SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                  [X] ANNUAL REPORT UNDER SECTION 13 or 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended February 28, 1999

                                       OR

             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the transition period from . . . . to . . . .
                         Commission File Number 1-10228

                             CABLETRON SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)


           Delaware                                              04-2797263
-------------------------------                              ------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               identification no.)

                35 Industrial Way, Rochester, New Hampshire 03867
              (Address of principal executive offices and zip code)

       Registrant's telephone number, including area code: (603) 332-9400

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

Title of each class: Common Stock,   Name of each exchange on which registered:
          $0.01 par value                     New York Stock Exchange

           Securities registered pursuant to Section 12(g)of the Act:
                                      None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months,  (or for such shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                    YES  X  NO
                                        ---
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 the registrant's  knowledge,  in definitive proxy for information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of May 17, 1999,  173,000,986  shares of the  Registrant's  common stock were
outstanding. The aggregate market value of the registrant's voting stock held by
non-affiliates  of the  registrant  as of May 17,  1999 was  approximately  $1.9
billion.


                       DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference:

Certain  portions of the Proxy  Statement  to be filed with the  Securities  and
Exchange  Commission in connection  with the 1999 Annual Meeting of Stockholders
is incorporated by reference into Part III of this Form 10-K.

<PAGE>



                                TABLE OF CONTENTS



                                     PART I



Item                                                                   Page(s)
----                                                                   ------

1.   Business                                                            3
2.   Properties                                                          7
3.   Legal Proceedings                                                   8
4.   Submission of Matters to a Vote of Security Holders                 8
     Executive Officers of the Registrant                              9 - 10



                                     PART II


5.   Market for the Registrant's Common Equity and Related
     Stockholder Matters                                                 11
6.   Selected Financial Data                                           12 - 13
7.   Management's Discussion and Analysis of Financial Condition
     and Results of Operations                                         14 - 28
7a.  Quantitative and Qualitative Disclosures about Market Risk        28 - 29
8.   Consolidated Financial Statements and Supplementary Data          30 - 49
9.   Changes in and Disagreements with Accountants on
     Accounting and Financial Disclosure                                  51



                                    PART III


10.   Directors and Executive Officers of the Registrant                  51
11.   Executive Compensation                                              51
12.   Security Ownership of Certain Beneficial Owners and Management      51
13.   Certain Relationships and Related Transactions                      51



                                     PART IV


14.  Exhibits, Financial Statement Schedules and Reports on Form 10-K     52



<PAGE>


PART I

This Annual Report on Form 10-K contains forward-looking  statements (statements
which  are not  historical  facts)  including,  without  limitation,  statements
containing the words "anticipates," "believes," "estimates," "expects," "plans,"
and words of similar import, which constitute  forward-looking statements within
the meaning of the Private Securities  Litigation Reform Act of 1995.  Investors
are   cautioned   that  all   forward-looking   statements   involve  risks  and
uncertainties,  including the risks and uncertainties detailed below, and actual
results may differ significantly from those in any forward-looking statements.

Some of the factors that could cause future  results to  materially  differ from
the  Company's  recent  results  or  those  projected  in  the   forward-looking
statements include,  but are not limited to, significant  increases or decreases
in demand for the Company's products;  increased  competition;  lower prices and
margins;  failure to successfully develop or acquire and market new products and
technologies;  competitors  introducing  superior  products;  continued industry
consolidation; failure to effectively integrate acquired companies and products;
failure  to  effectively   manage  sales  of  the  Company's   products  through
distributors,  resellers and original equipment manufacturers ("OEMs");  failure
to manage the amount of product in  distributors'  and  resellers'  inventories;
failure  to secure  supply of key  component  parts;  instability  and  currency
fluctuations in  international  markets;  failure to fulfill product orders in a
timely and effective  manner;  product defects;  failure to secure  intellectual
property  rights;  results of  litigation;  failure to retain  and  recruit  key
employees;  and failure to adequately take Year 2000 corrective activities.  The
Company assumes no obligation to update any forward-looking statements contained
herein, after the date of this Form 10-K.


1.       ITEM 1. Business

General

Founded  in  1983,  Cabletron  Systems,  Inc.  ("the  Company"  or  "Cabletron")
develops, manufacturers, markets, installs and support standards-based Ethernet,
Fast Ethernet,  Gigabit  Ethernet,  Token Ring, fiber distributed data interface
("FDDI"),  asynchronous  transfer  mode ("ATM") and wide area  networks  ("WAN")
networking solutions.  Enhancing the Company's award-winning networking products
solutions,  Cabletron's  professional  services  team offers their  expertise to
improve  performance,  productivity  and  profitability  for all  phases  of the
enterprise network life cycle. Through its intelligent  switching and enterprise
management  products,  the Company provides the foundation for a smarter network
that ties together existing equipment with newer products and applications for a
strategic  enterprise that's more in line with the short- and long-term goals of
an  organization.  The Company  provides its leading edge business  solutions to
global customers for enterprise connectivity,  service provider infrastructures,
software and professional services. The Company maintains significant operations
in the United States,  Europe,  Pacific Rim and in other industrialized areas of
the world.  With  flexible  and  scalable  products  designed  for Fortune  1000
enterprise  networks,  service  providers and small  businesses,  Cabletron is a
business  communications  specialist that provides  intelligent,  reliable,  and
cost-effective business solutions for the information age.

Cabletron's  solutions  are  deployed in a variety of  organizations,  including
global  financial  institutions,  federal  and state  agencies,  industrial  and
manufacturing   companies,   telecommunications   companies,   internet  service
providers,  health care facilities and academic  institutions  around the world.
Focusing on the convergence of technologies,  Cabletron  provides customers with
business-focused solutions in the form of Smart Networks that consolidate voice,
video and data resources into one seamless,  easily  managed  platform.  Through
strategic  partnerships,  acquisitions  and focus on research  and  development,
Cabletron  has  attempted  to meet  customer  demands for a diverse and balanced
offering of products,  software,  service and global support. Cabletron believes
that its broad product line and its ability to provide full service capabilities
enables it to offer its customers "The Complete Networking Solution."

Cabletron is a Delaware corporation  organized in 1988. The executive offices of
Cabletron are located at 35 Industrial Way, Rochester,  New Hampshire 03867, and
its   telephone   number  is  (603)   332-9400.   Its   website  is  located  at
http://www.cabletron.com.
<PAGE>

Fiscal 1999 Acquisitions

On September  25, 1998,  Cabletron  acquired  NetVantage,  Inc., a publicly held
manufacturer  of  Ethernet  workgroup  switches.  Under the terms of the  Merger
Agreement,  Cabletron issued 6.4 million shares of Cabletron common stock to the
shareholders  of  NetVantage  in exchange for all of the  outstanding  shares of
stock of NetVantage. In addition, Cabletron assumed 1,309,000 options, valued at
approximately  $4.8 million.  Cabletron  recorded the cost of the acquisition at
approximately  $77.8  million,  including  direct  costs of $4.2  million.  This
acquisition has been accounted for under the purchase method of accounting.

On  September  9,  1998,  Cabletron  acquired  all of the  outstanding  stock of
FlowPoint Corp., a privately held manufacturer of digital subscriber line router
networking  products.  Prior  to the  agreement,  Cabletron  owned  42.8% of the
outstanding  shares of stock.  Pursuant  to the  terms of the  agreement,  $20.6
million is to be paid in 4 installments,  within 9 months after the merger date.
Each  installment  may be paid in either  cash or  Cabletron  common  stock,  as
determined  by Cabletron  management at the time of  distribution.  In addition,
Cabletron assumed 494,000 options, valued at approximately $2.7 million.

On  September  1,  1998,  Cabletron  acquired  the assets  and  assumed  certain
liabilities of the DSLAM division of Ariel  Corporation  ("Ariel"),  a privately
held designer and  manufacturer of digital  subscriber  line access  multiplexor
products.  Cabletron recorded the cost of the acquisition at approximately $45.1
million, including fees and expenses of $1.1 million related to the acquisition,
which consisted of cash payments of $33.5 million and other assumed liabilities.
This acquisition has been accounted for under the purchase method of accounting.

On March 17, 1998,  Cabletron acquired Yago Systems,  Inc. ("Yago"), a privately
held  manufacturer  of  wire-speed  routing and Layer-4  switching  products and
solutions. Under the terms of the merger agreement, Cabletron issued 6.0 million
shares of Cabletron common stock to the shareholders of Yago in exchange for all
of the  outstanding  shares of Yago,  not then owned by Cabletron.  Prior to the
closing of the acquisition,  Cabletron held approximately twenty-five percent of
Yago's  capital  stock,  calculated on a fully  diluted  basis.  Cabletron  also
agreed,  pursuant  to the  terms  of the  merger  agreement,  to issue up to 5.5
million shares of Cabletron  common stock to the former  shareholders of Yago in
the event the shares originally issued in the transaction do not attain a market
value of $35 per share  eighteen  months  after the closing of the  transaction.
Cabletron recorded the cost of the acquisition at approximately  $165.7 million,
including direct costs of $2.6 million.  This acquisition has been accounted for
under the purchase method of accounting.

Fiscal 1998 Acquisitions

Effective  February 7, 1998,  Cabletron  consummated  the acquisition of certain
assets of the Network  Products Group ("NPG") of Digital  Equipment  Corporation
("Digital")  pursuant  to an  asset  purchase  agreement  (the  "Asset  Purchase
Agreement") dated November 24, 1997, as amended,  by and among Cabletron,  Ctron
Acquisition  Co., Inc., a wholly owned  subsidiary of Cabletron  ("Ctron"),  and
Digital.  The NPG, now known as the "DIGITAL  Network  Products Group" ("DNPG"),
develops and  supplies a wide range of data  networking  hardware and  software,
including  local area network  ("LAN") and WAN products.  DNPG's products span a
wide range of networking  technologies,  including Ethernet, Fast Ethernet, FDDI
and ATM  switching  technologies.  The purchase  price for the  acquisition  was
approximately $439.5 million,  before closing  adjustments,  consisting of cash,
product  credits and assumed  liabilities  as a result of the  acquisition.  The
acquisition  was  accounted  for by  Cabletron  under  the  purchase  method  of
accounting. The closing on February 7, 1998 extended to the assets and personnel
located  in the  United  States  and  the  inventory  worldwide.  The  remaining
international  assets and  personnel  were  transferred  as issues in individual
countries were resolved.

Cabletron and Digital also entered into a Reseller  Agreement dated November 24,
1997 (the "Reseller  Agreement")  pursuant to which Digital designated Cabletron
as its Strategic  Network  Products  Partner and was appointed by Cabletron as a
reseller of certain Cabletron products  (including the products  previously sold
by NPG). Cabletron designated Digital as its Strategic Network Services Partner,
and Cabletron  agreed to sell and Digital  agreed to purchase,  for internal use
and resale,  certain minimum volumes of products during the term of the Reseller
Agreement,  which extends through June 30, 2001. The minimum volumes are subject
to downward or upward adjustment in certain  instances.  In April 1998,  Digital
was  acquired  by Compaq  Corporation  ("Compaq")  and Compaq has assumed all of
Digital's obligations to Cabletron.
<PAGE>

Fiscal 1997 Acquisitions

In  February  1997,  Cabletron  acquired  The OASys  Group,  Inc.  ("OASys"),  a
privately-held developer of software used to manage  telecommunications  devices
and  connections  in  high-speed,   fiber-optic   networks.   Cabletron   issued
approximately  226,000 shares of common stock for all of the outstanding  shares
of OASys (as well as all shares to be issued  pursuant to OASys options  assumed
by Cabletron) in a transaction accounted for as a purchase.

In December 1996, Cabletron acquired Netlink, Inc. ("Netlink"), a privately held
manufacturer  and supplier of frame relay access  solutions for  multi-protocol,
mission-critical  networks.  Under the terms of the agreement,  Cabletron issued
approximately  3.8  million  shares of common  stock for all of the  outstanding
shares  of  Netlink  (as well as all  shares to be issued  pursuant  to  Netlink
options  assumed by Cabletron)  in a  transaction  accounted for as a pooling of
interests.

In August 1996, Cabletron acquired Network Express, Inc. ("Network Express"),  a
publicly held manufacturer and a provider of ISDN high-speed LAN switched access
solutions. Under the terms of the agreement,  Cabletron issued approximately 2.9
million  shares of common  stock for all of the  outstanding  shares of  Network
Express (as well as all shares to be issued  pursuant to Network Express options
assumed by Cabletron) in a transaction accounted for as a pooling of interests.

In July 1996,  Cabletron  acquired  ZeitNet Inc.  ("ZeitNet"),  a privately held
manufacturer  and a leader in providing  high-quality,  low-cost  solutions  for
connecting   applications,   servers  and  workgroups  to  high-performance  ATM
networks.  Under the terms of the agreement,  Cabletron issued approximately 3.3
million shares of common stock for all of the outstanding  shares of ZeitNet (as
well  as all  shares  to be  issued  pursuant  to  ZeitNet  options  assumed  by
Cabletron) in a transaction accounted for as a pooling of interests.

Products and Services

Cabletron's   "smart   networking"    solutions,    comprised   of   high-speed,
fault-tolerant SmartSwitches; full-function, wire-speed SmartSwitch routers; and
the fully distributed, multivendor SPECTRUM Enterprise Management platform, work
together to create an  enterprise  solution that is designed to meet the demands
of today's business  environments.  The Company's products maximize  reliability
through features such as fully redundant power systems,  distributed  switching,
scalability and superior manageability.

Cabletron's  products and services  are grouped into two main  categories,  Core
Products and Ancillary  Products;  the core products are discussed below. All of
these  products are backed by the  Company's  award-winning  global  Service and
Support Staff.

Core Products

Cabletron's  family of "smart products",  including  SmartSwitches,  SmartSwitch
Routers,  SmartSTACKs,  wireless RoamAbout  solutions,  and SPECTRUM  Enterprise
Management,   enable  users  to  maximize  performance  while   cost-effectively
migrating  to  next-generation   technologies.   This  comprehensive  family  of
solutions  is  meant  to  be   implemented  in  both  legacy  or  newer  network
environments with minimal disruption while preserving  existing  investments and
providing genuine scalability for future networking requirements.

The  SmartSwitch  Router,   Cabletron's  best-of-breed  gigabit  switch  router,
combines the speed of a switch with the efficiency and security of a router. The
SmartSwitch  Router  delivers more than 100 times the performance of traditional
routers at a rate of 30 million  packets/cells per second (pps) with zero packet
loss and no  degradation  in  performance  when  value-added  services are fully
enabled. These products were designed to integrate the customers' legacy systems
and deliver highly fault tolerant performance,  all at a fraction of the cost of
comparable solutions.
<PAGE>

Cabletron's  SmartSwitches  combine inherent  scalability and manageability with
cost-effectiveness   to  provide   high-end   switching   capabilities  for  all
environments,  from the workgroup (SmartSTACK and SmartSwitch 2000/2500), to the
wiring  closet  (SmartSwitch  6000/6500)  or to  the  data  center  (SmartSwitch
9000/9500)  environments.  The Company utilizes  standards-based ASIC chips that
are  designed  to  be  fully  manageable  and  interoperable   with  preexisting
equipment.  These products are available as modular-based  chassis systems or in
standalone capacity.

Cabletron's full line of ATM SmartSwitches  provides  high-speed  uplinks of LAN
workgroups,  interconnects  data centers,  supports  bandwidth-heavy  multimedia
applications  and  allows  access to public  ATM  services.  A  SmartSwitch  ATM
Administrator  is designed to improve network  performance,  reduce  operational
complexity and cut network ownership costs.

WAN Products are designed to allow the customer to scale,  plan and manage their
central-site  solutions to meet specific remote  access/WAN  requirements  while
managing and  controlling  these remote sites  (including a small office or home
office environment) - all from a single location.

Spectrum   Enterprise   Manager  is  the  industry's  only  fully   distributed,
multivendor  enterprise  management platform. It is one of the most flexible and
scalable management  solutions  available.  SPECTRUM  understands  relationships
among segments, systems,  applications and business processes and is designed to
provide the detailed  information  network  managers  need to make more informed
strategic  decisions.  SPECTRUM  proactively  corrects potential failures before
they occur.

Security  Solutions  programs  provide a line of products for Internet  security
applications.  Cabletron has  established  an agreement with Nokia that combines
Cabletron's   world-class  routing  capabilities  with  Nokia's  IPSOTM  routing
operating system and Check  PointFireWall-1TM,  best-of-breed firewall software,
to provide an  unprecedented  security  solution for Internet access and Virtual
Private Networking ("VPN").

Service and Support

In addition to its broad line of network  equipment,  the Company  also offers a
wide range of support services,  including maintenance;  consulting;  design and
configuration;   product  planning;  project  management;   training;   testing;
certification and documentation;  and performance  analysis.  The Company offers
comprehensive  training  programs to ensure that  customers  receive the maximum
benefit from their  networks.  Cabletron's  Professional  Service group forms an
integral  part of the  Company's  marketing  strategy,  as it  constitutes a key
element of the complete networking solution offered by Cabletron. With more than
100 sales and support offices worldwide,  Cabletron offers one of the industry's
strongest Service and Support organizations.

Distribution and Marketing

The Company has strengthened and expanded its relationship with distributors and
resellers.   The  Company  remains  focused  on  securing   relationships   with
distributors  and  resellers  that will  provide  quality  professional  service
support to the end-user in addition to carrying the Company's  line of products.
The  Company  extends  limited  product  return and price  protection  rights to
certain  distributors  and  resellers.  Such rights are  generally  limited to a
certain  percentage of sales over primarily a three month period. In addition to
the Company's use of distributors and resellers,  the Company  maintains its own
direct sales force with  representatives  located  around the world.  The direct
sales force is supplemented by employees located at Cabletron's headquarters and
regional  in-house  technical  services  and sales  support  staff.  The Company
believes that its ratio of in-house sales,  marketing and technical services and
sales  support  staff to field  sales  force  contributes  significantly  to the
effectiveness  of its field sales force. The Company's  international  locations
use various sales strategies  tailored to the preferred channels of distribution
for each country.  Such  strategies  include a direct sales  presence,  a direct
sales force working with local  distributors  or a  combination  of the two. The
Company continues to enhance its Synergy Plus Program.  The Synergy Plus Program
sets forth the  principles  of the  relationship  between  the  Company  and the
reseller,  including  level of information  and training,  business  support and
services,  pricing structure, and levels of organization.  Synergy Plus offers a
comprehensive,  well-defined  business  strategy,  a clear pricing  policy,  and
effective support in sales and marketing.
<PAGE>

The Company employs several  methods to market its products,  including  regular
participation in trade shows, frequent advertisements in trade journals, regular
attendance  by  corporate  officers  at  press  briefings  and  trade  seminars,
submission of demonstration  products to selected customers for evaluation,  and
direct mailings and telemarketing efforts.

The Company  operates  in one  industry  segment  throughout  four  geographical
regions (United States, Europe, Pacific Rim ("Pac Rim") and Other).

Customers

The Company's end-user customers include brokerage, investment banking firms and
other financial  institutions;  federal,  state and local  government  agencies;
commercial,   industrial  and   manufacturing   companies;   multinational   and
international   companies;   telecommunications   companies;   internet  service
providers;  health  care  facilities;  insurance  companies;  universities;  and
leading accounting and law firms.

During the year ended February 28, 1999,  the Company had one customer,  Compaq,
which  accounted  for 11 percent of total sales and 7 percent of total  accounts
receivable, and the United States federal government accounted for approximately
15% of net sales.  During the year ended  February 28, 1998, no single  customer
represented more than 4 percent of Cabletron's net sales; however,  sales to the
United States federal  government  accounted for approximately 13 percent of net
sales.  Cabletron's  top ten  customers,  excluding  the United  States  federal
government,  represented,  in the  aggregate,  approximately  22 percent  and 15
percent  of its net sales for the  fiscal  years  ended  February  28,  1999 and
February  28,  1998,  respectively.  Most of the  Company's  contracts  with the
federal  government  are on a  fixed-price  basis.  The books and records of the
Company  are  subject  to  audit by the  General  Services  Administration,  the
Department of Labor and other government agencies.

Research and Development

During  the  years  ended  February  28,  1999,  1998  and  1997,  research  and
development  expenses were $210.4 million,  $181.8 million,  and $161.7 million,
respectively. The Company has consistently increased its R&D efforts, because it
believes  its  future   success  will  be  largely   dependent  on  new  product
development. The Company believes that as customers place more reliance on their
networks and those networks grow larger and more complex,  end-user's evaluation
of network  technology will  increasingly be based on the software  component of
products,  particularly  in the area of  network  control  management;  thus the
Company has continued to emphasize its R&D efforts in the software arena.

During the year ended  February  28,  1999,  the Company  expanded the number of
software and hardware engineers focused on research and development efforts; and
the Company  increased its potential  product  technologies  through mergers and
acquisitions  of public  and  private  companies.  In March  1998,  the  Company
acquired Yago Systems, Inc., a privately held manufacturer of wire speed routing
and Layer-4  switching  products and solutions.  In September  1998, the Company
acquired the DSLAM division of Ariel Corporation,  a privately held manufacturer
of digital  subscriber  line access  multiplexor  products;  FlowPoint  Corp., a
privately  held  manufacturer  of  digital  subscriber  line  router  networking
products;  and  NetVantage,  Inc.,  a publicly  held  manufacturer  of  ethernet
workgroup switches.

The Company  plans to continue  to invest in  emerging  technologies  for use in
existing and future products through both internal efforts and acquisitions.
<PAGE>

Supply of Components

The Company's  products include certain  components,  including ASICs,  that are
currently  available from single or limited sources,  some of which require long
order  lead  times.  In  addition,   certain  of  the  Company's   products  and
subassemblies  are  manufactured  by  single-source  third  parties.   With  the
increasing  technological  sophistication  of new  products  and the  associated
design and manufacturing complexities,  the Company anticipates that it may need
to rely on  additional  single-source  or limited  suppliers  for  components or
manufacture of products and subassemblies. Any reduction in supply, interruption
or extended delay in timely supply, variances in actual needs from forecasts for
long order lead time  components,  or change in costs of components could affect
Cabletron's  ability  to deliver  its  products  in a timely and  cost-effective
manner and may  adversely  impact the Company's  operating  results and supplier
relationships.

Manufacturing

Since  inception,  Cabletron has  manufactured and assembled most of its current
products.  In addition to  manufacturing  most of its own products,  the Company
utilizes a variety  of  independent  third-party  manufacturing  companies.  The
manufacturing  process enables the Company to provide  customers with customized
hardware and software products that meet the customers' needs.

Recent Developments

Subsequent to the end of fiscal year 1999, the Company  developed a more focused
growth  strategy  that  resulted in the Company  outsourcing  its  manufacturing
operations to an independent third-party manufacturing company,  Celestica, Inc.
("Celestica").  As part of this long-term supply agreement and other agreements,
Celestica will acquire certain  Cabletron  employees,  manufacturing  assets and
inventory  during fiscal 2000. The  partnership is intended to allow the Company
to  continue  to  improve  its  time-to-market,   quality,  competitive  pricing
flexibility,  and,  ultimately,  lower  its  cost  of  goods  sold.  Celestica's
manufacturing processes and procedures are ISO 9002 certified.

Competition

The data networking industry is intensely  competitive and subject to increasing
consolidation.  Competition  in the data  networking  industry has  increased in
recent  periods,  and  Cabletron  expects  competition  to  continue to increase
significantly  in the  future  from  its  current  competitors,  as well as from
potential  competitors that may enter the Company's  existing or future markets.
The Company's competitors include many large domestic and foreign companies,  as
well as emerging  companies  attempting to sell products to specialized  markets
such as those  addressed by Cabletron.  Cabletron's  primary  competitors in the
data networking  industry are Cisco Systems,  Inc., FORE Systems,  Inc.,  Lucent
Technologies,  Inc.,  Northern Telecom Ltd. and 3Com Corporation.  Several large
telecommunications equipment companies, including Nokia Corp., Alcatel, Ericcson
and  Siemens  have  begun to compete in the data  networking  industry  and have
recently  made  investments  in or  acquired  several  smaller  data  networking
companies.  Many of the industry's  rating agencies have ranked Cabletron as one
of the top four  companies in this  industry.  Companies in the data  networking
industry  compete upon the basis of price,  technology,  and brand  recognition.
Competitors   may  introduce  new  or  enhanced   products  that  offer  greater
performance or functionality than the Company's products.  Increased competition
could result in price reductions,  reduced margins and loss of market share, any
or all of which could  materially  and adversely  affect  Cabletron's  business,
financial  condition,   and  operating  results  and  increase  fluctuations  in
operating results.

Intellectual Property

The Company's success depends in part on its proprietary technology. The Company
attempts to protect its  proprietary  technology  through  patents,  copyrights,
trademarks, trade secrets and license agreements. The Company believes, however,
that its success will depend to a greater extent upon innovation,  technological
expertise and  distribution  strength.  There can be no assurance that the steps
taken by the Company in this regard will be adequate to prevent misappropriation
of its  technology  or that the  Company's  competitors  will not  independently
develop  technologies  that are  substantially  equivalent  or  superior  to the
Company's  technology.  In addition,  the laws of some foreign countries may not
protect the  Company's  proprietary  rights to the same extent as do the laws of
the United States. The Company has been issued a number of patents and has other
patent applications  pending.  There is no assurance that patents will be issued
from pending applications,  or that claims allowed on any future patents will be
sufficiently  broad to protect the  Company's  technology.  No assurance  can be
given that any patents issued to the Company will not be challenged, invalidated
or circumvented or that the rights granted  thereunder will provide  competitive
advantages.
<PAGE>

Backlog

The Company's  backlog at February 28, 1999 was  approximately  $170.0  million,
compared with backlog at February 28, 1998 of approximately  $165.0 million.  In
general,  orders  included  in backlog may be  canceled  or  rescheduled  by the
customer without significant  penalty.  Therefore,  backlog as of any particular
date may not be  indicative  of the  Company's  actual sales for any  succeeding
fiscal period.

Inventory and working capital

The Company has  improved  its  inventory  controls  which has resulted in lower
inventory levels while  maintaining  sufficient  inventory levels that allow for
shipment of most customer orders,  that require rapid delivery,  within 24 to 48
hours of receipt. In addition,  a portion of the decrease in working capital was
due to the  transfer of more cash to long-term  investments.  As of February 28,
1999,  working  capital was $370.9  million  compared to $593.0 at February  28,
1998.

Employees

As of  February  28,  1999,  the  Company  had 5,951  full-time  employees.  The
Company's  employees  are  not  represented  by  a  union  or  other  collective
bargaining  agent and the Company  considers its relations with its employees to
be good.

See "Business  Environment and Risk Factors" beginning on page 23 for additional
information.

Domestic and Foreign Financial Information

Financial information concerning foreign and domestic operations is contained in
Note 13 of "Notes to the Consolidated  Financial Statements" included at page 45
of this document.


ITEM 2. Properties

Cabletron  owns and occupies a number of buildings in Rochester,  New Hampshire,
including a 206,000 square-foot manufacturing facility which also accommodates a
portion of corporate engineering. Other buildings, totaling 122,000 square-feet,
accommodate  sales,  marketing,  administration and technical support personnel.
Another  building,  totaling  221,000 square feet, is used as a warehousing  and
distribution  facility.   Cabletron  owns  a  114,000  square-foot  building  in
Merrimack, New Hampshire which accommodates additional engineering personnel.

In addition to owning numerous buildings,  the Company's management has made the
strategic  decision to lease other facilities.  Cabletron leases a manufacturing
building,  totaling 120,000 square feet, in Ironton, Ohio. Cabletron also leases
a 78,000 square-foot research and development facility in Durham, New Hampshire.
Cabletron leases a 152,000 square-foot building to accommodate  engineering,  in
Andover,  Massachusetts.  The Company has entered into various leases in Ireland
to support its  international  sales  activities.  Cabletron  occupies a 100,000
square-foot   manufacturing   facility  in  Limerick,   Ireland,  and  a  75,000
square-foot distribution center in Shannon,  Ireland.  Cabletron is renovating a
129,000  square-foot  facility in Santa Clara,  California;  this  facility will
accommodate  a central  west coast sales  office and  research  and  development
personnel.   Cabletron  also  occupies   facilities  in  Ann  Arbor,   Michigan,
Piscataway, New Jersey and Salt Lake City, Utah. Cabletron also leases sales and
technical support offices that range from 1,000 to 25,000 square feet at various
locations throughout the world.

Pursuant to the March 1999  restructuring  initiative,  the  Company  expects to
consolidate some facilities and staff as a result of the restructuring plan. The
outsourcing  agreement,  entered into subsequent to the end of fiscal 1999, will
potentially enable the Company to sub-lease certain manufacturing  facilities in
New Hampshire and close its manufacturing  facility in Ironton, Ohio. Management
expects to decrease the total number of facilities  that it occupies  throughout
the next 12 - 18 months.

Financial  information  regarding leases and lease  commitments are contained in
Note 10 of "Notes to the Consolidated  Financial Statements" included at page 43
of this document.
<PAGE>


ITEM 3.  Legal Proceedings

As  previously  disclosed in  Cabletron's  annual report on Form 10-K for fiscal
1998, a  consolidated  class action  lawsuit  purporting to state claims against
Cabletron  and  certain  officers  and  directors  of  Cabletron  was  filed and
currently is pending in the United States District Court for the District of New
Hampshire.  The complaint alleges that Cabletron and several of its officers and
directors  disseminated   materially  false  and  misleading  information  about
Cabletron's operations and acted in violation of Section 10(b) and Rule 10b-5 of
the Exchange Act during the period  between  March 3, 1997 and December 2, 1997.
The  complaint  also alleges that certain of the  Company's  alleged  accounting
practices resulted in the disclosure of materially  misleading financial results
during  the  same  period.  More  specifically,  the  complaint  challenged  the
Company's revenue recognition policies,  accounting for product returns, and the
validity of certain sales.  The complaint does not specify the amount of damages
sought on behalf of the class.  Cabletron and other  defendants moved to dismiss
the  complaint  and,  by Order dated  December  23,  1998,  the  District  Court
expressed  its  intention  to grant  Cabletron's  motion to  dismiss  unless the
plaintiffs  amended  their  complaint  within  30 days (or  January  22,  1999).
Plaintiffs timely served a Second Consolidation Class Action Complaint,  and the
Company has filed a motion to dismiss  this second  complaint.  A ruling on that
motion is not expected  earlier  than July,  1999.  The legal costs  incurred by
Cabletron  in  defending  itself and its  officers  and  directors  against this
litigation,  whether or not it prevails, could be substantial,  and in the event
that the plaintiffs  prevail,  the Company could be required to pay  substantial
damages.  This  litigation  may be  protracted  and may result in a diversion of
management and other resources of the Company.  The payment of substantial legal
costs or damages, or the diversion of management and other resources, could have
a material  adverse  effect on the Company's  business,  financial  condition or
results of operations.


ITEM 4.  Submission of Matters to a Vote of Security Holders

During the fourth  quarter of the fiscal year covered by this report,  no matter
was submitted to a vote of the Company's security holders.

<PAGE>


Executive Officers of the Registrant

The executive officers of the Company are as follows:

<TABLE>
<CAPTION>

Name                       Age      Position
----                       ---      --------
<S>                     <C>       <C>

Craig R. Benson            44       Chairman, President, Chief Executive Officer, Treasurer and Director

Carl E. Boisvert           41       Executive Vice President, Sales

John d'Auguste             48       President of Operations

Enrique P. Fiallo          46       Senior Vice President and Chief Information Officer

Allen L. Finch             38       Senior Vice President, Worldwide Marketing, Corporate Strategy & Communications

Earle S. Humphreys         52       Executive Vice President, Global Services

Eric Jaeger                36       Senior Vice President and General Counsel

David J. Kirkpatrick       47       Corporate Executive Vice President of Finance and Chief Financial Officer

Piyush Patel               43       Senior Vice President, Worldwide Engineering

Linda F. Pepin             46       Senior Vice President, Human Resources

Michael A. Skubisz         32       Chief Technology Officer

</TABLE>

Craig R. Benson served as Director of Operations of Cabletron from November 1984
until April of 1989 and  Chairman,  Chief  Operating  Officer and  Treasurer  of
Cabletron  from April of 1989 until  September 1, 1997.  On March 30, 1998,  Mr.
Benson became President and Chief Executive Officer.

Carl E.  Boisvert has served as Executive  Vice  President,  Sales since October
1998. Prior to joining Cabletron,  he held a variety of senior management roles,
including  Vice   President/General   Manager  for  North  America,   at  Amdahl
Corporation  during an 8-year tenure.  Prior to joining  Amdahl,  he served as a
Vice President with State Street Bank and a Regional Sales Manager with IBM.

John  d'Auguste  joined  Cabletron  in  December  1997 as the  President  of the
Enterprise  Business Unit and on March 30, 1998 became  President of Operations.
Before  joining  Cabletron,  Mr.  d'Auguste  served  Gateway  2000  as the  Vice
President of Direct Sales.  He previously held the position of Vice President of
Operations.  Prior to joining  Gateway 2000, he served as the Vice  President of
Product Business Unit for General Railway Signal.

Enrique  P.  (Henry)  Fiallo  has  served as  Senior  Vice  President  and Chief
Information  Officer since November 1998. Prior to joining Cabletron,  he served
as Senior Vice  President  and Chief  Information  Officer at Entergy  Services,
Inc.. Prior to joining Entergy,  he was Vice President of Logistics  Information
Systems at Ryder Systems,  Inc., in Miami,  Florida,  where he held a variety of
senior  management  roles in IT,  MIS and  telecommunications  during a  10-year
tenure.

Allen L. Finch has  served as Senior  Vice  President  of  Worldwide  Marketing,
Corporate Strategy & Communications since March 1998. From October 1997 to March
1998,  he served as Senior Vice  President  of  Corporate  Strategy and Business
Development. From 1991 to 1997, he was a strategic and communications consultant
in Washington, D.C.

Earle S.  Humphreys has served as Executive  Vice  President of Global  Services
since July 1998.  Prior to joining  Cabletron,  he served as Senior  Director of
Services Solution Marketing at Compaq Computer Corp. Prior to joining Compaq, he
held  a  variety  of  senior  management  roles,  including  Vice  President  of
Consulting Services, at Tandem Computers during a 10-year tenure.

Eric  Jaeger has served as General  Counsel  and  Senior  Vice  President  since
October 1998. Prior to joining  Cabletron,  he was a corporate attorney with the
law firm of Ropes & Gray.

David J. Kirkpatrick has served as Corporate Executive Vice President of Finance
since  March 1998.  He served as Director of Finance of the Company  from August
1990 until March 1998 and has served as Chief  Financial  Officer  since  August
1990.  From 1986 to 1990, he was the Vice  President of Zenith Data  Systems,  a
subsidiary of Zenith Electronics Corporation.

Piyush Patel has served as Senior Vice President of Worldwide  Engineering since
October  1998.  From  September  1996 to October  1998, he served as CEO at Yago
Systems,  Inc.  and from 1980 to 1996,  he held a variety  of senior  management
positions at Intel, Sun Microsystems, MIPS computers and QED.
<PAGE>

Linda F. Pepin has served as Senior  Vice  President  of Human  Resources  since
September 1997. From 1989 to 1997, she was Director of Human Resources. Prior to
joining Cabletron, she held various positions in human resource management.

Michael A. Skubisz has served as Chief Technology  Officer since September 1998.
From 1993 to 1998, he served as Vice President of Product  Marketing and Product
Management.  He has held various  positions  at  Cabletron,  including  Regional
Manager  of Field  Engineering  in the New York City  office  where he began his
career with Cabletron in 1988.

Key Personnel

On September 1, 1997, S. Robert Levine  resigned as President,  Chief  Executive
Officer  and  director  of  Cabletron  and Donald B. Reed was  appointed  to the
positions of President,  Chief Executive  Officer and director of Cabletron.  On
the same date, Craig R. Benson resigned as Chief Operating  Officer of Cabletron
but  remained  as  Treasurer  and the  Chairman  of the  Board of  Directors  of
Cabletron.  On March 30, 1998, Mr. Reed resigned as President,  Chief  Executive
Officer, and on July 29, 1998 Mr. Reed resigned as a director of Cabletron.  Mr.
Benson assumed the role as President and Chief  Executive  Officer and continues
as Treasurer and Chairman of the Board of Directors of Cabletron.  The Company's
success is dependent in large part on Mr. Benson and other key technical,  sales
and management  personnel.  The loss of one or more of these  individuals  could
adversely affect the Company's business.

<PAGE>

PART II

ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

STOCK PRICE HISTORY

The  following  table sets forth the high and low sale prices for the  Company's
Common Stock as reported on the New York Stock Exchange (symbol - CS) during the
last three fiscal years. As of May 17, 1999, the Company had approximately 3,540
stockholders  of record.  The Company has paid no  dividends on its Common Stock
and anticipates it will continue to reinvest earnings to finance future growth.


Fiscal 1999                               High                 Low
-----------                              ------              ------

First quarter                            $15.56              $12.50
Second quarter                            14.31                6.63
Third quarter                             15.31                6.63
Fourth quarter                           $14.38               $7.69

Fiscal 1998                               High                 Low
-----------                              ------              ------

First quarter                            $46.50              $27.50
Second quarter                            46.13               27.88
Third quarter                             36.25               22.94
Fourth quarter                           $23.50              $12.63

Fiscal 1997                               High                 Low
-----------                              ------              ------

First quarter                            $43.56              $31.63
Second quarter                            36.06               26.50
Third quarter                             41.50               27.56
Fourth quarter                           $42.50              $28.00

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

CABLETRON SYSTEMS, INC.

Statement of Operations Data:

(in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                    FISCAL YEAR ENDED
                                       ------------------------------------------------------------------------

                                       February 28,   February 28,   February 28,   February 29,   February 28,
                                           1999           1998           1997           1996           1995
                                       ------------   ------------   ------------   ------------   ------------
                                                       (Restated)     (Restated)
<S>                                   <C>            <C>            <C>            <C>            <C>

Net sales                               $1,411,279     $1,377,330     $1,406,552     $1,100,349       $833,218
Cost of sales                              811,350        676,291        595,407        448,699        340,424
                                        ----------     ----------     ----------     ----------       --------
Research and development                   210,393        181,777        161,674        127,289         89,129
Selling, general and administrative        446,232        373,789        301,469        223,083        166,649
Fixed asset loss                            17,570            ---            ---            ---            ---
Special charges                            217,350        234,285         21,724         94,343            ---
                                        ----------     ----------     ----------     ----------       --------
  Income (loss)  from operations          (291,616)       (88,812)       326,278        206,935        237,016
Interest income                             15,089         18,578         19,422         17,891          5,572
                                        ----------     ----------     ----------     ----------       --------
  Income (loss) before taxes              (276,527)       (70,234)       345,700        224,826        242,588
Income tax expense (benefit)               (31,136)       (35,273)       119,621         80,341         86,014
                                        ----------     ----------     ----------     ----------       --------
  Net income (loss)                    ($  245,391)   ($   34,961)    $  226,079     $  144,485       $156,574
                                        ==========     ==========     ==========     ==========       ========

Net income (loss) per share - basic         ($1.47)        ($0.22)         $1.46          $0.95          $1.08
                                        ==========     ==========     ==========     ==========       ========
Net income (loss) per share - diluted       ($1.47)        ($0.22)         $1.42          $0.93          $1.07
                                        ==========     ==========     ==========     ==========       ========

Weighted average number of shares
    outstanding - basic                    167,432        157,686        155,207        151,525        145,125
                                        ==========     ==========     ==========     ==========       ========
Weighted average number of shares
    outstanding - diluted                  167,432        157,686        158,933        155,171        147,017
                                        ==========     ==========     ==========     ==========       ========
</TABLE>

Note:  Included in fiscal 1999 results are special charges ($207.2 million,  net
of tax)  related to the  in-process  research and  development  expenses for the
acquisitions  of Yago Systems,  Inc., the DSLAM  division of Ariel  Corporation,
FlowPoint,  Inc.  and  NetVantage,  Inc..  Included in fiscal  1998  results are
special charges related to the in-process research and development  expenses for
the acquisition of Digital's Network Products Group and the  implementation of a
strategic  realignment  plan  consisting  of $121.8  million and $21.5  million,
respectively  (net of tax).  Included in fiscal 1997 and fiscal 1996 results are
$13.5 million and $60.8 million (net of tax) of special  charge items related to
all  acquisitions for each fiscal year,  respectively.  Excluding these one-time
charges, pro forma net income (loss) and diluted net income (loss) per share are
as follows:


<TABLE>
<CAPTION>

                                                                   FISCAL YEAR ENDED
                                              ----------------------------------------------------------

                                              February 28,   February 28,   February 28,    February 29,
                                                  1999           1998           1997            1996
                                              ------------   ------------   ------------    ------------
(in thousands, except per share data)                         (Restated)     (Restated)

<S>                                             <C>              <C>            <C>        <C>
Pro forma net income (loss)                      ($38,191)        $108,339       $239,579     $205,285
Pro forma diluted net income per share (loss)      ($0.23)           $0.68          $1.51        $1.32
</TABLE>

<PAGE>



<TABLE>
<CAPTION>

                                                                  FISCAL YEAR ENDED
                                       ------------------------------------------------------------------------

Balance Sheet Data:                    February 28,   February 28,   February 28,   February 29,   February 28,
(in thousands)                             1999           1998           1997           1996           1995
                                       ------------   ------------   ------------   ------------   ------------
                                                       (Restated)     (Restated)
<S>                                    <C>            <C>            <C>             <C>            <C>

Working capital                           $370,945       $593,046       $679,056       $485,152       $381,758
Total assets                             1,566,500      1,682,048      1,310,809        996,908        702,200
Stockholders' equity                     1,089,833      1,085,075      1,085,452        809,886        593,942

</TABLE>


As  previously  reported,  in its  second  quarter  Form 10-Q for the year ended
February  28,  1999,  the  Company  received  comments  from  the  staff  of the
Securities & Exchange Commission ("SEC") on the Company's financial  statements,
particuraly with respect to the accounting for recent  acquisitions.  Based upon
these  comments,  the  Company  has  agreed  to make  certain  revisions  to the
consolidated  financial statements contained in this Annual Report on Form 10-K,
in certain  prior  Quarterly  Reports on Form 10-Q and in the  Company's  Annual
Report of Form 10-K for the Company's  year ended February 28, 1998. The SEC has
indicated that,  based upon the revisions the Company has agreed to make, it has
no further  comments on the  affected  consolidated  financial  statements.  The
revisions relate primarily to special charges associated with the acquisition of
the Network Products Group of Digital Equipment Corporation ("DNPG"), during the
fourth  quarter  of the  year  ended  February  28,  1998  and  special  charges
associated with the acquisition of ZeitNet, Inc. ("ZeitNet"),  during the second
quarter of the year ended February 28, 1997.  The Company has also  reclassified
certain other expenses related to the DNPG acquisition and to three acquisitions
consummated  during the year ended February 28, 1997 (ZeitNet,  Network Express,
Inc.  and  Netlink,  Inc.) from  special  charges to cost of sales and  selling,
general and administrative  expenses. The reclassifications had no effect on net
income (loss).

See Notes 2 (b) and 17 of the Consolidated  Financial  Statements for additional
information.

<PAGE>


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

The following discussion provides an analysis of Cabletron's financial condition
and  results  of  operations  and  should  be  read  in  conjunction   with  the
Consolidated  Financial  Statements and Notes thereto included elsewhere in this
annual   report  on  Form  10-K.   The   discussion   below   contains   certain
forward-looking  statements  relating  to,  among  other  things,  estimates  of
economic and  industry  conditions,  sales  trends,  expense  levels and capital
expenditures.   Actual   results   may  vary  from  those   contained   in  such
forward-looking statements. See "Business Environment and Risk Factors" below.

Results of Operations

This table sets  forth the  Company's  net  sales,  cost of sales,  expenses  by
category,  income (loss) from operations,  interest income, income (loss) before
income taxes and net income (loss)  expressed as percentages  of net sales,  for
the fiscal years ended February 28, 1999, 1998 and 1997:

<TABLE>
<CAPTION>

                                                     1999              1998             1997
                                                    -----             -----            -----

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

Net sales                                           100.0 %           100.0 %          100.0 %
Cost of sales                                        57.5              49.1             42.3
                                                    -----             -----            -----
  Gross profit                                       42.5              50.9             57.7
Research and development                             14.9              13.2             11.5
Selling, general and administrative                  31.6              27.1             21.5
Fixed asset loss                                      1.2               ---              ---
Special charges                                      15.4              17.0              1.5
                                                    -----             -----            -----
  Income (loss) from operations                     (20.6)             (6.4)            23.2
Interest income                                       1.1               1.3              1.4
                                                    -----             -----            -----
  Income (loss) before income taxes                 (19.5)             (5.1)            24.6
                                                    -----             -----            -----
Income tax expense (benefit)                         (2.2)             (2.6)             8.5
                                                    -----             -----            -----
  Net income (loss)                                 (17.4) %           (2.5) %          16.1 %
                                                    =====             ======           ======
</TABLE>

Net Sales

Net sales for the year ended  February  28, 1999  increased  by 2.5% to $1,411.3
million from $1,377.3  million in the year ended  February 28, 1998 and compared
to $1,406.6  million in the year ended  February 28, 1997.  Net sales within the
United States  ("domestic"),  in the year ended  February 28, 1999,  were $829.4
million or 58.8% of net sales,  compared to $923.3 million or 67.0% of net sales
in the year ended  February 28, 1998 and $998.4 million or 71.0% of net sales in
the year ended  February 28, 1997.  Domestic net sales declined due to continued
price  competitiveness  resulting  in lower  prices and the  decline in sales of
shared technology products not fully offset by the increase in sales of switched
media  products.  Net sales outside the United States in the year ended February
28, 1999 were $581.9 million, or 41.2% of net sales,  compared to $454.0 million
or 33.0% of net sales in the year ended  February 28, 1998 and $408.2 million or
29.0% of net sales in the year ended  February  28,  1997.  In  addition  to the
Company's  direct  international  sales  force,  the Company  sells its products
through several reseller channels and international  distributors.  The increase
in  international  net sales in fiscal 1999 compared to the year ended  February
28, 1998 reflects a full year of DNPG/Compaq activity and the Company's emphasis
on managing global  operations.  The increase reflects growth rates of 47.1% and
32.9%  in the  Pac  Rim  region  and  Europe,  respectively,  offset  by a 29.0%
reduction in other international sales, primarily Latin America. The increase in
international net sales in the year ended February 28, 1998 compared to the year
ended February 28, 1997 reflected growth in all major international regions. The
Company's international net sales are primarily denominated in U.S. dollars. The
effect of foreign exchange rate  fluctuations did not have a significant  impact
on the Company's operating results in the periods presented. The Company expects
that international  sales will continue to account for a significant  portion of
the Company's net sales in future periods.
<PAGE>

The overall  increase in the year ended  February 28, 1999 net sales compared to
the year ended  February 28, 1998 net sales was due to increases in the sales of
switched  products,  software and professional  services.  The current year also
included a full year of DNPG/Compaq sales,  largely contributing to the increase
in sales of  switched  products.  Sales of  shared  media  and  other  products,
including  similiar  DNPG/Compaq  products,  decreased  throughout  the year and
relative to the prior year. Sales of switched products increased 14.2% to $776.9
million in the year ended  February 28, 1999 compared to sales of $680.6 million
in the year ended February 28, 1998. The increase in sales of switched  products
was a result of increasing unit sales (primarily related to the SmartSwitch 6000
products).  Prices per product decreased slightly for some of the older switched
products  during the year ended February 28, 1999, but shipments of new products
offset this slight price decline.  Sales of the Company's  shared media products
decreased  46.5% to $170.0  million in the year ended February 28, 1999 compared
to sales of $317.6 million in the year ended February 28, 1998.  Sales of shared
media products steadily  decreased  throughout the year ended February 28, 1999.
Sales of  shared  media  products,  during  the  second  half of the year  ended
February  28,  1999,  were  approximately  $59.6  million  (as a result  of both
declining unit shipments and lower prices per product).  The Company expects the
decrease  in sales of its shared  media  products  to continue in fiscal 2000 as
customers  continue  the  migration  from  shared  media  products  to  switched
products.  The  pricing  environment  has been very  competitive  and has caused
significant price erosion in the Company's older products.

Sales of software,  professional services and other were $464.4 million or 32.9%
of total net sales in the year  ended  February  28,  1999,  compared  to $379.1
million or 27.5% of total sales in the year ended  February  28, 1998 and $389.5
million or 27.7% of net sales in the year ended  February 28, 1997.  The Company
is focused on supplying  customers with advanced  software packages that include
the  applicable  software  programs,  installation,   training  and  maintenance
services as one product.  This bundled  product will become an integral  part of
Cabletron's customer  development and support activities.  During the year ended
February 28, 2000,  management intends to offer customers more advanced software
packages and to attempt to increase  service  revenue by continuing to emphasize
this portion of the business.  As part of the Company's acquisition of DNPG, the
Company  agreed to appoint  Digital as the service  provider  for the  Company's
products in certain smaller countries,  where the Company did not already have a
significant  investment in services.  This appointment has not had a significant
effect on the growth of the Company's own service and support organization.

The slight decrease in net sales in the year ended February 28, 1998 compared to
the year ended  February 28, 1997 was largely a result of a decrease in sales of
the  Company's  shared  media  products.  Sales of the  Company's  shared  media
products  decreased  56.6% to $317.6 million in the year ended February 28, 1998
compared to sales of $717.8  million in the year ended  February 28,  1997.  The
decline in revenue of shared media  products was a result of both declining unit
shipments  and lower prices per  product.  The decrease in sales of shared media
products was offset  somewhat by an increase in sales of the Company's  switched
products (comprised primarily of the SmartSwitch 9000, 6000, and 2200 products).
Sales of switched products  increased 129.4% to $686.7 million in the year ended
February  28,  1998  compared  to sales of $299.3  million in fiscal  1997.  The
increase in sales of switched  products was a result of  increasing  unit sales.
Prices per product  decreased  slightly  for switched  products  during the year
ended February 28, 1998,  but the increase in unit shipments  offset this slight
price decline.
<PAGE>

Gross Profit, Expenses and Interest Income

Gross  profit was $599.9  million or 42.5% in the year ended  February  28, 1999
compared to $701.0  million or 50.9% of net sales in the year ended February 28,
1998 and  compared  to $811.1  million  or 57.7% of net sales in the year  ended
February 28, 1997.  The decrease in gross profit in the year ended  February 28,
1999,  as compared to the year ended  February 28, 1998,  as a percentage of net
sales reflects the impact on pricing from increased  sales to channel  resellers
and independent  distributors (rather than selling directly to the end-user) and
a more  competitive  pricing  environment;  additionally,  the shift from shared
media to switch products resulted in higher inventory obsolesence. The Company's
decrease in gross profit in the year ended  February 28, 1998 as compared to the
year ended  February 28, 1997 was due to pricing  pressures,  especially  in the
Company's foreign markets which traditionally  carried a higher margin, and also
to increased inventory write-offs. The Company was able to maintain a consistent
gross margin in the year ended February 28, 1997, as compared to prior years, by
introducing and selling products with improved functionality, further developing
its service  maintenance  program and  improving  purchasing  and  manufacturing
efficiencies.  In the future,  the Company's gross profit may be affected by the
same  factors as the year  ended  February  28,  1999,  including  the price per
product sold,  inventory  obsolescence,  the  distribution  channels used, price
competition,  the mix of products  sold,  the  acquisition  of newer products at
different margins and the result of the anticipated  savings  recognized through
its outsourcing of the manufacturing process.

Research and  development  ("R&D")  expenses in the year ended February 28, 1999
increased to $210.4 million or 14.9% of net sales, compared to $181.8 million or
13.2% of net sales in the year ended  February  28,  1998 and $161.7  million or
11.5% of net sales in the year ended  February 28, 1997.  The increased  R&D, in
the year ended February 28, 1999,  reflected higher spending due to the addition
of software and hardware engineering  personnel,  directly hired and as a result
of the Company's  acquisitions,  and the associated costs related to development
of new products and the next generation of existing products.  The increased R&D
spending  in fiscal  1998,  as  compared to the year ended  February  28,  1997,
reflected the Company's ongoing research and development efforts,  including the
further  development of the SmartSwitch family of products,  SPECTRUM management
software  as well as the  increase  in the  hiring of  additional  software  and
hardware  engineers and associated costs related to development of new products.
R&D spending  increased as a percentage of net sales in the year ended  February
28, 1998  compared to the year ended  February  28, 1997  primarily  because net
sales were lower than the Company  expected in the year ended February 28, 1998.
The Company plans to continue emphasizing research and development as a critical
strategy for the Company.  In the future, the Company will attempt to reduce R&D
spending as a percentage of net sales similar to the percentage  levels prior to
the year ended  February 28, 1998.  The Company plans to continue to develop new
products  through  a  combination  of  internal  development  efforts,  minority
investments in independent companies and acquisitions. There can be no assurance
that research and development  efforts or acquisitions of technology will result
in  commercially  successful new technology and products in the future,  or that
such  technology  and  products  will be  introduced  in  time  to  meet  market
requirements.  The Company's  research and development  efforts may be adversely
affected by other factors  discussed  more fully below in "Business  Environment
and Risk Factors."

Selling,  general and  administrative  ("SG&A")  expenses were $446.2 million or
31.6% of net sales in the year  ended  February  28,  1999,  compared  to $373.8
million or 27.1% of net sales in the year  ended  February  28,  1998 and $301.5
million  or  21.5% of net  sales in the year  ended  February  28,  1997.  These
increases  were a result of an increase in  amortization  expense of  intangible
assets  recorded  from the  acquisitions,  an  increase  in sales and  technical
personnel,  incentive  payments to employees added through the  acquisitions and
increased  marketing  programs.  SG&A expenses  increased as a percentage of net
sales in fiscal 1999  primarily as a result of lower than  expected  sales.  The
Company expects to focus more of the future SG&A  expenditures on core spending,
advertising and marketing to potential  customers,  for revenue generation;  and
the Company expects that SG&A expenses will include more amortization expense in
the year ended February 28, 2000, due to a full year of amortization expense for
acquisitions  completed  during the year ended February 28, 1999, as compared to
fiscal 1999; while other components of SG&A will remain approximately  constant,
in absolute dollars, in the upcoming year.
<PAGE>

In the fourth quarter of the year ended February 28, 1999, the Company performed
a physical inventory of manufacturing  equipment and fixtures in preparation for
the planned  outsourcing of its  manufacturing  operations.  As a result of this
inventory,  the Company wrote off  approximately  $17.6  million of assets.  The
writeoff  consisted of equipment and fixtures  that could not be located  ($14.2
million) and equipment recently idled with no future value.

In the year ended February 28, 1999,  special  charges were taken for in-process
research  and  development  related to the  acquisition  of Yago  Systems,  Inc.
($150.0  million),  the DSLAM  division of Ariel  Corporation  ($26.0  million),
FlowPoint Corp.  ($12.0 million) and NetVantage,  Inc. ($29.4  million).  In the
year ended February 28, 1998, special charges were taken for in-process research
and development  related to the acquisition of the DNPG ($199.3 million) and the
implementation  of a realignment plan ($35.0 million),  totaling $234.3 million.
In the year ended  February 28, 1997, a $21.7 million  special  charge was taken
for the acquisitions of ZeitNet, Network Express, Netlink and The OASys Group.

Net  interest  income in the year  ended  February  28,  1999 was $15.1  million
compared to $18.6  million in the year ended  February  28, 1998 and compared to
$19.4 million in the year ended  February 28, 1997. The decrease of net interest
income in the year ended  February  28,  1999 as  compared  to fiscal  1998 is a
result of lower cash  available for  short-term  investments  caused by Compaq's
utilization of product  credits in place of cash to settle  accounts  receivable
and cash used to fund  acquisitions.  The slight  decrease in interest income in
the year ended February 28, 1998 is primarily the result of lower interest rates
than in the year ended February 28, 1997.

Income (Loss) Before Taxes

Loss  before  taxes was  $276.5  million in the year ended  February  28,  1999,
compared to $70.2 million in the year ended  February 28, 1998 and income before
taxes of $345.7  million in the year ended  February 28, 1997. In the year ended
February 28, 1999, the Company recorded a fixed asset loss of $17.6 million; and
recorded   special   charges  of  $217.4  million  for  in-process   research  &
development,  consisting  of  (i)  NetVantage,  Inc.  for  $29.4  million,  (ii)
FlowPoint Corp. for $12.0 million, (iii) the DSLAM division of Ariel Corporation
for $26.0  million and (iv) Yago  Systems,  Inc. for $150.0  million.  In fiscal
1998, the Company recorded special charges of $234.3 million,  consisting of (i)
in process  research and  development of $199.3  million in connection  with the
acquisition of the DNPG, and (ii) charges relating to the Company's  realignment
of $35.0 million.  In the year ended  February 28, 1997, the Company's  recorded
special charges  related to acquisitions of $21.7 million.  The increase in loss
before  taxes in the year ended  February 28, 1999 was due to lower gross profit
margins as the Company  continued  its migration  from shared media  products to
switched  products  and  higher  personnel  costs in R&D  departments  more than
offsetting the decrease in special charges.  The decrease in income before taxes
in the year ended  February 28, 1998 was due primarily to the increase of $212.6
million in special charges.  Excluding  special  charges,  loss before taxes was
$59.2  million in the year ended  February 28, 1999,  compared to income  before
taxes of $164.1  million in the year ended February 28, 1998, and $367.4 million
in the year ended  February 28, 1997. The decrease in income before taxes in the
year ended February 28, 1998 as compared to the year ended February 28, 1997 was
also due to lower revenues and higher cost of sales.  The factors  affecting net
sales and cost of sales are discussed above.

Income Tax Expense (Benefit)

Excluding the effects of special charges,  the Company's  effective tax rate was
34.0% for the year ended  February 28, 1999,  34.1% for the year ended  February
28, 1998 and 34.6% for the year ended  February 28, 1999. The income tax benefit
was $31.1  million in fiscal 1999  compared to a benefit of $35.3 million in the
year ended  February  28,  1998 and $119.6  million of income tax expense in the
year ended  February  28,  1997.  The tax  benefit  decreased  in the year ended
February  28, 1999 as compared to the year ended  February 28, 1998 due to fewer
tax deductible charges related to acquisitions and other corporate charges.  The
year ended  February  28, 1999 income tax benefit  included a $10.2  million tax
benefit  related to the  acquisition  of Ariel and a $6.8  million  tax  benefit
related to the fixed asset  loss.  The year ended  February  28, 1998 income tax
benefit  included  $77.5 million  related to the  acquisition  of DNPG and $13.5
million related to the Company's  realignment.  The year ended February 28, 1997
income tax expense was  incurred due to net income after  special  charges.  Net
loss was $245.4  million in the year ended  February 28,  1999,  compared to net
loss of $35.0  million in the year  ended  February  28,  1998 and net income of
$226.1 million in the year ended February 28, 1997.
<PAGE>

Realignment

The Company  announced on December 16, 1997 a global  initiative to better align
the Company's  business  strategy with its focus in the  enterprise  and service
provider markets.  The realignment is intended to better position the Company to
provide  more   solutions-oriented   products  and  service;   to  increase  its
distribution of products  through  third-party  distributors  and resellers;  to
improve its position internationally and to aggressively develop partnership and
acquisition  opportunities.  The Company incurred a pre-tax charge in the fourth
quarter of fiscal 1998 of $35.0 million ($21.5  million,  net of tax) related to
the realignment.  The realignment included general expense reduction through the
elimination  of  duplicate  facilities,  consolidation  of  related  operations,
reallocation  of  resources,  including  the  elimination  of  certain  existing
projects, and personnel reduction. During fiscal 1999, the Company completed the
reductions required to better align its global initiative.

Business Combinations

1999 Acquisitions

Yago Systems, Inc.

In connection with the acquisition of YAGO, the Company allocated $150.0 million
of the purchase  price to in-process  research and  development  projects.  This
allocation represents the estimated fair value based on risk-adjusted cash flows
related to the incomplete products. At the date of acquisition,  the development
of these projects had not yet reached technological feasibility and the research
and development ("R&D") in progress had no alternative future uses. Accordingly,
these costs were expensed as of the acquisition date.

The Company  used  independent  third-party  appraisers  to assess and  allocate
values to the in-process  research and development.  The value assigned to these
assets were determined by identifying  significant  research  projects for which
technological  feasibility  had not  been  established,  including  development,
engineering and testing  activities  associated with the  introduction of YAGO's
next-generation switching router family of products and technologies.

At the time of its  acquisition,  YAGO was a development  stage company that had
spent  approximately  $5.6  million on research and  development  focused on the
development of advanced  gigabit  switching  technology.  In fact, all of Yago's
efforts since the company's inception had been directed towards the introduction
of an  advanced  gigabit  layer-2,  layer-3,  and layer-4  switching  and router
product  family.  YAGO  had no  developed  products  or  technology  and had not
generated any revenues as of its acquisition date. At the time, YAGO was testing
the technology related to the MSR8000, its first product to be released, and was
developing its MSR16000/8600  family of products.  These two primary development
efforts were made up of six  significant  research and  development  components,
which were ongoing at the acquisition  date.  These component  efforts  included
continued  MSR8000  development  and testing,  research and  development  of the
MSR2000  (a  desktop  version  of the  MSR8000),  development  of  the  MSR8600,
development of Wide Area Network interfaces for its switching products,  routing
software research and development,  and device management  software research and
development.

At the time of YAGO's  acquisition,  the Company  believed  that the MSR product
family  of  switching  routers  would set a new  standard  for  performance  and
functionality   by   delivering   wire-speed   layer-2,   layer-3   and  layer-4
functionality.  Designed  for the  enterprise  and ISP  backbone  markets,  upon
completion of their  development,  the MSR products were intended to offer large
table capacity, a multi-gigabit non-blocking backplane, low latency and seamless
calling. YAGO also intended to develop its MSR products to be interoperable with
other  standard-based   routers  and  switches.  As  of  the  acquisition  date,
management  expected the development of the MSR product family would be the only
mechanism to fuel YAGO's revenue growth and profitability in the future. Despite
the incomplete state of YAGO's  technology,  the Company felt that the projected
size and growth of the market for the MSR product,  YAGO's demonstrated  promise
in the  development  of the MSR  product  family and the  consideration  paid by
Cabletron's  competitors to acquire  companies  comparable to YAGO all warranted
the consideration paid by Cabletron for YAGO.
<PAGE>

The nature of the efforts to develop the  acquired  in-process  technology  into
commercially  viable  products  principally  relate  to  the  completion  of all
planning,  designing,   prototyping,   high-volume  verification,   and  testing
activities that were necessary to establish that the proposed  technologies  met
their  design  specifications  including  functional,  technical,  and  economic
performance  requirements.  Anticipated  completion  dates for the  projects  in
progress were expected to occur over the next two years, the Company expected to
begin generating the economic  benefits from the technologies in the second half
of 1998.  Funding for such projects was expected to be obtained from  internally
generated sources.  Expenditures to complete the MSR technology were expected to
total  approximately  $10.0 million over the next two years. These estimates are
subject to change,  given the uncertainties of the development  process,  and no
assurance can be given that deviations from these estimates will not occur.

The  value  assigned  to  purchased  in-process  technology  was  determined  by
estimating  the  costs to  develop  the  purchased  in-process  technology  into
commercially  viable products,  estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value.  The revenue
projection  used to value the in-process  research and  development was based on
estimates  of  relevant  market  sizes and growth  factors,  expected  trends in
technology and the nature and expected  timing of new product  introductions  by
the Company and its competitors.

In the model  used to value  in-process  research  and  development  in the YAGO
acquisition,  as of March 17, 1998,  total  revenues  attributable  to YAGO were
projected to exceed $900 million in 2002, assuming the successful completion and
market  acceptance of the major R&D efforts.  As of the valuation date, YAGO had
no existing  products and  accordingly  all revenue  growth in the first several
years were related to the in-process  technologies.  The estimated  revenues for
the  in-process  were  projected  to peak in 2003 and then  decline as other new
products and technologies were projected to enter the market.

Cost of sales was estimated based on YAGO's internally generated projections and
discussions with management regarding anticipated gross margin improvements. Due
to the market  opportunities  in the Gigabit  Ethernet  arena and YAGO's  unique
product  architecture  substantial  gross  margins are  expected  through  2000.
Thereafter,  gross  margins are  expected to  gradually  decline as  competition
increases.  Cost of sales was  projected to average  approximately  47.5 percent
through 2003. SG&A expenses  (including  depreciation),  was projected to remain
constant as a percentage of sales at approximately 23 percent.  R&D expenditures
were projected to decrease as a percentage of sales as the  in-process  projects
were completed. R&D expenditures were expected to peak in 1998 at 7.1 percent of
sales,  decline,  and  then  level  out at 5.0  percent  of  sales  in 2000  and
thereafter.

The rates  utilized to discount the net cash flows to their  present  value were
based on venture capital rates of return.  Due to the nature of the forecast and
the risks associated with the projected growth,  profitability and developmental
projects,  discount  rates of 45.0 to 50.0  percent  were used for the  business
enterprise  and for the  in-process  R&D. The Company  believes these rates were
appropriate because they were commensurate with YAGO's stage of development; the
uncertainties   in  the  economic   estimates   described  above;  the  inherent
uncertainty  surrounding the successful  development of the purchased in-process
technology; the useful life of such technology; the profitability levels of such
technology;  and, the uncertainty of technological  advances that are unknown at
this time.

The forecasts used by the Company in valuing in-process research and development
were based upon  assumptions the Company believes to be reasonable but which are
inherently  uncertain  and  unpredictable.  No  assurance  can be given that the
underlying  assumptions  used to estimate  expected  project sales,  development
costs or  profitability,  or the  events  associated  with such  projects,  will
transpire  as  estimated.   The  Company's  assumptions  may  be  incomplete  or
inaccurate,  and unanticipated events and circumstances are likely to occur. For
these reasons, actual results may vary from the projected results.
<PAGE>

Management  expects to continue  their support of these efforts and believes the
Company has a reasonable  chance of  successfully  completing  the R&D programs.
However,  there is risk associated with the completion of the projects and there
is no  assurance  that any will meet with  either  technological  or  commercial
success.  The Company  believes  as it did at the time of the YAGO  acquisition,
that if YAGO does not successfully complete its outstanding  in-process research
and  development   efforts,   Cabletron's  future  operating  results  would  be
materially  adversely  impacted  and the value of the  in-process  research  and
development might never be realized.

DSLAM division of Ariel Corporation

On September 1, 1998, Cabletron acquired the assets and liabilities of the DSLAM
division of Ariel  Corporation  ("Ariel").  Cabletron  recorded  the cost of the
acquisition at approximately  $45.1 million,  including fees, expenses and other
costs related to the acquisition. Cabletron's consolidated results of operations
include the operating  results of the DSLAM division of Ariel  Corporation  from
the acquisition date.

In connection with the acquisition of Ariel, the Company allocated $26.0 million
($15.8  million,  net of tax) of the purchase  price to in-process  research and
development  projects.  The valuation of the in-process research and development
("IPR&D")  incorporated the guidance on IPR&D valuation  methodologies  recently
promulgated   by  the  Securities  and  Exchange   Commission   ("SEC").   These
methodologies incorporate the notion that cash flows attributable to development
efforts,  including  the  effort  to be  completed  on  the  development  effort
underway,  and  development of future  versions of the product that have not yet
been undertaken,  should be excluded in the valuation of IPR&D.  This allocation
represents  risk-adjusted cash flows related to the incomplete products.  At the
date of  acquisition,  the  development  of these  projects  had not yet reached
technological  feasibility and the research and development  ("R&D") in progress
had no alternative future uses. Accordingly, these costs were expensed as of the
acquisition date.

The Company  used  independent  third-party  appraisers  to assess and  allocate
values to the in-process  research and development.  The value assigned to these
assets was determined by  identifying  significant  research  projects for which
technological  feasibility  had not  been  established,  including  development,
engineering and testing  activities  associated with the introduction of Ariel's
next-generation DSLAM technology.

The nature of the efforts to develop the  acquired  in-process  technology  into
commercially  viable  products  principally  relate  to  the  completion  of all
planning,  designing,   prototyping,   high-volume  verification,   and  testing
activities that are necessary to establish that the proposed  technologies  meet
their  design  specifications  including  functional,  technical,  and  economic
performance requirements.

The  value  assigned  to  purchased  in-process  technology  was  determined  by
estimating  the  costs to  develop  the  purchased  in-process  technology  into
commercially  viable products,  estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value.  The revenue
projection  used to value the  in-process  research and  development is based on
estimates  of  relevant  market  sizes and growth  factors,  expected  trends in
technology and the nature and expected  timing of new product  introductions  by
the Company and its competitors.

For purposes of the IPR&D  valuation,  the total revenues  attributable to Ariel
were  projected to exceed $195 million  within 5 years,  assuming the successful
completion and market  acceptance of the major R&D efforts.  As of the valuation
date,  Ariel had no existing  products and accordingly all revenue growth in the
first several years are related to the in-process technologies.  For purposes of
the IPR&D valuation,  it was estimated that revenues for the in-process projects
would peak in 2004 and then decline as other new products and technologies  were
expected to enter the market.

Cost of sales was estimated based on Ariel's  internally  generated  projections
and discussions with management regarding anticipated gross margin improvements.
Due to the market  opportunities  in the  network  equipment  arena and  Ariel's
unique technology architecture, substantial gross margins were estimated through
the forecast  period.  Cost of sales as a percentage of sales was  forecasted to
decline until 2001 and then remain  constant at 55%.  SG&A  expenses  (including
depreciation)  as a percentage of sales were projected to decline slightly until
2003 and then remain constant at 26%. R&D  expenditures as a percentage of sales
were projected to remain constant at 8% over the projection period.
<PAGE>

The rates  utilized to discount the net cash flows to their  present  value were
based on venture capital rates of return.  Due to the nature of the forecast and
the risks associated with the projected growth,  profitability and developmental
projects,  a discount rate of 27.5 percent was determined to be appropriate  for
the in-process R&D. These discount rates were commensurate with Ariel's stage of
development;  the uncertainties in the economic  estimates  described above; the
inherent  uncertainty  surrounding  the successful  development of the purchased
in-process  technology;  the useful life of such technology;  the  profitability
levels of such technology;  and, the uncertainty of technological  advances that
were unknown at the time of acquisition.

The forecasts used by the Company in valuing in-process research and development
were based upon  assumptions the Company believes to be reasonable but which are
inherently  uncertain  and  unpredictable.  The  Company's  assumptions  may  be
incomplete or inaccurate,  and unanticipated events and circumstances are likely
to occur. For these reasons, actual results may vary from the projected results.

The Company  believes that the foregoing  assumptions used in the forecasts were
reasonable at the time of the acquisition.  No assurance can be given,  however,
that  the  underlying  assumptions  used to  estimate  expected  project  sales,
development costs or profitability, or the events associated with such projects,
will transpire as estimated. For these reasons, actual results may vary from the
projected results.

Ariel's  in-process  research  and  development  value is  comprised  of several
significant  individual  on-going projects.  Remaining  development  efforts for
these  projects  include  various  phases of design,  development  and  testing.
Anticipated completion dates for the projects in progress are estimated to occur
over the next year.  The Company  projected  to begin  generating  the  economic
benefits from the  technologies in the second half of fiscal year 2000.  Funding
for such  projects  was  estimated  to be  obtained  from  internally  generated
sources.  Expenditures  to  complete  these  projects  were  estimated  to total
approximately  $0.5 million over the next year.  These  estimates are subject to
change, given the uncertainties of the development process, and no assurance can
be given that deviations from these estimates will not occur. However,  there is
risk  associated  with the  completion of the projects and there is no assurance
that any will meet with either technological or commercial success.

FlowPoint Corp.

On September 9, 1998,  Cabletron  acquired  FlowPoint,  Corp.,  a privately held
manufacturer of digital subscriber line router networking products. Prior to the
Agreement,  Cabletron owned 42.8% of the outstanding  shares of FlowPoint stock.
Pursuant  to the terms of the  Agreement,  $20.6  million  is to be paid in four
installments,  within 9 months after the merger date.  Each  installment  may be
paid in either cash or  Cabletron  common  stock,  as  determined  by  Cabletron
management at the time of distribution.  In addition,  Cabletron assumed 494,000
options, valued at approximately $2.7 million.

Cabletron  recorded the cost of the acquisition at approximately  $25.0 million,
including direct costs of the acquisition.  Cabletron's  consolidated results of
operations   include  the  operating  results  of  FlowPoint,   Corp.  from  the
acquisition date.

In connection with the acquisition of FlowPoint,  the Company  recorded  special
charges of $12.0 million for in-process research and development  projects.  The
valuation  of  the  IPR&D   incorporated   the   guidance  on  IPR&D   valuation
methodologies  recently promulgated by the SEC. These methodologies  incorporate
the notion that cash flows  attributable to development  efforts,  including the
effort to be completed on the development  effort  underway,  and development of
future  versions of the  product  that have not yet been  undertaken,  should be
excluded in the valuation of IPR&D.  This  allocation  represents  risk-adjusted
cash flows related to the incomplete products.  At the date of acquisition,  the
development of these projects had not yet reached technological  feasibility and
the R&D in progress had no  alternative  future uses.  Accordingly,  these costs
were expensed as of the acquisition date.

The Company  used  independent  third-party  appraisers  to assess and  allocate
values to the in-process  research and development.  The value assigned to these
assets were determined by identifying  significant  research  projects for which
technological  feasibility  had not  been  established,  including  development,
engineering  and  testing   activities   associated  with  the  introduction  of
FlowPoint's next-generation Router technologies.

The nature of the efforts to develop the  acquired  in-process  technology  into
commercially  viable  products  principally  relate  to  the  completion  of all
planning,  designing,   prototyping,   high-volume  verification,   and  testing
activities that are necessary to establish that the proposed  technologies  meet
their  design  specifications  including  functional,  technical,  and  economic
performance requirements.

The  value  assigned  to  purchased  in-process  technology  was  determined  by
estimating  the  costs to  develop  the  purchased  in-process  technology  into
commercially  viable products,  estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value.  The revenue
projection  used to value the  in-process  research and  development is based on
estimates  of  relevant  market  sizes and growth  factors,  expected  trends in
technology and the nature and expected  timing of new product  introductions  by
the Company and its competitors.
<PAGE>

For purposes of the in-process R&D valuation, the total revenues attributable to
FlowPoint  were  projected to exceed $150 million  within 5 years,  assuming the
successful  completion and market acceptance of the major R&D efforts. As of the
valuation  date,  FlowPoint  had a  few  existing  products,  which  lacked  the
technological  breadth and depth necessary in the evolving networking  equipment
market.  Accordingly,  for  purposes of the  in-process  R&D  valuation,  it was
estimated  that  significant  revenue growth in the first several years would be
primarily related to the in-process technologies. The estimated revenues for the
in-process projects were projected to peak in 2007 and then decline as other new
products and technologies were expected to enter the market.

Cost  of  sales  was  estimated  based  on  FlowPoint's   internally   generated
projections and discussions with management  regarding  anticipated gross margin
improvements. Due to the market opportunities in the Network Equipment arena and
FlowPoint's  unique  technology  architecture,  substantial  gross  margins were
projected  through the forecast  period.  Cost of sales as a percentage of sales
was  forecasted  to decline  until 2003 and then remain  constant  at 55%.  SG&A
expenses  (including  depreciation)  as a percentage of sales were  projected to
remain constant at 23%. R&D expenditures as a percentage of sales were projected
to decline  significantly from 30% in 1999 to 10% in 2001 and remain constant at
10% thereafter.

The rates  utilized to discount the net cash flows to their  present  value were
based on venture capital rates of return.  Due to the nature of the forecast and
the risks associated with the projected growth,  profitability and developmental
projects,  a discount rate of 27.5 percent was determined to be appropriate  for
the in-process  R&D. These discount  rates were  commensurate  with  FlowPoint's
stage of development;  the  uncertainties  in the economic  estimates  described
above; the inherent  uncertainty  surrounding the successful  development of the
purchased  in-process  technology;  the  useful  life  of such  technology;  the
profitability  levels of such technology;  and, the uncertainty of technological
advances that were unknown at the time of the acquisition.

The forecasts used by the Company in valuing in-process research and development
were based upon  assumptions the Company believes to be reasonable but which are
inherently  uncertain  and  unpredictable.  The  Company's  assumptions  may  be
incomplete or inaccurate,  and unanticipated events and circumstances are likely
to occur. For these reasons, actual results may vary from the projected results.

The Company  believes that the foregoing  assumptions used in the forecasts were
reasonable at the time of the acquisition.  No assurance can be given,  however,
that  the  underlying  assumptions  used to  estimate  expected  project  sales,
development costs or profitability, or the events associated with such projects,
will transpire as estimated. For these reasons, actual results may vary from the
projected results.

FlowPoint's  in-process  research and development  value is comprised of several
significant  individual  on-going projects.  Remaining  development  efforts for
these  projects  include  various  phases of design,  development  and  testing.
Anticipated completion dates for the projects in progress are estimated to occur
over the first nine months following the acquisition.  The Company  estimated it
will begin generating the economic  benefits from the technologies in the second
half of fiscal year 2000. Funding for such projects was estimated to be obtained
from internally generated sources.  Expenditures to complete these projects were
estimated to total  approximately  $1.0 million over the next six months.  These
estimates  are subject to change,  given the  uncertainties  of the  development
process, and no assurance can be given that deviations from these estimates will
not occur.

Management  expects to continue  their support of these efforts and believes the
Company has a reasonable  chance of  successfully  completing  the R&D programs.
However,  there is risk associated with the completion of the projects and there
is no  assurance  that any will meet with  either  technological  or  commercial
success.

NetVantage, Inc.

On September  25, 1998,  Cabletron  acquired  NetVantage,  Inc., a publicly held
manufacturer  of  ethernet  workgroup  switches.  Under the terms of the  Merger
Agreement,  Cabletron issued 6.4 million shares of Cabletron common stock to the
shareholders  of  NetVantage  in exchange for all of the  outstanding  shares of
stock of NetVantage.

Cabletron  recorded the cost of the acquisition at approximately  $77.8 million,
including  direct  costs of the  acquisition.  The cost  represents  6.4 million
shares  at  $9.9375  per  share,  in  addition  to  direct   acquisition  costs.
Cabletron's  consolidated results of operations include the operating results of
NetVantage, Inc. from the acquisition date.
<PAGE>

In connection with the acquisition of NetVantage,  the Company  recorded special
charges of $29.4 million for in-process research and development  projects.  The
valuation  of  the  IPR&D   incorporated   the   guidance  on  IPR&D   valuation
methodologies  recently promulgated by the SEC. These methodologies  incorporate
the notion that cash flows  attributable to development  efforts,  including the
effort to be completed on the development  effort  underway,  and development of
future  versions of the  product  that have not yet been  undertaken,  should be
excluded in the valuation of IPR&D.  This  allocation  represents  risk-adjusted
cash flows related to the incomplete products.  At the date of acquisition,  the
development of these projects had not yet reached technological  feasibility and
the R&D in progress had no  alternative  future uses.  Accordingly,  these costs
were expensed as of the acquisition date.

The Company  used  independent  third-party  appraisers  to assess and  allocate
values to the in-process  research and development.  The value assigned to these
assets were determined by identifying  significant  research  projects for which
technological  feasibility  had not  been  established,  including  development,
engineering  and  testing   activities   associated  with  the  introduction  of
NetVantage's next-generation Ethernet technologies.

The nature of the efforts to develop the  acquired  in-process  technology  into
commercially  viable  products  principally  relate  to  the  completion  of all
planning,  designing,   prototyping,   high-volume  verification,   and  testing
activities that are necessary to establish that the proposed  technologies  meet
their  design  specifications  including  functional,  technical,  and  economic
performance requirements.

The  value  assigned  to  purchased  in-process  technology  was  determined  by
estimating  the  costs to  develop  the  purchased  in-process  technology  into
commercially  viable products,  estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value.  The revenue
projection  used to value the in-process  research and  development was based on
estimates  of  relevant  market  sizes and growth  factors,  expected  trends in
technology and the nature and expected  timing of new product  introductions  by
the Company and its competitors.

For  purposes  of the  IPR&D  valuation,  the  total  revenues  attributable  to
NetVantage  were projected to exceed $250 million  within 5 years,  assuming the
successful  completion and market acceptance of the major R&D efforts. As of the
valuation  date,  NetVantage  had a few  existing  products,  which  lacked  the
technological  breadth and depth necessary in the evolving networking  equipment
market. Accordingly, it was estimated that the significant revenue growth in the
first several years would be primarily  related to the in-process  technologies.
The estimated revenues for the in-process projects were expected to peak in 2004
and then decline as other new products and  technologies  were expected to enter
the market.

Cost  of  sales  was  estimated  based  on  NetVantage's   internally  generated
projections and discussions with management  regarding  anticipated gross margin
improvements. Due to the market opportunities in the Network Equipment arena and
NetVantage's  unique  technology  architecture,  substantial  gross margins were
projected  through the forecast  period.  Cost of sales as a percentage of sales
was  forecasted  to  remain   constant  at  57.5%.   SG&A  expenses   (including
depreciation) as a percentage of sales was projected to decline slightly in 2001
and then remain constant at 23%. R&D  expenditures as a percentage of sales were
projected  to  decline  slightly  in 2000 and  remain  constant  at 10% over the
projection period.

The rates  utilized to discount the net cash flows to their  present  value were
based on venture capital rates of return.  Due to the nature of the forecast and
the risks associated with the projected growth,  profitability and developmental
projects,  a discount rate of 25.0 percent was determined to be appropriate  for
the in-process  R&D. These discount  rates are  commensurate  with  NetVantage's
stage of development;  the  uncertainties  in the economic  estimates  described
above; the inherent  uncertainty  surrounding the successful  development of the
purchased  in-process  technology;  the  useful  life  of such  technology;  the
profitability  levels of such technology;  and, the uncertainty of technological
advances that were unknown at the time of the acquisition.

The forecasts used by the Company in valuing in-process research and development
were based upon  assumptions the Company believes to be reasonable but which are
inherently  uncertain  and  unpredictable.  The  Company's  assumptions  may  be
incomplete or inaccurate,  and unanticipated events and circumstances are likely
to occur. For these reasons, actual results may vary from the projected results.

The Company  believes that the foregoing  assumptions used in the forecasts were
reasonable at the time of the acquisition.  No assurance can be given,  however,
that  the  underlying  assumptions  used to  estimate  expected  project  sales,
development costs or profitability, or the events associated with such projects,
will transpire as estimated. For these reasons, actual results may vary from the
projected results.
<PAGE>

NetVantage's  in-process  research and development value is comprised of several
significant  individual  on-going projects.  Remaining  development  efforts for
these  projects  include  various  phases of design,  development  and  testing.
Anticipated completion dates for the projects in progress are estimated to occur
over the next year. The Company began recognizing the economic benefits from the
technologies  in the  fourth  quarter  of fiscal  year  1999.  Funding  for such
projects  was  estimated  to be  obtained  from  internally  generated  sources.
Expenditures  to complete these  projects were estimated to total  approximately
$2.0 million over the next year.  These  estimates are subject to change,  given
the uncertainties of the development process, and no assurance can be given that
deviations from these estimates will not occur.

Management  expects to continue  their support of these efforts and believes the
Company has a reasonable  chance of  successfully  completing  the R&D programs.
However,  there is risk associated with the completion of the projects and there
is no  assurance  that any will meet with  either  technological  or  commercial
success.

1998 Acquisitions

In connection with the acquisition of NPG, the Company  allocated $199.3 million
of the purchase  price to in-process  research and  development  projects.  This
allocation represents the estimated fair value based on risk-adjusted cash flows
related to the incomplete products. At the date of acquisition,  the development
of these projects had not yet reached technological feasibility and the research
and development ("R&D") in progress had no alternative future uses. Accordingly,
these costs were expensed as of the acquisition date.

The Company  used  independent  third-party  appraisers  to assess and  allocate
values to the in-process  research and development.  The value assigned to these
assets were determined by identifying  significant  research  projects for which
technological  feasibility  had not  been  established,  including  development,
engineering and testing  activities  associated  with the  introduction of NPG's
next-generation switch, hub, adapter, and internetworking technologies.

The  incomplete  projects  related to switch  technology  included,  among other
efforts,   the   introduction  of  Fast  Ethernet  and  OC-12   technology  into
GIGAswitch/ATM  and GIGAswitch/  FDDI  technologies,  development of Gigabit and
Fast Ethernet  modules for the VNswitch 900 chassis,  and the  introduction of a
new GIGAswitch/Ethernet  platform to provide Gigabit Ethernet technology. In the
internetworking  area,  the  Company had several  significant  efforts  on-going
related to network management  software  products,  new  wireless/remote  access
offerings, and web gateway technology. The primary developmental efforts related
to the  adapter  family of products  involved  the  introduction  of new ATM and
Gigabit  network  interface  cards.  Finally,  in the hub family,  specific  R&D
efforts  included  the  introduction  of ATM and Fast  Ethernet  modules for the
DEChub 900 and the  development  of advanced  layer 3 switching  support for the
100Mbps Hub Multiswitch.

The nature of the efforts to fully  develop the acquired  in-process  technology
into  commercially  viable  products,  technologies,  and  services  principally
related to the completion of all planning, designing,  prototyping,  high-volume
verification,  and testing  activities that were necessary to establish that the
proposed  technologies  met their design  specifications  including  functional,
technical, and economic performance  requirements.  Anticipated completion dates
for the  projects  in  progress  were  expected  to occur  over the next one and
one-half years, at which time the Company expected to begin generating  economic
benefits  from the  technologies.  Funding for such  projects was expected to be
obtained from internally generated sources. As of February 7, 1998, expenditures
to complete these projects were expected to total  approximately $61 million for
the remainder of calendar year 1998 and $10 million in calendar year 1999. These
estimates  are subject to change,  given the  uncertainties  of the  development
process, and no assurance can be given that deviations from these estimates will
not occur.

The  value  assigned  to  purchased  in-process  technology  was  determined  by
estimating  the  costs to  develop  the  purchased  in-process  technology  into
commercially  viable products,  estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value.  The revenue
projection  used to value the in-process  research and  development was based on
estimates  of  relevant  market  sizes and growth  factors,  expected  trends in
technology and the nature and expected  timing of new product  introductions  by
the Company  and its  competitors.  In the model used to value NPG's  in-process
research  and  development,  as of February 7, 1998,  NPG' total  revenues  were
projected to exceed $1.1 billion in 2002, assuming the successful completion and
market  acceptance  of the major R&D  programs.  Estimated  revenue  from  NPG's
existing  technologies  was  expected to be $350  million in 1998,  with a rapid
decline  as  existing  processes  and  know-how  approached  obsolescence.   The
estimated  revenues for the  in-process  projects were estimated to peak in 2002
and then decline as other new products and  technologies  were expected to enter
the market.
<PAGE>

In the model used to value NPG's in-process  research and  development,  cost of
sales was  estimated  based on NPG's  historical  results and  discussions  with
management regarding anticipated gross margin improvements.  A substantial gross
margin  improvement  was expected in 1999 due to a  restructuring  of NPG's cost
structure.  Thereafter,  gradual  improvements  were  expected due to purchasing
power  increases  and  general  economies  of  scale.  Cost  of  sales  averaged
approximately  49.0 percent  through  2003.  Combined SG&A and R&D expenses were
expected  to peak in 1998 at 44.6  percent of sales,  decline,  and level out at
approximately 35.8 percent of sales in 2001 and remain constant thereafter.

The rates  utilized to discount the net cash flows to their  present  value were
based on cost of capital calculations. Due to the nature of the forecast and the
risks  associated with the projected  growth,  profitability  and  developmental
projects,  a discount  rate of 15.0  percent was  appropriate  for the  business
enterprise,  14.0 percent for the existing  products  and  technology,  and 30.0
percent for the  in-process  R&D.  These discount rates were selected to reflect
NPG's corporate maturity;  the uncertainties in the economic estimates described
above; the inherent  uncertainty  surrounding the successful  development of the
purchased  in-process  technology;  the  useful  life  of such  technology;  the
profitability  levels of such technology;  and, the uncertainty of technological
advances that are unknown at this time.

The forecasts used by the Company in valuing in-process research and development
were based upon  assumptions the Company believes to be reasonable but which are
inherently  uncertain  and  unpredictable.  No  assurance  can be given that the
underlying  assumptions  used to estimate  expected  project sales,  development
costs or  profitability,  or the  events  associated  with such  projects,  will
transpire  as  estimated.   The  Company's  assumptions  may  be  incomplete  or
inaccurate, and unanticipated events and circumstances are likely to occur.
For these reasons, actual results may vary from the projected results.

Management  expects to continue  their support of these efforts and believes the
Company has a reasonable  chance of  successfully  completing  the R&D programs.
However,  there  has been  and  will  continue  to be risk  associated  with the
completion  of the projects  and there is no  assurance  that any will meet with
either technological or commercial success.  The Company believes,  as it did at
the time of the NPG acquisition,  that if NPG did not successfully  complete its
outstanding  in-process  research and development  efforts,  Cabletron's  future
operating  results could be materially  impacted and the value of the in-process
research and development might never be realized.

1997 Acquisitions

During the year ended February 28, 1997, the Company  augmented its product line
and expanded its markets by acquiring:  (1) ZeitNet Inc., a manufacturer  of ATM
products,  in July 1996; (2) Network  Express,  Inc., a  manufacturer  of remote
access  equipment,  in August 1996; (3) Netlink,  Inc., a manufacturer  of frame
relay  products,  in December  1996;  and (4) The OASys Group,  Inc., a software
developer, in February 1997.
<PAGE>

Liquidity and Capital Resources

Cash,  cash  equivalents,  short and long-term  investments  increased to $454.5
million at February 28, 1999 from $435.1  million at February 28, 1998. Net cash
provided by operating  activities  was $83.9 million in the year ended  February
28, 1999  compared to $49.5  million in the year ended  February 28,  1998,  and
compared to $188.8  million in the year ended February 28, 1997. The increase in
net cash  provided by operating  activities  during the year ended  February 28,
1999 was a result of improved inventory controls that resulted in a reduction in
inventory,  improved collections from customers being partially offset by Compaq
utilizing  product credits  received in its acquisition of DNPG.  Compaq can use
the product  credits  through  February 7, 2000 to  purchase  certain  Cabletron
products that are ordered under the Reseller Agreement. See Note 9 (Notes to the
Consolidated  Financial  Statements)  included at page 43 of this  document  for
additional  details  regarding  the product  credits.  The  decrease in net cash
provided by operating  activities  between the year ended  February 28, 1998 and
the year ended  February 28, 1997 was primarily a result of higher  inventories,
higher  purchased  research and development  through  acquisitions and increased
deferred  taxes.  Net cash  used in  investing  activities  increased  to $139.9
million in the year ended  February  28, 1999  compared to $90.2  million in the
year ended February 28, 1998. The increased use of cash in investing  activities
is  primarily  due to  increased  purchases  of  securities.  This  increase was
partially  offset by less cash paid (net) for  acquisitions  during fiscal 1999,
$32.2 million as compared to $129.1 million in the year ended February 28, 1998,
less capital expenditures and the proceeds from the sale of a duplicate facility
which the Company  acquired from DNPG for cash totaling $24.5  million.  Capital
expenditures have decreased steadily during the three year period ended February
28, 1999 due to the decreased need for additional  facilities and  manufacturing
equipment, as sales have remained relatively flat.

Accounts receivable, net of allowance for doubtful accounts, were $216.8 million
at February 28, 1999 or 57 days sales outstanding, compared to $241.2 million or
78 days of sales  outstanding at February 28, 1998. This decrease in receivables
reflects  Compaq's use of product credits,  which reduces days sales outstanding
because the Company  deems  purchases  paid in product  credits to be  collected
immediately  and,  secondarily,  to  the  increased  collection  efforts  of the
Company.  These  trends are  expected to continue as Compaq has product  credits
available until February 7, 2000 and the Company has focused their sales efforts
through  resellers  and  distributors.  During  fiscal  1999,  the Company  sold
slightly  more than half of its  products to  resellers  and  distributors.  The
Company has been able to monitor these relationships and improved the efficiency
of collections as there are fewer resellers and distributors  than the number of
end-users the Company shipped to during fiscal 1998.

Worldwide  inventories  were $229.5  million at February 28, 1999 or 107 days of
inventory, compared to $309.7 million or 157 days of inventory at the end of the
preceding  fiscal year.  The  decrease of days in inventory  was due to improved
inventory control performance and increased reserves for inventory in connection
with the  transition  from  shared  media  products to  switched  products.  The
Company's use of distributors  and resellers has allowed the Company to maintain
lower inventory  levels,  while the  distributors  and resellers will be able to
service  the  end-user  customers,  in a  timely  manner.  The  Company  expects
inventory levels to decrease as it outsources its manufacturing process.

During  the year  ended  February  28,  1999,  capital  expenditures  were $44.8
million,  which were  principally  related to  upgrades of  computers,  computer
related and  manufacturing  equipment.  During the year ended February 28, 1998,
capital  expenditures  were  $74.2  million,  which  were  primarily  related to
software and hardware products and upgrades of computers.  Capital  expenditures
for the year ended  February 28, 1997 were $94.4  million,  which were primarily
related to engineering computer hardware and software.

On March 7, 1997 the Company  obtained a $250 million  revolving credit facility
with Chase  Manhattan  Bank,  First  National  Bank of Chicago and several other
lenders.  The facility has a term of three years.  As of February 28, 1999,  the
Company had not drawn down any money under the facility.

In the opinion of management,  internally  generated  funds from  operations and
existing cash, cash equivalents and marketable  securities will provide adequate
funds  to  support  the  Company's  working  capital  and  capital   expenditure
requirements for the next twelve months.
<PAGE>

Business Environment and Risk Factors

THE FOLLOWING ARE CAUTIONARY  STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE  SECURITIES  LITIGATION REFORM ACT OF 1995

The Company may occasionally make forward-looking  statements and estimates such
as forecasts and projections of the Company's  future  performance or statements
of management's plans and objectives.  These  forward-looking  statements may be
contained  in, among other  things,  SEC filings and press  releases made by the
Company  and in oral  statements  made by the  officers of the  Company.  Actual
results could differ materially from those in such  forward-looking  statements.
Therefore,  no assurances can be given that the results in such  forward-looking
statements  will be achieved.  Important  factors that could cause the Company's
actual results to differ from those contained in such forward-looking statements
include, among others, the factors mentioned below.

Competition.  The data networking industry is intensely  competitive and subject
to increasing  consolidation.  Competition in the data  networking  industry has
increased in recent periods,  and Cabletron  expects  competition to continue to
increase  significantly in the future from its current  competitors,  as well as
from  potential  competitors  that may  enter  Cabletron's  existing  or  future
markets.  Cabletron's  competitors  include  many  large  domestic  and  foreign
companies,  as  well as  emerging  companies  attempting  to  sell  products  to
specialized  markets such as those addressed by Cabletron.  Cabletron's  primary
competitors  in the data  networking  industry  are Cisco  Systems,  Inc.,  FORE
Systems,  Inc.,  Lucent  Technologies,  Inc.,  Northern  Telecom  Ltd.  and 3Com
Corporation.  Several large  telecommunications  equipment companies,  including
Nokia  Corp.,  Alcatel,  Ericsson  and Siemens have begun to compete in the data
networking  industry and have recently made  investments in or acquired  several
smaller data networking  companies.  Companies in the data  networking  industry
compete upon the basis of price,  technology,  and brand recognition.  Increased
competition could result in price reductions, reduced margins and loss of market
share,  any or all of which could  materially and adversely  affect  Cabletron's
business,  financial condition,  and operating results and increase fluctuations
in operating  results.  Competitors may introduce new or enhanced  products that
offer greater performance or functionality than Cabletron's products.  There can
be no assurance  that  Cabletron  will be successful  in selecting,  developing,
manufacturing  and marketing new products or enhancing its existing  products or
that Cabletron will be able to respond effectively to technological changes, new
standards or product announcements by competitors. Any failure to do so may have
a material  adverse  effect on  Cabletron's  business,  financial  condition and
results of operations.  As the data  networking  industry has grown and matured,
customers  purchasing  decisions  have  been  increasingly  influenced  by brand
recognition.  If Cabletron is unable to develop  competitive brand  recognition,
Cabletron's business may be adversely affected.

Cabletron's current and potential competitors have pursued and are continuing to
pursue a strategy of acquiring data  networking  companies  possessing  advanced
networking  technologies.  The acquisition of these companies allows Cabletron's
competitors  to offer new products  without the lengthy  time delays  associated
with internal  product  development.  As a consequence,  competitors are able to
more quickly meet the demand for advanced  networking  capabilities,  as well as
for so-called "end-to-end" networking solutions.  These acquisitions also permit
potential  competitors,  such as  telecommunications  companies,  who lack  data
networking  products and  technologies,  to more quickly  enter data  networking
markets.  The greater resources of the competitors engaged in these acquisitions
may permit them to  accelerate  the  development  and  commercialization  of new
competitive products and the marketing of existing competitive products to their
larger installed bases. There is significant competition among Cabletron and its
competitors for the acquisition of data networking companies possessing advanced
technologies.  As a consequence of this  competition,  as well as other factors,
the prices paid to acquire such  companies is typically  extremely high relative
to the assets and sales of such companies.  The greater resources of Cabletron's
current and potential  competitors  may enable them to compete more  effectively
for the acquisition of such companies. In addition to acquiring other companies,
Cabletron's   competitors  frequently  invest  in  early-stage  data  networking
companies in order to secure access to advanced  technologies  under development
by such companies, to enhance the ability to subsequently acquire such companies
and to deter other  competitors  from obtaining  such access or performing  such
acquisitions.  Cabletron expects that competition will increase substantially as
a result of the continuing industry consolidations.
<PAGE>

In the past,  Cabletron  has  relied  upon a  combination  of  internal  product
development  and  partnerships  with other  networking  vendors  to broaden  its
product  line to meet the demand  for  "end-to-end"  enterprise-wide  solutions.
Acquisitions of or investments in other data networking companies by Cabletron's
competitors   may  limit   Cabletron's   access  to   commercially   significant
technologies,  and thus its ability to offer  products  that meet its  customers
needs. See "Acquisition Strategy."

In addition to the effects of competition, Cabletron's margins may also decrease
as a result of a shift in product mix toward  lower margin  products,  increased
sales through lower margin  distributor and reseller sales  channels,  increased
component costs and increased expenses, which may be necessary in future periods
to meet the demands of greater competition and if the expected cost savings from
outsourcing the manufacturing process is not achieved.  For example, as a result
of various  acquisitions  completed  during  fiscal 1999,  the Company  acquired
products that  contribute a lower gross margin than the Company's  core products
have historically contributed. Additionally, as a result of the DNPG acquisition
and other business strategy initiatives,  Cabletron achieved a higher percentage
of  its  sales  through  resellers,  which  may  have  the  effect  of  reducing
Cabletron's  margin on those sales, as well as, to a lesser extent,  Cabletron's
overall  margins.  Margins in any given  period  may be  adversely  affected  by
additional factors. See "Business Environment and Risk  Factors--Fluctuations in
Operating Results."

Fluctuations   in   Operating   Results.   A  variety  of   factors   may  cause
period-to-period  fluctuations  in the  operating  results  of  Cabletron.  Such
factors  include,  but are not limited to: (i) the rate of growth of the markets
for Cabletron's products,  (ii) competitive pressures,  including pricing, brand
and  technological  competition,  (iii)  availability  of components,  including
unique integrated circuits,  (iv) adverse effects of delays in the establishment
of industry standards, including delays or reductions in customer orders, delays
in new product  introductions and increased  expenses  associated with standards
compliance,  (v) delays by  Cabletron  in the  introduction  of new or  enhanced
products,  (vi) changes in product mix,  (vii) delays or  reductions in customer
purchases in  anticipation  of the  introduction of new products by Cabletron or
its competitors  and (viii)  instability of the  international  markets in which
Cabletron  sells its  products.  For example,  Cabletron  has been  experiencing
decreased  sales for its older line of so-called  "shared media"  products.  The
period-to-period  rate of decrease has been  greater in certain  periods than in
others and has been difficult to predict.  Backlog as of any particular  date is
not  indicative  of future  revenue due, in part,  to the  possibility  of order
cancellations,  customer requested delivery delays, shifting purchasing patterns
and inventory level variability. In particular,  Cabletron has been experiencing
longer sales cycles for its core products as a result of the  increasing  dollar
amount of customer orders and longer customer planning cycles.  Also,  Cabletron
has   experienced   backend   loading  of  its  quarterly   sales,   making  the
predictability  of the quarterly  results  highly  speculative.  These  factors,
together  with  increased  competition,   have  led  to  an  increase  in  sales
variability  and a decrease in Cabletron's  ability to predict  aggregate  sales
demand for any given period.  These factors have increased the possibility  that
the operating  results for a quarter could be materially  adversely  affected by
the failure to obtain or delays in obtaining a limited  number of large customer
orders, due, for example, to cancellations, delays or deferrals by customers. If
growth  in  Cabletron's  revenues  in any  quarter  fails to  match  Cabletron's
expectations,  its earnings and margins would be materially  adversely affected.
During the year ended February 28, 1999, the Company  incurred higher  inventory
obsolescence and a more competitive  pricing environment which resulted in lower
gross margins;  additionally  sales to channel  resellers and distributors  have
also  contributed to the lower gross margin.  There can be no assurance that net
sales will not decrease in future periods.  Any decrease in net sales could have
a material  adverse  affect on  Cabletron's  business,  financial  condition and
results  of  operations.  As  expenses  are  relatively  fixed in the near term,
Cabletron  may not be able to adjust  expense  levels to match any  shortfall in
revenues.   As  the  industry  becomes  more  competitive  and  standards-based,
Cabletron is facing greater price competition from its competitors. If Cabletron
does not respond with lower production costs,  pricing pressures could adversely
affect  future  earnings.  Accordingly,  past results may not be  indicative  of
future results.  There can be no assurance that the announcement or introduction
of new  products  by  Cabletron  or its  competitors,  or a change  in  industry
standards,  will not cause customers to defer or cancel purchases of Cabletron's
existing  products,  which could have a material  adverse  effect on Cabletron's
business,   financial  condition  or  results  of  operations.  The  market  for
Cabletron's  products  is  evolving.  The rate of growth of the  market  and the
resulting demand for Cabletron's  recently  introduced  products is subject to a
high level of uncertainty. If the market fails to grow or grows more slowly than
anticipated,  Cabletron's business, financial condition or results of operations
would be  materially  adversely  affected.  In  addition,  because of the global
nature of Cabletron's business, a variety of uncontrollable and changing factors
including  foreign  exchange  rates,  political  and economic  factors,  foreign
regulators and natural  disasters could have a material adverse effect on future
results. See "Quantitative and Qualitative Disclosures About Market Risks."

Management  Structure.  The Company has defined and is currently  implementing a
new management structure.  The new management structure includes the creation of
certain new senior officer  positions and the realignment of certain  management
structures.  The implementation of the new management structures and Cabletron's
recent  acquisitions  have required the  dedication  of the  Company's  existing
management   resources,   which  has  resulted  in  a  temporary  disruption  of
Cabletron's business activities.  There can be no assurance that such disruption
will not continue in future quarters.  Any such disruption could have a material
adverse  effect  on  Cabletron's   business,   operating  results  or  financial
condition. Over time, the loss of the personnel,  facilities and other resources
eliminated  through the expense  reductions  may  adversely  impact  Cabletron's
ability to generate expected revenue levels.

Acquisition Strategy.  Cabletron has addressed the need to develop new products,
in  part,   through  the   acquisition  of  other   companies  and   businesses.
Acquisitions, such as the acquisition of NetVantage,  FlowPoint, Ariel, Yago and
DNPG,  involve  numerous  risks  including   difficulties  in  assimilating  the
operations,  technologies and products of the acquired companies,  the diversion
of  management's  attention  from other  business  concerns,  risks of  entering
markets  in  which  competitors  have  established  market  positions,  and  the
potential  loss  of  key  employees  of  the  acquired  company.  Achieving  the
anticipated  benefits of an  acquisition  will  depend in part upon  whether the
integration of the  companies'  businesses is  accomplished  in an efficient and
effective  manner,  and there can be no  assurance  that  this will  occur.  The
successful  combination of companies in the high technology industry may be more
difficult  to  accomplish  than in other  industries.  The  combination  of such
companies  will  require,  among other  things,  integration  of the  companies'
respective  product  offerings and coordination of their sales and marketing and
research  and  development  efforts.   There  can  be  no  assurance  that  such
integration will be accomplished  smoothly or successfully.  The difficulties of
such   integration   may  be  exacerbated  by  the  necessity  of   coordinating
geographically  separated  organizations.  The efforts  required to successfully
integrate acquired companies require the dedication of management resources that
may temporarily  distract  attention from the day-to-day  business of Cabletron.
The inability of management to successfully integrate the operations of acquired
companies  could have a material  adverse  effect on the business and results of
operations of  Cabletron.  The  acquisition  of early stage  companies,  such as
NetVantage,  FlowPoint,  Ariel  and  Yago,  poses  risks  in  addition  to those
identified above. Such companies often have limited operating histories, limited
or no prior sales, and may not yet have achieved profitability. In addition, the
technologies possessed by such companies are often unproven. The development and
marketing of products based upon such technologies may require the investment of
substantial time and resources and,  despite such investment,  may not result in
commercially  saleable products or may not yield revenues  sufficient to justify
Cabletron's   investment.   Further,   aggressive  competitors  often  undertake
initiatives  to attract  customers  and to recruit  key  employees  of  acquired
companies  through  various  incentives.  In addition to NetVantage,  FlowPoint,
Ariel,  Yago and DNPG,  Cabletron  has stated  that it will  continue to explore
other possible acquisitions in the future. Multiple acquisitions during a period
increases the risks identified above,  including in particular the difficulty of
integrating  the acquired  businesses and the distraction of management from the
day-to-day business activities of Cabletron.
<PAGE>

Near the end of the year ended February 28, 1998, the Company  acquired  several
product  lines  previously  marketed by Digital's  NPG  pursuant to  Cabletron's
acquisition  of the NPG.  Cabletron's  sales of the NPG  products are subject to
numerous  risks.  Substantially  all of NPG's  revenues have  historically  been
derived from sales by Digital's  worldwide  sales force and certain  major third
party resellers.  Under Digital,  the NPG had no direct sales force to end users
(Digital's  direct sales force resides in an  independent  business  unit),  and
Cabletron  did not acquire  any  portion of  Digital's  sales  force.  Under the
Reseller and Services  Agreement dated as of November 24, 1997 between Cabletron
and Digital, Digital has agreed to resell certain Cabletron products,  including
the DNPG products,  and has contractually  committed to purchase certain minimum
volumes of  Cabletron  products  for resale and  internal  use.  In April  1998,
Digital was acquired by Compaq  Computer  Corporation  ("Compaq") and Compaq has
assumed all of Digital's obligations to Cabletron.  Compaq/Digital accounted for
approximately  11% of Cabletron's  revenues in the year ended February 28, 1999.
Any failure by Compaq to purchase the  committed  product  volumes  would have a
material  adverse  impact on  Cabletron's  business,  results of operations  and
financial  condition.  In addition,  a substantial portion of the NPG's revenues
have  historically  been  derived  from sales  through  third  party  resellers.
Cabletron has traditionally derived a smaller portion of its revenues from sales
through resellers and, as a consequence,  has less experience  managing reseller
relationships.  There  can be no  assurance  that the  Compaq's  resellers  will
continue to purchase the DNPG products  from  Cabletron or, if they do, that the
volume of such purchases will not decline significantly. The products to be sold
by Cabletron  through Compaq's sales force and third party resellers,  including
the DNPG products and certain Cabletron  products,  may be sold under the Compaq
brand name and, in many cases, will be specifically  adapted for use in existing
Compaq/Digital  hardware platforms.  The Company has limited experience managing
the marketing and  distribution  of a line of products under a brand name or for
hardware  platforms  other than its own. There exists no alternative  market for
such  products.  A higher  than  expected  rate of return  from  resellers,  the
Company's  failure to adequately  manage the marketing and  distribution of such
products,  or the loss of  material  resellers  or a  material  decline in sales
volume through the third party  resellers,  could have a material adverse effect
on the Company's business, results of operations or financial condition.

Volatility  of Stock Price.  As is  frequently  the case with the stocks of high
technology companies,  the market price of the Company's stock has been, and may
continue to be, volatile.  Factors such as quarterly  fluctuations in results of
operations,  increased  competition,  the  introduction  of new  products by the
Company or its  competitors,  expenses  or other  difficulties  associated  with
assimilating the businesses of NetVantage,  FlowPoint,  Ariel, Yago and DNPG and
other companies or businesses that have been or may in the future be acquired by

Cabletron,  changes  in the mix of sales  channels,  the  timing of  significant
customer  orders (the average dollar amount of customer  orders has increased in
recent periods), and macroeconomic  conditions generally, may have a significant
impact on the market price of the stock of  Cabletron.  In  addition,  the stock
market has from time to time experienced extreme price and volume  fluctuations,
which  have  particularly  affected  the market  price for many  high-technology
companies and which, on occasion, have appeared to be unrelated to the operating
performance  of  such  companies.  Past  financial  performance  should  not  be
considered a reliable  indicator of future  performance and investors should not
use historical  trends to anticipate  results or trends in future  periods.  Any
shortfall  in revenue or  earnings  from the levels  anticipated  by  securities
analysts  could have an immediate and  significant  adverse effect on the market
price of Cabletron's stock in any given period.
<PAGE>

Technological  Changes.  The market for networking  products is subject to rapid
technological  change,  evolving  industry  standards  and  frequent new product
introductions,  and therefore requires a high level of expenditures for research
and development.  Cabletron may be required to make significant  expenditures to
develop such new integrated  product  offerings.  There can be no assurance that
customer  demand for  products  integrating  routing,  switching,  hub,  network
management  and remote  access  technologies  will grow at the rate  expected by
Cabletron,  that Cabletron will be successful in developing,  manufacturing  and
marketing new products or product  enhancements  that respond to these  customer
demands  or to  evolving  industry  standards  and  technological  change,  that
Cabletron  will not  experience  difficulties  that could  delay or prevent  the
successful  development,   introduction,  manufacture  and  marketing  of  these
products  (especially  in  light  of the  increasing  design  and  manufacturing
complexities  associated with the integration of technologies),  or that its new
product and product  enhancements  will adequately meet the  requirements of the
marketplace  and achieve  market  acceptance.  Cabletron's  business,  operating
results and  financial  condition may be  materially  and adversely  affected if
Cabletron encounters delays in developing or introducing new products or product
enhancements or if such product  enhancements do not gain market acceptance.  In
order to  maintain a  competitive  position,  Cabletron  must also  continue  to
enhance its existing  products and there is no assurance that it will be able to
do so. In  addition,  the demand for  traditional  "shared  media"  hubs such as
Cabletron's basic MMAC product have been experiencing declines over the last few
years,  and the Company  expects that such decline will  continue.  A portion of
future  revenues  will come from new products  and  services.  Cabletron  cannot
determine  the  ultimate  effect that new  products  will have on its  revenues,
earnings or stock price.

Product  Protection and Intellectual  Property.  Cabletron's  success depends in
part  on  its  proprietary   technology.   Cabletron  attempts  to  protect  its
proprietary technology through patents,  copyrights,  trademarks,  trade secrets
and license  agreements.  Cabletron  believes,  however,  that its success  will
depend  to  a  greater  extent  upon  innovation,  technological  expertise  and
distribution  strength.  There  can be no  assurance  that  the  steps  taken by
Cabletron  in this regard will be  adequate to prevent  misappropriation  of its
technology  or that  Cabletron's  competitors  will  not  independently  develop
technologies  that are  substantially  equivalent  or  superior  to  Cabletron's
technology.  In  addition,  the laws of some  foreign  countries  do not protect
Cabletron's  proprietary  rights to the same extent as do the laws of the United
States.  No assurance can be given that any patents issued to Cabletron will not
be challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages.

Although  Cabletron does not believe that its products  infringe the proprietary
rights of any third parties,  third parties have asserted infringement and other
claims  against  Cabletron,  and there can be no assurance that such claims will
not be  successful  or that third  parties  will not assert such claims  against
Cabletron  in the future.  Patents  have been  granted  recently on  fundamental
technologies  incorporated in Cabletron's products. Since patent applications in
the  United  States  are  not  publicly   disclosed  until  the  patent  issues,
applications  may have been filed by third parties which,  if issued as patents,
could relate to Cabletron's products.  In addition,  participants in Cabletron's
industry  also rely upon trade  secret law.  Cabletron  could incur  substantial
costs and diversion of management  resources  with respect to the defense of any
claims relating to proprietary rights which could have a material adverse effect
on  Cabletron's  business,   financial  condition  and  results  of  operations.
Furthermore,  parties  making  such  claims  could  secure a  judgment  awarding
substantial damages, as well as injunctive or other equitable relief which could
effectively  block  Cabletron's  ability to license  its  products in the United
States or abroad.  Such a  judgment  could  have a  material  adverse  effect on
Cabletron's business, financial condition and results of operations.

Dependence  on  Suppliers.  Cabletron's  products  include  certain  components,
including application specific integrated circuits ("ASICs"), that are currently
available from single or limited sources,  some of which require long order lead
times.  In addition,  certain of  Cabletron's  products and  sub-assemblies  are
manufactured by single source third parties.  With the increasing  technological
sophistication  of new  products  and the  associated  design and  manufacturing
complexities,  Cabletron  anticipates  that it may  need  to rely on  additional
single source or limited suppliers for components or manufacture of products and
subassemblies. Any reduction in supply, interruption or extended delay in timely
supply,  variances  in actual  needs  from  forecasts  for long  order lead time
components, or change in costs of components could affect Cabletron's ability to
deliver its  products in a timely and  cost-effective  manner and may  adversely
impact Cabletron's operating results and supplier  relationships.  Nearly all of
the  Company's  products,  and  the  products  of  its  subsidiaries,   will  be
manufactured by third-party  contract  manufacturers,  beginning in fiscal 2000.
The failure of a  third-party  manufacturer  to  manufacture  the products or to
deliver the products in time for  Cabletron  to meet its  delivery  requirements
could  have  a  material  adverse  effect  on  Cabletron's  business,  financial
condition and results of operations.
<PAGE>

Year 2000

As widely reported,  many computer systems were not designed to handle any dates
beyond the year 1999 and, therefore, computer hardware and software will need to
be modified prior to the year 2000 in order to remain functional.  The Year 2000
issue is the result of computer  programs  being written using two digits rather
than four, to define a specific year.  Absent  corrective  measures,  a computer
program that has date-sensitive software may recognize a date using "00" as 1900
rather  than  the  year  2000.   This  could   result  in  system   failures  or
miscalculations causing disruptions to various activities and operations.  As is
true for most  companies,  the Year 2000  computer  issue creates a risk for the
Company.  If the  Company's  products,  internal  systems or the  systems of its
suppliers do not correctly  recognize date  information when the year changes to
2000, there could be an adverse impact on the Company's  operations.  To address
this  issue,  the Company  initiated  a project to assess and address  Year 2000
compliance  issues  for  its  internal   information   systems,   equipment  and
facilities, key suppliers and products.

With respect to the Company's infrastructure and internal systems (consisting of
facilities,   telecommunications,   and  the  corporate  network),   enterprise,
manufacturing  and  engineering  systems,  as  well  as  those  of  third  party
suppliers,  the phases of the project include: (1) inventorying Year 2000 items;
(2)  assigning  priorities  to  identified  items  and  assessing  the Year 2000
compliance of items determined to be critical to the Company; (3) remediation of
critical  items  that are  determined  not to be Year 2000  ready;  (4)  testing
critical items; and (5) designing and implementing contingency plans.

Internal Information Systems

Cabletron has largely  completed the inventory and assessment phases of its main
engineering,  financial, manufacturing and order processing systems. The Company
is in the  process of  remediating  and  testing  these  systems  and expects to
complete these phases by the end of October 1999, and does not currently  expect
any significant  issues to be identified  during the completion of these phases.
However, the failure of any internal system to achieve Year 2000 readiness could
disrupt the  Company's  ability to conduct its business or record  transactions,
which could adversely affect results of operations or financial condition.

Equipment and Facilities

The Company is in the final stages of  contacting  the suppliers of its critical
equipment to ascertain the equipment's Year 2000 readiness. Cabletron expects to
achieve Year 2000  readiness  of its critical  equipment by the end of September
1999.  If  identification   of  non-compliant   equipment  and  any  upgrade  or
replacement  is  delayed,   the  Company's   design,   production  and  shipping
capabilities  could be  disrupted,  which could  adversely  affect the Company's
results of operations and financial condition. The Company is also assessing the
Year 2000 readiness of its owned facilities and critical leased  facilities that
house large  numbers of  Cabletron  employees.  The Company  expects to complete
remediation and testing efforts by September 1999. These facilities are critical
to operations  and any delays in achieving  Year 2000  readiness with respect to
these facilities  could adversely affect the Company's  results of operations or
financial condition.

Key Suppliers

The Company has completed the inventory and  assessment  phases of its review of
Cabletron's  critical supplier base and, as part of the remediation phase, is in
the process of reviewing the state of readiness of its critical suppliers.  This
process includes compliance  inquiries and reviews that will continue throughout
1999. Where issues are identified with a particular supplier,  contingency plans
will be developed.  Even where  assurances are received from third parties there
remains a risk that failure of systems and products of other  companies on which
Cabletron relies could have a material  adverse effect on the Company.  Further,
if these  suppliers  fail to  adequately  address  the Year  2000  issue for the
products they provide to Cabletron,  critical  materials,  products and services
may not be  delivered  in a timely  manner,  which  could  adversely  affect the
Company's results of operations or financial condition.
<PAGE>

Cabletron Products

The Company has conducted  extensive  work  regarding the status of its current,
developing and installed  base of products.  The Company has published a list of
its major products indicating their status of Year 2000 compliance. This list is
available      on     the      Company's      World      Wide      Web      page
(http://www.cabletron.com/year-2000)  and is updated  periodically.  The Company
believes that  substantially  all of its current hardware products are Year 2000
compliant.  The Company  believes that its older hardware  products that are not
Year 2000  compliant  will  continue  to  perform  all  essential  and  material
functions  after the year 2000 but may,  in limited  circumstances,  incorrectly
report the date of events  (i.e.,  events on the network  that are reported to a
network  management  software package) after the year 2000. The Company believes
that its  current  version of Spectrum  (Version  5.1),  its network  management
platform,  is Year 2000 compliant.  Older versions of Spectrum are not Year 2000
compliant.  The  Company is  offering  upgrades  for some,  but not all,  of the
non-compliant  products  (both  hardware and  software)  previously  sold by the
Company. For those non-compliant products with no upgrade available, the Company
is offering customers the opportunity to purchase equipment offering  equivalent
functionality.  Given  that most  non-compliant  products  previously  sold will
continue to perform  their  standard  functions,  the Company  expects that many
customers  will decide not to replace  those  products.  Despite  the  Company's
efforts  to date to  identify  the  Year  2000  compliance  of its  current  and
installed  base of products and the effects of any  non-compliance,  the Company
cannot be sure that it has  identified all areas of  non-compliance  or that any
solutions it implements to address the non-compliance  will prove  satisfactory.
Further, since all customer situations cannot be anticipated, particularly those
involving  third  party  products,  the Company  may  experience  an increase in
warranty  and other  claims as a result of the Year 2000  transition.  For these
reasons,  the impact of customer claims could have a material  adverse impact on
the Company's results of operations or financial condition.

As  used  in  this  section,  "Year  2000  compliant"  means,  with  respect  to
information  technology,  that the  information  technology,  where  applicable,
accurately processes date/time data (including, but not limited to, calculating,
comparing,   and  sequencing)   from,   into,  and  between  the  twentieth  and
twenty-first centuries,  and the years 1999 and 2000 and leap year calculations,
to the extent that other  information  technology,  used in combination with the
information  technology being acquired,  properly exchanges  date/time data with
it.

Costs

Based on the work  performed  to date,  the  Company has not  incurred  material
costs. The Company presently estimates it will incur between $15 and $18 million
of  costs,  of which  approximately  85% will be for  capital  expenditures,  in
connection  with its Year 2000 efforts.  This  estimate is based on  information
gathered to date,  and may be  materially  revised as assessment  continues.  If
implementation  of  replacement  systems  is  delayed,  or  if  significant  new
non-compliance  issues are  identified,  the Company's  results of operations or
financial condition could be materially  adversely affected.  Expectations about
future Year 2000-related  costs are subject to various  uncertainties that could
cause the actual results to differ  materially from the Company's  expectations,
including  the success of the company in  identifying  systems and programs that
are not Year 2000  ready,  the  nature  and amount of  programming  required  to
upgrade or replace each of the affected  programs,  the  availability,  rate and
magnitude of related labor and consulting costs and the success of the Company's
business partners, vendors and clients in addressing the Year 2000 issue.
<PAGE>

Contingency Plans

Contingency  plans are being  developed  in critical  areas,  to ensure that any
potential  material  business  interruptions  caused by the Year 2000  issue are
mitigated.  Preliminary  contingency  plans  will  be  updated  as  the  Company
continues to refine and assess risk.

The  foregoing  statements  are based upon  management's  best  estimates at the
present time which were derived utilizing numerous assumptions of future events,
including  the  continued   availability  of  certain  resources,   third  party
modification plans and other factors. The Company has taken and will continue to
take corrective action to mitigate any significant Year 2000 problems. There can
be no  guarantee  that the  Company  will not  experience  significant  business
disruptions or loss of business due to the Year 2000 issue. Specific factors may
later  become  known  which  could  result in a material  adverse  impact on the
Company's results of operations or financial condition.

New Accounting Pronouncements

In December 1998, the AICPA  Accounting  Standards  Executive  Committee  issued
Statement of Position (SOP) 98-9, "Modification of Software Revenue Recognition"
which requires recognition of revenue using specific methods and amends SOP 98-4
(Deferral of the Effective  Date of a Provision of SOP 97-2) and amends  certain
paragraphs  of SOP 97-2.  The  Company  will adopt SOP 98-9 for its fiscal  year
2000,  beginning on March 1, 1999.  Management believes that this Statement will
not have a significant impact on the Company.

In June 1998, the FASB issued Financial Accounting Standard No. 133, "Accounting
for Derivative  Instruments  and Hedging  Activities"  (SFAS 133) which requires
companies to record  derivative  instruments  on the balance  sheet as assets or
liabilities,  measured at fair value.  Gains or losses resulting from changes in
the values of those  derivatives  would be accounted for depending on the use of
the derivative and whether it qualifies for hedge  accounting.  SFAS 133 will be
effective  for the Company's  first  quarter of fiscal year ending  February 28,
2002.   Management  is  currently  evaluating  the  potential  effects  of  this
pronouncement on its consolidated financial statements. However, management does
not expect the impact to be significant.

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company,  as a result of its global operating and financial  activities,  is
exposed to changes in interest rates and foreign  currency  exchange rates which
may adversely  affect its results of  operations  and  financial  position.  The
Company's  overall  objective  in managing  its credit  risk is to minimize  the
adverse impact of any single event or set of events.  In seeking to minimize the
risks and/or costs  associated  with such  activities,  the Company uses foreign
currency  forward and option  contracts to hedge the currency  risk  inherent in
global  operations.  The Company does not use utilize financial  instruments for
trading or other speculative  purposes,  nor does it utilize leveraged financial
instruments.

Market Risk  Disclosures.  The following  discussion  about the Company's market
risk  disclosures  involves  forward-looking  statements.  Actual  results could
differ materially from those projected in the  forward-looking  statements.  The
Company is  exposed to market  risk  related  to changes in  interest  rates and
foreign currency exchange rates. The hedging activity of the Company is intended
to offset the impact of currency fluctuations on certain nonfunctional  currency
assets  and  liabilities  and the  Company  does  not use  derivative  financial
instruments for trading or speculative purposes.

Interest  Rate  Sensitivity.  The  Company  maintains  an  investment  portfolio
consisting  mainly of debt securities of various issuers,  types and maturities.
The securities that the Company classifies as  held-to-maturity  are recorded on
the balance sheet at amortized cost, which approximates market value. Unrealized
gains  or  losses  associated  with  these  securities  are  not  material.  The
securities that the Company classifies as available-for-sale are recorded on the
balance sheet at fair market value with  unrealized  gains or losses reported as
part of accumulated other  comprehensive  income as a component of stockholders'
equity.  A  hypothetical  50 or 100 basis point increase in interest rates would
result in an  approximate  $1.0 million or $2.5 million  decrease,  respectively
(approximately  0.3  percent or 0.7  percent,  respectively)  in the fair market
value of the  securities.  The Company has the ability to hold its fixed  income
investments  until  maturity,  and  therefore  the Company  would not expect its
operating results or cash flows to be affected to any significant  degree by the
effect of a sudden change in market interest rates on its securities portfolio.
<PAGE>

Foreign  Currency  Exchange  Risk.  The  Company  enters into  foreign  exchange
contracts to hedge certain  balance sheet  exposures and  intercompany  balances
against  future  movements in foreign  exchange  rates.  Gains and losses on the
contracts are largely offset by gains and losses on the underlying exposure.  At
February 28, 1999,  the Company had purchased  forwards with a notional value of
approximately  $8.0 million and options with a notional  value of  approximately
$39.0 million.  A hypothetical  10 percent  appreciation  or depreciation of the
U.S.  Dollar from  February 28, 1999 market rates would not result in a material
decrease in fair market value, earnings or cash flows. Also, any gains or losses
on the  contracts  are largely  offset by the gains or losses on the  underlying
transactions and consequently a sudden or significant change in foreign exchange
rates would not have a material impact on future net income or cash flows.

Euro Conversion

Effective  January  1,  1999,  eleven of the  fifteen  member  countries  of the
European  Union  established  fixed  conversion  rates  between  their  existing
sovereign  currencies  (the "legacy  currencies")  and one common  currency (the
"Euro").  The  participating  countries  adopted the Euro as their  common legal
currency on that date (the "Euro  Conversion").  Since that date, the Euro began
trading on currency  exchanges  and has been used in business  transactions.  On
January 1, 2002,  participating  countries will issue new Euro-denominated bills
and coins.  The legacy  currencies  will be withdrawn from  circulation as legal
tender  effective  January 1, 2002.  During the period from  January 1, 1999 and
June 30,  2002,  parties  may use either the Euro or a  participating  country's
legacy currency as legal tender.

Earlier  in the  year  ended  February  28,  1999,  the  Company  formed  a Euro
Committee.  The Euro Committee has analyzed the impact of the Euro conversion on
the Company in a number of areas,  including the Company's  information systems,
product pricing,  finance and banking  resources,  foreign exchange  management,
contracts,  accounting  and tax  policies.  While the Company  has made  certain
adjustments to its business and operations to accommodate the Euro conversion, a
failure  to fully  implement  the Euro  conversion  on the part of the  European
Union,  would not have a  material  adverse  impact on the  Company's  financial
position and results of operations.

<PAGE>

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CABLETRON SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS
February 28, 1999 and 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>


Assets                                                                        1999                  1998
                                                                          -----------           -----------
<S>                                                                        <C>                  <C>
                                                                                                  (Restated)
Current assets:
    Cash and cash equivalents                                              $  159,422            $  207,078
    Short-term investments (note 4)                                           113,932               116,979

    Accounts receivable, net of allowance for
      doubtful accounts ($23,260 and $21,043 in 1999
      and 1998, respectively)                                                 216,793               241,181
    Inventories (note 5)                                                      229,512               309,667
    Deferred income taxes (note 11)                                            60,252                81,161
    Prepaid expenses and other assets                                          60,510                89,396
                                                                           ----------            ----------
        Total current assets                                                  840,421             1,045,462
                                                                           ----------            ----------
Long-term investments (note 4)                                                202,984               123,272
Long-term deferred income taxes (note 11)                                     135,197               107,094
Property, plant and equipment, net (note 6)                                   188,479               244,730
Intangible assets, net (note 7)                                               199,419               161,490
                                                                           ----------            ----------
        Total assets                                                       $1,566,500            $1,682,048
                                                                           ==========            ==========

Liabilities and Stockholders' Equity

Current liabilities:
    Accounts payable                                                       $  121,580            $   79,969
    Current portion of long-term obligation (note 9)                          129,747               157,719
    Accrued expenses (note 8)                                                 218,149               214,728
                                                                           ----------            ----------
        Total current liabilities                                             469,476               452,416
    Long-term obligation (note 9)                                                 ---               132,500
    Long-term deferred income taxes (note 11)                                   7,191                12,057
                                                                           ----------            ----------
        Total liabilities                                                     476,667               596,973
                                                                           ----------            ----------

Commitments and contingencies (notes 10 and 12)

Stockholders' equity (note 15):

    Preferred stock, $1.00 par value. Authorized
      2,000 shares; none issued                                                   ---                   ---
    Common stock, $0.01 par value. Authorized
      240,000 shares; issued and outstanding 172,184
      and 158,267 shares in 1999 and 1998, respectively                         1,722                 1,583
    Additional paid-in capital                                                551,232               300,834
    Retained earnings                                                         536,487               781,878
                                                                           ----------            ----------
                                                                            1,089,441             1,084,295
    Accumulated other comprehensive income                                        392                   780
                                                                           ----------            ----------
        Total stockholders' equity                                          1,089,833             1,085,075
                                                                           ----------            ----------
        Total liabilities and stockholders' equity                         $1,566,500            $1,682,048
                                                                           ==========            ==========
</TABLE>

      See accompanying notes to consolidated financial statements.


<PAGE>

CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended February 28, 1999, 1998 and 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                      1999                 1998                 1997
                                                                   ----------           ----------           ----------
                                                                                         (Restated)           (Restated)
<S>                                                               <C>                  <C>                  <C>

Net sales                                                          $1,411,279           $1,377,330           $1,406,552
Cost of sales                                                         811,350              676,291              595,407
                                                                   ----------           ----------           ----------
     Gross profit                                                     599,929              701,039              811,145
Operating expenses:
     Research and development                                         210,393              181,777              161,674
     Selling, general and administrative                              446,232              373,789              301,469
     Fixed asset loss (note 6)                                         17,570                  ---                  ---
     Special charges (notes 2 and 3)                                  217,350              234,285               21,724
                                                                   ----------           ----------           ----------
        Income (loss)  from operations                               (291,616)             (88,812)             326,278
Interest income                                                        15,089               18,578               19,422
                                                                   ----------           ----------           ----------
        Income (loss) before income taxes                            (276,527)             (70,234)             345,700
Income tax expense (benefit) (note 11)                                (31,136)             (35,273)             119,621
                                                                   ----------           ----------           ----------
        Net income (loss)(note 2)                                 ($  245,391)         ($   34,961)          $  226,079
                                                                   ==========           ==========           ==========
Net income (loss) per share - basic                                    ($1.47)              ($0.22)               $1.46
                                                                   ==========           ==========           ==========
Net income (loss) per share - diluted                                  ($1.47)              ($0.22)               $1.42
                                                                   ==========           ==========           ==========
Weighted average number of shares outstanding:
        Basic                                                         167,432              157,686              155,207
                                                                   ==========           ==========           ==========
        Diluted                                                       167,432              157,686              158,933
                                                                   ==========           ==========           ==========


</TABLE>
       See accompanying notes to consolidated financial statements.
<PAGE>


CABLETRON SYSTEMS, INC.

CONSOLIDATED  STATEMENTS OF STOCKHOLDERS'  EQUITY Years ended February 28, 1999,
1998 and 1997 (in thousands, except number of shares)
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
                                                                          ACCUMULATED
                                                    ADDITIONAL               OTHER         NOTES         TOTAL
                                   COMMON    COMMON   PAID-IN  RETAINED  COMPREHENSIVE  RECEIVABLE   STOCKHOLDERS'
                                   SHARES    STOCK    CAPITAL  EARNINGS     INCOME     STOCKHOLDERS     EQUITY
-------------------------------------------------------------------------------------------------------------------
<S>                             <C>            <C>   <C>       <C>           <C>             <C>         <C>

-------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 29, 1996     72,234,000     $776  $218,792  $591,518      ($1,049)        ($151)      $809,886
-------------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net income (Restated)                ---      ---       ---   226,079          ---           ---        226,079
   Other comprehensive income:
   Effect of foreign currency
     translation                        ---      ---       ---       ---        1,270           ---          1,270
Total comprehensive income                                       226,079        1,270           ---        227,349
Effect of stock split            72,730,577      758       ---      (758)         ---           ---            ---
Exercise of options for shares
   of common stock                  909,882       10    18,012       ---          ---           ---         18,022
Repayment of notes receivable           ---      ---       ---       ---          ---           151            151
Issuance of common stock for
   pooled acquisitions           10,054,897       15     8,562       ---          ---           ---          8,577
Issuance of common stock for
   purchased acquisitions           225,582        2     6,955       ---          ---           ---          6,957
Tax benefit for options
   exercised                            ---      ---     8,302       ---          ---           ---          8,302
Issuance of shares under employee
   stock purchase plan              150,374        2     6,206       ---          ---           ---          6,208
-------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 28, 1997*   156,305,312    1,563   266,829   816,839          221           ---      1,085,452
-------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss):
   Net loss (Restated)                  ---      ---       ---   (34,961)         ---           ---        (34,961)
   Other comprehensive income:
   Effect of foreign currency
     translation                        ---      ---       ---       ---          559           ---            559
Total comprehensive income (loss)       ---      ---       ---   (34,961)         559           ---        (34,402)
Retirement of treasury stock        (32,209)     ---       ---       ---           ---          ---            ---
Exercise of options for shares
   of common stock                1,762,565       18    17,291       ---          ---           ---         17,309
Tax benefit for options
   exercised                            ---      ---    10,469       ---          ---           ---         10,469
Issuance of shares under employee
   stock purchase plan              231,326        2     6,245       ---          ---           ---          6,247
-------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 28, 1998*   158,266,994    1,583   300,834   781,878          780           ---      1,085,075
-------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss):
   Net loss                             ---      ---       ---  (245,391)         ---           ---       (245,391)
   Other comprehensive income:
   Unrealized gain/(loss) on
     available-for-sale
     securities                         ---      ---       ---       ---        1,186           ---          1,186
   Effect of foreign currency
     translation                        ---      ---       ---       ---       (1,574)          ---         (1,574)
Total comprehensive income (loss)       ---      ---       ---  (245,391)        (388)          ---       (246,965)
Exercise of options for shares
   of common stock                  497,696        5     2,761       ---          ---           ---          2,766
Issuance of common stock for
   purchased acquisitions        12,757,395      127   239,621       ---          ---           ---        239,748
Issuance of common stock for
   minority interests                89,921        1     1,117       ---          ---           ---          1,118
Tax benefit for options
   exercised                            ---      ---       935       ---          ---           ---            935
Issuance of shares under employee
   stock purchase plan              572,087        6     5,378       ---          ---           ---          5,384
Other                                   ---      ---       586       ---          ---           ---            586
-------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 28, 1999    172,184,093   $1,722  $551,232  $536,487         $392           ---     $1,089,833
-------------------------------------------------------------------------------------------------------------------
* Restated


</TABLE>




       See accompanying notes to consolidated financial statements.

<PAGE>

CABLETRON SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended February 28, 1999, 1998 and 1997
(in thousands)

<TABLE>
<CAPTION>
                                                                                    1999              1998               1997
                                                                                  --------           --------          --------
                                                                                                    (Restated)        (Restated)
<S>                                                                             <C>               <C>               <C>

Cash flows from operating activities:
    Net income (loss)                                                            ($245,391)          ($34,961)         $226,079
    Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Depreciation and amortization                                                114,679             66,358            49,704
      Provision for losses on accounts receivable                                    2,240              5,668             9,140
      Loss (gain) on disposal of property, plant and equipment                         781               (285)               87
      Fixed asset loss                                                              17,570                ---               ---
      Purchased research and development from acquisitions                         217,350            199,300               ---
      Deferred income taxes                                                         (6,475)          (111,425)          (22,933)
      Changes in assets and liabilities:
         Accounts receivable                                                        (9,059)           (31,847)          (74,925)
         Inventories                                                                88,682            (91,412)          (41,623)
         Prepaid expenses and other assets                                          (7,527)             1,213            (1,709)
         Accounts payable and accrued expenses                                    (102,608)            83,471            52,661
         Income taxes payable                                                       13,616            (36,591)           (7,653)
                                                                                  --------           --------          --------
            Net cash provided by operating activities                               83,858             49,489           188,828
                                                                                  --------           --------          --------

Cash flows from investing activities:
      Capital expenditures                                                         (44,773)           (74,264)          (94,368)
      Cash paid for business acquisitions, net                                     (32,193)          (129,107)              ---
      Proceeds from sale of fixed assets                                            24,531                ---               ---
      Purchase of available-for-sale securities                                   (101,331)          (118,919)         (203,667)
      Purchase of held-to-maturity securities                                     (121,740)           (37,228)         (247,855)
      Sales/maturities of marketable securities                                    135,648            269,344           424,308
                                                                                  --------           --------          --------
            Net cash used in investing activities                                 (139,858)           (90,174)         (121,582)
                                                                                  --------           --------          --------

Cash flows from financing activities:
      Repayment of notes receivable from stockholders                                  ---                ---               151
      Other                                                                            586                ---               ---
      Tax benefit of options exercised                                                 924             10,469             8,302
      Proceeds from sale of common stock                                               ---                ---             8,577
      Common stock issued to employee stock purchase plan                            5,384              6,247             6,208
      Proceeds from exercise of stock options                                        2,766             17,309            18,022
                                                                                  --------           --------          --------
            Net cash provided by financing activities                                9,660             34,025            41,260
                                                                                  --------           --------          --------

    Effect of exchange rate changes on cash                                         (1,316)            (1,090)              220
                                                                                  --------           --------          --------

    Net (decrease) increase in cash and cash equivalents                           (47,656)            (7,750)          108,726
    Cash and cash equivalents, beginning of year                                   207,078            214,828           106,102
                                                                                  --------           --------          --------
    Cash and cash equivalents, end of year                                        $159,422           $207,078          $214,828
                                                                                  ========           ========          ========

    Cash paid (received) during the year for:
      Income taxes                                                                ($28,706)           $57,941          $132,291
                                                                                  ========           ========          ========



</TABLE>




       See accompanying notes to consolidated financial statements.
<PAGE>



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note (1)    Business Operations

The Company develops,  manufactures,  markets,  designs, installs and supports a
broad range of standards-based local and wide area network connectivity hardware
and software products.

Note (2)    Summary of Significant Accounting Policies

(a)      Principles of Consolidation

The consolidated financial statements include the accounts of Cabletron Systems,
Inc.  (the  "Company")  and  its  wholly-owned  subsidiaries.   All  significant
intercompany balances and transactions have been eliminated in consolidation.

(b)      Restatements and Reclassifications

The accompanying consolidated financial statements have been restated to reflect
the impact of adjustments made by the Company to reduce its previously  reported
special charges associated with the acquisition of the Network Products Group of
Digital Equipment  Corporation  ("DNPG"),  during the fourth quarter of the year
ended  February  28,  1998  and  to  its  previously  reported  special  charges
associated with the acquisition of ZeitNet, Inc. ("ZeitNet"),  during the second
quarter of the year ended February 28, 1997.  The Company has also  reclassified
certain other expenses related to the DNPG acquisition and to three acquisitions
consummated  during the year ended February 28, 1997 (ZeitNet,  Network Express,
Inc.  and  Netlink,  Inc.) from  special  charges to cost of sales and  selling,
general and administrative  expenses. The reclassifications had no effect on net
income (loss).

These restatements and  reclassifications  were made to address comments made by
the  Securities  and  Exchange  Commission  ("SEC") in letters to the Company on
accounting  issues related to the amount of the DNPG purchase price allocated by
the Company to  in-process  research  and  development  and to the timing of the
recognition  and the  classification  of certain  expenses  included  in special
charges.

As a result,  the  Company  reduced  the  amount of its  charge  for  in-process
research and  development in connection with the acquisition of DNPG from $325.0
million to $199.3 million and, correspondingly,  increased the amounts allocated
to  intangible  assets  by  $125.7  million.  The  $125.7  million  increase  to
intangible   assets  was  allocated  as  follows  ($97.0  million  for  customer
relations,   $14.1   million  for  goodwill  and  $14.6  million  for  developed
technology)  and is being amortized by a non-cash charge to income over a period
of 5 - 10 years.

As previously  disclosed in its second  quarter Form 10-Q,  the Company has also
reduced the amount of its special charges  recorded in the fourth quarter of the
year ended February 28, 1998 in connection with the acquisition of DNPG by $33.2
million.  The  reduction  of special  charges  related to expenses  recorded for
contract  employee  benefits  and  contract  compensation  write-offs  of  $12.5
million,   software   licenses  and  software   tools  costs  of  $7.0  million,
professional fees and some facility costs reclassified to purchase price of $3.2
million,  customer  warranty and stock  rotation costs of $3.0 million and other
integration costs reductions in estimates and  classifications  of $7.5 million.
To the extent  that a portion of these  integration  costs were  incurred in the
year ended February 28, 1998,  the amounts are included in the restated  results
for that year.

The Company has also reduced the amount of its write down of inventory  recorded
in the year ended February 28, 1997 relating to the ZeitNet  acquisition by $6.0
million and has  recorded  the write down in the year ended  February  28, 1998,
upon disposal of the inventory.

The  Company  has  reclassified   certain  expenses  relating  to  its  business
combinations  from  special  charges to cost of sales and  selling,  general and
administrative  expense.  For the year ended  February 28, 1998,  $24.5  million
relating to the write down of Company  inventory made redundant and discontinued
as a  result  of the  acquisition  of DNPG has been  reclassified  from  special
charges  to cost of sales.  For the year ended  February  28,  1997 the  amounts
reclassified  to cost of sales  represented  the write down of $20.3  million of
inventory  that was  duplicative  and/or  rendered  obsolete  as a result of the
acquisitions of ZeitNet,  Network Express and Netlink. The amounts reclassified
to selling,  general and  administrative  expenses  represented $3.4 million for
customer warranty costs, $2.8 million for contract termination, $1.5 million for
stay  bonuses and $7.3  million for other  costs that were  attributable  to the
businesses acquired during the year ended February 28, 1997.
<PAGE>

The   following   is  a  summary  of  the  effects  of  the   restatements   and
reclassifications on special charges and net income (loss):

(in thousands)                                         1998              1997
                                                       ----              ----

Special charges, as originally reported              $417,685           $63,024

    Reduction of in-process research and
       development charge                            (125,700)              ---
    Reduction of special charges                      (33,200)           (6,000)
    Reclassification to cost of sales                 (24,500)          (20,300)
    Reclassification to selling, general and
       adminstrative expenses                             ---           (15,000)
                                                     --------           -------
Special charges, as restated                         $234,285           $21,724
                                                     ========           =======


Net income (loss), as originally reported           ($127,062)         $222,125
    Reduction of in-process research and
       development charge, net of tax
       benefit of $49.9 million                        75,838               ---
    Reduction of special charges, net of
       tax benefit of $11.3 million and $2.0
       million, respectively                           21,899             3,954
    Recognition of integration costs as
       incurred, net of tax of $0.5 million            (1,023)              ---
    Recognition of ZeitNet inventory writedown,
       net of tax of $2.0 million                      (3,954)              ---
    Increase in amortization charges of
       intangible assets, net of tax benefit
       of $0.4 million                                   (659)              ---
                                                     --------          --------
Net income (loss), as restated                       ($34,961)         $226,079
                                                     ========          ========


                                                       1998              1997
                                                       ----              ----

Net income (loss) per share - basic,                  ($0.81)            $1.43
     as originally reported                           =======            =====

Net income (loss) per share - diluted,                ($0.81)            $1.40
     as originally reported                           =======            =====

Net income (loss) per share - basic,                  ($0.22)            $1.46
     as restated                                      =======            =====

Net income (loss) per share - diluted,                ($0.22)            $1.42
     as restated                                      =======            =====

The effect of the restatement on the  consolidated  balance sheet as of February
28, 1998 is as follows:

                                                  As Originally          As
(in thousands)                                       Reported         Restated
                                                  -------------     -----------
Prepaid expenses and other assets                  $   78,084        $   89,396
Total current assets                                1,034,150         1,045,462
Long-term deferred income taxes                       167,308           107,094
Intangible assets                                      36,867           161,490
Total assets                                        1,606,327         1,682,048
Accrued expenses                                      235,062           214,728
Total current liabilities                             472,750           452,416
Total liabilities                                     617,307           596,973
Retained earnings                                     685,823           781,878
Total stockholders' equity                            989,020         1,085,075
Total liabilities and stockholders' equity         $1,606,327        $1,682,048

(c)      Investments

Held-to-maturity  securities  are those  investments  which the  Company has the
ability  and  intent to hold until  maturity.  Held-to-maturity  securities  are
recorded at amortized cost,  adjusted for amortization and accretion of premiums
and discounts.  Due to the nature of the Company's investments and the resulting
low  volatility,  the  difference  between fair value and amortized  cost is not
material.  Available-for-sale  securities are recorded at fair value. Unrealized
gains and losses net of the related tax effect on available-for-sale  securities
are  reported  in  accumulated  other  comprehensive   income,  a  component  of
stockholders' equity, until realized. The estimated market values of investments
are based on quoted market prices as of the end of the reporting period.

(d)      Inventories

Inventories  are stated at the lower of cost or market.  Costs are determined at
standard which approximates the first-in, first-out (FIFO) method.
<PAGE>

(e)      Property, Plant and Equipment

Property,  plant and equipment are stated at cost. Depreciation is provided on a
straight-line  method over the estimated  useful lives of the assets.  Leasehold
improvements  are amortized  over the shorter of the lives of the related assets
or the  term of the  lease.  The  Company  reviews  its  long-lived  assets  for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset may not be recoverable. If it is determined that the
carrying  amount of an asset cannot be fully  recovered,  an impairment  loss is
recognized.

(f)      Intangible Assets

Intangible  assets consist of goodwill and other  intangible  assets acquired in
business  combinations at cost less  accumulated  amortization.  Amortization of
these intangible assets is provided on a straight-line basis over the respective
useful lives which range from three to ten years.  Purchased in-process research
and development  without  alternative future use is expensed when acquired.  The
carrying amount of intangible assets is reviewed for impairment  whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be recoverable. The measurement of possible impairment is based primarily on
an  evaluation  of  undiscounted  projected  cash flows  through  the  remaining
amortization period.

(g)      Income Taxes

The Company  accounts  for income  taxes under the asset and  liability  method.
Under this method,  deferred tax assets and  liabilities  are recognized for the
future tax  consequences  attributable  to  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective tax bases and operating loss and tax credit  carryforwards.  Deferred
tax assets and  liabilities  are measured  using  enacted tax rates  expected to
apply to taxable income in the years in which those  temporary  differences  are
<PAGE>


expected  to be  recovered  or  settled.  The effect of a change in tax rates on
deferred tax assets and  liabilities  is recognized in income in the period that
includes the enactment date.

The Company has reinvested earnings of its foreign  subsidiaries and, therefore,
has not provided  income taxes which could  result from the  remittance  of such
earnings.  The  unremitted  earnings at February  28, 1999 and February 28, 1998
amounted  to  approximately  $175.1  million and $152.2  million,  respectively.
Furthermore,  any taxes paid to foreign  governments  on those  earnings  may be
used,  in whole for in part,  as  credits  against  the US tax on any  dividends
distributed from such earnings.  It is not practicable to estimate the amount of
unrecognized deferred US taxes on these undistributed earnings.

(h)      Net Income (Loss) Per Share

In February 1998,  the Company  adopted  Financial  Accounting  Standards  Board
Statement No. 128,  "Earnings Per Share," (SFAS 128).  All  previously  reported
earnings per share information presented has been restated to reflect the impact
of adopting SFAS 128.

Under SFAS 128, basic net income (loss) per common share is computed by dividing
net income  (loss)  available to common  stockholders  by the  weighted  average
number of common shares  outstanding  for the period.  Diluted income (loss) per
common share  reflect the maximum  dilution  that would have  resulted  from the
assumed exercise and share  repurchase  related to dilutive stock options and is
computed by dividing net income (loss) by the weighted  average number of common
shares and all dilutive securities outstanding.

The  reconciliation  of the numerators and denominators of the basic and diluted
net income (loss) per common share  computations for the Company's  reported net
income (loss) is as follows:


<TABLE>
<CAPTION>

<S>                                                 <C>               <C>               <C>
                                                       1999              1998               1997
                                                       ----              ----               ----
Weighted average number of
    shares outstanding - basic                        167,432           157,686           155,207

Incremental shares upon exercise of
    common stock options                                  ---               ---             3,726
                                                      -------           -------           -------
Weighted average number of
    shares outstanding - diluted                      167,432           157,686           158,933
                                                      =======           =======           =======

Net income (loss)                                   ($245,391)         ($34,961)         $226,079
                                                     ========           =======          ========

Basic income (loss) per share amount                   ($1.47)           ($0.22)            $1.46
                                                     ========           =======          ========

Diluted income (loss) per share amount                 ($1.47)           ($0.22)            $1.42
                                                     ========           =======          ========


</TABLE>

For 1999 and 1998, stock options to purchase shares of common stock totaling 4.5
million and 4.1 million, respectively, were outstanding but were not included in
the   calculation   of  diluted   earnings   per  share  since  the  effect  was
anti-dilutive.  In  addition,  the effect of the 5.5 million  shares that may be
issued  related to the  acquisition  of Yago,  as of the end of the years  ended
February 28, 1999 and 1998, was not included since the effect was anti-dilutive.
<PAGE>

(i)      Foreign Currency Translation and Transaction Gains and Losses

The Company's  international  revenues are denominated in either U.S. dollars or
local currencies.  For those  international  subsidiaries  which use their local
currency as their functional currency,  assets and liabilities are translated at
exchange  rates in effect at the  balance  sheet  date and  income  and  expense
accounts  at  average  exchange  rates  during the year.  Resulting  translation
adjustments are recorded as other comprehensive  income and are reflected in the
stockholders' equity section, as part of accumulated other comprehensive income.
Where the U.S.  dollar is the functional  currency,  amounts are recorded at the
exchange  rates  in  effect  at the  time  of  the  transaction,  any  resulting
translation adjustments, which were not material, are recorded in income.

(j)      Statements of Cash Flows

Cash and cash  equivalents  consist of cash in banks and short-term  investments
with original maturities of three months or less.

(k)      Revenue Recognition

The Company generally recognizes revenue upon shipment of products and software.
In the case of design, consulting,  installation and support services,  revenues
are recognized upon completion and acceptance of such products and services. The
Company  recognizes  software  revenue  after the  delivered  software no longer
requires  significant  production,  modification,  or further  customization and
collection of the related  receivable is deemed probable.  Revenues from service
contracts are deferred and  recognized  ratably over the period the services are
performed. Estimated warranty costs and sales returns and allowances are accrued
at the time of shipment based on contractual  rights and historical  experience.
The  Company  extends  limited  product  return and price  protection  rights to
certain  distributors  and  resellers.  Such rights are  generally  limited to a
certain percentage of sales over primarily a three month period.

(l)      Reclassifications

Certain  prior year balances  have been  reclassified  to conform to the current
year presentation.

(m)      Derivatives

The Company utilizes derivative financial instruments to reduce financial market
risks.  The Company enters into foreign exchange forward and option contracts to
minimize the impact of foreign  currency  fluctuations on assets and liabilities
denominated in currencies  other than the  functional  currency of the reporting
entity.  All foreign  exchange  forward and option contracts are designated as a
hedge and are highly  inversely  correlated  to the hedged  item as  required by
generally accepted accounting principles.  Gains and losses on the contracts are
reflected in operating  results and offset foreign exchange gains or losses from
the  revaluation  of   inter-company   balances  or  other  current  assets  and
liabilities  denominated in currencies other than the functional currency of the
reporting  entity.  Gains  and  losses on the  contracts  are  calculated  using
published  foreign exchange rates to determine fair value. The gain or loss that
results  from the early  termination  of a contract is  reflected  in  operating
results.

(n)      Use of Estimates

The  preparation  of  consolidated   financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.
<PAGE>

(o)      New Accounting Pronouncements

In the year ended February 28, 1999, the Company  adopted  Financial  Accounting
Standards Board Statement No. 130, "Reporting  Comprehensive  Income" (SFAS 130)
which  establishes  standards for reporting and display of comprehensive  income
and its  components  in a full set of  financial  statements.  For the  Company,
comprehensive  income  includes net income (loss),  unrealized  gains and losses
from foreign  currency  translation and unrealized gains and losses on available
for sale securities.  The adoption of SFAS 130 did not have a material impact on
the Company's results of operations for the year ended February 28, 1999.

In the year ended February 28, 1999, the Company  adopted  Financial  Accounting
Standards Board Statement No.131,  "Disclosures  about Segments of an Enterprise
and Related Information" (SFAS 131) which establishes standards for the way that
public business enterprises report selected information about operating segments
in annual  financial  statements  and  requires  that those  enterprises  report
selected  information  about operating  segments in interim financial reports to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services,  geographic  areas and major  customers.  The adoption of
SFAS 131 did not have any impact on the Company's  results of operations for the
year ended February 28, 1999.

In October 1997,  the AICPA  Accounting  Standards  Executive  Committee  issued
Statement of Position (SOP) 97-2,  "Software Revenue Recognition" which provides
guidance on applying  generally  accepted  accounting  principles in recognizing
revenue for licensing, selling, leasing or otherwise marketing computer software
and supersedes SOP 91-1. The adoption of SOP 97-2 did not have a material impact
on the Company's results of operations for the year ended February 28, 1999.

In March  1998,  the  AICPA  Accounting  Standards  Executive  Committee  issued
Statement of Position (SOP) 98-4, "Deferral of the Effective Date of a Provision
of SOP 97-2" which amends  certain  paragraphs of SOP 97-2.  The adoption of SOP
98-4 did not have a material  impact on the Company's  results of operations for
the year ended February 28, 1999.

In December 1998, the AICPA  Accounting  Standards  Executive  Committee  issued
Statement of Position (SOP) 98-9, "Modification of Software Revenue Recognition"
which requires revenue  recognition of revenue using specific methods and amends
SOP 98-4  (Deferral of the Effective Date of a Provision of SOP 97-2) and amends
certain  paragraphs  of SOP 97-2.  The Company  will adopt SOP 98-9 for its year
ended February 28, 2000,  beginning on March 1, 1999.  Management  believes that
this Statement will not have a significant impact on the Company.

In June 1998, the FASB issued Financial Accounting Standard No. 133, "Accounting
for Derivative  Instruments  and Hedging  Activities"  (SFAS 133) which requires
companies to record  derivative  instruments  on the balance  sheet as assets or
liabilities,  measured at fair value.  Gains or losses resulting from changes in
the values of those  derivatives  would be accounted for depending on the use of
the derivative and whether it qualifies for hedge  accounting.  SFAS 133 will be
effective  for the Company's  first  quarter of fiscal year ending  February 28,
2002.   Management  is  currently  evaluating  the  potential  effects  of  this
pronouncement on its consolidated financial statements. However, management does
not expect the impact to be significant.


Note (3)  Business Combinations

For  acquisitions  accounted  for under  the  pooling-of-interests  method,  all
financial  data of the  Company  has been  restated  to include  the  historical
financial data of these acquired  companies.  For acquisitions  accounted for as
purchases,   the  Company's  consolidated  results  of  operations  include  the
operating  results  of the  acquired  companies  from their  acquisition  dates.
Acquired  assets and  liabilities  were recorded at their  estimated fair market
values at the  acquisition  date and the  aggregate  purchase  price  plus costs
directly  attributable to the completion of  acquisitions  has been allocated to
the assets and liabilities acquired.

On September 25, 1998,  Cabletron acquired  NetVantage,  Inc.,  ("NetVantage") a
publicly held manufacturer of ethernet  workgroup  switches.  Under the terms of
the Merger  Agreement,  Cabletron  issued 6.4 million shares of Cabletron common
stock to the  shareholders  of NetVantage in exchange for all of the outstanding
shares of stock of NetVantage. In addition, Cabletron assumed 1,309,000 options,
valued at approximately $4.8 million.
<PAGE>

Cabletron  recorded the cost of the acquisition at approximately  $77.8 million,
including direct costs of $4.2 million.  This acquisition has been accounted for
under the purchase method of accounting.  The cost represents 6.4 million shares
at $9.9375  per share,  in addition  to assumed  options and direct  acquisition
costs.  Based on an independent  appraisal,  approximately  $29.4 million of the
purchase   price  was   allocated  to  in-process   research  and   development.
Accordingly,  Cabletron  recorded  special  charges  of $29.4  million  for this
in-process research and development,  at the date of acquisition.  The excess of
cost over the estimated  fair value of net assets  acquired of $35.6 million was
allocated to goodwill and other  intangible  assets and is being  amortized on a
straight-line  basis  over a period  of 5 - 10 years.  Cabletron's  consolidated
results of operations include the operating results of NetVantage, Inc. from the
acquisition date.

On  September  9,  1998,  Cabletron  acquired  all of the  outstanding  stock of
FlowPoint  Corp.,   ("FlowPoint")  a  privately  held  manufacturer  of  digital
subscriber line router networking  products.  Prior to the agreement,  Cabletron
owned  42.8% of the  outstanding  shares of stock.  Pursuant to the terms of the
agreement,  $20.6  million is to be paid in 4  installments,  within nine months
after the merger date. Each  installment may be paid in either cash or Cabletron
common stock, as determined by Cabletron management at the time of distribution.
In addition,  Cabletron  assumed 494,000 options,  valued at approximately  $2.7
million.

Cabletron  recorded the cost of the acquisition at approximately  $25.0 million,
including direct costs of $0.4 million.  This acquisition has been accounted for
under the purchase  method of  accounting.  Based on an  independent  appraisal,
approximately  $12.0  million of the purchase  price was allocated to in-process
research and  development.  Accordingly,  Cabletron  recorded special charges of
$12.0  million for this  in-process  research  and  development,  at the date of
acquisition.  The  excess of cost over the  estimated  fair  value of net assets
acquired of $11.9 million was allocated to goodwill and other intangible assets,
and is being amortized on a  straight-line  basis over a period of 5 - 10 years.
Cabletron's  consolidated results of operations include the operating results of
FlowPoint Corp. from the acquisition date.

On  September  1,  1998,  Cabletron  acquired  the assets  and  assumed  certain
liabilities of the DSLAM division of Ariel  Corporation  ("Ariel"),  a privately
held  designer  and  manufacturer  of digital  subscriber  line  network  access
products.  Under the terms of the  agreement,  Cabletron  paid $33.5 million and
assumed certain liabilities.

Cabletron  recorded the cost of the acquisition at approximately  $45.1 million,
including  direct  costs  of $1.1  million  related  to the  acquisition,  which
consisted of cash payments of $33.5 million and other assumed liabilities.  This
acquisition  has been  accounted  for under the purchase  method of  accounting.
Based on an independent  appraisal,  approximately $26.0 million of the purchase
price  was  allocated  to  in-process  research  and  development.  Accordingly,
Cabletron  recorded  special  charges  of  approximately  $26.0  million  ($15.8
million,  net of tax) for this in-process research and development,  at the date
of  acquisition.  The excess of cost over the estimated fair value of net assets
acquired of $18.2 million was allocated to goodwill, and is being amortized on a
straight-line basis over a period of 10 years.  Cabletron's consolidated results
of  operations  include  the  operating  results of the DSLAM  division of Ariel
Corporation from the acquisition date.

On March 17, 1998,  Cabletron acquired Yago Systems,  Inc. ("Yago"), a privately
held  manufacturer  of wire speed  routing and layer-4  switching  products  and
solutions. Under the terms of the merger agreement, Cabletron issued 6.0 million
shares of Cabletron common stock to the shareholders of Yago in exchange for all
of the  outstanding  shares of Yago,  not then owned by Cabletron.  Prior to the
closing of the acquisition,  Cabletron held approximately twenty-five percent of
Yago's  capital  stock,  calculated on a fully  diluted  basis.  Cabletron  also
agreed,  pursuant  to the  terms  of the  merger  agreement,  to issue up to 5.5
million shares of Cabletron  common stock to the former  shareholders of Yago in
the event the shares originally issued in the transaction do not attain a market
value of $35 per share eighteen months after the closing of the transaction.

<PAGE>

Cabletron recorded the cost of the acquisition at approximately  $165.7 million,
including direct costs of $2.6 million.  This acquisition has been accounted for
under the purchase method of accounting. The cost represents 11.5 million shares
at $14.1875  per share,  in addition to direct  acquisition  costs.  Based on an
independent  appraisal,  approximately  $150.0 million of the purchase price was
allocated  to  in-process  research  and  development.   Accordingly,  Cabletron
recorded  special  charges of $150.0  million for this  in-process  research and
development,  at the date of acquisition.  The excess of cost over the estimated
fair value of net assets acquired of $16.3 million was allocated to goodwill and
other intangible  assets and is being amortized on a straight-line  basis over a
period of 5 - 10 years.  Cabletron's  consolidated results of operations include
the operating results of Yago from the acquisition date.

On February 7, 1998, the Company acquired certain assets of the Network Products
Group  of  Digital  Equipment  Corporation  ("DNPG").  Under  the  terms  of the
agreement,  the purchase price was approximately  $439.5 million,  consisting of
cash, product credits and liabilities  resulting from the acquisition.  Based on
an independent appraisal, approximately $199.3 million of the purchase price was
allocated  to  in-process  research  and  development.   Accordingly,  Cabletron
recorded  special  charges of $199.3  million for this  in-process  research and
development  at the date of  acquisition.  The excess of cost over the estimated
fair value of $161.8  million was  allocated  to goodwill  and other  intangible
assets and is being amortized on a straight-line  basis over a period of 5 to 10
years. The Company's  consolidated  results of operations  include the operating
results of the acquired  business from the  acquisition  date.  During the third
quarter of fiscal 1999,  the Company sold buildings that it had purchased in the
acquisition  for  $24.5  million.  See  "Note 6" of the  consolidated  financial
statements. The gain from the sale of the buildings resulted in an adjustment to
goodwill.

On February 7, 1997, the Company  acquired The OASys Group,  Inc.  ("OASys"),  a
privately  held  developer of software  targeted at managing  telecommunications
devices and  connections  used in high-speed,  fiber-optic  networks.  Cabletron
issued  approximately  226,000 shares of common stock for all of the outstanding
shares  (and  all  shares  issuable  upon  exercise  of  options)  of OASys in a
transaction  accounted for as a purchase and,  accordingly,  the acquired assets
and liabilities  were recorded at their estimated fair market values at the date
of acquisition.  The total purchase price of $7.0 million  included $6.7 million
for in-process  research and  development  and $0.3 million for special  charges
which  included  adjustments to conform the OASys  accounting  policies with the
Company's accounting policies.  The Company's consolidated results of operations
include the  operating  results of the acquired  business  from its  acquisition
date. Pro forma financial  information is not presented as it is not material to
the consolidated financial statements.

On December 11, 1996, the Company acquired Netlink Inc. ("Netlink"), a privately
held  manufacturer  of frame relay  products.  Under the terms of the agreement,
Cabletron issued approximately 3.8 million shares of common stock for all of the
outstanding shares (and all shares issuable upon exercise of options) of Netlink
in a transaction accounted for as a pooling of interests. In connection with the
acquisition,   the  Company   recorded  special  charges  of  $1.8  million  for
professional fees and $0.2 million for employee severance.

On August 1,  1996,  the  Company  acquired  Network  Express,  Inc.,  ("Network
Express") a publicly held  manufacturer of ISDN LAN switched  access  solutions.
Under the terms of the agreement,  Cabletron  issued  approximately  2.9 million
shares  of  common  stock  for all of the  outstanding  shares  (and all  shares
issuable upon exercise of options) of Network Express in a transaction accounted
for as a pooling of interests.  In connection with the acquisition,  the Company
recorded   special   charges  of  $5.5  million  for  in-process   research  and
development,  $3.1 million for  professional  fees and $1.7 million for employee
severance.

On July 26, 1996,  the Company  acquired  ZeitNet Inc.,  ("ZeitNet") a privately
held manufacturer of ATM products.  Under the terms of the agreement,  Cabletron
issued  approximately  3.3  million  shares  of  common  stock  for  all  of the
outstanding shares (and all shares issuable upon exercise of options) of ZeitNet
in a transaction accounted for as a pooling of interests. In connection with the
acquisition,   the  Company   recorded  special  charges  of  $1.8  million  for
professional fees and $0.6 million for employee severance.

On January 12, 1996, the Company acquired the Enterprise  Networks Business Unit
(ENBU) from Standard Microsystems Corporation. The acquisition was accounted for
as a  purchase  and,  accordingly,  the  acquired  assets and  liabilities  were
recorded at their  estimated fair market values at the date of the  acquisition.
The cash portion of the purchase  price was $74.6 million.  In connection,  with
the  acquisition,  the  Company  recorded  special  charges  of  $85.7  million,
consisting  of the  write-off  of  $67.8  million  of  in-process  research  and
development   and  $17.9  million  of  other  special   charges  which  included
adjustments  to  conform  the  ENBU  accounting   policies  with  the  Company's
accounting  policies.  The Company's  consolidated results of operations include
the operating results of the acquired business from its acquisition date.
<PAGE>

The  following  unaudited pro forma  financial  information  is not  necessarily
indicative  of  results  of   operations   that  would  have  occurred  had  the
transactions  taken place at the  beginning of each fiscal year or of the future
results  of the  combined  companies.  The  special  charges,  related  to these
acquisitions,  were not included in the results as these charges are unusual and
not indicative of results of normal operating  results.  Net sales and operating
income (loss) of Cabletron,  DNPG,  Yago Systems,  Inc.,  the DSLAM  division of
Ariel,  FlowPoint  Corp.  and  NetVantage,  Inc for the  periods  preceding  the
acquisitions are presented in the following table:

(in thousands)                                           (unaudited)

                                               Fiscal 1999        Fiscal 1998
                                              -------------      -------------
                                              Twelve months      Twelve months
                                              ended 2/28/99      ended 2/28/98
                                              -------------      -------------

    Net sales                                    $1,426,322         $1,878,476
    Operating income (loss)                        (107,651)           136,937

Note: the information  related to the years ended February 28, 1999 and February
28,  1998 is  presented  for the  interim  periods  nearest  the dates  that the
combinations were consummated.

Net sales, operating income (loss) and net income (loss) of Cabletron,  Zeitnet,
Network  Express  and Netlink for the periods  preceding  the  acquisitions  are
presented in the following table:

(in thousands)                                           (unaudited)

                                                         Fiscal 1997
                                               -------------------------------
                                                 Nine months       Six months
                                               ended 11/30/96    ended 8/31/96
                                               -------------------------------
Net sales:
    Cabletron                                      $1,025,997         $664,439
    Zeitnet                                               ---            2,140
    Network Express                                       ---            3,177
    Netlink                                             7,935              ---
                                                   ----------         --------
                   Pro forma total net sales       $1,033,932         $669,756
                                                   ==========         ========

Operating income (loss):
    Cabletron                                        $234,842         $135,813
    Zeitnet                                               ---           (2,965)
    Network Express                                       ---           (2,293)
    Netlink                                            (2,856)             ---
                                                     --------         --------
            Pro forma total operating income         $231,986         $130,555
                                                     ========         ========

Net income (loss):
    Cabletron                                        $161,789          $94,047
    Zeitnet                                               ---           (2,972)
    Network Express                                       ---           (2,154)
    Netlink                                            (2,887)             ---
                                                     --------          -------
                  Pro forma total net income         $158,902          $88,921
                                                     ========          =======

Note: the fiscal 1997 interim  information is presented for the interim  periods
nearest the dates that the combinations were consummated.
<PAGE>

The  purchase  price for each  acquisition,  completed  during  the years  ended
February 28, 1999 and 1998,  was  allocated to assets  acquired and  liabilities
assumed  based on fair market value at the date of each  acquisition.  The total
cost, of  acquisitions  completed  during the years ended  February 28, 1999 and
1998, is summarized as follows:

(in thousands)                                       1999              1998
                                                     ----              ----

Cash paid for acquisitions                        $ 38,656          $129,107
Less cash acquired                                   6,463               ---
                                                  --------          --------
Net cash paid for acquisitions                      32,193           129,107
Product credits granted                                ---           302,500
Discount on product credits                            ---           (11,691)
Common stock issued                                239,748               ---
Assumed liabilities                                 41,630            19,581
                                                  --------          --------
    Purchase price                                $313,571          $439,497
                                                  ========          ========

The following are supplemental disclosures of noncash transactions in connection
with the NetVantage, FlowPoint, Ariel, Yago and DNPG acquisitions.

(in thousands)                                       1999              1998
                                                     ----              ----

Fair value of assets acquired                      $80,982          $251,888
In-process research and development                217,350           199,300
Assumed liabilities                                (26,391)          (19,581)
Common stock issued                               (239,748)              ---
Product credits                                        ---          (302,500)
                                                   -------          --------
    Cash portion of acquisition                    $32,193          $129,107
                                                   =======          ========


Note (4)  Investments

Investments are summarized as follows at February 28, 1999 and 1998:


(in thousands)
<TABLE>
<CAPTION>
                                                                     Gross           Gross
                                                 Amortized        Unrealized       Unrealized
February 28, 1999                                   Cost             Gains           Losses         Fair Value
<S>                                             <C>                <C>                <C>           <C>
                                                 ---------        ----------       ----------       ----------
State, municipal and county government
    notes and bonds                               $282,386           $2,001              ($43)        $284,344
Foreign Deposits                                    12,647              ---               ---           12,647
                                                  --------           ------               ---         --------
    Total                                         $295,033           $2,001              ($43)        $296,991
                                                  ========           ======               ===         ========

                                                                     Gross            Gross
                                                 Amortized        Unrealized       Unrealized
February 28, 1998                                   Cost             Gains           Losses         Fair Value
                                                 ---------        ----------       ----------       ----------
State, municipal and county government
    notes and bonds                               $227,296            $1,448              ($6)        $228,738
Foreign Deposits                                       724               ---              ---              724
                                                  --------           ------               ---         --------
    Total                                         $228,020            $1,448              ($6)        $229,462
                                                  ========           =======              ===         ========


                                                 Amortized
                                                    Cost          Fair Value
                                                 ---------        ----------

Less than one year                                $113,732          $114,245
Due in 1 - 2 years                                 135,130           136,177
Due in 2 - 3 years                                  46,171            46,569
                                                  --------          --------
    Total                                         $295,033          $296,991
                                                  ========          ========


</TABLE>

<PAGE>


<TABLE>
<CAPTION>


February 28, 1999                 Short-term        Long-term             Total
<S>                                 <C>             <C>                <C>
                                  ----------        ---------            --------
Held-to-Maturity                    $ 61,255         $ 87,376            $148,631
Available-for-Sale                    52,677           93,725             146,402
                                    --------         --------            --------
                                    $113,932         $181,101            $295,033
                                    ========         ========            ========



February 28, 1998                 Short-term        Long-term              Total
                                  ----------        ---------            --------
Held-to-Maturity                    $ 57,506         $  2,665            $ 60,171
Available-for-Sale                    59,473          108,376             167,849
                                    --------         --------            --------
                                    $116,979         $111,041            $228,020
                                    ========         ========            ========

</TABLE>

Net  unrealized  gains  on  available-for-sale  investments  are  reported  as a
separate  component of stockholders'  equity until realized and amounted to $1.2
million at February 28,  1999.  The amount was not material at February 28, 1998
and 1997.

The Company also has  investments in certain  companies  accounted for using the
cost or equity method of accounting.  The carrying  amount of these  investments
was $21.9 million and $12.3 million at February 28, 1999 and 1998, respectively.
These  investments  are reflected in long-term  investments in the  accompanying
consolidated balance sheets.


Note (5)  Inventories

Inventories consist of the following at February 28, 1999 and 1998:

(in thousands)                        1999             1998
                                      ----             ----

Raw materials                      $ 64,603          $105,099
Work-in-process                      16,033            34,247
Finished goods                      148,876           170,321
                                   --------          --------
Total                              $229,512          $309,667
                                   ========          ========
<PAGE>

Note (6)  Property, Plant and Equipment

Property,  plant and equipment consist of the following at February 28, 1999 and
1998:

(in thousands)
<TABLE>
<CAPTION>
                                                    1999              1998        Estimated useful lives
                                                    ----              ----        ----------------------
<S>                                              <C>              <C>            <C>

Land and land improvements                       $  1,855          $  3,093       15 years
Buildings and building improvements                40,177            61,699       30-40 years
Construction in progress                              841               236             ---
Equipment                                         394,600           361,967       3-5 years
Furniture and fixtures                             13,333            18,261       5-7 years
Leasehold improvements                             17,751            15,030       3-5 years
                                                 --------          --------
                                                  468,557           460,286
Less accumulated depreciation and
    amortization                                  280,078           215,556
                                                 --------          --------
                                                 $188,479          $244,730
                                                 ========          ========

</TABLE>

For the years ended February 28, 1999, 1998 and 1997,  depreciation  expense was
$87.5 million, $64.8 million and $49.5 million, respectively.

In the fourth quarter of the year ended February 28, 1999, the Company performed
a physical inventory of manufacturing  equipment and fixtures in preparation for
the planned  outsourcing of its  manufacturing  operations.  As a result of this
inventory,  the Company wrote off  approximately  $17.6  million of assets.  The
writeoff  consisted of equipment and fixtures  ($14.2 million) that could not be
located and equipment that was recently idled and of no future use.


Note (7) Intangible Assets

Intangible assets consist of the following at February 28, 1999 and 1998:


(in thousands)
<TABLE>
<CAPTION>
                                                    1999            1998          Estimated useful lives
                                                    ----            ----          ---------------------
<S>                                              <C>            <C>              <C>

Goodwill                                         $ 82,358        $ 20,160         7 - 10 years
Customer relations                                 97,000          97,000         8 years
Assembled work force                                7,380           6,500         3 - 10 years
Patents and technologies acquired in
  business acquisitions                            41,652          39,600         3 - 5 years
                                                 --------        -------
                                                  228,390         163,260
Less accumulated amortization                     (28,971)         (1,770)
                                                 --------        --------
                                                 $199,419        $161,490
                                                 ========        ========

</TABLE>


Note (8) Accrued  expenses  consist of the  following  at February  28, 1999 and
     1998:

(in thousands)                                     1999             1998
                                                 --------         --------

Salaries & benefits                              $ 27,777         $ 25,152
Deferred revenue                                   94,023           74,414
Warranty                                           13,602           18,669
Other                                              82,747           96,493
                                                  -------          -------
     Total                                       $218,149         $214,728
                                                 ========         ========
<PAGE>

Note (9) Long-Term Obligations

Long-term obligations consist of the following at February 28, 1999 and 1998:

(in thousands)                                     1999             1998
                                                 ---------        ---------
Unused product credits                           $129,747         $290,219
     less current portion                        (129,747)        (157,719)
                                                 ---------        ---------
Long-term obligation                             $    ---         $132,500
                                                 =========        =========

As a term of the Asset  Purchase  Agreement  between  the  Company  and  Digital
Equipment Corp.,  Digital received product credits of $302.5 million,  which was
subsequently  adjusted to $288.4 million with the final  valuation of the assets
acquired.  In April 1998,  Compaq  Corporation  ("Compaq")  acquired Digital and
Compaq has assumed these  product  credits.  The product  credits may be used by
Compaq to purchase  products  that are  ordered  under the  Reseller  Agreement.
Adjusted  first  year  product  credits  were fully  utilized  during the period
beginning  on the  closing  date  (February  7,  1998)  and  ending on the first
anniversary  of the closing  date  (February  7, 1999).  The  remaining  product
credits of $129.7  million,  may be used prior to  February  7, 2000  requesting
delivery  at any time until  thirty days after the end of the second  year.  Any
second year product credits not expended shall automatically expire and be of no
further force or effect immediately following the end of the second year.


Note (10)  Leases

The Company  leases  manufacturing  and office  facilities  under  noncancelable
operating  leases  expiring  through  the year  2020.  The  leases  provide  for
increases  based on the consumer price index and increases in real estate taxes.
Rent expense  associated with operating leases was approximately  $18.1 million,
$14.6 million and $12.2 million for the years ended February 28, 1999,  1998 and
1997, respectively.

Total future minimum lease payments under all noncancelable  operating leases as
of February 28, 1999, are as follows:

(in thousands)                Year
                              ----

                              2000      $15,953
                              2001       14,014
                              2002       10,041
                              2003        8,393
                              2004        6,847
                        Thereafter       24,333
                                        -------
                                        $79,581
                                        =======

Note (11) Income Taxes

(in thousands)
<TABLE>
<CAPTION>
                                                                1999             1998              1997
                                                                ----             ----              ----
<S>                                                        <C>               <C>                <C>

Total US domestic income (loss)                             ($315,428)         ($36,343)         $319,017
Total foreign subsidiaries income (loss)                       38,901           (33,891)           26,683
                                                             --------          --------          --------
Total income (loss) before income taxes                     ($276,527)         ($70,234)         $345,700
                                                             ========           ========          ========

Tax expense (benefit) is summarized as follows:

Currently payable:
    Federal                                                  ($29,939)           $55,782         $117,546
    State                                                         ---             10,689           21,962
    Foreign                                                    13,254                956            1,000
Deferred tax benefit                                          (14,451)          (102,700)         (20,887)
                                                              -------           --------         --------
    Tax expense (benefit)                                    ($31,136)          ($35,273)        $119,621
                                                              =======            =======         ========
</TABLE>

<PAGE>

The  following is a  reconciliation  of the effective tax rates to the statutory
federal tax rate:

<TABLE>
<CAPTION>
                                                                  1999              1998             1997
                                                                  ----              ----             ----
<S>                                                            <C>               <C>                <C>

Statutory federal income tax (benefit) rate                     (35.0) %          (35.0) %           35.0 %
State income tax, net of federal tax benefit                     (1.9)             (3.3)              3.6
Exempt income of foreign sales corporation,
    net of tax                                                   (1.7)            (10.9)             (0.7)
Research and experimentation credit                              (0.7)             (5.9)             (0.7)
Municipal income                                                 (1.6)             (8.9)             (2.0)
Rate differential on foreign operations                          (1.2)             14.0              (2.5)
Nondeductible goodwill & intangibles                             27.5               1.7               ---
Other                                                             3.3              (1.9)              1.9
                                                                 ----              ----              ----
                                                                (11.3) %          (50.2) %           34.6 %
                                                                 ====              ====              ====


</TABLE>

The tax effects of temporary  differences that give rise to significant portions
of deferred  tax assets and deferred  tax  liabilities  at February 28, 1999 and
1998 are presented below:


(in thousands)                                         1999              1998
                                                       ----              ----

Deferred tax assets:
    Accounts receivable                             $  7,450            $6,166
    Inventories                                       44,125            37,415
    Property, plant and equipment                      1,150               200
    Other reserves and accruals                        9,540            34,382
    Acquired research and development                113,367           105,078
    Domestic net operating loss carryforwards         31,675            27,213
    Foreign net operating loss carryforwards          22,786            23,715
                                                    --------          --------
      Total gross deferred tax assets                230,093           234,169
    Less valuation allowance                         (34,644)          (45,914)
                                                    --------          --------
      Net deferred tax assets                        195,449           188,255
                                                    --------          --------
Deferred tax liabilities:
    Property, plant and equipment                     (5,971)          (12,057)
    Other reserves and accruals                       (1,220)              ---
                                                    --------          --------
      Total gross deferred liabilities                (7,191)          (12,057)
                                                    --------          --------
         Net deferred tax assets                    $188,258          $176,198
                                                    ========          ========

At February  28,  1999,  the  Company  had  domestic  net  operating  loss (NOL)
carryforwards  for tax purposes of $83,822,000 and tax credit  carryforwards  of
$1,912,000   expiring  in  fiscal  2000  through   fiscal  2018.   Approximately
$27,974,000 of the above stated NOL amount is subject to Section 382 limitations
due to ownership changes.

The net change in the total valuation  allowance for the year ended February 28,
1999 was a decrease of $11,270,000.  The net change in total valuation allowance
for the year ended February 28, 1998 was an increase of $7,533,000. In assessing
the realizability of net deferred tax assets, management considers whether it is
more likely than not that some  portion or all of the  deferred  tax assets will
not be  realized.  Based  upon  the  level  of  historical  taxable  income  and
projections  for future  taxable  income over the periods which the deferred tax
assets  are  deductible,  management  believes  it is more  likely  than not the
Company will realize the benefits of these  deductible  differences,  net of the
existing valuation allowance at February 28, 1999.
<PAGE>


Note (12) Financial Instruments and Concentration of Credit Risk

The Company  utilizes  derivative  financial  instruments,  principally  forward
exchange  contracts and options,  to reduce financial currency exposures arising
from its  international  operations.  All  foreign  exchange  forward and option
contracts are designated as a hedge and are highly  inversely  correlated to the
hedged item as required  by  generally  accepted  accounting  principles.  These
contracts  primarily  require the Company to  purchase or sell  certain  foreign
currencies either with or for US dollars at contractual  rates. Gains and losses
on the contracts are reflected in operating  results and offset foreign exchange
gains or losses from the revaluation of inter-company  balances or other current
assets and  liabilities  denominated  in  currencies  other than the  functional
currency  of the  reporting  entity.  Gains  and  losses  on the  contracts  are
calculated  using published  foreign exchange rates to determine fair value. The
gain or loss that results from the early  termination of a contract is reflected
in operating results.

At February 28, 1999 and 1998,  the Company had forward  exchange  contracts and
purchased option  contracts,  all having  maturities less than two years, in the
contractual  amount of $47 million (forward contracts were $8 million and option
contracts were $39 million) and $43 million (forward  contracts were $14 million
and option contracts were $29 million), respectively.

The estimated fair value of the Company's option and forward contracts  reflects
the  estimated  amounts  the  Company  would  receive  or pay to  terminate  the
contracts  at the  reporting  dates,  thereby  taking  into  account the current
unrealized  gains and losses on open  contracts.  These contracts did not have a
material fair value at February 28, 1999 and 1998.

Several major  international  financial  institutions are  counterparties to the
Company's financial instruments. It is Company practice to monitor the financial
standing of the  counterparties  and limit the amount of  exposure  with any one
institution.  The  Company  may be  exposed  to  credit  loss  in the  event  of
nonperformance by the  counterparties to these contracts,  but believes that the
risk of such loss is remote and that it would not be material  to its  financial
position and results of operations.

The carrying amounts of cash, cash equivalents,  short-term  investments,  trade
receivables, and current liabilities approximate fair value because of the short
maturity of these  financial  instruments.  Other assets include  investments in
other companies accounted for under the cost or equity method.

For the year ended  February 28,  1999,  one  customer,  Compaq,  accounted  for
approximately 11% of net sales and sales to the United States federal government
accounted for  approximately  15% of net sales. For the years ended February 28,
1998 and 1997 no single customer represented more than 4% of net sales in either
year;  however,  sales to the United States federal government in the year ended
February  28,  1998  and  the  year  ended   February  28,  1997  accounted  for
approximately 13% and 12% of net sales, respectively.

Note (13)  Segment and Geographical Information

The  Company  provides  a broad  product  line  and  service  for  the  computer
networking  industry.  Substantially  all  revenues  result  from  the  sales of
hardware   and   software   products  and   professional   services   (training,
installation, maintenance, etc.). During the year ended February 28, 1999, sales
of switched  products were $776.9  million,  sales of shared media products were
$170.0  million  and sales of  software,  professional  services  and other were
$464.4 million compared to sales of switched  products of $680.6 million,  sales
of shared media products of $317.6  million and sales of software,  professional
services and other of $379.1  million  during the year ended  February 28, 1998.
During the year ended February 28, 1997, sales of switched  products were $299.3
million,  sales of  shared  media  products  were  $717.8  million  and sales of
software, professional services and other were $389.5 million. The United States
federal  government  accounted for approximately 15% of net sales in fiscal 1999
and  Compaq  accounted  for  approximately  11% of net  sales in the year  ended
February 28, 1999.  The  Company's  reportable  segments are based on geographic
area.  All  intercompany  revenues  and  expenses  are  eliminated  in computing
revenues and  operating  income.  Operating  income  excludes  interest  income,
interest expense, taxes and special charges. Long-lived assets consist primarily
of the net book value of property, plant and equipment and long-term investments
and the long-term  investments were attributable to the United States. The Other
segment includes Canada and Latin America.
<PAGE>

All revenue amounts are based on product shipment destination and asset balances
are based on location.  The United States  operating  income amount for the year
ended February 28, 1999 excludes the $17.6 million charge related to fixed asset
loss and the $217.4 million of special charges related to acquisitions completed
during that fiscal year.  The United States  operating  income in the year ended
February 28, 1998  excludes  the $199.3  million of special  charges  related to
acquisitions  completed during that fiscal year and the $35.0 of special charges
related to the  realignment.  The United States  operating income amount for the
year ended  February  28, 1997  excludes  the $21.7  million of special  charges
related to acquisitions completed during that fiscal year.

<TABLE>
<CAPTION>


(in thousands)


                                                    1999             1998             1997
                                                    ----             ----             ----
<S>                                         <C>               <C>            <C>

Sales to unaffiliated customers (trade):
   United States                              $  829,380.6      $  923,285.3    $  998,405.6
   Europe                                        430,283.1         323,680.7       307,221.8
   Pac Rim                                       114,173.6          77,594.1        64,166.6
   Other                                          37,441.9          52,769.7        36,758.2
                                              ------------      ------------    ------------
Total trade sales                             $1,411,279.2      $1,377,329.8    $1,406,552.2
                                              ------------      ------------    ------------

Operating income (loss):
   United States                              $  (68,026.6)     $  140,645.5    $  321,150.6
   Europe                                         32,828.9          19,907.1        29,877.2
   Pac Rim                                        (7,422.1)        (16,540.7)       (2,375.5)
   Other                                         (14,076.4)          1,460.9          (650.8)
                                              ------------      ------------    ------------
Total operating income (loss)                 $  (56,696.2)     $  145,472.8    $  348,001.5
                                              ------------      ------------    ------------

Assets:
   United States                              $1,002,119.0      $1,073,890.5
   Europe                                        483,847.7         510,514.9
   Pac Rim                                        52,101.6          47,248.0
   Other                                          28,431.7          50,394.6
                                              ------------      ------------
Total assets                                  $1,566,500.0      $1,682,048.0
                                              ------------      ------------

Long-lived assets:
   United States                              $  363,679.3      $  335,396.4
   Europe                                         19,453.1          21,315.4
   Pac Rim                                         5,828.0           8,279.9
   Other                                           2,502.6           3,010.3
                                              ------------      ------------
Total long-lived assets                       $  391,463.0      $  368,002.0
                                              ------------      ------------
</TABLE>


Note (14)  Legal Proceedings

As  previously  disclosed in  Cabletron's  annual report on Form 10-K for fiscal
1998, a  consolidated  class action  lawsuit  purporting to state claims against
Cabletron  and  certain  officers  and  directors  of  Cabletron  was  filed and
currently is pending in the United States District Court for the District of New
Hampshire.  The complaint alleges that Cabletron and several of its officers and
directors  disseminated   materially  false  and  misleading  information  about
Cabletron's operations and acted in violation of Section 10(b) and Rule 10b-5 of
the Exchange Act during the period  between  March 3, 1997 and December 2, 1997.
The  complaint  also alleges that certain of the  Company's  alleged  accounting
practices resulted in the disclosure of materially  misleading financial results
during  the  same  period.  More  specifically,  the  complaint  challenged  the
Company's revenue recognition policies,  accounting for product returns, and the
validity of certain sales.  The complaint does not specify the amount of damages
sought on behalf of the class.  Cabletron and other  defendants moved to dismiss
unless the  plaintiffs  amended their  complaint  within 30 days (or January 22,
1999).  Plaintiffs timely served a Second  Consolidation Class Action Complaint,
and the Company has filed a motion to dismiss the second complaint.  A ruling on
that motion is not expected earlier than July, 1999. The legal costs incurred by
Cabletron  in  defending  itself and its  officers  and  directors  against this
litigation,  whether or not it prevails, could be substantial,  and in the event
that the plaintiffs  prevail,  the Company could be required to pay  substantial
damages.  This  litigation  may be  protracted  and may result in a diversion of
management and other resources of the Company.  The payment of substantial legal
costs or damages, or the diversion of management and other resources, could have
a material  adverse  effect on  Cabletron's  business,  financial  condition  or
results of operations.

In  addition,  the Company is involved in various  other legal  proceedings  and
claims arising in the ordinary course of business.  Management believes that the
disposition  of these matters will not have a materially  adverse  effect on the
financial condition or results of operations of the Company.
<PAGE>

Note (15)  Stock Plans

(a) Equity Incentive and Directors Plans

The Company has an Equity  Incentive Plan which provides for the availability of
25,000,000  shares of common  stock for the  granting of a variety of  incentive
awards to eligible  employees.  As of February 28, 1999,  the Company had issued
20,108,401  stock options under the Equity Incentive Plan, which were granted at
fair  market  value at the date of grant,  vest over a three to five year period
and expire within six to ten years from the date of grant.

Prior to February 28, 1999, the Company maintained a Directors Option Plan which
provided  for  1,250,000  shares of common  stock for  purchase  by  nonemployee
directors of the Company.  The  Directors  Option Plan  provided for issuance of
options at their fair market value on the date of grant. The options vest over a
period of three  years and expire  six years from the date of grant.  A total of
435,000  stock  options  are  outstanding  under the  Directors  Option  Plan at
February 28, 1999. As of March 1, 1999, the nonemployee directors of the Company
will be granted  options to purchase  shares of common stock in accordance  with
the Company's 1998 Equity Incentive Plan.

A summary of option transactions under the two plans follows:


                                               Number of       Weighted-Average
                                                 Options        Exercise Price
                                               ----------      ----------------

Options outstanding at February 29, 1996        9,837,926           $20.02
                                               ----------
Granted and assumed                             6,619,763            29.67
Exercised                                      (1,345,415)           12.50
Cancelled                                      (1,516,856)           24.59
                                               ----------
Options outstanding at February 28, 1997       13,595,418            20.02
                                               ----------
Options exercisable at February 28, 1997        3,356,372            14.88
                                               ----------
Granted and assumed                             5,015,000            23.11
Exercised                                      (1,762,565)           10.40
Cancelled                                      (1,968,762)           29.45
                                               ----------
Options outstanding at February 28, 1998       14,879,091            25.45
                                               ----------
Options exercisable at February 28, 1998        4,134,623            22.99
                                               ----------
Granted and assumed                            20,023,369             7.69 *
Exercised                                        (497,696)            5.58
Cancelled                                     (15,421,085)           16.43 *
                                               ----------
Options outstanding at February 28, 1999       18,983,679            $9.67
                                               ==========
Options exercisable at February 28, 1999        4,518,681           $13.32
                                               ==========

*    - At September 1998,  employees  holding  outstanding  stock options with a
     value exceeding $7.25 per option were given the right to have their options
     canceled and repriced to $7.25 per option.  The repriced  options will vest
     over a period of four to six years  from  September  1, 1998.  In  February
     1998,  employees  holding  outstanding stock options with a value exceeding
     $14.6875  per  option  were  given the right to have  their  stock  options
     canceled  and repriced to $14.6875  per option.  The repriced  options will
     vest over a period of one to five years from December 4, 1997.

<PAGE>

The following table summarizes  information concerning currently outstanding and
exercisable options as of February 28, 1999:


<TABLE>
<CAPTION>


                                                 Weighted-
                                                  average       Weighted-                        Weighted-
                                                remaining         average                          average
           Range of             Options       contractual        exercise         Options         exercise
    exercise prices         Outstanding      life (years)           price     exercisable            price
    ---------------         -----------      ------------       ---------     -----------        ---------
<S>                         <C>                  <C>              <C>         <C>                <C>
     $0.00  -  6.30             626,133              7.2           $ 0.83         309,673           $ 1.25
      6.31  -  7.85          13,255,139              7.7             7.25       1,569,775             7.25
      7.86  -  9.01             682,705              7.1             8.49         152,445             7.99
       9.01 - 11.25           1,261,897              4.8            10.04         748,214             9.95
      11.26 - 19.33           1,452,732              6.6            13.61         575,711            13.76
      19.34 - 26.99             801,542              2.2            25.58         778,656            25.57
      27.00 - 33.52             808,086              5.8            30.09         333,077            29.44
      33.53 - 48.67              95,445              6.2            41.07          51,130            41.46
                             ----------              ---           ------       ---------           ------
                             18,983,679              7.1           $ 9.67       4,518,681           $13.32
                             ==========              ===           ======       =========           ======

</TABLE>

The weighted average  estimated fair values of stock options granted and assumed
during the years ended  February 28, 1999,  1998 and 1997 were $7.69,  $9.19 and
$12.01 per share, respectively.

The Company applies Accounting  Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees"  and related  interpretations  in accounting  for its
stock option and employee stock purchase  plans,  accordingly,  no  compensation
expense has been recognized in the  consolidated  financial  statements for such
plans.  Had  compensation  cost  for  the  Company's  stock  option  plans  been
determined  based upon the fair value at the grant date for awards  under  these
plans consistent with the methodology prescribed under SFAS 123, "Accounting for
Stock-based  Compensation,"  the  Company's  net income  (loss)  would have been
reduced (increased) to the pro forma amounts indicated below:
<TABLE>
<CAPTION>

(in thousands)                                                    1999               1998              1997
                                                                  ----               ----              ----
<S>                 <C>                                      <C>                <C>                <C>

Net income (loss)     As reported                             ($245,391)         ($  34,961)         $226,079
                      Pro forma                               ($299,654)         ($  60,583)         $211,063
                      Pro forma diluted earnings per share    ($   1.79)         ($    0.38)         $   1.33

</TABLE>

The effect of applying  SFAS 123 as shown in the above pro forma  disclosure  is
not representative of the pro forma effect on net income in future years because
it does not take into  consideration pro forma  compensation  expense related to
grants made prior to fiscal 1996.

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes  option pricing  model,  with the following  assumptions  used for
grants in the years ended February 28, 1999, 1998 and 1997:

                                    1999             1998              1997
                                    ----             ----              ----

Risk-free interest rates            5.1.%            6.13%             6.18%
Expected option lives               3.7 years        3.8 years         3.7 years
Expected volatility                 76.32%           60.37%            63.97%
Expected dividend yields            0.0%             0.0%              0.0%
<PAGE>

(b)  Employee Stock Purchase Plans

The Company has two Employee  Stock  Purchase Plans (ESPP) which provide for the
combined  availability  of  4,500,000  shares of common stock to be purchased by
employees  who have  completed a minimum  period of  employment.  Under the 1989
ESPP,  employees  must be  continuously  employed for a period of six months and
under the 1995 ESPP employees must be continuously  employed for a period of two
years. Under these plans, options are granted to eligible employees twice yearly
and are exercisable through the accumulation of employee payroll deductions from
two to ten percent of employee compensation as defined in the plan, to a maximum
of $12,500  annually,  for each plan,  (adjusted  to  reflect  increases  in the
consumer  price index) which may be used to purchase  stock at 85 percent of the
fair  market  value of the common  stock at the  beginning  or end of the option
period,  whichever amount is lower. In the year ended February 28, 1999, 572,087
shares were  purchased at a weighted  average price of $9.41  (231,326 at $27.00
and  197,262  at  $31.47,  for the  years  ended  February  28,  1998 and  1997,
respectively).  The remaining balance of both ESPPs for purchase by employees at
February  28,  1999  was  2,711,524  shares.


Note (16) Realignment

On December 16, 1997 the Company  announced a global  initiative to better align
the Company's  business  strategy with its focus in the  enterprise  and service
provider markets. The realignment was intended to better position the Company to
provide  more   solutions-oriented   products  and  service;   to  increase  its
distribution of products  through  third-party  distributors  and resellers;  to
improve its position  internationally,  and to aggressively  develop partnership
and  acquisition  opportunities.  The  Company  incurred  a charge in the fourth
quarter of the year ended February 28, 1998 of $35.0 million ($21.5 million, net
of tax) related to the  realignment.  The realignment  included  general expense
reduction  through the  elimination of duplicate  facilities,  consolidation  of
related  operations,  reallocation  of resources,  including the  elimination of
certain pre-existing projects, and personnel reduction.
The Company has completed the reductions.


Note (17) Quarterly Financial Data (unaudited)

(in thousands, except per share amounts)



<TABLE>
<CAPTION>

                                                                    Income (Loss)                               Net
                                   Net               Gross              from                Net             Income (Loss)
                                  Sales              Profit          Operations        Income (Loss)         Per Share(a)
                               ----------          ---------       -------------       -------------        -------------

          1999                                                                 (Restated)
          ----                                     --------------------------------------------------------------------
<S>                            <C>                  <C>               <C>                <C>                    <C>
First Quarter                  $  365,747           $149,635          ($161,360)(b)      ($154,569)(b)          ($0.95)
Second Quarter                    370,591            171,791              5,030              6,393                0.04
Third Quarter                     329,868            126,627           (113,027)(c)        (84,477)(c)           (0.50)
Fourth Quarter                    345,073            151,876            (22,259)(d)        (12,738)(d)           (0.06)
                               ----------           --------           --------           --------               -----
Total Year                     $1,411,279           $599,929          ($291,616)         ($245,391)             ($1.47)
                               ==========           ========           ========           ========               =====

          1998
          ----
First Quarter (Restated)       $  362,688           $203,127           $ 78,596            $54,870               $0.34
Second Quarter                    371,293            212,261             82,434             57,587                0.36
Third Quarter                     331,827            167,573             25,500             19,898                0.12
Fourth Quarter (Restated)         311,522            118,078           (275,342)(e)       (167,316)(e)           (1.06)
                               ----------           --------           --------           --------               -----
Total Year                     $1,377,330           $701,039           ($88,812)          ($34,961)             ($0.22)
                               ==========           ========           ========           ========               =====

                     (a) Due to rounding some totals may not add.
                     (b) Includes $150.0 million of in-process research and
                         development charges related to the acquisition of Yago.
                     (c) Includes $67.4 million of in-process research and
                         charges related to the acquistions of Ariel, FlowPoint,
                         and NetVantage.
                     (d) Includes $17.6 million related to fixed asset loss for
                         idle, obsolete and discarded equipment.
                     (e) Includes  $234.3 million of in-process research and
                         development charges related to the acquisition of DNPG
                         and the strategic alignment plan, $199.3 million and
                         $35.0 million, respectively.

</TABLE>

The first and fourth  quarters  of the year ended  February  28,  1998 have been
restated, see Note 2. First quarter gross profit and income from operations have
been  reduced by $6.0  million and net income has been  reduced by $3.9  million
($.03 per share) from amounts previously  reported.  This restatement relates to
the ZeitNet inventory write-off. Fourth quarter gross profit has been reduced by
$24.5 million as a result of a reclassification  of an inventory  write-off from
special  charges to cost of sales.  This  reclassification  had no effect on net
income.  Fourth quarter loss from  operations has been reduced by $156.3 million
and net loss has been  reduced by $96.1  million  ($.60 per share) from  amounts
previously  reported.  This restatement  relates to the in-process  research and
development and special charges relating to the DNPG acquisition.

The first,  second and third  quarters of the year ended  February 28, 1999 have
been restated. First quarter gross profit has been reduced by $6.5 million, loss
from  operations  and net loss  have been  increased  by $3.0  million  and $2.3
million  ($.02 per share),  respectively.  Second  quarter gross profit has been
reduced by $3.8  million  and income  from  operations  and net income have been
reduced by $8.1 million and $5.0 million ($.03 per share),  respectively.  Third
quarter gross profit has been reduced by $6.2 million,  loss from operations has
been  increased  by $2.8  million and net loss has been  reduced by $0.5 million
($.00 per share).

The restated  information reflects adjustments needed to record the amortization
on the  increase in the DNPG  intangible  assets and to expense as incurred  the
reversal of DNPG special charges that had been previously recorded in the fourth
quarter of the year ended February 28, 1998.

To address  further  comments  made by the SEC in letters  to the  Company,  the
Company has reduced the amount of the inventory  writeoff  recorded in the first
quarter  of the year ended  February  28,  1999 for the phase out of  superceded
product  lines  related to the Yago  acquisition  and recorded the writeoff upon
disposal of the inventory, during the first, second and third quarters.

The Company has also reduced the amount of its charges for  in-process  research
and  development in connection  with the  acquisitions  of Ariel,  FlowPoint and
NetVantage from $74.7 million to $67.4 million and,  correspondingly,  increased
the amounts allocated to intangible assets by $7.3 million.

<PAGE>

Note (18) Subsequent Event

On March 22, 1999, the Company  announced that it signed a letter of intent with
Celestica,  Inc.  to  outsource  primarily  all of its  worldwide  manufacturing
operations. As part of this transaction,  Cabletron and Celestica entered into a
strategic  long-term  supply  agreement,  under  which  Celestica  will  acquire
approximately $35 - 40 million of Cabletron inventory and manufacturing  assets.
As a result of this agreement, Cabletron's Ohio-based operations will be closed.
The Ohio-based  employees will be provided with severance  packages,  as well as
career outplacement and training services by Cabletron.

On March 22, 1999, the Company also announced an initiative ("Project Ignition")
to re-energize  the corporate  focus.  This initiative is intended to reduce the
expense  structure  of the  Company;  lower cost of goods  sold;  increase  cash
reserves;  provide  higher  return on assets and  revenue per  employee;  enable
aggressive  asset  reduction  and  consolidation  initiatives  and  increase net
income.  The  Company  expects to incur a pre-tax  restructuring  and  strategic
business realignment charge of approximately $20 - 30 million,  during the first
quarter of fiscal 2000.  The Project  Ignition  charge will include the costs to
consolidate  facilities,  elimination of manufacturing  facilities and personnel
reductions, including the impact from the manufacturing outsourcing.



<PAGE>


INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Cabletron Systems, Inc.:

We have  audited  the  accompanying  consolidated  balance  sheets of  Cabletron
Systems, Inc. and subsidiaries as of February 28, 1999 and 1998, and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the years in the  three-year  period  ended  February  28,  1999.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit also includes  assessing the accounting  principles used
and significant estimates made by management,  as well as evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Cabletron Systems,
Inc. and subsidiaries as of February 28, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  February 28, 1999,  in  conformity  with  generally  accepted  accounting
principles.

The  consolidated  balance  sheet  as of  February  28,  1998  and  the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the the years ended in the two year period then ended have been restated
as discussed in Note 2 (b).











Boston, Massachusetts

March 22, 1999, except for Notes 2 (b) and 17, as to which the date is
May 25, 1999



<PAGE>


ITEM 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial  Disclosure

Not applicable.

PART III


ITEM 10.  Directors and Executive Officers of the Registrant

Information relating to the Directors of the Company is set forth in the section
entitled "Election of Directors," appearing in the Company's Proxy Statement for
its  1999  Annual  Meeting  of  Stockholders  ("Proxy   Statement"),   which  is
incorporated herein by reference. Information relating to the executive officers
of the  Company is included in the  section  titled  "Executive  Officers of the
Registrant,"  appearing in Part I hereof.  Information with respect to directors
and  executive  officers who failed to timely file  reports  required by Section
16(a) of the Securities Exchange Act of 1934 may be found in the Proxy Statement
under the caption "Section 16(a)  Beneficial  Ownership  Reporting  Compliance."
Such information is incorporated herein by reference.


ITEM 11. Executive Compensation

See the information set forth in the section entitled "Executive  Compensation,"
appearing  in the  Company's  Proxy  Statement  for its 1999  Annual  Meeting of
Stockholders, which is incorporated herein by reference.


ITEM 12. Security Ownership of Certain Beneficial Owners and Management

See the information set forth in the section  entitled  "Election of Directors -
Beneficial  Ownership,"  appearing in the Company's Proxy Statement for its 1999
Annual Meeting of Stockholders, which is incorporated herein by reference.


ITEM 13.  Certain Relationships and Related Transactions

See the information set forth in the section  entitled  "Certain  Transactions,"
appearing  in the  Company's  Proxy  Statement  for its 1999  Annual  Meeting of
Stockholders, which is incorporated herein by reference.

<PAGE>


PART IV

ITEM 14.  Exhibits, Financial Statement Schedules and Reports on Form 10-K

(a)      Documents filed as part of this report:
<TABLE>
<CAPTION>

 1.       Consolidated financial statements (see item 8)

          The consolidated financial statements of Cabletron Systems, Inc. can be found in this document on the following pages:
                                                                                                                 page(s)
                                                                                                                 -------
<S>      <C>                                                                                                     <C>

         Independent Auditors' Report                                                                              50

         Consolidated Balance Sheets at February 28, 1999 and February 28, 1998                                    30

         Consolidated Statements of Operations for fiscal years 1999, 1998 and 1997                                31

         Consolidated Statements of Stockholders' Equity for fiscal years 1999, 1998 and 1997                      32

         Consolidated Statements of Cash Flows for fiscal years 1999, 1998 and 1997                                33

         Notes to Consolidated Financial Statements                                                             34 - 49

 2.      Consolidated financial statement schedule

         The consolidated financial statement schedule of Cabletron Systems, Inc. is included in Part IV of this report:

         Independent Auditors' Report                                                                             50

         Schedule II - Valuation and Qualifying Accounts                                                          55
</TABLE>

All  other  schedules  have  been  omitted  since  they  are not  required,  not
applicable or the  information has been included in the  consolidated  financial
statements or the notes thereto.



<PAGE>


3.       Exhibits

The following exhibits unless herein filed are incorporated by reference.


         22.1     Subsidiaries of Cabletron Systems, Inc.
         23.1     Consent of Independent Auditors.
         27       Financial Data Schedule

(b) The  Registrant  did not file any  information  on Form 8-K  during the last
quarter of the fiscal year ended February 28, 1999.

<PAGE>




                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Cabletron Systems, Inc.:

Under date of March 22, 1999, we reported on the consolidated  balance sheets of
Cabletron  Systems,  Inc. and subsidiaries as of February 28, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended February 28, 1999. In
connection  with  our  audits  of  the  aforementioned   consolidated  financial
statements,  we also have audited the related  consolidated  financial statement
schedule as listed in item 14(a)2 of this Form 10-K. This consolidated financial
statement  schedule  is the  responsibility  of the  Company's  management.  Our
responsibility is to express an opinion on this consolidated financial statement
schedule based on our audits.

In our opinion, the consolidated  financial statement schedule,  when considered
in relation to the basic  consolidated  financial  statements  taken as a whole,
presents fairly, in all material respects, the information set forth therein.

The  consolidated  balance  sheet  as of  February  28,  1998  and  the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the the years ended in the two year period then ended have been restated
as discussed in Note 2 (b).



                                    KPMG LLP


Boston, Massachusetts

March 22, 1999, except for Notes 2 (b) and 17, as to which the date is
May 25, 1999













<PAGE>

Signatures

Pursuant to the  requirement of Section 13 or 15(d) of the  Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                           CABLETRON SYSTEMS, Inc.




Date:    June 2, 1999                 By: /s/ Craig R. Benson
         --------------                   --------------------
                                          Craig R. Benson
                                          Chairman, President,
                                          Chief Executive Officer and Treasurer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S>                                      <C>                                                 <C>

Signature                                  Titles                                               Date
---------                                  ------                                               ----

/s/ Craig R. Benson                                                                             June 2, 1999
----------------------------               Chairman, President,                                 ------------
Craig R. Benson                            Chief Executive Officer and Director


/s/ David J. Kirkpatrick                                                                        June 2, 1999
---------------------------                Corporate Executive Vice President of Finance        ------------
David J. Kirkpatrick                       and Chief Financial Officer


/s/ Michael D. Myerow                      Secretary and Director                               June 2, 1999
--------------------------                                                                      ------------
Michael D. Myerow

/s/ Paul R. Duncan                         Director                                             June 2, 1999
-----------------------------                                                                   ------------
Paul R. Duncan

/s/ Donald F. McGuinness                   Director                                             June 2, 1999
------------------------                                                                        ------------
Donald F. McGuinness
</TABLE>



<PAGE>


                                  EXHIBIT INDEX


Exhibit
   No.   Exhibit                                                        Page No.
-------  -------                                                        --------

3.1  Restated  Certificate  of  Incorporation  of  Cabletron  Systems,  Inc.,  a
     Delaware corporation,  which is incorporated by reference to Exhibit 3.1 of
     the Company's Registration Statement on Form S-1, No. 33-28055,  (the First
     Form S-1).

3.2  Certificate  of  Correction  of  the  Company's  Restated   Certificate  of
     Incorporation,  which is  incorporated by reference to Exhibit 3.1.2 of the
     Company's  Registration Statement on Form S-1, No. 33-42534 (the Third Form
     S-1).

3.3  Certificate of Amendment of the Restated  Certificate of  Incorporation  of
     Cabletron  Systems,  Inc.,  incorporated by reference to Exhibit 4.3 of the
     Company's Registration Statement on Form S-3, No. 33-54466, (the First Form
     S-3).

3.4  Amended  bylaws  of  Cabletron  Systems,  Inc.,  which is  incorporated  by
     reference  to Exhibit 3.2 of the  Company's  Registration  Statement on the
     Third Form S-1.

4.1  Specimen stock certificate of Cabletron Stock (incorporated by reference to
     Exhibit  4.1  of  Cabletron's  Registration  Statement  on  Form  S-1,  No.
     33-28055.

10.1 1989 Restricted  Stock Purchase Plan, which is incorporated by reference to
     Exhibit 10.1 of the First Form S-1. 10.2 1989 Restricted  Stock Plan, which
     is  incorporated  by reference to Exhibit 10.2 of the First Form S-1.  10.3
     1989 Equity Incentive Plan, as amended,  which is incorporated by reference
     to  Exhibit 4 of the  Company's  Registration  Statement  on Form S-8,  No.
     33-50454.

10.4 1989 Employee  Stock Purchase Plan, as amended,  which is  incorporated  by
     reference to Exhibit 4.1 of the  Company's  Registration  Statement on Form
     S-8, No. 33-31572.

10.5 1989 Stock Option Plan for Directors,  as amended, which is incorporated by
     reference to Exhibit 10.5 of the Third Form S-1.

10.6 Agency Agreement  between the Registrant and  International  Cable Networks
     Inc.,  which is incorporated by reference to Exhibit 10.6 of the First Form
     S-1.

10.7 Modification  dated  October  1990, of the Blue,  Inc.  Lease,  relating to
     leased  premises in Ironton,  Ohio,  which is  incorporated by reference to
     Exhibit 10.8 of the First Form S-3.

10.8 Lease dated October 19, 1992 between the Registrant and Heidelberg  Harris,
     Inc.,  relating  to leased  premises  in Durham,  New  Hampshire,  which is
     incorporated by reference to Exhibit 10.9 of the First Form S-3.

10.9 Lease dated  December 1, 1991 between the Registrant and George L. Beattie,
     Ruth V.  Blomstedt  and Dan A. Wooley,  as trustees of the Execpark  Realty
     Trust,  relating to leased premises in Merrimack,  New Hampshire,  which is
     incorporated by reference to Exhibit 10.10 of the First Form S-3.

10.10Lease dated July 3, 1992  between the  Registrant  and Shannon Free Airport
     Development  Company  Limited,  relating to leased  premises  in  Limerick,
     Ireland,  which  is  incorporated  by  reference  to  Exhibit  10.12 of the
     Company's Registration Statement on the First Form S-3.

10.11Lease dated July 15, 1996 between the  Registrant  and the Lawrence  County
     Economic Development  Corporation,  relating to leased premises in Ironton,
     Ohio  (Incorporated by Reference to Exhibit 10.11 of the Registrant's  form
     10-K of May 30, 1997).

10.12Credit Agreement dated March 7, 1997,  between the Registrant and the Chase
     Manhattan  Bank,  as  administrative  agent,  the  First  National  Bank of
     Chicago,  as  syndication  agent and certain other lenders  relating to the
     Company's $250,000,000 revolving credit facility (Incorporated by Reference
     to Exhibit 10.11 of the Registrant's Form 10-K of May 30, 1997).

10.13Asset Purchase Agreement among the Registrant, Ctron Acquisition,  Inc. and
     Digital  Equipment  Corporation  ("Digital")  dated as of November 24, 1997
     (the "Asset Purchase Agreement")  (Incorporated by Reference to Exhibit 2.1
     of the Registrant's Form 10-Q of January 14, 1998).

10.14Reseller and Services  Agreement  dated as of November 24, 1997 between the
     Registrant  and  Digital  (the  "Reseller   Agreement")   (Incorporated  by
     Reference to 10.1 of the Registrant's Form 10-Q of January 14, 1998).

10.15Employment  Agreement between the Registrant and Donald B. Reed dated as of
     August 6, 1997 (Incorporated  Reference to Exhibit 10.1 of the Registrant's
     Form 10-Q of October 15, 1997).

10.16First  Amendment to Asset Purchase  Agreement  dated as of February 7, 1998
     by  and  among  the  Registrant,   Ctron  Acquisition,   Inc.  and  Digital
     (Incorporated by Reference to Exhibit 2.2 of the Registrant's Form 8-K/A of
     March 4, 1998).

10.17Amendment  No. One to  Reseller  Agreement  dated as of February 7, 1998 by
     and between  the  Registrant  and Digital  (Incorporated  by  Reference  to
     Exhibit 10.2 of the Registrant's Form 8-K/A of March 4, 1998).

10.18Letter  agreement  between  the  Registrant  and Donald B. Reed dated as of
     March 30, 1998.

22.1 Subsidiaries of Cabletron Systems, Inc.                               58

23.1 Consent of Independent Auditors                                       59

27   Financial Data Schedule


<PAGE>


                                  EXHIBIT 22.1

                     SUBSIDIARIES OF CABLETRON SYSTEMS, INC.





                                  SCHEDULE II

                            CABLETRON SYSTEMS, INC.

                       VALUATION AND QUALIFYING ACCOUNTS

                For Years Ended February 28, 1999, 1998 and 1997

                                 (in thousands)
<TABLE>
<CAPTION>

                                                                            Amounts
                                                                         attributable
                                        Balance at                      to changes in                       Balance
                                         beginning        Charged to        foreign         Amounts           at end
Description                              of period         expense      currency rates    written off       of period
-----------                              ---------        ----------    --------------    -----------       ---------
<S>                                      <C>               <C>                <C>           <C>              <C>

Allowance for doubtful accounts

February 28, 1999                          $21,043          $10,784               $0         ($8,567)          $23,260

February 28, 1998                          $15,476          $11,615             ($81)        ($5,967)          $21,043

February 28, 1997                           $6,655          $10,698              ($1)        ($1,876)          $15,476
</TABLE>


<PAGE>

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

Cabletron Systems de Argentina S.A. (Argentina)                           The OASys Group, Inc. (California)
Cabletron Systems Pty. Limited (Australia)                                Yago Systems, Inc. (California)
Cabletron Systems do Brasil Representacoes Ltda. (Brazil)                 ZeitNet Inc. (California)
Cabletron Systems of Canada Limited (Canada) )                            ZeitNet India Private Limited (India)
Cabletron Systems Chile (Chile)
Cabletron Systems de Colombia Ltda. (Colombia)
Cabletron Systems Inc. - Organizaoni Slozka (Czech Republic)
Cabletron Systems Acquisition, Inc. (Delaware)
Cabletron Systems Government Sales, Inc. (Delaware)
Cabletron Insurance Company (Vermont)
Cabletron Systems Sales & Service, Inc. (Delaware)
Cabletron Systems, Inc. of USA (China)
Cabletron Systems Ltd. (England)
Cabletron Systems S.A. (France)
International Cable Networks, Inc. (Virgin Islands)
Cabletron Systems, GmbH  (Germany)
Cabletron Systems Limited (Bermuda)
Cabletron Systems (Distribution) Limited (Ireland)
Cabletron Systems Inc. (Hong Kong)
Cabletron Systems S.r.l. (Italy)
Cabletron Systems, K.K. (Japan)
Cabletron Systems, Pte Ltd  (Korea)
Cabletron Systems Sdn Bhd (Malaysia)
Cabletron Systems, S.A. de C. V. (Mexico)
Cabletron Systems Benelux, B.V. (Netherlands)
Cabletron Systems, Pte Ltd. (Singapore)
Cabletron Systems S.A.  (Spain)
Cabletron Systems, A.B. (Sweden)
Cabletron Systems AG (Switzerland)
Cabletron Systems de Venezuela C.A. (Venezuela)
Fivemere Ltd (UK)
Fivemere Asia-Pacific Singapore Limited (Singapore)
Fivemere Developments Limited (UK)
FlowPoint Corp.(California)
NetVantage, Inc. (Delaware)
Network Express, Inc. (Michigan)
Network Express GmbH (Germany)
Network Express K.K. (Japan)
Network Express Europe Limited (UK)

</TABLE>



<PAGE>


                                  EXHIBIT 23.1



                         CONSENT OF INDEPENDENT AUDITORS


The Board of Directors
Cabletron Systems, Inc.:

We consent to incorporation  by reference in the  registration  statements (Nos.
33-50454,  33-31572, 33-50753, 33-21391, 33-17557, 33-09403, 33-09029, 33-96060,
33-96058,  33-33454 and 33-42490) on Form S-8 of Cabletron Systems,  Inc. of our
reports dated March 22, 1999,  relating to the  consolidated  balance  sheets of
Cabletron  Systems,  Inc. and subsidiaries as of February 28, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity and cash
flows and the related  schedule for each of the years in the  three-year  period
ended  February  28, 1999,  which  reports are included in the February 28, 1999
Annual Report to Stockholders on Form 10-K of Cabletron Systems, Inc.

The  consolidated  balance  sheet  as of  February  28,  1998  and  the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the the years ended in the two year period then ended have been restated
as discussed in Note 2 (b).











Boston, Massachusetts
June 2, 1999




<PAGE>


DIRECTORS AND OFFICERS

Board of Directors

Craig R. Benson
Chairman of the Board, President,
Chief Executive Officer and Treasurer

Paul R. Duncan
Executive Vice President (Retired)
Reebok International, Ltd.

Donald F. McGuinness
Chairman of the Board,
Electronic Designs, Inc.

Michael D. Myerow
Partner in law firm of Myerow & Poirier


Officers

Craig R. Benson
Chairman, President, Chief Executive Officer,
and Treasurer

Carl E. Boisvert
Executive Vice President, Sales

John d'Auguste
President of Operations

Enrique P. Fiallo
Senior Vice President and Chief Information Officer

Allen L. Finch
Senior Vice President, Worldwide Marketing,
Corporate Strategy & Communications

Earle S. Humphreys
Executive Vice President, Global Services

Eric Jaeger
Senior Vice President and General Counsel

David J. Kirkpatrick
Corporate Executive Vice President of Finance
and Chief Financial Officer

Piyush Patel
Senior Vice President, Worldwide Engineering

Linda F. Pepin
Senior Vice President, Human Resources

Michael A. Skubisz
Chief Technology Officer





<PAGE>


STOCKHOLDER INFORMATION

<TABLE>
<CAPTION>

<S>                                               <C>

Annual Meeting of Stockholders                       Transfer Agent
The Annual Meeting of Stockholders will              State Street Bank and Trust Company is
take place at 10:00 a.m. on Tuesday,                 the Transfer Agent and Registrar of the
July 13, 1999 at the Frank Jones Center,             Company's common stock. Inquiries
400 Route One By-Pass, Portsmouth,                   regarding lost certificates, change of
NH 03801.                                            address, name or ownership should be
                                                     addressed to:
Stockholder Inquiries                                         BankBoston, NA
Inquiries relating to financial information                   Boston EquiServe
of Cabletron Systems, Inc. should be                          P.O. Box 8040
addressed to:                                                 Boston, MA 02266-8040
   Cabletron Systems, Inc.
   Investor Relations                                Independent Auditors
   PO Box  5005                                               KPMG LLP
   Rochester, NH 03866-5005                                   99 High Street
   Telephone: (603) 337-4225                                  Boston, MA 02110
   Facsimile:   (603) 332-4004
                                                     Legal Counsel
Listing                                                       Ropes & Gray
Cabletron Systems, Inc. common stock is                       One International Place
traded on the New York Stock Exchange -                       Boston, MA 02110
symbol CS.
</TABLE>