Letter to Our Shareholders:

While    this   past    fiscal    year   has   been    disappointing    for
Cabletron--especially  in  comparison  to the  sustained  growth  from  previous
years--we are confident  that recent  changes will put the company back on track
heading into the next century.  Sales,  ending on February 28, 1998,  were $1.38
billion,  a decrease  of two  percent  over  sales of fiscal  year 1997 of $1.41
billion.  Net loss for fiscal year 1998 was $127.1 million or 80 cents per share
compared  to net income of $222.1  million  or $1.43 per share for  fiscal  year
1997.  Setting  aside the special  charge  associated  with the  acquisition  of
Digital  Equipment  Corporation's  Network  Products  Group  and  the  company's
strategic  realignment  plan,  Cabletron had net income of $130.0  million or 82
cents per share.

As you know, my good friend and Cabletron co-founder,  Bob Levine,  relinquished
the responsibilities of President and Chief Executive Officer in September 1997.
In his place stepped Don Reed, a former senior officer of NYNEX, who spearheaded
a revitalized  business  strategy for Cabletron.  Mr. Reed was  instrumental  in
formulating the plan that will enable the company to achieve several short- and
long-term  business goals.  After discussing the  implementation of the plan, we
agreed in March that I would  assume the  day-to-day  management  role while Mr.
Reed  would  exercise  oversight  of the  plan  from  his  board  seat  and as a
consultant to  Cabletron.  I'm pleased to say the plan set in motion by Mr. Reed
is already showing positive results.

For instance,  our acquisition of Digital Equipment  Corporation's  Network
Products  Group  answers not only our near-term  desire to increase  Cabletron's
international and channel presence, but also significantly expands the company's
strength in the enterprise and service  provider/telecommunication  markets.  On
the technology  front,  our acquisition of YAGO Systems fills an important niche
in  Cabletron's  product line,  positioning  us as a major player in the quickly
emerging switch router market.

With  these new  opportunities,  as well as  growing  partnerships  and  ongoing
relationships with market leaders such as Nortel, MCI, GTE, Lucent Technologies,
Microsoft  and  others,  Cabletron  is  able  to  offer  customers  intelligent,
scalable,  flexible  solutions  to meet  all of  their  voice,  video  and  data
communications  needs. We call it Smart  Networking--an  intelligent approach to
help customers squeeze the most out of their existing information system and lay
the foundation for a more powerful, more productive network in the future.

Cabletron is indeed  turning the corner.  It's an exciting  time to be part of a
company  and an  industry  that is helping to shape the way the world  works and
interacts.  With renewed  dedication to our  shareholders  and customers,  and a
commitment to carrying forward with these positive changes,  Cabletron's success
is assured.  We hope you share in our excitement as Cabletron prepares to regain
its market leadership.

Sincerely,


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

<PAGE>


                       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, 1998

                                       OR

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

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

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


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

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

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

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


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

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

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

                                YES X NO

As of May 11, 1998,  164,414,776  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 11,  1998 was  approximately  $2.1
billion.

Indicate by check mark if disclosure of delinquent  filers  pursuant to item 405
of Regulation  S-K (229.405) is not contained  herein and will not be contained,
to the best of the registrant's  knowledge,  in definitive proxy for information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

                       DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference:

Part III Proxy Statement to be filed with the Securities and Exchange Commission
in connection with the 1998 Annual Meeting of Stockholders.



<PAGE>



                                TABLE OF CONTENTS



                                     PART I



Item
         Page

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




                                     PART II



     5.  Market  for the  Registrant's  Common  Equity and  
           Related  Stockholder Matters                                  10 
     6.  Selected  Financial  Data                                       11 
     7.  Management's  Discussion  and Analysis  of  Financial  
           Condition  and  Results  of  Operations                       12-19 
     7a. Quantitative and Qualitative  Disclosures about Market Risk     19-20
     8.  Consolidated Financial  Statements  and  Supplementary  Data    21-37
     9.  Changes in and Disagreements with Accountants on Accounting 
           and Financial Disclosure                                      39




                                    PART III



     10.   Directors and Executive Officers of the Registrant             39
     11.   Executive Compensation                                         39
     12.   Security Ownership of Certain Beneficial Owners 
             and Management                                               39
     13.   Certain Relationships and Related Transactions                 39





                                     PART IV

     14.  Exhibits, Financial Statement Schedules and Reports
             on Form 10-K                                                 40



<PAGE>


     PART I

1.    ITEM 1. Business

General

Cabletron develops, manufactures, markets, installs and supports a wide range of
standards-based  local  area  network  ("LAN")  and wide  area  network  ("WAN")
connectivity  hardware and software products including  intelligent switches and
hubs, remote access devices, and sophisticated  management  software.  Cabletron
delivers  products  to  address  the  full  range  of  networking  technologies,
including  Ethernet,  Fast  Ethernet,   Gigabit  Ethernet,   Token  Ring,  fiber
distributed  data  interface  ("FDDI"),   asynchronous  transfer  mode  ("ATM"),
integrated  services digital network ("ISDN") and frame relay.  Cabletron's core
products  include the SmartSwitch  hardware  product family and Spectrum network
management  software.  The  SmartSwitch  product family includes the SmartSwitch
9000 product line, Cabletron's  enterprise-level  backbone switching chassis and
modules,  the SmartSwitch  6000 product line,  Cabletron's  wiring  closet-level
solution,   the   SmartSwitch   2000  product  line,   Cabletron's   standalone,
workgroup-level  switches,  the  SmartSTACK,  a desktop  Ethernet switch and the
SmartSwitch Router, a switch router obtained in Cabletron's  acquisition of Yago
Systems,  Inc.  Cabletron's  hardware  products  also include the MMAC, a wiring
closet smart hub, and other  Ethernet,  ISDN, and frame relay  products.  All of
Cabletron's   intelligent   networking  products  are  managed  by  SPECTRUM(R),
Cabletron's  sophisticated  enterprise-wide network management system. Cabletron
also produces and supports other network products,  such as adapter cards, other
interconnection equipment, wiring cables, and file server products, and provides
a wide range of networking  services.  Cabletron believes that its broad product
line and its ability to provide full service capabilities enable 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.


Recent Acquisitions

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 6.1
million shares of Cabletron common stock to the shareholders of Yago in exchange
for all of the outstanding  shares of stock of Yago not then owned by Cabletron.
In addition,  Cabletron assumed Yago stock options for approximately 2.1 million
shares of  Cabletron  common  stock.  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.

Fiscal 1998 Acquisitions

Effective  February 7, 1998,  Cabletron  consummated  the acquisition of certain
assets of the Network  Products Group ("NPB") 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 NPB, now known as the "DIGITAL Network Products Group, a Cabletron
Systems,  Inc.  Company"  ("DNPG"),  develops  and supplies a wide range of data
networking  hardware and software,  including  LAN and WAN  products.  The NPB'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 are expected to be transferred as
issues in individual countries are resolved.

Cabletron and Digital have also entered into the Reseller  Agreement dated as of
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 the NPB),  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.




<PAGE>

Fiscal 1997 Acquisitions

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.

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 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  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.

Fiscal 1996 Acquisitions

In order to broaden the range of switching  products offered by the Company,  in
January 1996 Cabletron  acquired the Enterprise  Networks Business Unit ("ENBU")
of Standard  Microsystems  Corporation for $85.7 million.  The products acquired
from the ENBU include  standalone Fast Ethernet  switches,  as well as a modular
chassis offering several networking technologies.  The transaction was accounted
for as a purchase.

Products and Services

Cabletron's products and services are grouped into the areas discussed below.

SmartSwitches and Hubs, and Related Products

SmartSwitch  9000 (formerly known as the MMAC Plus).  The SmartSwitch 9000 is an
enterprise-level backbone switching chassis. The SmartSwitch 9000, with its high
bandwidth  (aggregate  bandwidth 60 Gbps),  switching rate (aggregate  switching
rate of 10 million  packets/cells per second) and modularity (up to 14 interface
modules),  is  designed  to operate as the central  switching  hub for  networks
containing   large   numbers  of  nodes  and   multiple   disparate   networking
technologies. Each SmartSwitch 9000 module supports one or more of the following
technologies:  ATM Cell Switching,  SecureFast Packet Switching (Cabletron's own
standards-based switching technology), SecureFast Virtual Networking and network
layer routing or standard MAC layer bridging.  In addition to accommodating  the
latest  networking  technologies,  the SmartSwitch 9000 is designed to integrate
customers'  legacy  systems.  The  SmartSwitch  9000,  like all  members  of the
SmartSwitch family, is designed to be highly fault tolerant.

SmartSwitch  6000. The  SmartSwitch  6000,  based upon  Cabletron's  SmartSwitch
architecture,  is a switch intended primarily for the wiring closet environment.
The SmartSwitch 6000, which principally provides  interconnectivity between Fast
Ethernet,  ATM or FDDI  backbone  connections  and local  Ethernet  connections,
accepts  up to five  SmartSwitch  modules,  including  a  thirteen  port 10 Mbps
Ethernet  module,  a two port 100 Mbps Fast Ethernet  module, a single port FDDI
module  and an ATM  module.  By  allowing  virtually  any  combination  of these
modules, the SmartSwitch 6000 provides customers with substantial flexibility.

SmartSwitch  2200.  The  SmartSwitch  2200 is a standalone  switch that provides
twenty-four  10 Mbps  switch  ports and two 100 Mbps  switch  ports and has been
designed  specifically  for  use  at  the  workgroup  or  desktop  level  of the
enterprise. The SmartSwitch 2200 offers both high-performance Ethernet switching
and also high-speed backbone connections through either Fast Ethernet,  FDDI, or
ATM.

SmartSTACK.  The SmartSTACK  Ethernet switch is a standalone desktop switch that
provides  twenty-five  ports  of  10Base-T  Ethernet  connectivity  with a fixed
100Base-TX and a modular 100Base-X uplink capacity. The SmartSTACK Fast Ethernet
switch  provides  sixteen ports of 10/100 Mbps Fast Ethernet  switching with two
uplink ports for 100Base-X connections.



<PAGE>

Smart Switch Router.  Cabletron recently began shipping in volume the eight port
SmartSwitch Router (SSR-8), the first product being shipped that Yago developed.
The SSR-8 is a switching router that was designed as a  high-capacity,  Layer-2,
Layer-3 and Layer-4  switching  device that  provides  multi-layer  switching on
10/100 megabits per second Ethernet in a compact,  redundant 8-slot chassis. The
SSR-8's sixteen gigabits per second of total backplane  capacity permits network
managers  to deliver  up to  fifteen  million  packets  per  second of  switched
throughput in a Gigabit  Ethernet  configuration  using all available ports. The
SmartSwitch  Router family of switching routers was built for the enterprise and
ISP backbones. The SmartSwitch Router products are intended to offer large table
capacity,  a  multi-gigabit  non-blocking  backplane,  low latency and  seamless
scaling.  Cabletron  believes  that  the  SmartSwitch  Router  products  will be
interoperable  with other  standard-based  routers and  switches.  Finally,  the
SmartSwitch  Router  products are designed to provide strong network  management
capabilities  and to support  application-level  control  intended to facilitate
capacity planning and service-level requirements.

MMAC. First introduced in 1988, the Multi Media Access Center ("MMAC")  provides
centralized  management and  connectivity  for any standard LAN or WAN through a
variety of networking  technologies.  The MMAC supports both previously existing
networking  technologies such as Ethernet,  Token Ring, FDDI and Systems Network
Architecture  ("SNA")  as  well  as  emerging  advancements  including  ATM  and
Cabletron's own SecureFast Switching.  With more than one hundred MMAC interface
modules  available,  customers can custom configure a network according to their
particular  needs.  As  requirements  change,  the MMAC can be  reconfigured  to
provide a smooth migration to higher bandwidth technologies.

ATX. Cabletron's ATX provides high-performance,  multiprotocol LAN solutions for
high-capacity  backbone or departmental networks. The ATX permits high-bandwidth
switching  between  Ethernet,  Fast  Ethernet,  Token  Ring and FDDI,  with full
connectivity to ATM.

Wide Area Networking Products

Cabletron's  CyberSWITCH  family of products  include small  office/home  office
connectivity,  remote solutions,  high-density  central site platforms and frame
relay solutions.  These products have been developed both internally and through
the acquisitions of Network Express and Netlink.

Network Management Software

As  enterprise  networks  grow in number,  become  more  diverse and complex and
incorporate   increasing   bandwidth   capacity,   organizations   require  more
sophisticated network management systems. SPECTRUM,  Cabletron's enterprise-wide
network  management  software,  allows  network  administrators  to monitor  and
control all of the  physical  layer  components  making up a worldwide  network.
SPECTRUM,   which  integrates  a  graphical  user  interface  and  a  UNIX-based
client/server  architecture,  provides  powerful network  management tools in an
easy-to-use,   scaleable  and  distributed  environment.  SPECTRUM  incorporates
Induction Modeling  Technology  ("IMT"), a form of artificial  intelligence that
provides  SPECTRUM  with the  ability to model  every  element  of the  network,
including  physical  cables,  network  devices,  and  applications.  SPECTRUM is
designed to enable network  administrators to view worldwide enterprise networks
and diagnose, actively anticipate and correct problems at many levels, including
the individual node level.  Cabletron has developed  SPECTRUM modules for a wide
range of network  products,  including  over 110  applications  for  third-party
products.  Cabletron plans to continue to develop  SPECTRUM system  enhancements
and modules to increase  the number of  third-party  network  products for which
SPECTRUM is applicable.

Cabletron  believes that SPECTRUM has helped to establish  Cabletron as a leader
in the field of  network  management  software  and  contributes  to the  market
acceptance  of  its  interconnectivity   hardware.  SPECTRUM  is  sold  both  to
purchasers of Cabletron's  LAN and WAN products and on a stand-alone  basis as a
network management platform.

Network Interconnection Equipment

Cabletron   manufactures  a  line  of  a  dual-port  and  multiport  stand-alone
repeaters,  which  are  designed  to  connect  up to eight  Ethernet/IEEE  802.3
segments  together or to an Ethernet  backbone.  Cabletron also produces Desktop
Network  Interface  ("DNI") cards,  which enable the user to connect directly to
10BASE-T  unshielded twisted pair, fiber optic or coaxial cabling via a built-in
transceiver  on the card,  and provide  high-speed  Ethernet and Token Ring data
connections for various personal computer platforms.

Service and Support

In addition to manufacturing a broad line of network  equipment,  Cabletron also
offers a wide range of services for  networks,  including  service  maintenance;
consulting,  design and  configuration;  product planning;  project  management;
training;  testing,  certification and documentation;  and performance analysis.
Cabletron  offers  comprehensive  training  programs  to ensure  that  customers
receive the maximum benefit from their networks. Cabletron's service group forms
an integral part of  Cabletron's  marketing  strategy,  as it  constitutes a key
element of the complete  networking  solution  offered by  Cabletron.  Cabletron
believes  that the  combination  of its broad line of networking  products,  its
emphasis on service,  and its close acquaintance with customers' needs enable it
to compete effectively.
<PAGE>

Other Products

Cabletron's  other products include test equipment  designed to analyze networks
and protocols and to verify  proper  installation  and operation of the network,
cabling,  transceivers,  repeaters  and  other  devices.  Cabletron  also  sells
electronically-tested  Ethernet coaxial cable,  shielded twisted pair (IBM-type)
wire, unshielded twisted-pair wire and optical fiber cut to specific lengths.

Distribution and Marketing

Cabletron distributes its products through a substantial direct sales force that
is supplemented by several  distributors and other resellers through the Synergy
Plus Program.  Cabletron's direct sales are made by approximately 230-plus sales
representatives  located in 43  countries  around the world.  This direct  sales
force is supplemented by more than 3,000-plus  employees  located at Cabletron's
headquarters and regional in-house  technical  services and sales support staff.
With the acquisition of DNPG,  Cabletron has secured a larger  reseller  channel
for  the  Company's   products.   Cabletron   established   relationships   with
approximately  40 new  distributors and resellers as a result of its acquisition
of the DNPG. Cabletron believes that its ratio of in-house sales,  marketing and
technical  services  and sales  support  staff to field sales force is among the
highest in the industry and contributes  significantly  to the  effectiveness of
its field sales force.  Cabletron'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 Synergy Plus Program is
a blueprint  for  resellers  that  outlines  the  building  blocks of a business
relationship  with  Cabletron.  The blueprint  sets forth the  principles of the
relationship,  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.

Cabletron  employs  several  methods to market its products,  including  regular
participation  in  trade  shows  as  both  a  vendor  and  networker,   frequent
advertisement  in trade journals,  regular  attendance by corporate  officers at
press  briefings and trade  seminars,  submission of  demonstration  products to
selected  customers  for  evaluation,  and  direct  mailings  and  telemarketing
efforts.

Customers

Cabletron's end-user customers include commercial,  industrial and manufacturing
companies;   federal,  state  and  local  government  agencies;   brokerage  and
investment banking firms;  multinational and international companies;  insurance
companies and other financial institutions; universities; and leading accounting
and law firms.

In fiscal 1998, no single customer  represented  more than 4% of Cabletron's net
sales,  and  Cabletron's  top  ten  customers  represented,  in  the  aggregate,
approximately  15% of its  net  sales.  Net  sales  to  the  federal  government
accounted  for  approximately  13% of  Cabletron's  sales during the last fiscal
year.  Most of  Cabletron's  contracts  with  the  federal  government  are on a
fixed-price  basis.  The books and records of Cabletron  are subject to audit by
the  General  Services  Administration,   the  Department  of  Labor  and  other
government agencies.

Research and Development

During fiscal years 1998, 1997 and 1996, research and development  expenses were
$181.8 million,  $161.7 million,  and $127.3  million,  respectively.  Cabletron
believes that as 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. As of February
28,  1998  approximately  60% of  the  personnel  in  Cabletron's  research  and
development  department  consisted  of  software  development   personnel.   The
remaining personnel were involved in hardware development.

Supply of Components

Cabletron'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   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.




<PAGE>

Manufacturing

Since Cabletron manufactures and assembles virtually all of its current products
(excluding the DNPG  products),  it maintains  direct  control over  production,
quality and product  availability.  By controlling  its  manufacturing  process,
Cabletron  is able to  maintain a strict  quality  control  program,  respond to
changes  in market  demand  and  offer  its  customers  modified  or  customized
products.  To date,  the DNPG products have been  manufactured  by Digital and a
third-party contract manufacturer.  Cabletron is in the process of transitioning
the manufacturing of some DNPG products from Digital to Cabletron

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.

Backlog

Cabletron's  backlog at February  28,  1998 was  approximately  $165.0  million,
compared with backlog at February 28, 1997 of approximately  $125.0 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 Cabletron's actual sales for any succeeding fiscal
period.

Inventory and working capital

Cabletron's  policy is to maintain a sufficient  inventory of products to permit
the shipping of most customer orders that require rapid delivery within 24 to 48
hours of receipt.  This delivery policy requires higher levels of inventory than
those of other companies in the networking industry.

Employees

As of  February  28,  1998,  the  Company  had 6,887  full-time  employees.  The
Company's  employees  are  not  represented  by  a  union  or  other  collective
bargaining  agent and the Company  considers its relations with its employees to
be good.

Domestic and Foreign Financial Information

Financial information concerning foreign and domestic operations is contained in
Note 16 of "Notes to the Consolidated  Financial Statements" included at page 36
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,  buildings totaling 122,000 square-feet which
accommodate  sales,  marketing,  administration and technical support personnel,
and a warehousing  and  distribution  facility,  totaling  221,000  square-feet.
Cabletron  owns a 114,000  square-foot  engineering  building in Merrimack,  New
Hampshire.  Cabletron acquired two facilities  (totaling 119,372 square-feet) in
Acton,  Massachusetts  in connection with its acquisition of the NPB.  Cabletron
expects  to move the DNPG  personnel  from  Digital's  Littleton,  Massachusetts
facility to a new Andover facility during the next four to six months.

Cabletron  leases one  manufacturing  building  totaling  120,000 square feet in
Ironton,  Ohio,  a  120,000  square-foot  manufacturing  facility  in  Limerick,
Ireland,  and a 50,000 square-foot  distribution center in Shannon,  Ireland, to
support  its  European  sales   activities.   Cabletron  also  leases  a  78,000
square-foot  research and  development  facility in Durham,  New Hampshire and a
48,000 square-foot  engineering office in Nashua, New Hampshire.  Cabletron also
occupies facilities in Newington and Nashua, New Hampshire,  Andover,  Littleton
and Framingham,  Massachusetts, Ann Arbor, Michigan and Santa Clara, California.
Cabletron also leases sales and technical  support offices that range from 1,000
to 20,000 square feet at various locations throughout the world.

Cabletron believes that its facilities are adequate to support anticipated sales
growth  over  the next 12 to 18  months.  Such  growth,  however,  will  require
additional  production employees and capital equipment.  Cabletron believes that
adequate  supplies  of  labor  are  available  in the  areas  where  Cabletron's
manufacturing operations are located.
<PAGE>

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

ITEM 3.  Legal Proceedings

Since October 24, 1997, nine  stockholder  class action lawsuits have been filed
against  Cabletron and certain officers and directors of Cabletron in the United
States District Court for the District of New Hampshire.  The complaints  allege
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  complaints  further allege that
certain  officers  and  directors   profited  from  the  dissemination  of  such
misleading  information by selling shares of Cabletron  Common Stock during this
period.  The complaints do not specify the amount of damages sought on behalf of
the class.  On March 3, 1998, the United States  District Court for the District
of New  Hampshire  granted  the  motion to  consolidate  the nine  class  action
complaints  against  Cabletron  and its  officers and  directors  into one class
action.  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,  Cabletron
could be required to pay substantial damages.  This litigation may be protracted
and may result in a diversion of  management  and other  resources of Cabletron.
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.

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>


ITEM 4a. Executive Officers of the Registrant

The executive officers of the Company are as follows:

Name                       Age      Position

Craig R. Benson            43       Chairman, President, Chief Executive 
                                      Officer, Treasurer and Director

John d'Auguste             47       President of Operations

Christopher J. Oliver      37       Executive Vice President Worldwide 
                                      Engineering and Chief Technology Officer

David J. Kirkpatrick       46       Corporate Executive Vice President of 
                                      Finance and Chief Financial Officer

Allen L. Finch             37       Senior Vice President, Worldwide 
                                      Marketing and Corporate Strategy

Guilio M. Gianturco        42       President, DNPG and Channels

Linda H. Pepin             45       Senior Vice President, Human Resources

Craig R. Benson was 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.

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  worked for Gateway 2000 as the Vice
President of Direct Sales, having previously held the position of Vice President
of Operations.  Prior to Gateway 2000 he served as the Vice President of Product
Business Unit for General Railway Signal.

Christopher J. Oliver has been Executive  Vice President  Worldwide  Engineering
and Chief Technology  Officer since January 1998. He was Director of Engineering
and Manufacturing of the Company from February 1985 until January 1998.

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

Allen L.  Finch has been  Senior  Vice  President  of  Worldwide  Marketing  and
Corporate  Strategy  since  March  1998.  From  June  1997 to March  1998 he was
Director,   Public  Relations.  From  1991  to  1997  he  was  a  strategic  and
communications consultant in Washington, D.C.

Guilio M. Gianturco has been President of the Digital Network Products Group and
Channels since February 1998. Prior to joining  Cabletron he worked for the last
fifteen years in various senior level positions in Digital and AT&T.

Linda H. Pepin has been Senior Vice  President  of Human  Resources  since March
1998.  From 1989 to 1998 she was Director of Human  Resources.  Prior to joining
Cabletron she has held various positions in personnel management.

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,  but remains a director of Cabletron and 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 whom would adversely affect Cabletron'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 February 28, 1998, the Company had  approximately
3,604  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 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

Fiscal 1996                               High                  Low

First quarter                           $27.88               $19.44
Second quarter                           29.81                24.31
Third quarter                            43.88                26.00
Fourth quarter                          $41.63               $32.94





<PAGE>



CABLETRON SYSTEMS, INC.
<TABLE>
<CAPTION>

Statement of Operations Data:                                           FISCAL YEAR ENDED
<S>                                         <C>            <C>           <C>           <C>             <C>    
                                             -----------------------------------------------------------------------
(in thousands, except per share data)
                                             February 28,   February 28,  February 29,  February 28,    February 28,  
                                                1998           1997          1996          1995            1994
                                             -----------    -----------   -----------   -----------     -----------

Net sales ................................    $1,377,330     $1,406,552    $1,100,349      $833,218      $602,486
Cost of sales ............................       645,790        575,107       340,424       448,699       246,154             
Research and development .................       181,777        161,674       127,289        89,129        61,456
Selling, general and administrative ......       371,159        286,469       223,083       166,649       118,373              
Special charges ..........................       417,685         63,024        94,343           ---           ---
                                              ----------     ----------    ----------      --------      --------
Income (loss)  from operations ...........      (239,081)       320,278       206,935       237,016       176,503        
Interest income ..........................        18,578         19,422        17,891         5,572         5,948
                                              ----------     ----------    ----------      --------      --------
Income (loss) before taxes ...............      (220,503)       339,700       224,826       242,588       182,451    
Income tax expense (benefit) .............       (93,441)       117,575        80,341        86,014        64,130
                                              ----------     ----------    ----------      --------      --------
Net income (loss)                            ($  127,062)    $  222,125    $  144,485      $156,574      $118,321
                                              ===========    ==========    ==========      ========      ========
Net income (loss) per share - basic ......   ($     0.81)    $     1.43    $     0.95      $   1.08      $   0.82
                                              ===========    ==========    ==========      ========      ========   
Weighted average number of shares
    outstanding - basic ..................       157,686        155,207       151,525       145,125       143,692
                                              ==========     ==========    ==========      ========      ======== 
Net income (loss) per share - diluted ....   ($     0.81)    $     1.40    $     0.93      $   1.07      $   0.81 
                                              ==========     ==========    ==========      ========      ========           
Weighted average number of shares
    outstanding - diluted .................      157,686        158,933       155,171       147,017       146,567
                                              ==========     ==========    ==========       =======       =======  
</TABLE>
                                                                          

Note:  Included  in fiscal  1998  results  are  special  charges  related to the
acquisition  of Digital's  Network  Products Group and the  implementation  of a
strategic  realignment  plan  consisting  of $235.2  million and $21.5  million,
respectively  (net of tax).  Included in fiscal 1997 and fiscal 1996 results are
$39.2 million and $60.8 million (net of tax) of special charges items related to
all  acquisitions for each fiscal year,  respectively.  Excluding these one-time
charges, pro forma net income and diluted net income per share are as follows:

<TABLE>
<CAPTION>

                                                         FISCAL YEAR ENDED
                                             -----------------------------------------
<S>                                         <C>            <C>           <C>  

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

Pro forma net income ......................     $129,963       $261,325      $205,285
Pro forma diluted net income per share ....     $   0.82       $   1.64      $   1.35
</TABLE>
<TABLE>
<CAPTION>


                                                                        FISCAL YEAR ENDED
                                             ---------------------------------------------------------------------
<S>                                         <C>            <C>           <C>           <C>           <C>    
Balance Sheet Data:
(in thousands)                               February 28,   February 28,  February 29,  February 28,  February 28, 
                                                    1998           1997          1996          1995          1994
                                             -----------    -----------   -----------   -----------   -----------

Working capital ...........................   $  561,400     $  675,102      $485,152      $381,758      $258,463
Total assets ..............................    1,606,327      1,306,855       996,908       702,200       502,377          
Stockholders' equity ......................      989,020      1,081,498       809,886       593,942       425,719
                                                                                                          
</TABLE>








<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
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  Cabletron'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, 1998 and 1997 and February 29, 1996:


                                          1998       1997      1996
                                         -----      -----     -----

Net sales .........................      100.0%     100.0%    100.0%
Cost of sales .....................       46.9       40.9      40.8
                                         -----      -----     -----
Gross profit ......................       53.1       59.1      59.2
Research and development ..........       13.2       11.5      11.6
Selling, general and administrative       26.9       20.4      20.3
Special charges ...................       30.3        4.5       8.6
                                         -----      -----     -----
Income (loss) from operations .....      (17.3)      22.7      18.7
Interest income ...................        1.3        1.4       1.6
                                         -----      -----     -----
Income (loss) before income taxes .      (16.0)      24.1      20.3
                                         -----      -----     -----
Net income (loss) .................       (9.2%)     15.8%     13.1%
                                         =====      =====     =====


Acquisitions

During fiscal 1998 the Company acquired the Network Products Business (NPB)
from Digital  Equipment  Corporation in February 1998. The NPB (now known as the
DIGITAL Network Products Group, a Cabletron Systems,  Inc. Company (the "DNPG"))
develops and  supplies a wide range of data  networking  hardware and  software,
including  LAN  and  WAN  products.  The  DNPG  products  span a wide  range  of
networking  technologies,  including  Ethernet,  Fast  Ethernet,  FDDI  and  ATM
switching technologies.

During  fiscal 1997 the Company  augmented  its product line 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.

During fiscal 1996 the Company  acquired the Enterprise  Networks  Business Unit
(ENBU) from Standard  Microsystems  Corporation in January 1996. The acquisition
added a line of Fast Ethernet products,  as well as switching products for token
ring, Ethernet and FDDI.

Revenues

Net sales in fiscal 1998  decreased by 2.1% to $1,377.3  million  from  $1,406.6
million in fiscal 1997. The slight  decrease in fiscal 1998 revenue  compared to
fiscal 1997 revenue was largely a result of a decrease in sales of the Company's
shared media products (comprised  primarily of the MMAC). Sales of the Company's
shared media products  decreased 56.6% to $317.6 million in fiscal 1998 compared
to sales of $717.8  million  in fiscal  1997.  The  decline in revenue of shared
media  products was 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 1999 as  customers  continue the  migration  from
shared  media  products to switched  products.  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
fiscal 1998 compared to sales of $299.3  million in fiscal 1997. The increase in
revenue of switched  products was a result of increasing unit sales.  Prices per
product  decreased  slightly for switched  products  during fiscal 1998, but the
increase  in unit  shipments  offset this slight  price  decline.  

<PAGE>

Sales of diagnostic test instruments, installation and maintenance services, and
other  products were $379.1  million or 27.5% of total  revenues in fiscal 1998,
compared to $389.5  million or 27.7% of total revenues in fiscal 1997 and $354.4
million  or  28.4%  of net  sales  in  fiscal  1996.  As part  of the  Company's
acquisition of the DNPG,  the Company  agreed to appoint  Digital as the service
provider for Cabletron products in certain smaller  countries.  This appointment
may have the  effect of  limiting  the growth of  Cabletron's  own  service  and
support organization.

The  Company  acquired  the DNPG on  February  7,  1998  and  thus the  division
contributed to the Company's  fiscal 1998 revenues for less than one month.  The
Company  expects the DNPG to contribute  materially  towards  revenues in fiscal
1999.

The increase in revenue in fiscal 1997 compared to fiscal 1996 was primarily the
result of increased  sales of the SmartSwitch  product lines.  Sales of switched
products  increased 566.8% to $299.3 million in fiscal 1997 compared to sales of
$44.9 million in fiscal 1996.  This offset the decreased  sales of shared media
products. Sales of the Company's shared media products decreased 3.4% to $717.8
million in fiscal  1997  compared  to sales of $742.7  million  in fiscal  1996.
Finally,  increased  sales of service  and support  products  and  services  (as
discussed above) contributed to the increase in overall revenue from fiscal 1997
compared to fiscal 1996.

Net sales outside the United States in fiscal 1998 were $454.1 million, or 33.0%
of net sales,  compared  to $408.2  million or 29.0% of net sales in fiscal 1997
and $329.2  million or 29.9% of net sales in fiscal  1996.  In  addition  to its
direct international sales force, the Company sells its products through several
international distributors. The increase in international revenue in fiscal 1998
compared to fiscal 1997  reflects  the  Company's  focus on  expansion in growth
areas,  such as  Latin  America.  This  increase  was offset by weaker  economic
conditions in the Asia/Pacific region. The increase in international  revenue in
fiscal 1997  compared  to fiscal 1996 was  primarily  due to the  expansion  and
growth of the Latin American  markets.  The Company's  international  revenue is
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.

Costs, Expenses and Interest Income

Cost of sales was  $645.8  million  or 46.9% of net  sales in fiscal  1998,
compared  to $575.1  million  or 40.9% of net sales in  fiscal  1997 and  $448.7
million or 40.8% of net sales in fiscal 1996. The increase in cost of sales as a
percentage  of net  sales  is  primarily  to (i)  presessures  on the  Company's
products,  especially  in foreign  markets which  traditonally  carried a higher
margin,  which  resulted in a lower  selling  price per product and (ii) effects
from inventory  write-offs,  which increase the cost of sales as a percentage of
net sales.  The Company was able to maintain its gross margins in fiscal 199 and
1996 by introducing and selling  products with improved  functionality,  further
developing  its  service  maintenance  program  and  improving   purchasing  and
manufacturing efficiencies.

Research and  development  ("R&D")  expenses in fiscal 1998  increased to $181.8
million or 13.2% of net sales,  compared to $161.7 million or 11.5% of net sales
in fiscal 1997. In fiscal 1996, R&D expenses were $127.3 million or 11.6% of net
sales. The increased R&D spending in fiscal 1998 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 fiscal 1998  compared to fiscal 1997  primarily
because  net sales were lower than the  Company  expected  in fiscal  1998.  The
Company plans to continue to increase R&D spending in absolute  dollars in order
to develop new products on a timely basis. The level of increase in R&D spending
may slow, depending on the growth in total revenues,  if necessary to reduce R&D
spending as a  percentage  of net sales more  towards the  percentage  levels in
fiscal 1997 and fiscal 1996. 

Selling,  general and  administrative  ("SG&A")  expenses were $371.2 million or
26.9% of net sales in fiscal  1998,  compared to $286.5  million or 20.4% of net
sales in fiscal  1997 and $223.1  million or 20.3% of net sales in fiscal  1996.
Increases  in SG&A  spending  resulted  from  expanding  the sales  and  support
workforce,   establishing   additional   office   locations   domestically   and
internationally,  the  addition  of  administrative  personnel  as a  result  of
acquisitions and increased  administrative spending primarily due to anticipated
increases in volume.  SG&A  expenses  increased as a percentage  of net sales in
fiscal 1998 primarily as a result of lower than expected sales.

In fiscal 1998 the Company had special charges of $417.7 million,  consisting of
(i) in process  research and  development of $325 million ($200.0 million net of
tax) in connection with the  acquisition of the DNPG, (ii) one-time  acquisition
related  expenses of $57.7 million ($35.5 million net of tax) in connection with
the  acquisition  of the  DNPG,  and (iii)  charges  relating  to the  Company's
realignment of $35.0 million ($21.5 million net of tax).For  fiscal 1997 a $63.0
million  special  charge  was taken for the  acquisitions  of  ZeitNet,  Network
Express,  Netlink and The OASys Group.  In fiscal 1996 a $94.3  million  special
charge  was  taken  for the  purchase  of the ENBU of SMC and  Fivemere  Limited
(purchased by Network Express in fiscal 1996).
<PAGE>
Interest  income in fiscal 1998 was $18.5  million  compared to $19.4 million in
fiscal 1997 and $17.9 million in fiscal 1996.  The slight  decrease is primarily
the result of lower interest rates in fiscal 1998 than in fiscal 1997.

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  reallocation  of resources,  including the  elimination  of certain
existing projects, personnel reduction, the eilimination of duplicate facilities
and the consolidation of related operations.  Included in accrued liabilities at
February 28, 1998 is $4.8 million  relating to severence  costs  associated with
350 eliminated  positions.  The Company has completed most of these  reductions.
The expense  reductions  associated  with the  realignment are intended to yield
approximately $40 million in total annualized  savings,  beginning in the fourth
quarter of fiscal 1998.

Income (Loss) 

Loss before income taxes was $220.5  million or 6.0% of net sales in fiscal
1998,  compared to income before income taxes of $339.7  million or 24.1% of net
sales in fiscal 1997 and $224.8 million or 20.3% of net sales in fiscal 1996. In
fiscal 1998 the Company had special charges of $417.7 million, compared to $63.0
million in fiscal 1997 and $94.3 million in fiscal 1996.  The decrease in income
before  income  taxes in fiscal  1998 was due in part to the  increase of $354.7
million in special charges. The increase in income before income taxes in fiscal
1997 was due in part to the $31.3  million  decrease in these  special  charges.
Excluding  special  charges,  income before  income taxes was $197.2  million in
fiscal 1998, $402.7 million in fiscal 1997 and $319.2 million in fiscal 1996. In
addition to the special  charges,  the decrease in income before income taxes in
fiscal 1998 was also due to lower  revenues  and the higher  cost of sales.  The
factors  affecting  revenues  and cost of sales  are  discussed  above.  The tax
(benefit)  rate for fiscal 1998 was  (42.4%)  compared to a tax rate of 34.6% in
fiscal  1997.  The  decrease  was because  the Company had a loss before  income
taxes.  during the year. Loss after taxes was $127.1 million  compared to income
after taxes of $222.1 million in fiscal 1997.

Liquidity and Capital Resources

Accounts receivable, net of allowance for doubtful accounts, were $241.2 million
at February 28, 1998 or 78 days of sales outstanding, compared to $219.9 million
or 52 days of sales  outstanding  in accounts  receivable  at February 28, 1997.
This increase in receivables reflects timing on shipments and collections. These
trends are expected to continue for the intermediate term.

The Company has  historically  maintained  higher  levels of inventory  than its
competitors  in the  networking  industry  in order to  implement  its policy of
shipping  most  orders  requiring  immediate  delivery  within  24 to 48  hours.
Worldwide  inventories  were $309.7  million at February 28, 1998 or 157 days of
inventory, compared to $197.4 million or 109 days of inventory at the end of the
preceding fiscal year. The increase of days in inventory was the result of lower
sales and the  introduction  of a new product line,  the  SmartSwitch  family of
products.

Net cash provided by operating activities was $49.5 million in fiscal 1998,
compared to $188.8  million in fiscal 1997 and $81.1 million in fiscal 1996. The
decrease was primarily a result of higher accounts receivable and inventory.  In
the Company's  acquisition  of the DNPG,  part of the purchase price was paid in
$302.5 million of product credits which Digital can use through February 7, 2000
to purchase  certain  Cabletron  products  that are ordered  under the  Reseller
Agreement. As a result of these products credits, net cash provided by operating
activities  will not  increase  at the same rate of growth as net sales  through
February  7, 2000.  The use of products  credits by Digital  will not affect the
Company's income statement because the Company will recognize revenue as Digital
uses  product  credits.  See  Note  9  (Notes  to  the  Consolidated   Financial
Statements)  included  at page  30 of this  document  for  additional  details
regarding the product credits.

During fiscal 1998 capital expenditures were $74.2 million, which included $34.9
million in software and hardware products.  Capital expenditures for fiscal 1997
of $94.4 million  included $58.9 million for engineering  computer  hardware and
software and $3.3 million for leasehold improvements.  During fiscal 1996, $67.8
million of capital  expenditures  included  $9.8 million for  building  costs of
which $3.4  million  was for the  purchase  of an  engineering  building,  $21.4
million  for  engineering  computer  hardware  and  software,  $5.5  million for
manufacturing and related equipment and $19.0 million for expanding global sales
operations.


<PAGE>

Cash,  cash  equivalents,   marketable   securities  and  long-term  investments
decreased during fiscal 1998 to $447.3 million, from $568.3 million in the prior
fiscal  year.  This  decrease  in  fiscal  1998  reflects  the cash  used in the
acquisition  of  DNPG.  State  and  local  municipal  bonds  and  bond  funds of
approximately  $373.2 million,  maturing in three years or less, were being held
by the Company at February 28, 1998.

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 but the Company has the option
to extend the facility for an additional two years.  As of February 28, 1998 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 be adequate to
support the Company's working capital and capital  expenditure  requirements for
both short and long term needs.

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.,  Bay
Networks, Inc. and 3Com Corporation.  Several large telecommunications equipment
companies, including Lucent Technologies, Inc., Nokia Corp. and Northern Telecom
Ltd,  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  will 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.

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  reseller sales channels,  increased  component costs
and increased expenses,  including increased research and development and sales,
general and  administrative  costs,  which may be necessary in future periods to
meet the  demands  of  greater  competition.  For  example,  as a result  of the
acquisition of the NPB, Cabletron expects a higher percentage of its sales to be
made 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, in the
recent past,  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.
Cabletron  plans to continue to invest in research  and  development,  sales and
marketing and technical  support staff in anticipation of future revenue growth.
If growth in  Cabletron's  revenues  in any quarter  fails to match  Cabletron's
expense levels, its earnings and margins would be materially adversely affected.
In the fourth  quarter of fiscal 1998, the three month period ended February 28,
1998, a shortfall in orders  resulted in a  substantial  decline in  Cabletron's
earnings from the fourth  quarter of fiscal 1997. See  "Management's  Discussion
and Analysis of Financial  Condition and Results of Operations." There can be no
assurance that net sales will not decrease in future  quarters.  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.

Realignment.  Cabletron  has  announced  that it is seeking to better  align its
business  strategy with its target  markets.  The company has incurred a pre-tax
charge in the fourth  quarter of fiscal 1998 of $35.0  million  ($21.5  million,
after-tax) related to the realignment.  The realignment includes general expense
reductions  through the elimination of duplicate  facilities,  consolidation  of
related  operations,  reallocation  of resources,  including the  elimination of
certain  existing  projects,  and personnel  reduction.  Cabletron may encounter
difficulties  in achieving  the expense  reductions  intended as a result of the
realignment due to, among other factors,  additional  costs associated with, for
example,  relocations  and  employee  severance,  the need to  maintain  certain
essential,  but underutilized,  facilities,  and delays in implementing  planned
reductions.  Any such difficulties in achieving expense reductions may result in
a failure to realize the full amount of the  annualized  cost  savings  which is

<PAGE>

intended to be achieved through the  realignment.  Any such additional costs may
result in charges related to Cabletron's realignment in future quarters.

In  addition  to  the  realignment,  Cabletron  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,   the  realignment   referred  to  above  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  the  NPB  from  Digital  and  the
acquisition  of  Yago,   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 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 DNPG and Yago,  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.

Cabletron has recently  acquired  several product lines  previously  marketed by
Digital's NPB pursuant to Cabletron's  acquisition of the NPB. Cabletron's sales
of the NPB products are subject to numerous risks.  Cabletron's  success will be
dependent upon its continued  development  of products that are compatible  with
and meet the needs of the NPB's  installed base of end-user  customers,  many of
whom have made a  substantial  investment  in  existing  Digital's  NPB  network
infrastructure.  Substantially  all of the NPB's revenues have historically been
derived from sales by Digital's  worldwide  sales force and certain  major third
party resellers.  Under Digital,  the NPB had no direct sales force to end users
(Digital's  direct sales force resides in an  independent  business  unit),  and
Cabletron  is not  acquiring  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 NPB products,  and has  contractually  committed to purchase certain minimum
volumes of Cabletron  products for resale and internal use.  Based on historical
revenues  of   Cabletron,   it  is  expected   that  Digital  will  account  for
substantially in excess of ten percent (10%) of Cabletron's  revenues for fiscal
1999.  Any failure by Digital 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 NPB'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 NPB's resellers will
continue to purchase the NPB 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  Digital's sales force and the NPB's resellers,  including
the NPB products and certain Cabletron  products,  may be sold under the Digital
brand name and, in many cases, will be specifically  adapted for use in existing
Digital  hardware  platforms.  Cabletron  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 NPB  resellers,  could  have a material  adverse  effect on
Cabletron's business, results of operations or financial condition.
<PAGE>

Volatility  of Stock Price.  As is  frequently  the case with the stocks of high
technology  companies,  the market price of Cabletron'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 Cabletron
or its competitors,  expenses or other difficulties associated with assimilating
the NPB, the business of Yago 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.

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 there can be no assurance that such decline will not  accelerate.  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.
<PAGE>

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.  The  NPB
products will initially be  manufactured  by Digital and a third-party  contract
manufacturer, SCI Technologies,  Inc. The failure of either party to continue to
manufacture  the NPB  products  or to  deliver  the  NPB  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.

Year 2000-compliance.  Historically, certain computer programs have been written
using two digits  rather than four digits to define  year.  This could result in
computers  recognizing  a date using "00" as the year 1900  rather than the year
2000, resulting in potential major system failures or miscalculations.

To address the  above-mentioned  Year 2000 issues and  concerns,  Cabletron  has
established  a "Year 2000 Task Force" to lead and  coordinate  all of its global
Year 2000  activities.  This task force is  accountable to provide the necessary
leadership,  tools and knowledge  required by all operating units to become Year
2000 compliant.  The task force is currently testing all hardware,  firmware and
software  developed  and  sold  by the  Company  for  Year  2000  Compliance  in
accordance with Cabletron's Year 2000 Policy Statement.

In  addition,  the Year 2000 Task Force is  conducting  a global  assessment  of
Cabletron's  essential  computer  systems  and is making  reasonable  efforts to
ensure  that  Cabletron's  information  technology  infrastructure  will  not be
adversely affected by the turn of the century.

Currently,  Cabletron has no reasonable  estimate of the amount of out-of-pocket
costs  which may be incurred to address  Year 2000 issues for our  products  and
internal  infrastructure.  At this time, the company cannot reasonably  estimate
the potential impact on its financial  position and operations if key suppliers,
customers and other  constituents do not become Year  2000-compliant on a timely
basis.

New Accounting Pronouncements

In June 1997,  the Financial  Accounting  Standards  Board issued  Statement 130
(SFAS 130),  "Reporting  Comprehensive  Income," which establishes standards for
reporting and display of  comprehensive  income and its components in a full set
of general-purpose  financial statements.  Under this concept, certain revenues,
expenses,  gains and  losses  recognized  during  the  period  are  included  in
comprehensive income, regardless of whether they are considered to be results of
operations of the period.  SFAS 130, which becomes  effective for the Company in
its fiscal year ending  February  28,  1999,  is not expected to have a material
impact  on the  consolidated  financial  statements  of the  Company.  The  only
additional  item  to be  included  in  comprehensive  income  is  the  Company's
cumulative translation adjustment.

In June 1997,  the Financial  Accounting  Standards  Board issued  Statement 131
(SFAS  131),   "Disclosures   about   Segments  of  an  Enterprise  and  Related
Information,"  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.  This Statement,
becomes  effective for the Company in its fiscal year ending  February 28, 1999.
The  Company  is in the  process  of  determining  the impact of SFAS 131 on its
footnote disclosures.

In February 1998, the Company adopted the Financial  Accounting  Standards Board
Statement No. 128, "Earnings per Share," (SFAS 128). All previously reported net
income (loss) per share data have been restated to conform to the  provisions of
SFAS 128.  Under SFAS 128,  basic net income  (loss)  per share is  computed  by
dividing  net income  (loss)  available to common  stockholders  by the weighted
average  number of common  shares or the period.  Diluted net income  (loss) per
reflect the maximum  diluted that would have resulted from the assumed  exercise
and share  repurchased  related to dilutive  stock  options and are  computed by
dividing net income (loss) by the weighted  average  number of common shares and
all dilutive securities outstanding.

In fiscal 1998, the Company adopted the American  Institute of Certified  Public
Accountants'  Statement of Position 98-1,  "Accounting for the Costs of Computer
Software  Developed or Obtained for Internal  Use" (SOP 98-1) which  establishes
guidelines for the accounting for the costs of all computer  software  developed
or obtained for internal use. Under SOP 98-1,  certain payroll and related costs
for Company  employees  working on the application of development stage projects
as defined in the SOP for internal use computer software must be capitalized and
amortized over the expected useful life of the software.  This is  substantially
consistent with the Company's previous treatment, and accordingly,  the adoption
of SOP  98-1  did  not  have a  material  impact  on the  Company's  results  of
operations in fiscal 1998.
<PAGE>

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN EXCHANGE RISK MANAGEMENT

As the  Company's  international  sales  grow as a  percentage  of total  sales,
exposure to  volatility  in exchange  rates could have a material  impact on the
Company's financial results.

The Company uses  foreign  currency  forward and option  contracts to manage the
risk of exchange fluctuations.  The Company uses these derivative instruments to
reduce its exchange risk by essentially  creating  offsetting market exposures.
The instruments are not held for trading or speculative purposes.

Based on the Company's  overall currency rate exposure at February 28, 1998
including  derivative  and  other  foreign  currency  sensitive  instruments,  a
near-term  change in currency rates based on historic  currency rate  movements,
would not materially  affect the  consolidated  financial  position,  results of
operations, or cash flows of the Company.

The success of the hedging program depends on forecasts of transaction  activity
in  various  currencies.  To the  extent  that  these  forecasts  of are over or
understated during periods of currency volatility,  the Company could experience
unanticipated currency gains or losses.

INTEREST RATE RISK

The Company maintains an investment  portfolio  consisting of debt securities of
various  issuers,  types and  maturities.  The securities that are classified as
held to maturity are recorded on the balance sheet at amortized  cost. A portion
of the investments are classified as available for sale.  These  instruments are
not held for purposes of trading.  The securities are recorded at amortized cost
which  approximates  market value.  Unrealized  gains or losses  associated with
these securities are not material.  Due to the average maturity and conservative
nature of the investment portfolio,  a sudden change in interest rates would not
have a material effect on the value of the portfolio.





<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CABLETRON SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS
February 28, 1998 and 1997
(in thousands, except per share amounts)

Assets                                                         1998         1997
                                                         ----------   ----------

Current assets:
   Cash and cash equivalents .........................   $  207,078   $  214,828
   Short-term investments (note 4) ...................      116,979      165,396
   Accounts receivable, net of allowance for
     doubtful accounts ($21,043 and $15,476 in 1998
     and 1997, respectively) .........................      241,181      219,896
   Inventories (note 5) ..............................      309,667      197,438
   Deferred income taxes (note 11) ...................       81,161       57,107
   Prepaid expenses and other assets .................       78,084       34,691
                                                         ----------   ----------
        Total current assets .........................    1,034,150      889,356
                                                         ----------   ----------
Long-term investments (note 4) .......................      123,272      188,081
Long-term deferred income taxes (note 11) ............      167,308       29,627
Property, plant and equipment, net (note 6) ..........      244,730      198,557
Intangible assets, net (note7) .......................       36,867        1,234
                                                         ----------   ----------
        Total assets .................................   $1,606,327   $1,306,855
                                                         ==========   ==========


Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable ..................................   $   79,969   $   68,604
   Current portion of long-term obligation (note 9) ..      157,719          ---
   Accrued expenses (note 8) .........................      235,062      135,208
   Income taxes payable ..............................          ---       10,442
                                                         ----------   ----------
        Total current liabilities ....................      472,750      214,254
   Long-term obligation (note 9) .....................      132,500          ---
   Long-term deferred income taxes (note 11) .........       12,057       11,103
                                                         ----------   ----------
        Total liabilities ............................      617,307      225,357
                                                         ----------   ----------

Commitments and contingencies (notes 10, 12 and 13)

Stockholders' equity (note 14):
   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 158,267
     and 156,305 shares in 1998 and 1997, respectively        1,583        1,563
   Additional paid-in capital ........................      300,834      266,829
   Retained earnings .................................      685,823      812,885
                                                         ----------   ----------
                                                            988,240    1,081,277
   Cumulative translation adjustment .................          780          221
                                                         ----------   ----------
        Total stockholders' equity ...................      989,020    1,081,498
                                                         ----------   ----------
        Total liabilities and stockholders' equity ...   $1,606,327   $1,306,855
                                                         ==========   ==========

See accompanying notes to consolidated financial statements.



<PAGE>
CABLETRON SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended February 28, 1998 and 1997 and February 29, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>

<S>                                                       <C>            <C>           <C>    
                                                                 1998           1997          1996
                                                           ----------     ----------    ----------

Net sales .............................................    $1,377,330     $1,406,552    $1,100,349
Cost of sales .........................................       645,790        575,107       448,699
                                                           ----------     ----------    ----------
     Gross profit .....................................       731,540        831,445       651,650
Operating expenses:   
     Research and development .........................       181,777        161,674       127,289
     Selling, general and administrative ..............       371,159        286,469       223,083
     Special charges (note 3) .........................       417,685         63,024        94,343
                                                           ----------     ----------    ----------
        Income (loss)  from operations ................      (239,081)       320,278       206,935
Interest income .......................................        18,578         19,422        17,891
                                                           ----------     ----------    ----------                                
        Income (loss) before income taxes .............      (220,503)       339,700       224,826
Income tax expense (benefit) (note 11) ................       (93,441)       117,575        80,341
                                                           ----------     ----------    ----------
        Net income (loss) .............................    ($ 127,062)    $  222,125    $  144,485
                                                           ==========     ==========    ==========
Net income (loss) per share - basic ...................    ($    0.81)    $     1.43    $     0.95
                                                           ==========     ==========    ==========
Weighted average number of shares outstanding - basic .       157,686        155,207       151,525
                                                           ==========     ==========    ==========
Net income (loss) per share - diluted .................    ($    0.81)    $     1.40    $     0.93
                                                           ==========     ==========    ==========
Weighted average number of shares outstanding - diluted       157,686        158,933       155,171 
                                                           ==========     ==========    ==========

</TABLE>




See accompanying notes to consolidated financial statements.



<PAGE>

CABLETRON SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended February 28, 1998 and 1997 and February 29, 1996
<TABLE>
<CAPTION>
<S>                                              <C>         <C>            <C>             <C>               <C>         <C>

------------------------------------------------------------------------------------------------------------------------------------
(in thousands)                                              ADDITIONAL     CUMULATIVE          NOTES          TOTAL
                                                  COMMON       PAID-IN       RETAINED    TRANSLATION     RECEIVABLE    STOCKHOLDERS'
                                                   STOCK       CAPITAL       EARNINGS     ADJUSTMENT    STOCKHOLDERS        EQUITY
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 28, 1995 ...............        $757      $147,885       $447,033        ($1,364)          ($369)      $593,942
                                                                                                                        
Repayments of notes receivable,
     stockholders ...........................         --            --             --             --             218            218
Issuance of common stock, net ...............          9        41,765             --             --              --         41,774
Issuance of common stock for
     Fivemere acquisition ...................          1         2,564             --             --              --          2,565
Exercise of options for 1,453
     shares of common stock .................          8        17,214             --             --              --         17,222
Tax benefit for options exercised ...........         --         7,215             --             --              --          7,215
Issuance of 154 shares under
employee
     stock purchase plan ....................          1         3,322             --             --              --          3,323
Stock repurchased and retired ...............         --        (1,173)            --             --              --         (1,173)
Effect of foreign currency ..................         --            --             --            315              --            315
translation    
Net income ..................................         --            --        144,485            --               --        144,485
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 29, 1996 ................        776       218,792        591,518         (1,049)           (151)       809,886
------------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock, net ...............         15         8,562             --             --              --          8,577
Exercise of options for 1,345
     shares of common stock .................         10        18,012             --             --              --         18,022
Repayment of notes receivable ...............         --            --             --             --             151            151
Issuance of common stock for The
     OASys Group acquisition ................          2         6,955             --             --              --          6,957
Tax benefit for options exercised ...........         --         8,302             --             --              --          8,302
Stock split .................................        758            --           (758)            --              --             --
Issuance of 197 shares under
employee
     stock purchase plan ....................          2         6,206             --             --              --          6,208
Effect of foreign currency ..................         --            --             --          1,270              --          1,270
translation
Net income ..................................         --            --        222,125             --              --        222,125
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 28, 1997 ................      1,563       266,829        812,885            221              --      1,081,498
------------------------------------------------------------------------------------------------------------------------------------
Exercise of options for 1,751
     shares of common stock .................         18        18,196             --             --              --         18,214
Tax benefit for options exercised ...........         --         9,564             --             --              --          9,564
Issuance of 231 shares under
employee
     stock purchase plan ....................          2         6,245             --             --              --          6,247
Effect of foreign currency ..................         --            --             --            559              --            559
translation
Net loss ....................................         --            --       (127,062)            --              --       (127,062)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 28, 1998 ................     $1,583      $300,834       $685,823           $780              --       $989,020
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>


See accompanying notes to consolidated financial statements.



<PAGE>
CABLETRON SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended February 28, 1998 and 1997 and February 29, 1996
(in thousands)
<TABLE>
<CAPTION>
<S>                                                                               <C>           <C>          <C>   
                                                                                        1998         1997         1996
                                                                                    --------     --------     --------

Cash flows from operating activities:
    Net income (loss) ..........................................................   ($127,062)    $222,125     $144,485
    Adjustments to reconcile net income (loss) to net cash provided by operating
    activities:
       Depreciation and amortization ...........................................      65,281       49,704       32,739
       Provision for losses on accounts receivable .............................       5,668        9,140          435
       Loss (gain) on disposal of property, plant and equipment ................        (285)          87           93
       Purchased research and development from acquisitions ....................     325,000          ---       67,750
                                                                                                            
       Deferred income taxes ...................................................    (160,868)     (22,933)     (38,766)
       Changes in assets and liabilities:
           Accounts receivable .................................................     (31,847)     (74,925)     (55,795)
           Inventories .........................................................     (74,491)     (37,669)     (46,500)
           Prepaid expenses and other assets ...................................       1,213       (1,709)     (17,508)
           Accounts payable and accrued expenses ...............................      83,471       52,661       60,688
           Income taxes payable ................................................     (36,591)      (7,653)       3,705
                                                                                    --------     --------     --------
              Net cash provided by operating activities ........................      49,489      188,828      151,326
                                                                                    --------     --------     --------

Cash flows from investing activities:
       Capital expenditures ....................................................     (74,264)     (94,368)     (63,322)
       Cash portion of business acquisition ....................................    (129,107)         ---      (74,645)
                                                                                                          
       Purchase of available-for-sale securities ...............................    (118,919)    (203,667)    (124,968)
       Purchase of held-to-maturity securities .................................     (37,228)    (247,855)    (205,852)
       Sales/maturities of marketable securities ...............................     269,344      424,308      236,393
                                                                                    --------     --------     --------
              Net cash used in investing activities ............................     (90,174)    (121,582)    (232,394)
                                                                                    --------     --------     --------

Cash flows from financing activities:
       Repayment of notes receivable from stockholders .........................         ---          151          218
                                                                                                           
       Repurchase of common stock ..............................................         ---          ---       (1,173)
                                                                                               
       Tax benefit of options exercised ........................................      10,469        8,302        7,215
       Proceeds from sale of common stock ......................................         ---        8,577       41,774
                                                                                                          
       Common stock issued to employee stock purchase plan .....................       6,247        6,208        3,323
       Proceeds from exercise of stock options .................................      17,309       18,022       17,222
                                                                                    --------     --------     --------
              Net cash provided by financing activities ........................      34,025       41,260       68,579
                                                                                    --------     --------     --------

    Effect of exchange rate changes on cash ....................................      (1,090)         220          159
                                                                                    --------     --------     --------

    Net (decrease) increase in cash and cash equivalents .......................      (7,750)     108,726      (12,330)
    Cash and cash equivalents, beginning of year ...............................     214,828      106,102      118,433
                                                                                    --------     --------     --------
    Cash and cash equivalents, end of year .....................................    $207,078     $214,828     $106,103
                                                                                    ========     ========     ========

    Cash paid during the year for:
       Income taxes ............................................................    $ 57,941     $132,291     $142,733
                                                                                    ========     ========     ========
</TABLE>




<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note (1)    Business Operations

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

Note (2)    Summary of Significant Accounting Policies

(a)  Principles of Consolidation

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

(b)  Investments

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 of premiums and discounts,
which approximates market value. Available-for-sale securities are also recorded
at amortized cost,  adjusted for amortization of premiums and discounts.  Due to
the nature of the Company's  investments and the resulting low  volatility,  the
difference between fair value and amortized cost is not material.

(c)  Inventories

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

(d)  Property, Plant and Equipment

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

(e)  Income Taxes

The Company  accounts  for income  taxes under the asset and  liability  method.
Under this method,  deferred tax assets and  liabilities  are recognized for the
future tax  consequences  attributable  to  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective tax bases and operating loss and tax credit  carryforwards.  Deferred
tax assets and  liabilities  are measured  using  enacted tax rates  expected to
apply to taxable income in the years in which those  temporary  differences  are
expected  to be  recovered  or settled.  The effect on  deferred  tax assets and
liabilities  of a change in tax rates is recognized in income in the period that
includes the enactment date.

The Company has reinvested earnings of its foreign  subsidiaries and, therefore,
has not provided  income taxes which could  result from the  remittance  of such
earnings. The unremitted earnings at February 28, 1998 amounted to approximately
$152.2  million.  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 unrecognized deferred US taxes on these undistributed earnings.

(f) Net Income (Loss) Per Share

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



<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

                                                  1998        1997       1996
                                                  ----        ----       ----
Weighted average number of
     shares outstanding - basic                157,686     157,207    151,525

Incremental shares from the
     assumed exercise of stock options             ---       3,726      3,646
                                               --------    --------   --------

Weighted average number of
     shares outstanding - diluted              157,686     158,933    155,171
                                               ========    ========   ========


(g)  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  directly to a separate  component  of  stockholders'
equity. 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.

(h)  Statements of Cash Flows

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

(i)  Revenue Recognition

Sales are  recognized  upon  shipment of products and  software.  In the case of
design, consulting, installation, support services and evaluations, revenues are
recognized  upon  completion  and  acceptance  of such  products  and  services.
Revenues  from  service  contracts  are  recognized  ratably over the period the
services are  performed.  Warranty  costs and sales returns and  allowances  are
accrued at the time of shipment.

(j)  Derivatives

The Company utilizes derivative  financial  instruments to reduce financial
market risks.  These instruments are used to hedge foreign currency exposures of
underlying assets,  liabilities and other obligations.  The Company does not use
derivative  financial  instruments  for  speculative  or trading  purposes.  The
Company's  accounting  policies for these instruments are based on the Company's
designation  of such  instruments as hedging  transactions.  Gains and losses on
currency  forward  contracts  and options are  recognized in income as incurred.
Gains on option contracts are recognized in income when the contract matures, is
terminated or is sold.

(k) Reclassifications

Prior year financial  statements  have been  reclassified to conform to the 1998
presentation.

(l) 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>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(m)  New Accounting Pronouncements

In June 1997,  the Financial  Accounting  Standards  Board issued  Statement 130
(SFAS 130),  "Reporting  Comprehensive  Income," which establishes standards for
reporting and display of  comprehensive  income and its components in a full set
of general-purpose  financial statements.  Under this concept, certain revenues,
expenses,  gains and  losses  recognized  during  the  period  are  included  in
comprehensive income, regardless of whether they are considered to be results of
operations of the period.  SFAS 130, which becomes  effective for the Company in
its fiscal year ending  February  28,  1999,  is not expected to have a material
impact  on the  consolidated  financial  statements  of the  Company.  The  only
additional  item  to be  included  in  comprehensive  income  is  the  Company's
cumulative translation adjustment.

In June 1997,  the Financial  Accounting  Standards  Board issued  Statement 131
(SFAS  131),   "Disclosures   about   Segments  of  an  Enterprise  and  Related
Information,"  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.  This Statement,
becomes  effective for the Company in its fiscal year ending  February 28, 1999.
The  Company  is in the process of  determining  the impact of SFAS 131 on its
footnote disclosures.

In fiscal 1998, the Company adopted the American  Institute of Certified  Public
Accountants'  Statement of Position 98-1,  "Accounting for the Costs of Computer
Software  Developed or Obtained for Internal  Use" (SOP 98-1) which  establishes
guidelines for the accounting for the costs of all computer  software  developed
or obtained for internal use. Under SOP 98-1,  certain payroll and related costs
for Company  employees  working on the application of development stage projects
as defined in the SOP for internal use computer software must be capitalized and
amortized over the expected useful life of the software.  This is  substantially
consistent with the Company's previous treatment, and accordingly,  the adoption
of SOP  98-1  did  not  have a  material  impact  on the  Company's  results  of
operations in fiscal 1998.

Note (3)  Business Combinations

For  acquisitions  accounted  for under  the  pooling-of-interests  method,  all
financial  data of  Cabletron  has  been  restated  to  include  the  historical
financial data of these acquired  companies.  For acquisitions  accounted for as
purchases,  Cabletron'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  July  26,  1996,  the  Company  acquired  ZeitNet  Inc.,  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 $23.0 million.

On August 1, 1996, the Company acquired  Network Express,  Inc., 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 $20.0
million.

On December 11,  1996,  the Company  acquired  Netlink  Inc.,  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 $13.0 million.

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. Pro
forma  financial  information  is not  presented  as it is not  material  to the
consolidated financial statements.


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note (3)  Business Combinations (continued)

On February 7, 1997,  the Company  acquired The OASys  Group,  Inc., 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 February 7, 1998, the Company acquired certain assets of the Network Products
Group of Digital Equipment  Corporation.  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.  In connection with the
acquisition,  the Company  recorded  special  charges of $382.7 million  ($325.0
million  for  in-process   research  and   development  and  $57.7  million  for
integration costs). The Company's consolidated results of operations include the
operating  results of the  acquired  business  from its  acquisition  date.  The
following unaudited pro forma combined results of operations for fiscal 1998 and
fiscal 1997 have been prepared by combining the  operational  results of the two
separate  business  units for  these  entire  years.  Accordingly,  the  special
expenses  totaling  $382.7  million are not included in the results as these are
unusual and not indicative of normal operating results.  The following unaudited
pro forma  financial  information  is not  necessarily  indicative of results of
operations  that would have  occurred  had the  transaction  taken  place at the
beginning each fiscal year or of the future results of the combined companies.

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

Net Sales                              $1,859,715       $2,004,586
Operating income                          199,916          344,696


The purchase price has been allocated to assets acquired and liabilities assumed
based on fair market value at the date of  acquisition.  The  purchase  price is
summarized as follows:

Cash paid for acquisition                       $129,107
Product credits granted                          302,500
Discount on product credits                      (11,691)
Accrued acquisition costs                         19,581
                                                --------
     Purchase price                             $439,497
                                                ========




 The  following  are  supplemental   disclosures  of  noncash   transactions  in
connection with the DNPG acquisition.

Fair value of assets acquired                  $126,188
In-process research and development             325,000
Accrued acquisition costs                       (19,581)
Product credits                                (302,500)
                                               --------
     Cash portion of acquisition               $129,107
                                               ========













<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 Note (4)  Investments

Investments are summarized as follows at February 28, 1998 and 1997:

(in thousands)                    1998                          1997
                    ----------------------------  ----------------------------
                                  Long                          Long
                      Current     Term     Total   Current      Term     Total
                     -------- --------   -------  --------  --------  --------

Held-to-maturity    $ 57,506  $ 14,896  $ 72,402  $ 84,261  $115,209  $199,470
Available-for-sale    59,473   108,376   167,849    81,135    72,872   154,007
                    --------  --------  --------  --------  --------  --------
         Total      $116,979  $123,272  $240,251  $165,396  $188,081  $353,477
                    ========  ========  ========  ========  ========  ========


The contractual maturities for the above securities are less than three years.


Note (5)  Inventories

 Inventories consist of the following at February 28, 1998 and 1997:

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

Raw materials                          $105,099         $ 64,685
Work-in-process                          34,247           57,070
Finished goods                          170,321           75,683
                                       --------         --------
Total                                  $309,667         $197,438
                                       ========         ========



Note (6)  Property, Plant and Equipment

Property,  plant and equipment consist of the following at February 28, 1998 and
1997:
                                                            Estimated useful
(in thousands)                      1998          1997          lives
                                    ----          ----      ----------------
                                                                             
Land and land improvements      $  3,093       $ 1,751             15 years
Buildings and building 
   improvements                   61,699        38,015          30-40 years  
Construction in progress             236           305                  ---
Equipment                        357,216       284,621            3-5 years
Furniture and fixtures            18,261        11,711            5-7 years  
Leasehold improvements            15,030         9,448            3-5 years 
Motor vehicles                     4,751         4,690            3-5 years  
                                                    
                                --------       --------
                                 460,286        350,541
Less accumulated depreciation 
    and amortization             215,556        151,984
                                --------       --------
                                $244,730       $198,557
                                ========       ========






<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note (7) Intangible Assets

Intangible assets consist of the following at February 28, 1998 and 1997.

                                                           Estimated
(in thousands)                           1998       1997   Useful Lives
                                         ----       ----   ------------

Goodwill                              $ 6,060     $1,439   7 - 10 years
Assembled work force acquired 
  in business acquisition               6,500        ---   7 - 10 years
Patents and technologies acquired 
  in business acquisition              25,000        ---    3 - 5 years
                                      -------     ------
                                       37,560      1,439
Less accumulated amortization             693        205
                                      -------     ------
                                      $36,867     $1,234
                                      =======     ======


Note (8)  Accrued Expenses

Accrued expenses consist of the following at February 28, 1998 and 1997:

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

Salaries and benefits                    $ 25,152          $ 15,527
Deferred revenue                           74,414            50,041     
Warranty                                   18,669            19,315
Other                                     116,827            50,325        
                                         ---------         --------
      Total                              $235,062          $135,208
                                         ========          ========

Note (9) Long-Term Obligation

Long-term obligation consists of the following at February 28, 1998:

(in thousands)

Unused product credits                 $290,219
   less current portion                (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.  These
product  credits  may be used by Digital to purchase  products  that are ordered
under the Reseller Agreement.  First year product credits, of $170 million,  may
be used during the period  beginning on the closing date  (February 7, 1998) and
ending on the first  anniversary of the closing date (February 7, 1999). A total
of $12.3  million of the first year product  credits were used from closing date
of the  acquisition to the end of the fiscal year. The remaining  $157.7 million
must be used  before  February  7, 1999.  Any first  year  product  credits  not
expended in accordance with the preceding shall  automatically  expire and be of
no further force or effect.  Second year product credits of $132.5 million,  may
be used during the period beginning on the first anniversary of the closing date
(February  7, 1999) and ending on the second  anniversary  of the  closing  date
(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.





<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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  $14,568,000,
$12,179,000  and  $10,265,000 for the years ended February 28, 1998 and 1997 and
February 29, 1996, respectively.

Total future minimum lease payments under all noncancelable  operating leases as
of February 28, 1998, are as follows:

(in thousands)            Year

                          1999       $ 8,108
                          2000         5,163
                          2001         3,538
                          2002         2,720
                          2003         1,853
                   Thereafter          7,825
                                     -------
                                     $29,207
                                     =======



Note (11) Income Taxes

Income (loss) before income taxes is summarized as follows:

(in thousands)                                  1998        1997       1996
                                                ----        ----       ----

Total US domestic income (loss)            ($186,612)   $313,017   $173,515
Total foreign subsidiaries income (loss)     (33,891)     26,683     51,311   
                                            --------    --------   --------
Total income (loss) before income taxes    ($220,503)   $339,700   $224,826
                                            ========    ========   ========

Tax expense (benefit) is summarized as follows:

Currently payable:
     Federal                                $ 55,782    $117,546    $92,109
     State                                    10,689      21,962     20,807  
     Foreign                                     956       1,000     11,519 
Deferred tax benefit                        (160,868)    (22,933)   (44,094)
                                            --------    --------    -------
     Tax expense (benefit)                 ($ 93,441)   $117,575    $80,341
                                            ========    ========    =======

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

                                                1998        1997       1996
                                                ----        ----       ----

Statutory federal income tax rate              (35.0%)      35.0%      35.0%
State income tax, net of federal tax benefit    (3.7)        3.6        3.8
Exempt income of foreign sales corporation,
     net of tax                                 (1.2)       (0.7)      (1.1)
Research and experimentation credit             (1.9)       (0.7)       ---   
Foreign operations                               4.4        (2.7)      (1.6) 
Other                                           (5.0)        0.1       (0.4)
                                                -----       -----      -----
                                               (42.4%)      34.6%      35.7%
                                                =====       =====      =====


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note (11) Income Taxes (continued)

The tax effects of temporary  differences that give rise to significant portions
of deferred  tax assets and deferred  tax  liabilities  at February 28, 1998 and
1997 are presented below:

(in thousands)                                  1998        1997
                                                ----        ----
Deferred tax assets:
  Accounts receivable                        $  6,166    $ 4,996
  Inventories                                  37,415     33,859
  Property, plant and equipment                   200        ---   
  Other reserves and accruals                  34,382      24,149
  Acquired research and development           165,292      29,262
  Domestic net operating loss carryforwards    27,213      27,213
  Foreign net operating loss carryforwards     23,715       5,636
                                             --------    --------
     Total gross deferred tax assets          294,383     125,115
  Less valuation allowance                    (45,914)    (38,381)
                                             --------    --------
     Net deferred tax assets                  248,469      86,734
                                             --------    --------
Deferred tax liabilities:
  Property, plant and equipment               (12,057)    (11,103)
                                             --------    --------
     Total gross deferred liabilities         (12,057)    (11,103)
                                             --------    --------
         Net deferred tax assets             $236,412     $75,631
                                             ========    ========


At February  28,  1998,  the  Company  had  domestic  net  operating  loss (NOL)
carryforwards  for tax purposes of $63,775,000 and tax credit  carryforwards  of
$1,219,000  expiring  in fiscal 1999  through  fiscal  2010.  The NOL and credit
carryforwards  were  acquired  in the  acquisitions  of  ZeitNet  Inc.,  Network
Express, Inc., Netlink, Inc. and The OASys Group, Inc. Approximately $28,200,000
of the above  stated NOL amount is subject to a  382  limitation  due to a
prior ownership  change and it is management's  estimation that $24,800,000 will
expire unused.

The net change in the total valuation  allowance for the year ended February 28,
1998 was an increase of $7,533,000.  The net change in total valuation allowance
for the year ended February 28, 1997 was an increase of $4,619,000. 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, 1998.

Note (12) Financial Instruments and Concentration of Credit Risk

The Company uses derivative financial instruments,  principally forward exchange
contracts and options,  in its management of foreign currency  exposures arising
from its international operations. These contracts primarily require the Company
to purchase or sell certain foreign  currencies either with or for US dollars at
contractual rates. The Company's foreign currency hedging activities are used to
minimize  adverse  foreign  exchange  movements on the eventual  dollar net cash
inflows of its  foreign  denominated  net assets.  The Company  does not hold or
issue derivative financial instruments for trading purposes.

At February 28, 1998 and 1997,  the Company had forward  exchange  contracts and
purchased option  contracts,  all having  maturities less than two years, in the
contractual  amount of $43  million  (forward  contracts  $14 million and option
contracts $29 million) and $69 million (forward contracts $31 million and option
contracts $38 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, 1998 and 1997.  

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note (12) Financial Instruments and Concentration of Credit Risk (continued)

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 which are carried at the lower of cost or net realizable value.

For the year ended February 28, 1998, no single customer  represented  more
than 4% of net sales.  However,  sales to the federal  government  accounted for
approximately  13% of net sales for the year ended February 28, 1998. For fiscal
1997 and fiscal 1996 no single customer  represented  more than 3% and 4% net of
sales,respectively.  Net sales to the  federal  government  in  fiscal  1997 and
fiscal 1996 accounted for approximately 12% and 15% net of sales, respectively.

Note (13)  Legal Proceedings

Since October 24, 1997,  nine  stockholder  class action lawsuits have been
filed against  Cabletron and certain  officers and directors of Cabletron in the
United States  District Court for the District of New Hampshire.  The complaints
allege that  Cabletron  and several of its officers and  directors  disseminated
materially false and misleading  information  about  Cabletron's  operations and
acted in violation of the Exchange Act during the period  between  March 3, 1997
and December 2, 1997. The complaints do not specify the amount of damages sought
on behalf of the class.  On March 3, 1998, the United States  District Court for
the District of New Hampshire  granted the motion to consolidate  the nine class
action  complaints  against  Cabletron and its officers and  directors  into one
class action.  Currently the Company does not have any estimate of the amount of
damages or legal costs or damages (if any) that could be incurred in  connection
with this case.
Note (14)  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, 1998,  the Company had issued
23,363,254  stock options under the Equity Incentive Plan, which were granted at
fair  market  value at the date of grant,  vest over a three to five year period
and expire within six to ten years from the date of grant.

The Company has a Directors  Option Plan which provides for the  availability of
1,250,000  shares of common stock for purchase by  nonemployee  directors of the
Company.  The  Directors  Option Plan  provides for issuance of options at their
fair market value on the date of grant.  The options vest over a period of three
years and  expire six years  from the date of grant.  A total of  376,000  stock
options are outstanding under the Directors Option Plan at February 28, 1998.








<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note (14)  Stock Plans (continued)

A summary of option transactions under the two plans follows:

                                                         Weighted-Average
                                               Shares    Exercise Price
                                          ----------     ----------------
Options outstanding at February 28, 1995   7,857,226         $15.71
                                          -----------
Granted and assumed                        3,898,312          25.61
Exercised                                 (1,453,402)         11.13
Cancelled                                  (464,210)          21.97
                                          -----------
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
                                          -----------
Granted and assumed                        5,015,000          23.11
Exercised                                 (1,751,391)         10.40
Cancelled                                 (1,979,936)         29.45
                                          -----------
Options outstanding at February 28, 1998  14,879,091         $25.45
                                          ===========
Options exercisable at February 28, 1998   4,134,623         $22.99
                                          ===========


The following table summarizes  information concerning currently outstanding and
exercisable options as of February 28, 1998:

                                    Weighted-
                                      average   Weighted-             Weighted-
                                    remaining     average               average
     Range of       Options         contractual  exercise     Options  exercise
  exercise prices   Outstanding      life(years)    price exercisable    price
  ---------------   -----------    ------------- -------- ----------- ---------
     $0.00 - 6.30        282,555        4.5        $ 2.32     230,563    $ 2.50
     6.30 - 12.61        582,424        3.8          9.52     580,754      9.51
   12.601 - 18.91      1,827,992        9.6         14.71      30,886     17.97
    18.91 - 25.22      2,473,212        5.6         22.51   1,539,323     22.40
    25.22 - 31.52      8,703,164        8.2         29.09   1,616,135     30.58
    31.52 - 37.82        577,660        8.9         32.99      35,590     34.04
    37.82 - 44.13        406,320        8.1         40.43      91,240     40.40
    44.13 - 50.43         25,764        7.8         45.93      10,132     46.06
                      ----------        ---        ------   ---------    ------
                      14,879,091        7.7        $25.45   4,134,623    $22.99
                      ==========        ===        ======   =========    ======







<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note (14)  Stock Plans (continued)

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:

(in thousands)                        1998          1997          1996
                                      ----          ----          ----

Net income (loss)   As reported  ($127,062)      222,125      $144,485
                      Pro forma  ($152,684)      207,109      $121,302

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 fiscal 1998, 1997 and 1996:

                                    1998             1997              1996
                                    ----             ----              ----

Risk-free interest rates            6.13%            6.18%             6.18%
Expected option lives               3.8 years        3.7 years         3.7 years
Expected volatility                 60.37%           63.97%            63.97%
Expected dividend yields            6.06%            6.42%             6.42%

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. At February 28, 1998,
the Company had not received  sufficient  responses  from the option  holders to
reasonably estimate the number of options that will be canceled and repriced.

(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 $4,068  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 fiscal 1998, 231,326 shares were purchased
at a weighted  average price of $27.00 (197,262 at $31.47 and 153,768 at $21.43,
for fiscal 1997 and fiscal 1996,  respectively).  The remaining  balance of both
ESPPs for purchase by employees at February 28, 1998 was 3,381,743 shares.

Note (15) 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 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 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.  The Company has  completed  most of these
reductions.  Accrued  liabilities  at February  28, 1998  includes  $4.8 million
relating to  severence  costs  associated  with 350  eliminated  positions.  The
expense  reductions  associated  with  the  realignment  are  intended  to yield
approximately  $40 million in total  annualized  savings,  beginning  the fourth
quarter of fiscal 1998.


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note (16) Geographic Area Information
(in thousands)
<TABLE>
<CAPTION>
<S>                               <C>             <C>     <C>             <C>     <C>           <C>
                                                    % of                    % of                  % of
                                         1998      Total         1997      Total        1996     Total
                                         ----      -----         ----      -----        ----     -----
Net Sales:
US ..............................  $  923,251       67.0%  $  998,384      71.0%   $  771,179      70.1%
Direct Foreign Export ...........      59,793        4.3       38,457       2.7        35,378       3.2
                                   ----------      -----   ----------     -----    ----------     -----
Total US Source .................     983,044       71.4    1,036,841      73.7       806,557      73.3
Europe ..........................     281,224       20.4      273,972      19.5       215,796      19.6
Other (1) .......................     113,062        8.2       95,739       6.8        77,996       7.1
                                   ----------      -----   ----------      -----   ----------     -----
     Total Sales ................  $1,377,330      100.0%  $1,406,552     100.0%   $1,100,349     100.0%
                                   ==========      =====   ===========    =====    ==========     =====

Income (loss) from Operations:
US ..............................   ($207,433)      86.8%    $282,480      88.2%     $169,103      81.7%
Europe ..........................      (5,026)       2.1       29,877       9.3        33,834      16.4
Other (1) .......................     (26,622)      11.1        7,921       2.5         3,998       1.9
                                    ---------       -----    --------     ------     --------      -----
     Total Income (loss) from
        Operations ..............   ($239,081)     100.0%    $320,278     100.0%     $206,935     100.0%
                                     ========      =====     ========     =====      ========     =====

Identifiable Assets:
US ..............................  $1,335,314       83.0%  $1,122,762      85.9%     $841,979      84.4%
Europe ..........................     174,829       11.0      119,527       9.2       115,949      11.7
Other(1) ........................      96,184        6.0       64,566       4.9        38,980       3.9
                                   ----------      -----   ----------     -----      --------     -----
     Total Assets ...............  $1,606,327      100.0%  $1,306,855     100.0%     $996,908     100.0%
                                   ==========      =====   ==========     =====      ========     =====

(1) Includes Australia, Latin America and the Pacific Rim countries.

</TABLE>


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note (17) Quarterly Financial Data (unaudited)

(in thousands, except per share amounts)
<TABLE>
<CAPTION>
<S>               <C>             <C>         <C>          <C>                  <C>  
                                                 Income
                                                 (Loss)                                                        
                          Net        Gross         from           Net    Income (Loss)
                        Sales       Profit   Operations  Income (Loss)       Per Share    (a)
1998                                                                                                                             
First Quarter .....$  362,688     $209,127     $ 84,596      $ 58,825            $0.37
Second Quarter ....   371,293      212,261       82,434        57,587             0.36
Third Quarter .....   331,827      167,574       25,500        19,898             0.12
Fourth Quarter ....   311,522      142,578     (431,611)     (263,372) (b)       (1.66)
                   ----------     --------     --------     ---------            -----
Total Year ........$1,377,330     $731,540    ($239,081)    ($127,062)          ($0.81)
                   ==========     ========     ========     =========            =====

1997                                                                                                                             
First Quarter .....$  323,499     $190,645     $ 85,672      $ 57,139            $0.37
Second Quarter ....   340,940      202,085       50,141        36,908 (c)         0.24
Third Quarter .....   361,558      213,959       99,029        67,742             0.44
Fourth Quarter ....   380,555      224,756       85,436        60,336 (d)         0.39
                   ----------     --------     --------      --------            -----
Total Year ........$1,406,552     $831,445     $320,278      $222,125            $1.42
                   ==========     ========     ========      ========            =====
</TABLE>

(a) Due to rounding some totals will not add.
(b) Includes  $417.7 million  special  charge  related to the  acquisition of
Digitial's  Network  Products  Group and the  strategic  alignment  plan,
$382.7 million and $35.0 million, respectively.
(c) Includes $43.0 million special charge related to the acquisitions of ZeitNet
and Network  Express.  (d) Includes $20.0 million  special charge related to the
acquisitions of Netlink and OASys.
(d) Includes $20.0 million special charge related to the acquisitions of Netlink
and OASys.

Note (18) Subsequent Event

On March  17,  1998  the  Company  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,  the Company issued 6.1
million shares of Cabletron  common stock to the former  shareholders of Yago in
exchange  for all of the  outstanding  shares of stock of Yago not then owned by
the Company.  In addition,  the Company assumed stock options for  approximately
2.1  million  shares  of  its  common  stock.  Prior  to  the  closing  of  the
acquisition,  Cabletron held approximately twenty-five percent of Yago's capital
stock. The Company 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>


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, 1998 and 1997, 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,  1998.  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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  February 28, 1998,  in  conformity  with  generally  accepted  accounting
principles.



                                    KPMG Peat Marwick LLP




Boston, Massachusetts
March 23, 1998






















<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  1998  Annual  Meeting  of  Stockholders  ("Proxy   Statement"),   which  is
incorporated herein by reference. Information relating to the executive officers
of the Company is included in Item 4a,  "Executive  Officers of the Registrant,"
appearing in Part I hereof.  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 1998  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 1998
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 1998  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:

 1.      Consolidated financial statements (see item 8)

         The consolidated financial statements of Cabletron Systems, Inc. 
         can be found in this document on the following pages:

                                                                      page(s)

         Independent Auditors' Report                                    38

         Consolidated Balance Sheets at February 28, 1998 
          and February 28, 1997                                          21

         Consolidated Statements of Operations for fiscal years 
          1998, 1997 and 1996                                            22
         Consolidated Statements of Stockholders' Equity for
          fiscal years 1998, 1997 and 1996                               23

         Consolidated Statements of Cash Flows for fiscal years 
         1998, 1997 and 1996                                             24
         Notes to Consolidated Financial Statements                      25-37


 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                                   38

          Schedule II - Valuation and Qualifying Accounts                44

         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.

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
        For 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.
10.10   Lease  dated July 3, 1992  between the  Registrant  and Shannon
        Free Airport  Development  Company Limited,  relating to leased
        premises  in  Limerick,   Ireland,  which  is  incorporated  by
        reference  to  Exhibit  10.12  of  the  Company's  Registration
        Statement on the First Form S-3.
10.11   Lease 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).
10.12   Credit 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). 
10.13   Asset  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).
10.14   Reseller  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).  10.15 Employment  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). 
10.16   First 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).
10.17   Amendment 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).
10.18   Letter agreement  between the Registrant and Donald B. Reed dated
        as of March 30, 1998. 11.1 Statement regarding computation of per share
        earnings.
22.1    Subsidiaries of Cabletron Systems, Inc.
23.1    Consent of Independent Auditors.
27      Financial Data Schedule
<PAGE>

(b) The Registrant  filed on form 8-K during the last quarter of the fiscal year
ended February 28, 1998, as follows:

     The Company filed this report on form 8-K to disclose  certain  information
related  to its  acquisition  of  Network  Products  Business  Unit  of  Digital
Equipment Corporation.








<PAGE>




                          INDEPENDENT AUDITORS' REPORT



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

Under date of March 23, 1998, we reported on the consolidated  balance sheets of
Cabletron  Systems,  Inc. and subsidiaries as of February 28, 1998 and 1997, 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, 1998. In
connection  with  our  audits  of  the  aforementioned   consolidated  financial
statements,  we also have audited the related  consolidated  financial statement
schedule as listed in item 14(a)2 of this Form 10-K. This consolidated financial
statement  schedule  is the  responsibility  of the  Company's  management.  Our
responsibility is to express an opinion on this consolidated financial statement
schedule based on our audits.

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





                                         KPMG Peat Marwick LLP


Boston, Massachusetts
March 23, 1998





<PAGE>



                                   SCHEDULE II

                             CABLETRON SYSTEMS, INC.

                        VALUATION AND QUALIFYING ACCOUNTS

        For Years Ended February 28, 1998 and 1997 and February 29, 1996

                                 (in thousands)

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

Allowance for
doubtful accounts

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

February 28, 1997         $6,655      $10,698             ($1)       ($1,876)     $15,476

February 29, 1996         $6,190       $2,725              $1        ($2,261)      $6,655
</TABLE>






<PAGE>


Signatures

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

                                       CABLETRON SYSTEMS, Inc.




Date:      May 28, 1998                 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.

Signature                     Titles                                   Date


/s/ Craig R. Benson           Chairman, President,                 May 28, 1998
------------------------       Chief Executive Officer,            ------------
Craig R. Benson                Treasurer and Director         

/s/ David J. Kirkpatrick      Corporate Executive Vice President   May 28, 1998 
------------------------       of Finance and Chief Financial      ------------
David J. Kirkpatrick           Officer

/s/ Michael D. Myerow         Secretary and Director               May 28, 1998
------------------------                                           ------------
Michael D. Myerow

/s/ Paul R. Duncan            Director                             May 28, 1998
------------------------                                          ------------
Paul R. Duncan

/s/ Donald F. McGuinness      Director                             May 28, 1998
------------------------                                           ------------
Donald F. McGuinness

/s/ Donald B. Reed            Director                             May 28, 1998
------------------------                                           ------------
Donald B. Reed
















<PAGE>


                                  EXHIBIT INDEX


Exhibit No.   Exhibit
                                                                    Page No.

10.18         Letter agreement between Registrant and Donald B.
              Reed dated march 30, 1998                                 55

11.1          Statement regarding computation of per share 
              income (loss)                                             47

22.1          Subsidiaries of Cabletron Systems, Inc.                   48

23.1          Consent of Independent Auditors                           49

27            Financial Data Schedule                                   54






<PAGE>

<TABLE>
<CAPTION>


                                                  EXHIBIT 11.1

                                             CABLETRON SYSTEMS, INC.

                              STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)

                        For Years Ended February 28, 1998 and 1997 and February 29, 1996
<S>                                                 <C>              <C>              <C>   

                                                         1998             1997             1996
                                                      -------          -------          -------
(in thousands, except per share data)

Net Income (Loss) Per Common Share - (basic)

Net income (loss)                                    ($127,062)       $222,125         $144,485
                                                      ========        ========         ========

Weighted average number of  common shares
     outstanding                                        157,686        155,207          151,525
                                                      =========       ========         ========

Net income (loss) per common share                   ($    0.81)      $   1.43         $   0.95
                                                      =========       ========         ========


Net Income (Loss) Per Common Share - (diluted)

Net income (loss)                                     ($127,062)      $222,125         $144,485
                                                       ========       ========         ========

Weighted average number of  common shares
     outstanding                                        157,686        155,207          151,525

Add net additional common shares upon exercise of
     common stock options                                   ---          3,726            3,646
                                                        -------       --------         --------

Adjusted average common shares outstanding              157,686        158,933          155,171
                                                       ========        =======         ========

Net income (loss) per common share                    ($   0.81)       $  1.40         $   0.93
                                                       ========        =======         ========
</TABLE>





<PAGE>


                                  EXHIBIT 22.1

                     SUBSIDIARIES OF CABLETRON SYSTEMS, INC.

             Cabletron Systems de Argentina S.A. (Argentina)
             Cabletron Systems Pty. Limited (Australia)
             Ctron Acquisition, Inc. dba Digital Network Products Group,
                    A Cabletron Systems, Inc. Company (Delaware)
             Cabletron Systems do Brasil Representacoes Ltda. (Brazil)
             Cabletron Systems of Canada Limited (Canada)
             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)
             Netlink, Inc. (Delaware)
             Netlink, Ltd (UK)
             Network Express, Inc. (Michigan)
             Network Express GmbH (Germany)
             Network Express K.K. (Japan)
             Network Express Europe Limited (UK)
             The OASys Group, Inc. (California)
             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
             Fivemere Developments Limited
             ZeitNet Inc. (California), a Cabletron Systems, Inc Company
             ZeitNet India Private Limited (India)
             Twister Acquisitions, Inc.
             Yago Systems, Inc.
<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 23, 1998,  relating to the  consolidated  balance  sheets of
Cabletron  Systems,  Inc. and subsidiaries as of February 28, 1998 and 1997, 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, 1998,  which  reports are included in the February 28, 1998
Annual Report to Stockholders on Form 10-K of Cabletron Systems, Inc.






                                       KPMG Peat Marwick LLP




Boston, Massachusetts
May 29, 1998

































<PAGE>
DIRECTORS AND OFFICERS

Board of Directors                                            Officers

Craig R. Benson                         Craig R. Benson
Chairman of the Board, President,       Chairman of the Board, President,
Chief Executive Officer and Treasurer   Chief Executive Officer and Treasurer
Cabletron Systems, Inc.
                                        John d'Auguste
Michael D. Myerow                       President of Operations
Partner in law firm of Myerow & Poirier
                                        Christopher J. Oliver
Paul R. Duncan                          Executive Vice President Worldwide 
Executive Vice President                Engineering and Chief Technology Officer
Reebok International, Ltd
                                        David J. Kirkpatrick
Donald F. McGuinness                    Corporate Executive Vice President of 
Chairman of the Board,                  Finance and Chief Financial Officer
Electronic Designs, Inc.
                                        Allen L. Finch
Donald B. Reed                          Senior Vice President, Marketing and
Consultant                              Corporate Strategy

                                        Guilio M. Gianturco
                                        President, Digital Network Products 
                                        Group and Channels

                                        Linda H. Pepin
                                        Senior Vice President, Human Resources
                                        
                                        Michael D. Myerow
                                        Secretary

STOCKHOLDER INFORMATION


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 Thursday,    the Transfer Agent and Registrar of the
July 9, 1998 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                    Boston EquiServe
informationof Cabletron Systems, Inc.              P.O. Box 8040
should be addressed to:                            Boston, MA 02266-8040
   Cabletron Systems, Inc.
   Investor Relations                     Independent Auditors
   PO Box  5005                           KPMG Peat Marwick 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.

<PAGE>
WORLDWIDE LOCATIONS


Corporate Headquarters

Cabletron Systems, Inc.
Rochester, NH
Phone: (603) 332-9400

North America

ALABAMA
Birmingham
Phone: (205) 733-1772

ALASKA
Anchorage
Phone: (907) 563-5679

ARIZONA
Phoenix
Phone: (602) 953-8500

CALIFORNIA
Los Angeles
Phone: (310) 966-1918

Irvine
Phone: (714) 852-4126

Los Gatos
Phone: (408) 872-0203

Sacramento
Phone: (916) 449-9622

San Diego
Phone: (619) 497-2546

San Jose
Phone: (408) 383-1550

Santa Clara
Phone: (408) 986-9100

COLORADO
Denver
Phone: (303) 331-0990

CONNECTICUT
Hartford
Phone: (860) 947-7684

FLORIDA
Ft. Lauderdale
Phone: (954) 928-0028

Tallahassee
Phone: (904) 309-0212

Tampa
Phone: (813) 282-1227

GEORGIA
Atlanta
Phone: (770) 395-9909


HAWAII
Honolulu
Phone: (808) 532-9830

IDAHO
Post Falls
Phone: (208) 773-1711

ILLINOIS
Chicago
Phone: (773) 399-6000

INDIANA
Indianapolis
Phone: (317) 587-1600

KANSAS
Overland Park
Phone: (913) 327-1207

LOUISIANA
New Orleans
Phone: (504) 836-5526

MARYLAND
Baltimore
Phone: (410) 385-5224

MICHIGAN
Ann Arbor
Phone: (313) 761-5005

MINNESOTA
Minnetonka
Phone: (612) 449-5214

MISSOURI
St. Louis
Phone:( 314) 542-3142

NEBRASKA
Omaha
Phone: (402) 496-9390

NEVADA
Las Vegas
Phone: (702) 892-3775

NEW YORK
New York
Phone: (212) 643-9560

Albany
Phone: (518) 432-1798

Pittsford
Phone: (16) 249-4604

NORTH CAROLINA
Durham
Phone: (919) 484-8381

Charlotte
Phone: (704) 329-0003

Greensboro
Phone: (910) 299-2928

OHIO
Cincinnati
Phone: (513) 762-7646

Cleveland
Phone: (216) 573-3709

Columbus
Phone: (614) 785-6416

Dayton
Phone: (937) 438-9709

OKLAHOMA
Tulsa
Phone: (918) 492-2895

OREGON
Lake Oswego
Phone: (503) 968-6919

PENNSYLVANIA
Erie
Phone: (814) 454-5755

Philadelphia
Phone: (215) 239-2200

Pittsburgh
Phone: (412) 928-4999

RHODE ISLAND
Lincoln
Phone: (401) 334-1600

SOUTH CAROLINA
Columbia
Phone: (803) 788-0120

TENNESSEE
Nashville
Phone: (615) 859-7797

TEXAS
Austin
Phone: (512) 794-9166

Dallas
Phone: (972) 661-1049

Houston
Phone: (713) 871-3134

San Antonio
Phone: (210) 344-7241

UTAH
Salt Lake City
Phone: (801) 350-9480

WORLDWIDE LOCATIONS CONTINUED


VIRGINIA
Herndon
Phone: (703) 736-9100

Richmond
Phone: (804) 323-0291

WASHINGTON
Bellevue
Phone: (206) 637-2977

WISCONSIN
Milwaukee
Phone: (414) 221-0475

Madison
Phone: (608) 273-9192

PUERTO RICO
Guaynabo
Phone: (787) 273-6770

Canada

CALGARY
Calgary
Phone: (403) 231-2802

VANCOUVER
Vancouver
Phone: (604) 688-2550

OTTAWA
Ottawa
Phone: (613) 782-2320

TORONTO
Mississauga
Phone: (905) 673-8807

MONTREAL
Montreal
Phone: (514) 395-4949

EUROPE

BELGIUM
Brussells
Phone: 011-32-2467-3050

CZECH REPUBLIC
Praha
Phone: 011-42-2-2423-8123

ENGLAND
Berkshire
Phone: 011-44-1635-580000

London
Phone: 011-44-171-312-0210






Cheshire
Phone: 011-44-1928-579013

FRANCE
Paris
Phone: 011-33-148-947072

GERMANY
Berlin
Phone: 011-49-30-399-79598

Dusseldorf
Phone: 011-49-211-965-680

Frankfurt
Phone: 011-49-610-39910

Heidelberg
Phone: 011-46-6221-163544

Munich
Phone: 011-46-89-3177450

HUNGARY
Budapest
Phone: 011-36-1226-1803

ITALY
Assago
Phone: 011-39-2-892-2021

NETHERLANDS
Woerden
Phone: 011-31-348-486777

POLAND
Warsaw
Phone: 011-48-22644-0618

RUSSIA
Moscow
Phone: 011-7501-258-7673

SCOTLAND
Sterling
Phone: 011-44-1786-449-264

SPAIN
Madrid
Phone: 011-34-1326-4320

SWEDEN
Taby
Phone: 011-46-8792-6040

SWITZERLAND
Zurich
Phone: 011-41-1308-3610

TURKEY
Istanbul
Phone: 011-90-212-213-1690




Latin America

ARGENTINA
Buenos Aires
Phone: 011-54-13-42777

BRASIL
Sao Paulo
Phone: 011-55-11-5506-2888

Rio de Janeiro
Phone: 011-55-21-532-1504

Curitiba
Phone: 011-55-41-232-7154

Centro Empresarial
Phone: 011-55-61-314-1371

CHILE
Santiago
Phone: 011-56-2203-3733

COLUMBIA
Santa fe de Bogata
Phone: 011-571-623-7272

MEXICO
Mexico City
Phone: 011-525-490-3400

Monterrey
Phone: 011-528-335-9230

VENEZUELA
Caracas
Phone: 011-582-793-8385

Pacific Rim

AUSTRALIA
Melbourne
Phone: 011-61-3526-3639

Milton
Phone: 011-61-7367-1750

Turner
Phone: 011-61-6-257-2422

Sydney
Phone: 011-61-29950-5900

CHINA
Beijing
Phone: 011-86-10-6849-2748

Shanghai
Phone: 011-86-21-6248-1120




WORLDWIDE LOCATIONS CONTINUED


HONG KONG
Wanchai
Phone: 011-852-539-6882

INDIA
Bangalore
Phone: 011-91-80-2273130

Bombay
Phone: 011-91-22-835-2124

New Delhi
Phone: 011-91-11-462-1586

JAPAN
Tokyo
Phone: 011-81-3-3240-1981

KOREA
Seoul
Phone: 011-822-649-0700

MALAYSIA
Penang
Phone: 011-604-657-4937

Selangor
Phone: 011-60-3754-4388

NEW ZEALAND
Auckland
Phone: 011-649-273-5060

Wellington
Phone: 011-644-384-5186

SINGAPORE
The Cavendish
Phone: 011-65-775-5355

TAIWAN
Taipei Hsien
Phone: 011-886-2-648-7641

THAILAND
Bangkok
Phone: 011-662-661-9238

Middle East

SAUDI ARABIA
Phone: 011-9661-462-0101

Africa

SOUTH AFRICA
Johannesburg
Phone: 011-27-11-706-8480