========
</TABLE>

                                    Page 41
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


Stock Based Compensation

The Company applies APB 25 and related interpretations in accounting for its
Consolidated Key Employee Stock Option Plan. Accordingly, no compensation
expense has been recognized for its stock based compensation plan. Had
compensation costs for the Company's Consolidated Key Employee Stock Option Plan
been determined based on the fair value at the grant date for awards under the
Plan, consistent with the methodology prescribed under SFAS 123, the Company's
net earnings (loss) and earnings (loss) per share would have been decreased to
the following pro forma amounts.

<TABLE>
<CAPTION>
                                                        Years Ended
                                             ---------------------------------
                                              May 2,    April 30,   April 30,
                                               1999        1998        1997
<S>                                          <C>        <C>         <C>
Net earnings (loss), as reported             $179,161    $(18,318)   $156,917

Estimated stock based compensation costs      (90,102)    (75,164)    (35,085)
                                             --------    --------    --------

Pro forma net earnings (loss)                $ 89,059    $(93,482)   $121,832
                                             ========    ========    ========

Basic pro forma earnings (loss) per share    $   0.50    $  (0.54)   $   0.71
                                             ========    ========    ========

Fully diluted pro forma
 earnings (loss) per share                   $   0.50    $  (0.54)   $   0.71
                                             ========    ========    ========
</TABLE>

The weighted average fair value of all options granted during fiscal 1999, 1998
and 1997 was estimated as of the date of grant using the Black-Scholes option
pricing model with the following and weighted average results and assumptions.

<TABLE>
<CAPTION>
                                                        Years Ended
                                             ---------------------------------
                                              May 2,    April 30,   April 30,
                                               1999        1998        1997
<S>                                          <C>        <C>         <C>
Weighted average fair value of
 of options issued                             $19.91      $25.32      $18.65
Expected option life, in years                    4.5         4.5         4.3
Volatility                                      65.57%      63.98%      50.18%
Risk free interest rate                           4.9%        5.9%        6.4%
Dividend yield                                    nil         nil         nil
</TABLE>

The Black-Scholes model used by the Company to calculate option values, as well
as other currently accepted option valuation models, were developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require highly subjective assumptions, including future stock
price volatility and expected time until exercise, which greatly affect the
calculated values. Accordingly, Management believes that this model does not
necessarily provide a reliable single measure of the fair value of the Company's
stock option awards.

                                    Page 42
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)

Employee Share Purchase Plan

The Company's Employee Stock Purchase Plan ("ESPP"), was effective June 1, 1999
and allows eligible employees to authorize payroll deductions up to 10% of their
salary to purchase Common Shares of the Company at a price of 85% of the then
current stock price (as defined in the ESPP). Employees purchasing shares under
the ESPP must hold the shares for a minimum of one year. The Company has
reserved 500,000 Common Shares for issuance under the ESPP.

12.  Comprehensive Income

The Company has adopted the United States Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income. This statement requires disclosure of Comprehensive Income, which
includes reported net earnings adjusted for other comprehensive income. Other
comprehensive income includes items that cause changes in shareholders' equity
but are not related to share capital or net earnings which, for the Company,
comprises only the foreign currency translation adjustment.

<TABLE>
<CAPTION>


                                                 Years Ended
                                       --------------------------------
                                        May 2,    April 30,   April 30,
                                         1999        1998       1997
<S>                                    <C>        <C>         <C>

     Net earnings (loss)               $179,161    $(18,318)   $156,917
     Other comprehensive income:
       Foreign currency translation
         adjustment                         (42)     20,317       5,678
                                       --------    --------    --------

     Comprehensive income              $179,119    $  1,999    $162,595
                                       ========    ========    ========
</TABLE>

13.  Research and Development

During the year, the Company recorded Canadian Investment Tax Credits of
$37,846,000 (fiscal 1998 -- $34,971,000; fiscal 1997 -- $26,400,000) as a
reduction of research and development expenses.

The Company recorded government and customer funding during the year of
$29,234,000 (fiscal 1998 -- $5,507,000; fiscal 1997 -- $9,484,000) as a
reduction in research and development expenses included in the consolidated
statements of earnings. Funding from the government of the province of British
Columbia amounted to $10,000,000 during the year and is contingently repayable
over a period not to exceed ten years. Repayment of the funding is based on a
percentage of sales of products developed in British Columbia and a percentage
of sales of products sold in British Columbia. Any funding not repaid at the end
of the ten year period would be forgiven. The Company also recorded funding of
$17,540,000 during the year related to eligible research and development
expenditures of its broadband wireless program. Royalties are due to the funding
companies based on a percentage of sales of products developed under the
program. The funding companies own the intellectual property rights for products
developed under the program. The Company has an option to acquire those rights
under certain terms and conditions. As part of the arrangements, Newbridge has
provided licencing of certain technologies to the funding companies including
Asynchronous Transfer Mode ("ATM") switch software and related technology.

                                    Page 43

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)

14.  Restructuring Costs

<TABLE>
<CAPTION>

 Restructuring costs are comprised of the following.
                                                                Years Ended
                                                       ------------------------------
<S>                                                    <C>       <C>        <C>
                                                        May 2,   April 30,  April 30,
                                                         1999      1998       1997
</TABLE>

<PAGE>

<TABLE>
<S>                                                    <C>       <C>        <C>

     Restructuring programs, April 1999                $ 73,570   $     --      $  --
     Layer 2 Switching End of Life                       37,928         --         --
       Asia Pacific Resources Relocation                  6,532         --         --
     LAN business restructuring, November 1997               --    181,444         --
                                                       --------  ---------  ---------
                                                       $118,030   $181,444      $  --
                                                       ========  =========  =========

</TABLE>

In April 1999, the Company decided to streamline the operations of regional
sales and support organizations as well as its marketing and product development
organizations. The restructuring costs associated with the sales, support and
marketing organizations ("Sales and Marketing") consisted primarily of costs
related to workforce and facilities reductions, as the Company has announced a
reduction in the number of locations in which it will have a physical presence
in favour of distributors in certain markets, and subcontractors for certain
functions. Restructuring costs associated with product development relate
primarily to asset impairment losses related to the discontinuation or
divestiture of the development of certain products, and the centralization of
development laboratories to make the development process more efficient. The
components of restructuring costs of $73,570,000 and the related costs incurred
are as follows:
<TABLE>
<CAPTION>
                                               Sales and    Product              Costs    Balance at
                                               Marketing  Development   Total   Incurred  May 2, 1999
<S>                                            <C>        <C>          <C>      <C>       <C>

 Asset impairment losses
  Inventory                                      $ 2,606      $ 8,994  $11,600
  Property, plant and equipment                    6,576       29,104   35,680
  Other current and non-current assets               568        2,249    2,817
                                                 -------      -------  -------
                                                   9,750       40,347   50,097
                                                 -------      -------  -------

 Provision for restructuring
  Reduction in work force                         14,595          427   15,022        --      $15,022
  Reduction in facilities                          6,627           --    6,627        --        6,627
  Other restructuring costs                        1,653          171    1,824        --        1,824
                                                 -------      -------  -------  --------  -----------
                                                  22,875          598   23,473        --      $23,473
                                                 -------      -------  -------  ========  ===========

 Restructuring costs                             $32,625      $40,945  $73,570
                                                 =======      =======  =======
</TABLE>

Asset impairment losses relate to assets affected by the Company's restructuring
plan that could not be deployed within the streamlined organizations or
elsewhere within the Company. Impairment losses were recorded to the extent the
net book value of these assets, including related reserves, exceeded the
estimated net realizable value of the underlying assets. Substantially all of
the net book values of the inventory and property, plant and equipment affected
by the restructuring programs have been reflected as asset impairment losses
since the Company estimates that the proceeds of disposition of these assets
will approximate the costs

                                    Page 44

<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)

of disposal. These asset impairment losses will reduce amortization expense in
fiscal 2000 by approximately $11,700,000. The Company anticipates that assets
impaired as a result of the restructuring programs will be disposed of during
fiscal 2000.

The amounts included in the provision for restructuring are reflected in accrued
liabilities as at May 2, 1999.

The provision for the reduction in work force includes severance, related
medical and other benefits, and other obligations to employees. The provision
includes termination benefits for 137 employees. The work force reductions will
occur in Japan, Russia and various other countries. The Company anticipates that
these work force reductions will be substantially completed in the first half of
fiscal 2000.

The provision for the reduction in facilities comprises lease payments and fixed
costs associated with the closure of sales, support and administrative
facilities in Europe, Japan and the United States. The Company expects to
complete these facilities closures in fiscal 2000.

The provision for other restructuring costs comprises certain consulting costs
associated with establishing termination benefits for employees in addition to
outplacement and counseling services as well as various other direct incremental
costs associated with the restructuring plan.

In October 1998, the Company decided to discontinue the sale and development of
local area network (LAN) Layer 2 Switching products as part of the enhancement
of the focus on the Company's dominant and more profitable products. The Layer 2
Switching End of Life program created impairment losses associated with certain
assets deployed in this business and obligations related to fulfilling previous
customer commitments. The program was completed during fiscal 1999. End of life
program costs of $37,928,000 and the related costs incurred are as follows:
<TABLE>
<CAPTION>
                                                            Costs    Balance at
                                                  Total   Incurred   May 2, 1999
<S>                                              <C>      <C>        <C>

  Asset impairment losses
     Accounts receivable                         $ 7,762
     Inventory                                    22,928
                                                 -------
                                                  30,690

  Customer obligations                             7,238    (7,238)  $       --
                                                 -------  ========   ===========

  Layer 2 Switching End of Life program costs    $37,928
                                                 =======
</TABLE>

Impairment losses related to accounts receivable and inventory were recorded to
the extent that the net book value of these assets, including related reserves,
exceeded their fair value. The fair value was based on the estimated net
realizable value of the underlying assets. The net carrying amount of inventory
affected by the Layer 2 Switching End of Life program was reduced to $1,458,000
given demand for the affected products and the Company's estimated proceeds of
disposition, net of the costs of disposal. This inventory was substantially
disposed of during fiscal 1999.

Customer obligations related to the cost to the Company of acquiring products
from third parties and providing them to customers in order to meet the
Company's commitments with respect to providing certain network functionality.

                                    Page 45
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


In October 1998, the Company commenced relocating certain employees and
activities that support the Asia Pacific region from Kanata, Ontario to Hong
Kong and Malaysia in order to provide more efficient and cost effective services
to customers in that region. The charge for relocation of $6,532,000 and the
related costs incurred are as follows:

<TABLE>
<CAPTION>
                                                               Costs    Balance at
                                                     Total   Incurred   May 2, 1999
<S>                                                  <C>     <C>        <C>
  Provision for Asia Pacific Resources relocation
     Workforce terminations                          $3,407   $  (690)       $2,717
     Reduction in facilities                          2,600        --         2,600
     Other relocation costs                             525      (525)           --
                                                     ------   -------        ------

                                                     $6,532   $(1,215)       $5,317
                                                     ======   =======        ======
</TABLE>

The provision for workforce terminations reflects the accrual of involuntary
termination benefits for 27 employees. The provision for reduction in facilities
comprises lease cancellation penalties associated with relocating facilities to
Hong Kong and Malaysia. Other relocation costs consist of direct incremental
costs associated with the relocation. The balance of the provision for Asia
Pacific resources relocation is included in accrued liabilities at May 2, 1999.

Additional costs related to the transfer of personnel and equipment, the
recruitment of new staff and the expansion of facilities in Hong Kong are not
included in the Asia Pacific Resources relocation charge and are being expensed
as incurred. These additional costs are estimated at $9,000,000, with the
majority of the costs to be incurred during the first two quarters of fiscal
2000.

In November 1997, the Company decided to restructure its activities related to
its local area network ("LAN") business. The restructuring plan involved the
discontinuation of certain product lines, termination of employees,
discontinuation of development activities associated with the former UB Networks
and closure of former UB Networks facilities. The Company's restructuring plan
created impairment losses on assets associated with the LAN business and
liabilities associated with restructuring activities. Restructuring costs of
$181,444,000 and the related costs incurred were as follows:
<TABLE>
<CAPTION>
                                                         Costs Incurred   Costs Incurred   Balance at
                                                Total    in Fiscal 1998   in Fiscal 1999   May 2, 1999
<S>                                            <C>       <C>              <C>              <C>
  Asset impairment losses
       Accounts receivable                     $ 12,732
       Inventory                                 54,851
       Property, plant and equipment             11,936
       Goodwill                                  57,125
       Other current and non-current assets       5,162
                                               --------
                                                141,806
                                               --------
  Provision for restructuring
       Reduction in work force                   20,796         (19,614)          (1,182)           --
       Reduction in facilities                    4,753          (4,202)            (551)           --
       Discontinued activities                   13,577         (10,017)          (3,560)           --
       Other restructuring costs                    512            (512)              --            --
                                               --------        --------   --------------   -----------
                                                 39,638        $(34,345)         $(5,293)          $--
                                               --------        ========   ==============   ===========
Restructuring costs                            $181,444
                                               ========
</TABLE>

                                    Page 46
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


Asset impairment losses were recorded to the extent the net book value,
including related reserves, exceeded the fair value of any assets associated
with the Company's restructuring plan. The fair value was based on the estimated
net realizable value of the underlying assets affected by the restructuring.

The net carrying amount of inventory affected by the restructuring activities
was reduced to $19,603,000 given demand for the affected products and the
Company's estimate of the excess of proceeds on disposition over the costs of
disposal. This inventory was substantially disposed of by the end of fiscal
1999.

Substantially all of the net book value of the property, plant and equipment
affected by the restructuring plan was reflected as an asset impairment loss
since the Company estimated the proceeds of disposition of these assets would
approximate the costs of disposal. Asset impairment losses associated with
property, plant and equipment reduced amortization expense in fiscal 1999 by
approximately $4,774,000. The property, plant and equipment impaired as a result
of the restructuring program was substantially disposed of  by the end of fiscal
1999.

The acquisitions of UB Networks, acquired in January 1997, and Ouest Standard
Telematique, acquired in August 1996, related to the Company increasing its
direct presence and participation in the LAN business. The Company's decision to
restructure its activities in the LAN business impaired the value of goodwill
associated with these acquisitions. Accordingly, the Company included the full
net book value of goodwill related to the acquisitions of UB Networks
($18,775,000) and Ouest Standard Telematique ($38,350,000) as restructuring
costs.

The provision for reduction in work force included severance, related medical
and other benefits, relocation costs and other obligations to employees. The
provision included termination benefits for 400 employees. The work force
reductions were in substantially all functions and in all regions in which the
Company operates. The work force reductions were completed in fiscal 1999.

The provision for reduction in facilities comprised lease payments and fixed
costs associated with plans to close sales, support and administrative
facilities in the Americas, Europe and Asia Pacific geographic areas. Certain
facilities closures planned as part of the restructuring plan formulated upon
the acquisition of UB Networks were also part of the restructuring plan defined
in November 1997. Facilities closures were completed in fiscal 1999.

The provision for discontinued activities included costs associated with
acquiring products from third parties and providing them to customers to fulfill
prior commitments related to certain discontinued product lines and activities.
These activities were completed in fiscal 1999.

The provision for other restructuring costs comprised certain consulting costs
associated with workforce reductions including outplacement and counseling
services for employees as well as various other direct incremental costs
associated with the restructuring plan.

In accordance with Canadian GAAP, impairments to accounts receivable and
inventory attributable to restructuring activities have been included in
restructuring costs. Under U.S. GAAP, impairments to accounts receivable and
inventory attributable to restructuring activities would be included in the
calculation of gross margin. In accordance with U.S. GAAP, the calculation of
gross margin would have included restructuring costs of $42,290,000 for fiscal
1999 and restructuring costs of $67,583,000 for fiscal 1998.

                                    Page 47
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


15.   Purchased Research and Development In Process

In November 1997, the Company acquired a 49.9% equity interest in RadNet Ltd.,
an Israeli developer and manufacturer of access switches for ATM networks, for
cash consideration of $53,676,000. Associated with this investment, the Company
incurred $52,762,000 in purchased research and development in process expense
("PR&DIP") in fiscal 1998. As of the investment date, the research and
development project in process was for the development of an ATM access switch
designed to aggregate various speeds of voice and data traffic. The initial
product release of the ATM access switch was approximately 65% complete as at
the investment date. The market for ATM access switches was nascent at the time
of investment.

RadNet Ltd. expected to incur approximately $30,000,000 in research and
development expenses to complete the ATM access switch project. The estimated
costs to complete the project were related to software and hardware engineering
personnel expenses, costs associated with equipment and facilities, and
subcontracted research and development costs. Approximately 70% of these
estimated costs were expected to be incurred over the 3 years following the
acquisition. The ATM access switches were expected to be shipped to initial
customers approximately nine months after the acquisition, and in volume fifteen
months after the acquisition.

The ATM access switch market is characterized by rapid technological change,
frequent product introductions and evolving methods used by service providers
and corporations in building and managing networks. For the ATM access switch
market, the key risk identified at the time of acquisition was the time taken to
introduce a fully featured product to the market relative to the competition.
Delays in introducing a fully featured ATM access switch would result in a late
introduction of the product to the market, which would result in a reduction in
planned revenue. The Company was aware of many large customer opportunities at
the time of the investment, but was also aware that delays in introducing the
product would result in these same large customers diverting purchases to
competing products.

The appraisal method used to value the PR&DIP associated with the project was a
discounted cash flow. The projected cash flow was calculated over a period of 6
years, and a risk adjusted discount factor of 19% was used. The discount factor
was based on a risk adjusted weighted average cost of capital.

Significant appraisal assumptions included growth in revenues for the ATM access
switch to approximately $300,000,000 in fiscal 2003. Gross margin, expressed as
a percentage of sales, was projected to be 77% on initial shipments, declining
to 67% by fiscal 2001 and in subsequent years due to market maturation. Selling,
general and administrative expenses were expected to be 47% of sales initially,
declining to 20% due to economies of scale associated with the increase in sales
volume. These projections were based on expense forecasts for the initial stages
of product introduction, and industry averages thereafter. Research and
development expenses were projected based on the project plan, including costs
to correct errors and evolve new versions in the later stages of the planning
horizon. The income tax rate for this Israeli-based initiative was assumed at
25%.

                                      48

<PAGE>


                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)



Under accounting principles generally accepted in Canada, the purchased research
and development in process was amortized on a straight line basis over its
estimated useful life of six months. Under U.S. GAAP, purchased research and
development in process acquired by the Company was written off at the time of
acquisition.

During fiscal 1999, the Company decided to cease funding of RadNet's ATM access
switch project and the Company's related sales efforts.

During fiscal 1997, the Company incurred $96,940,000 in PR&DIP related to the
acquisition of UB Networks, a manufacturer of LAN equipment based in Santa
Clara, California. As of the acquisition date, the research and development
project in process was for the development of high speed interface cards for its
high capacity LAN switch called GeoLAN 500. The initial release of the interface
cards were 70% to 80% complete as at the acquisition date. The project involved
the development of interface protocols and speeds which existed in the LAN
market, with a high number of network connections per interface card.

The Company expected to incur approximately $38,000,000 in research and
development expenses to complete the high speed interface cards for the GeoLAN
500. The estimated costs to complete the project were associated with software
and hardware engineering personnel expenses, costs associated with equipment and
facilities, and subcontracted research and development costs. Approximately 75%
of these estimated costs were expected to be incurred over the 18 months
following the acquisition. The interface cards were expected to be shipped to
initial customers approximately three months after the acquisition, and in
volume nine months after the acquisition.

The LAN market is characterized by rapid technological change, frequent product
introductions and evolving methods used by corporations in building and managing
networks. For the high speed interface development project, the key risk
identified at the time of acquisition was the successful and timely completion
of the development of custom ASICs (application specific integrated circuits).
This project task was identified as a critical path item. Delays associated with
the ASICs, or certain other project tasks, would result in a late introduction
of the product to the market. Any late introduction of the interface cards would
result in a reduction in planned revenue for the GeoLAN 500, and potentially for
the entire product portfolio of the former UB Networks. The large majority of
sales for the GeoLAN 500 were targeted at the installed base of customers of the
former UB Networks organization, and therefore a delay in product introduction
would result in a loss of credibility with these customers.

The appraisal method used to value the PR&DIP associated with the project was a
discounted cash flow. The projected cash flow was calculated over a period of 7
years and three months, and a risk adjusted discount factor of 26% was used. The
discount factor was based on a risk adjusted weighted average cost of capital.

                                    Page 49
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


Significant appraisal assumptions included growth in revenues for the GeoLAN 500
to over $300,000,000 in fiscal 2001, with declining revenues thereafter until
revenues cease in fiscal year 2004. Gross margin, expressed as a percentage of
sales, was projected to be 58% on initial shipments, improving to 65% eventually
as the Company gained economies of scale and cost reductions. Similarly,
selling, general and administrative expenses were expected to be 29% of sales
initially, declining to 23%. These assumptions were based on historical
information for major product initiatives in the LAN market. Research and
development expenses were projected based on the project plan, including costs
to correct errors and evolve new versions in the later stages of the planning
horizon.

Under U.S. GAAP, PR&DIP acquired by the Company on the acquisition of UB
Networks was written off against net earnings upon acquisition. Under accounting
principles generally accepted in Canada research and development in process
acquired by the Company on the acquisition of UB Networks was capitalized upon
acquisition and disclosed on the Consolidated Balance Sheet at January 26, 1997.

Upon review of the recoverability of the research and development in process,
undertaken during the fourth quarter of the fiscal year ended April 30, 1997,
the Company determined that the PR&DIP no longer met all the criteria for
deferral and accordingly the balance was written off as a charge to earnings for
the fourth fiscal quarter of fiscal 1997. The Company significantly altered
product plans associated with the research and development project and concluded
that recoverability could not be reasonably regarded as assured. In addition,
Management determined that adequate resources may not be made available to
complete the project associated with the PR&DIP, as originally defined. In
October 1998, the Company decided to fully discontinue the sale and development
of LAN products as part of the enhancement of the focus on the Company's
dominant and more profitable products.

                                    Page 50
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)





16.   Net Gain on Investments

                                                 Fiscal Year Ended
                                      -----------------------------------

                                         May 2,   April 30,   April 30,
                                          1999        1998        1997

                                        (Canadian dollars in thousands)

 Cambrian Systems Corporation         $131,748     $    --     $    --
 Advanced Computer Communications      128,336          --          --
 Vienna Systems Corporation             15,846          --          --
 Tundra Semiconductor Corporation       11,748          --          --
 Broadband Networks Inc.                    --      47,960          --
 Other divestitures                         --       6,528          --
 West End Systems Corp.                (33,521)         --          --
 Investment impairment write downs     (65,431)     (4,087)     (1,564)
                                      --------     -------   ---------
                                      $188,726     $50,401     $(1,564)
                                      ========     =======   =========


In December 1998, the Company sold its minority ownership position in Cambrian
Systems Corporation ("Cambrian") to Northern Telecom Limited ("Nortel") for cash
proceeds of US$95,674,000 (Cdn$147,158,000). The proceeds include an earn-out
payment of US$1,935,000 (Cdn$2,855,000) received by the Company as a result of
certain specified financial performance targets being met by Cambrian. The
proceeds exclude future potential earn-out payments of approximately
US$21,000,000 which will be received by the Company if certain specified
financial performance targets are met by Cambrian.

In October 1998, the Company completed the sale of its majority ownership
position in Advanced Computer Communications ("ACC") to Telefonaktiebolaget LM
Ericsson for cash proceeds of US$167,319,000 (Cdn$258,308,000). ACC's results of
operations were consolidated with the Company's results for the first six months
of fiscal 1999 ended November 1, 1998. The results of operations and the
financial position of ACC were not significant relative to the Company's
consolidated results of operations and financial position for all periods
presented.

In December 1998, the Company sold its minority ownership position in Vienna
Systems Corporation to Nokia Corporation for cash proceeds of $39,716,000.

In February 1999, the Company sold a portion of its minority ownership position
in Tundra Semiconductor Corporation for cash proceeds of $19,498,000 as part of
an initial and secondary share offering by Tundra.

In January 1998, the Company sold its minority interest in Broadband Networks
Inc. to Nortel for proceeds of $66,672,000.  The proceeds received included cash
of $23,775,000 and Nortel shares valued at $42,897,000.

On February 10, 1999 West End Systems Corp., a manufacturer of access and
transmission products for the communications and cable television industries,
filed an assignment in bankruptcy under the Canadian Bankruptcy and Insolvency
Act.  As a result, the Company recorded losses related to the Company's minority
ownership position in West End Systems Corp. and unsecured trade accounts
outstanding.

                                    Page 51


<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)

In fiscal 1999, the Company recorded investment impairment write downs of
$65,431,000 attributable to the financial performance of certain investee
companies as well as deteriorating economic conditions in certain geographic
regions. Investment impairment write downs in fiscal 1999 included $17,247,000
related to the carrying value of the Company's investment in a subsidiary
company that developed packet voice technology and network access products. The
Company also divested its ownership position in a Brazilian subsidiary and
recognized a loss of $14,902,000 associated with the carrying value of its
investment and related disposition costs. As a result of deteriorating economic
conditions in Russia, the Company recognized a loss of $11,449,000 attributable
to its investment in a joint venture in that country. The Company recorded
investment impairments of $21,833,000 in fiscal 1999 as a result of the
financial condition of seven investee companies.

The Company evaluates, on an ongoing basis, the value of its long term
investments considering the evolution of the market segments of investee
companies, any impact of deteriorating economic conditions in various countries,
and any other specific information which indicates impairment of value in these
investments. The Company establishes fair value of its long term investments in
investee companies by referring to quoted market values or reviewing valuations
implicit in recent private financing. The Company also utilizes a variety of
valuation techniques which include assessing potential proceeds that could be
expected to be received on a disposition of the Company's investment,
discounting future cash flows expected to be received from holding the
investment and reviewing recent acquisitions and divestitures of companies in
the industry that are comparable to the investee company.

17.  Income Taxes

The components of the provision for income taxes are as follows:


                                                            Years Ended
                                                  ------------------------------
                                                   May 2,   April 30,  April 30,
                                                    1999      1998       1997

                                       Current    $ 78,968  $ 45,843   $ 94,729
                                       Future       42,335    27,158     22,989
                                                  --------   -------   --------

                                                  $121,303   $73,001   $117,718
                                                  ========   =======   ========

The provision for income taxes reported differs from the amount computed by
applying the Canadian statutory rate to income before income taxes for the
following reasons.

                                                            Years Ended
                                                  ------------------------------
                                                   May 2,   April 30,  April 30,
                                                    1999      1998       1997

     Earnings before income taxes
       Domestic                                   $280,968 $ 222,597   $182,745
       Foreign                                      20,149  (167,283)    97,009
                                                  --------  ---------   --------

                                                  $301,117 $  55,314   $279,754
                                                  ======== =========   ========

     Statutory income tax rate (Canada)               43.5%     43.5%      43.5%
                                                  ========  =========   ========


                                    Page 52
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)
<TABLE>
<CAPTION>


                                                             Years Ended
                                                  ---------------------------------
                                                   May 2,    April 30,   April 30,
                                                    1999        1998        1997
<S>                                               <C>        <C>         <C>

     Expected provision for income tax            $130,986    $ 24,062    $121,693
     Canadian rate adjustment for research
       and development activities                   (4,236)     (6,166)     (5,062)
     Canadian rate adjustment for
       manufacturing and processing activities     (13,075)    (19,032)    (15,625)
     Loss carryforwards utilized                        --          --      (7,262)
     Foreign tax differential                      (21,428)    (13,865)    (39,539)
     Purchased research and
       development in process                           --      22,952      42,169
     Recognition of goodwill devaluation                --      26,677          --
     Non-deductible reserves and surtaxes           29,056      38,373      21,344
                                                  --------    --------    --------
     Reported income tax provision                $121,303    $ 73,001    $117,718
                                                  ========    ========    ========

</TABLE>
The components of the annual temporary differences giving rise to the related
future tax provision are as follows:
<TABLE>
<CAPTION>
                                                        Years Ended
                                              -------------------------------
                                               May 2,   April 30,  April 30,
                                                1999      1998        1997
<S>                                           <C>       <C>        <C>
     Tax depreciation in excess of
       accounting amortization                $ 1,864     $ 7,163    $ 4,530
     Accounting provisions not deductible      (5,715)      6,804      3,570
     Research and development expenses
       deducted for tax purposes in excess
       of accounting                             (677)        677      2,530
     Restructuring charges                     46,443      10,909     13,127
     Losses available to offset future
       income taxes and other                     420       1,605       (768)
                                              -------     -------    -------
     Future income tax expense                $42,335     $27,158    $22,989
                                              =======     =======    =======
</TABLE>

                                    Page 53
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


The components of the future tax benefit (obligation) classified by the source
of temporary differences that gave rise to the benefit (obligation) are as
follows:
<TABLE>
<CAPTION>
                                          Future Tax Benefit    Future Tax Obligation
                                          -------------------  -----------------------
                                          May 2,   April 30,     May 2,     April 30,
                                           1999       1998        1999         1998
<S>                                       <C>      <C>         <C>          <C>
  Accounting depreciation in excess
     of (less than) tax depreciation      $ 5,064    $13,853    $ (38,636)   $(45,561)
  Accounting provisions not deductible     13,845     22,409          (93)    (14,372)
  Research and development expenses
     deducted for tax purposes less
     than (in excess of) accounting            --         --      (11,007)    (11,684)
  Provisions related to restructuring
     charges                               41,090     21,412           --          --
  Divestitures                                 --         --      (73,352)         --
  Other                                        --         --           --         420
  Valuation allowance                          --     (7,231)          --          --
                                          -------    -------    ---------    --------

                                          $59,999    $50,443    $(123,088)   $(71,197)
                                          =======    =======    =========    ========

</TABLE>

The Company recorded a future tax benefit for net operating loss carryovers
associated with certain acquisitions. These losses will expire at various dates
through the year 2012. The components of the future tax benefit (obligation)
classified by the source of timing difference that gave rise to the credit are
not materially different from the temporary differences as calculated under the
application of U.S. GAAP.

At May 2, 1999, the Company had available investment tax credits of
approximately $53,106,000 for the reduction of future years' Canadian federal
income tax liability. These credits, which are subject to customary review
procedures by Revenue Canada, expire during the years 2007 to 2009. Of this
amount $10,913,000 has been applied to reduce the future tax obligation. No
recognition has been given in these financial statements to the potential tax
benefits associated with the remaining balance of investment tax credits. Under
U.S. GAAP the remaining balance of investment tax credits would be disclosed,
offset by a valuation allowance.

                                    Page 54
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


18.  Earnings (Loss) per Share

Basic earnings (loss) per share has been calculated on the basis of net earnings
(loss) for the period divided by the daily weighted average number of Common
Shares outstanding during the fiscal year.

The calculation of fully diluted earnings per share assumes that, if a dilutive
effect is produced, all outstanding options had been exercised at the later of
the beginning of the fiscal period and the option issue date, and includes an
allowance for imputed earnings of $28,943,000 (fiscal 1998 -- $18,521,000;
fiscal 1997 -- $11,589,000) derived from the investment of funds which would
have been received at an after tax rate of 3.5% (fiscal 1998 -- 3.0%; fiscal
1997 -- 3.1%).

Under U.S. GAAP, basic earnings per share has been calculated as net earnings
for the period divided by the daily weighted average number of Common Shares
outstanding during the period, consistent with the calculation of basic earnings
per share under accounting principles generally accepted in Canada. Diluted
earnings per share is calculated using the treasury stock method. The
calculation of earnings per share under U.S. GAAP is as follows.
<TABLE>
<CAPTION>
                                                         Years Ended
                                               -------------------------------
                                                May 2,   April 30,   April 30,
                                                 1999       1998       1997
<S>                                            <C>       <C>         <C>
     Net earnings (loss) per share
       Basic                                   $   1.01   $  (0.10)   $   0.92
       Diluted                                 $   0.99   $  (0.10)   $   0.90

     Weighted average number of shares
       Basic                                    177,630    174,617     170,510
       Net effect of dilutive stock options       2,746         --       4,015
                                               --------   --------    --------
       Diluted                                  180,376    174,617     174,525
                                               ========   ========    ========
</TABLE>

                                    Page 55
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


19.  Related Party Transactions

The Company leases facilities in Canada from companies controlled by Terence H.
Matthews, Chairman of the Board of Directors, Chief Executive Officer and the
largest shareholder of the Company, under terms and conditions reflecting
prevailing market conditions at the time the leases were entered into.
Approximately 355,000 square feet has been leased for various terms expiring
between September 1999 and February 2004 at rates between $9.25 and $14.00 per
square foot (approximately $3,505,000 per year). The Company also purchased
$878,000 of services from these companies throughout fiscal 1999 (fiscal 1998 --
$1,053,000). During the fiscal year ended May 2, 1999 the Company purchased
approximately $5,287,000 (fiscal 1998 -- $2,533,000) of equipment and services
under usual terms and conditions from a corporation in which the Company has no
equity interest, but which is controlled by Terence H. Matthews.

The Company accounts for its equity interests in certain associated companies
using the equity method of accounting. The Company is represented on the Boards
of Directors of these companies. During the fiscal year ended May 2, 1999, the
Company paid $1,729,000 for research and development services from these
associated companies under usual trade terms and conditions (fiscal 1998 --
$2,448,000). The Company also purchased $18,220,000 of equipment and software
under usual trade terms and conditions, generally for resale (fiscal 1998 --
$10,126,000) and sold $21,533,000 of equipment and software to these companies
under usual trade terms and conditions, generally for resale (fiscal 1998 --
$13,846,000).

The Company accounts for its equity interests in certain associated companies
using the cost method of accounting. The Company is generally represented on the
Boards of Directors of these companies. During the fiscal year ended May 2, 1999
the Company paid $1,556,000 for research and development services from these
associated companies under usual trade terms and conditions (fiscal 1998 --
$48,000). The Company also purchased $8,294,000 of equipment and software under
usual trade terms and conditions, generally for resale (fiscal 1998 --
$7,226,000). The Company sold $10,035,000 of equipment and software to these
associated companies under usual trade terms and conditions, generally for
resale (fiscal 1998 -- $6,100,000). The Company has guaranteed $14,498,000 of
obligations of certain of these associated companies.

The Company pays a net royalty between 2% and 10%, depending on the level of
cumulative royalties paid, on all sales of products developed as a result of
subcontracted research and development previously performed under agreements
between the Company and corporations controlled by three directors of the
Company. Royalty payments under these agreements were $564,000 (fiscal 1998 --
$294,000).

                                    Page 56


                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)



20.  Business Segment Information

The Company designs, manufactures, markets and services networking solutions to
customers in more than 100 countries. Management organizes the Company into four
principal operating segments for making operating decisions and assessing
performance. The four operating segments comprise three sales and support
organizations (North and South America, Europe Middle East and Africa, and Asia
Pacific) and one Corporate resources group which develops and manufactures
products, provides marketing and operational support and makes strategic
investments. Revenues generated by the Corporate group are predominantly derived
from the consolidation of non-wholly owned subsidiaries. Cost of sales for the
three sales and support organizations is stated at the cost to manufacture and
does not include any markups.



<PAGE>

<TABLE>
<CAPTION>
                                                  Years Ended
                                     --------------------------------------
                                       May 2,      April 30,     April 30,
                                        1999          1998         1997
<S>                                  <C>          <C>           <C>
  North and South America
     Sales                           $  765,183    $  649,388   $  561,784
     Cost of sales and expenses         414,240       365,494      299,408
                                     ----------    ----------   ----------
     Operating contribution             350,943       283,894      262,376
                                     ----------    ----------   ----------

  Europe, Middle East and Africa
     Sales                           $  614,842    $  511,444   $  444,885
     Cost of sales and expenses         311,025       258,676      214,439
                                     ----------    ----------   ----------
     Operating contribution             303,817       252,768      230,446
                                     ----------    ----------   ----------

  Asia Pacific
     Sales                           $  234,424    $  273,581   $  231,625
     Cost of sales and expenses         124,518       127,712       96,323
                                     ----------    ----------   ----------
     Operating contribution             109,906       145,869      135,302
                                     ----------    ----------   ----------

  Corporate
     Sales                           $  176,256    $  186,207   $  126,433
     Cost of sales and expenses         697,820       626,491      386,854
                                     ----------    ----------   ----------
     Operating contribution            (521,564)     (440,284)    (260,421)
                                     ----------    ----------   ----------

  Total
     Sales                           $1,790,705    $1,620,620   $1,376,727
     Cost of sales and expenses       1,547,603     1,378,373    1,009,024
                                     ----------    ----------   ----------
     Operating contribution             243,102       242,247      367,703

     Restructuring costs               (118,030)     (181,444)          --
     Purchased research
       and development in process            --       (52,762)     (96,940)
                                     ----------    ----------   ----------
     Income from operations             125,072         8,041      270,763
     Non-operating income               176,045        47,273        8,990
     Provision for income taxes        (121,303)      (73,001)    (117,718)
     Non-controlling interest              (653)         (631)      (5,118)
                                     ----------    ----------   ----------
     Net earnings (loss)             $  179,161    $  (18,318)  $  156,917
                                     ==========    ==========   ==========
</TABLE>

                                    Page 57
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)



The Company manages its assets by geographic region, rather than through the
operating segments. Decision making and performance assessment with regard to
assets is done on a geographic basis because the operating segments may share
assets and accountability by operating segment would be less readily
determinable.
<TABLE>
<CAPTION>
                                    Years Ended
                         ----------------------------------
                           May 2,    April 30,   April 30,
                            1999        1998        1997
<S>                      <C>         <C>         <C>
  Identifiable Assets
     Canada              $1,290,601  $  685,315  $  405,126
     United States          444,356     480,148     397,808
     Europe                 414,487     499,361     370,875
     Asia Pacific           187,486     183,507     218,015
     Latin America          133,694     118,494     104,879
                         ----------  ----------  ----------

                         $2,470,624  $1,966,825  $1,496,703
                         ==========  ==========  ==========

                                    Years Ended
                         ----------------------------------
                             May 2,   April 30,   April 30,
                               1999        1998        1997
  Capital Expenditure
     Canada              $  143,590  $  176,276  $   81,678
     United States           30,903      57,877      26,723
     Europe                  25,494      31,579      18,115
     Asia Pacific             5,875       6,861       3,081
     Latin America            8,041       4,185       2,044
                         ----------  ----------  ----------

                         $  213,903  $  276,778  $  131,641
                         ==========  ==========  ==========


                                    Years Ended
                         ----------------------------------
                             May 2,   April 30,   April 30,
                               1999        1998        1997
  Amortization
     Canada              $  110,863  $   74,070  $   54,271
     United States           31,097      23,558      17,381
     Europe                  29,487      20,810       8,338
     Asia Pacific             5,966       3,955       1,096
     Latin America            5,134       3,036       1,901
                         ----------  ----------  ----------

                         $  182,547  $  125,429  $   82,987
                         ==========  ==========  ==========
</TABLE>

                                    Page 58
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


Export sales from operations in Canada (excluding inter-subsidiary sales) were
as follows.

                                                       Years Ended
                                              ------------------------------
                                               May 2,   April 30,  April 30,
                                                1999      1998       1997

     Latin America                            $152,210   $171,245   $169,377
     Asia Pacific                                7,786     48,010     49,166
                                              --------   --------  ---------

                                              $159,996   $219,255   $218,543
                                              ========   ========  =========

Sales to Siemens A.G. and subsidiaries, generally under OEM arrangements for
resale to end users, were 18% of sales for fiscal 1999, 16% of total sales for
fiscal 1998 and were 18% of total sales in fiscal 1997.

The following table illustrates, for the periods indicated, the percentage of
sales that comprise each of the Company's major product lines.


                                                   Fiscal Year Ended
                                         ---------------------------------------
                                          May 2,       April 30,       April 30,
                                           1999           1998            1997

  WAN Packet products                         59%          46%            33%
  Circuit switched networking products        38           41             57
  LAN Packet products                          3           13             10
                                            ----         ----           ----
                                             100%         100%           100%
                                            ====         ====           ====

21.  Litigation

In the fourth quarter of fiscal 1998 the Company reached an agreement in
principle to settle the class action lawsuit which was filed in United States
District Court in Washington, D.C. during the fiscal year ended April 30, 1995.
The lawsuit purported to be a class action on behalf of a class of persons who
purchased securities of the Company between March 29 and August 1, 1994 and
alleged that the Company made false and misleading statements in violation of
United States securities law and common law. The Court entered an order and
final judgement approving the settlement and dismissing the lawsuit with
prejudice in October 1998. The Company recorded the expense in connection with
the settlement of $2,642,000 in the fourth quarter of fiscal 1998, which
represents the direct costs incurred.

Lucent Technologies Inc. ("Lucent Technologies") filed a complaint during the
fiscal year ended April 30, 1998 in United States District Court in Delaware
against the Company and its United States subsidiary, Newbridge Networks Inc.
Lucent Technologies manufactures and sells telecommunications systems, software
and products, and is both a distributor of the Company's products and a
competitor of the Company. The Complaint alleges that the Company's manufacture
and sale, in the United States, of some of the standardized functions on the
Newbridge frame relay and ATM switch products, along with its ADPCM (adaptive

                                    Page 59
<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)


differential pulse code modulation) and card initialization implementations,
infringe certain United States patent rights claimed by Lucent Technologies.
The Complaint requests actual and trebled damages in an unspecified amount.
Based upon its present understanding of the laws in the United States and the
facts, the Company believes it has meritorious defenses to these claims. The
Company has filed an answer to the Complaint and is defending this action
vigorously. The matter is scheduled for trial in October 1999. Because the
outcome of the action is not certain at this time, no provision for any
liability that may result upon adjudication has been made in these Consolidated
Financial Statements.

22. Uncertainty Due to the Year 2000 Issue

The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information that
uses year 2000 dates is processed. In addition, similar problems may arise in
some systems that use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure that could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.

23. Subsequent Events

In May 1999, the Company completed its investment in TeraBridge Technologies
Corporation ("Terabridge"), which specializes in delivering intelligent call and
service control products to service providers and is headquartered in Gurnee,
Illinois. The Company acquired a 19% equity ownership position for US$60,000,000
(Cdn$90,511,000) and has an option to increase its equity ownership position to
50% for US$10,000,000.

In June 1999, the Company announced a definitive agreement to acquire Stanford
Telecommunications Inc. ("STII") (STII: NASDAQ), a leading supplier of broadband
wireless technology and products. The net purchase price of the acquisition is
estimated at US$280,000,000 (Cdn$ 411,740,000) which represents the gross
purchase price of approximately US$490,000,000 (Cdn$720,545,000) net of proceeds
from the divestiture of divisions of STII that are unrelated to the Company's
core business. The boards of directors of the Company and STII have approved an
agreement and plan of merger, subject to conditions including approval by STII's
stockholders, whereby the Company will acquire all of the outstanding shares of
common stock of STII in a tax-free, stock-for-stock exchange. Under the
agreement STII stockholders will receive for each share of common stock US$30 in
the Company stock plus a contingent value right (CVR) which will give them a
participation in the proceeds on the sale of other operations above a minimum
amount. This participation will also be payable in the form of the Company
common shares. The CVR is expected to have a value of up to US$5 per share.

                                    Page 60

<PAGE>

                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 May 2, 1999, April 30, 1998 and April 30, 1997
     (Canadian dollars, tabular amounts in thousands except per share data)



For the purpose of this transaction, the value of a Newbridge common share shall
equal the ten-day average closing price on the New York Stock Exchange, ending
on the fifth trading day immediately preceding STII's stockholder vote, expected
in October. If the Newbridge stock price, pursuant to this calculation, is below
US$24 and the Company does not exercise its right to adjust the exchange ratio,
STII's board will be permitted to terminate the Agreement.

                                    Page 61
<PAGE>

                       Selected Quarterly Financial Data

The quarterly financial data for the fiscal years ended May 2, 1999 and April
30, 1998 are derived from unaudited consolidated financial statements of the
Company which include, in the opinion of Management, all normal and recurring
adjustments considered necessary for a fair statement of results for such
periods. The selected quarterly financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                       Fiscal 1998 Quarters Ended                 Fiscal 1999 Quarters Ended
                                                ------------------------------------------  --------------------------------------
                                                  Aug 3,   Nov 2,     Feb 1,      Apr 30,     Aug 2,    Nov 1,    Jan 31,   May 2,
                                                  1997      1997       1998        1998        1998      1998      1999      1999
                                                  ----      ----       ----        ----        ----      ----      ----      ----
                                                            (Canadian dollars, amounts in thousands except per share data)

<S>                                               <C>       <C>       <C>         <C>        <C>       <C>       <C>       <C>
Sales                                             $434,738  $432,169  $ 358,520   $395,193   $426,056  $456,781  $450,753  $457,115
Gross margin                                       274,008   272,368    213,707    235,472    274,008   267,457   262,791   259,089

Net earnings (loss)/(1)/                            64,354    57,993   (144,283)     3,618     35,520    53,314   120,119   (29,792)

Earnings (loss) per share
  Basic                                           $   0.37  $   0.33  $    0.82   $   0.02   $   0.20  $   0.30  $   0.68  $  (0.17)
  Fully diluted                                   $   0.36  $   0.33  $    0.82   $   0.02   $   0.20  $   0.30  $   0.64  $  (0.17)

Weighted average number of shares
  Basic                                            172,964   174,733    175,376    175,598    176,105   176,766   177,596   180,105
  Fully diluted                                    189,082   174,733    175,376    175,598    176,105   176,766   199,951   180,105

U.S. GAAP
Net earnings (loss)/(1)/                          $ 64,354  $ 57,993  $(170,664)  $ 29,999   $ 35,520  $ 53,314  $120,119  $(29,792)
Earnings (loss) per share/(2)/
  Basic                                           $   0.37  $   0.33  $   (0.97)  $   0.17   $   0.20  $   0.30  $   0.68  $  (0.17)
  Diluted                                         $   0.36  $   0.32  $   (0.97)  $   0.17   $   0.20  $   0.30  $   0.66  $  (0.17)

Weighted average number of shares
  Basic                                            172,964   174,733    175,376    175,598    176,105   176,766   177,596   180,105
  Diluted                                          179,821   182,728    175,376    175,598    176,105   176,766   182,030   180,105

</TABLE>
-------------------------

(1)  Includes non-recurring gains and charges. See Notes 14, 15 and 16 to the
     Consolidated Financial Statements.
(2)  See Note 18 to the Consolidated Financial Statements.

                                    Page 62
<PAGE>

                                    PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

The Company hereby amends section (C) of Item 14 of its Annual Report on
Form 10-K by amendment of the following exhibits:

          11.1  Computation of earnings per share under accounting principles
                generally accepted in Canada.

          11.2  Computation of earnings per share under accounting principles
                generally accepted in the United States.

The Company hereby files as an exhibit to this Annual Report on Form 10-K/A
(Amendment No.1) for fiscal year ended May 2, 1999 the following:

          23    Consent of Independent Accountants.

                                    Page 63
<PAGE>

                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment to its Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.


                                NEWBRIDGE NETWORKS CORPORATION




  Date: October 1, 1999           By: /s/  Terence H. Matthews
                                      -----------------------------
                                      Chairman of the Board of
                                      Directors and Chief
                                      Executive Officer


  Date: October 1, 1999           By: /s/  Kenneth B. Wigglesworth
                                      -----------------------------
                                      Kenneth B. Wigglesworth,
                                      Executive Vice President, Finance
                                      and Chief Financial Officer

                                    Page 64