<PAGE>

                                 UNITED STATES
 
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                   FORM 10-Q


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



                For the quarterly period ended January 31, 1999



                         Commission file number 1-13316
                                        
                                        

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



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


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

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


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 
                                             ---         ---
   
The number of Common Shares of the registrant outstanding as at March 10, 1999
was 179,051,436.


                       (Exhibit index located on page 29)

                                
                                (Page 1 of 32)
<PAGE>
 
                         NEWBRIDGE NETWORKS CORPORATION


                               TABLE OF CONTENTS

<TABLE> 
<CAPTION> 

                                                                                   Page No.
                                                                                   --------

PART I.  FINANCIAL INFORMATION
<S>         <C>                                                                   <C> 
  Item 1.   Financial Statements
 
              Consolidated Statements of Earnings and Retained
              Earnings -- Fiscal quarters and three fiscal quarters
              ended January 31, 1999 and February 1, 1998...........................    3

              Consolidated Balance Sheets --
              January 31, 1999 and April 30, 1998...................................    4

              Consolidated Statements of Cash Flows --
              Three fiscal quarters ended January 31, 1999
              and February 1, 1998..................................................    5

              Notes to the Consolidated Financial Statements........................ 6-14

  Item 2.   Management's Discussion and Analysis of Financial
              Condition and Results of Operations...................................15-26


PART II. OTHER INFORMATION

  Item 1.   Legal Proceedings.......................................................  27

  Item 5.   Other Information.......................................................  27

  Item 6.   Exhibits and Reports on Form 8-K........................................  27


SIGNATURES..........................................................................  28
</TABLE> 

                                (Page 2 of 32)

<PAGE>
 
                       PART I.     FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS


                         NEWBRIDGE NETWORKS CORPORATION

           CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS

         (Canadian dollars, amounts in thousands except per share data)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                  Fiscal quarters ended      Three fiscal quarters ended
                                                --------------------------  -----------------------------
                                                January 31,   February 1,    January 31,     February 1,
                                                    1999          1998           1999           1998
                                                ------------  ------------  --------------  -------------
<S>                                             <C>           <C>           <C>             <C>
Sales                                              $450,753      $358,520      $1,333,590     $1,225,427
 
Cost of sales                                       187,962       144,813         553,848        465,344
                                                   --------     ---------      ----------     ----------
 
Gross margin                                        262,791       213,707         779,742        760,083
 
Expenses
  Selling, general and administrative               129,630       120,082         393,500        367,341
  Research and development                           65,191        66,308         195,888        192,160
  Layer 2 switching end of life (Note 7)                 --            --          37,928             --
  Asia Pacific resources relocation (Note 8)             --            --           6,532             --
  Restructuring costs (Note 9)                           --       181,444              --        181,444
  Amortization of purchased research and
     development in process (Note 10)                    --        26,381              --         26,381
                                                   --------     ---------      ----------     ----------
 
Income (loss) from operations                        67,970      (180,508)        145,894         (7,243)
 
Interest income                                      10,472         2,067          23,844          7,881
Interest expense on long term obligations            (7,633)         (625)        (21,111)        (1,116)
Net gain on investments (Note 11)                   116,182        47,960         183,034         47,960
Other expenses                                       (3,702)       (1,958)        (10,142)        (7,100)
                                                   --------     ---------      ----------     ----------
 
Earnings (loss) before income taxes
  and non-controlling interest                      183,289      (133,064)        321,519         40,382
 
Provision for income taxes                           62,019         9,457         112,841         60,815
 
Non-controlling interest                              1,151         1,762            (275)         1,503
                                                   --------     ---------      ----------     ----------
 
Net earnings (loss)                                 120,119      (144,283)        208,953        (21,936)
 
Retained earnings, beginning of the period          838,664       890,495         749,830        768,148
                                                   --------     ---------      ----------     ----------
 
Retained earnings, end of the period               $958,783      $746,212      $  958,783     $  746,212
                                                   ========     =========      ==========     ==========
 
Earnings (loss) per share (Note 12)
  Basic                                            $   0.68      $  (0.82)     $     1.18     $    (0.13)
  Fully diluted                                    $   0.64      $  (0.82)     $     1.16     $    (0.13)
 
Weighted average number of shares
  Basic                                             177,596       175,376         176,814        174,338
  Fully diluted                                     199,951       175,376         198,028        174,338
</TABLE>
        See accompanying Notes to the Consolidated Financial Statements.

                                (Page 3 of 32)

<PAGE>
 
                         NEWBRIDGE NETWORKS CORPORATION

                          CONSOLIDATED BALANCE SHEETS

                        (Canadian dollars in thousands)
<TABLE>
<CAPTION>
                                                             January 31,   April 30,
                                                                 1999         1998
                                                             ------------  ----------
                                                             (unaudited)
<S>                                                          <C>           <C>
ASSETS
 
Cash and cash equivalents (Note 2)                            $  929,005   $  499,278
Accounts receivable, net of provision for returns and
  doubtful accounts of $15,236 (April 30, 1998 - $13,067)        436,230      428,527
Inventories (Note 3)                                             192,890      196,285
Prepaid expenses and other current assets                         84,629       77,600
                                                              ----------   ----------
                                                               1,642,754    1,201,690
 
Property, plant and equipment                                    491,218      450,735
Goodwill (Note 4)                                                 42,190       72,719
Software development costs                                        34,009       28,299
Future tax benefits                                               63,427       50,443
Other assets (Note 5)                                            210,169      162,939
                                                              ----------   ----------
                                                              $2,483,767   $1,966,825
                                                              ==========   ==========
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities
  Accounts payable                                            $  149,749   $  127,040
  Accrued liabilities                                            195,084      118,771
  Income taxes                                                    43,488        5,851
  Current portion of long term obligations                         2,682        4,136
                                                              ----------   ----------
                                                                 391,003      255,798
 
Long term obligations                                            409,060      383,311
Future tax obligations                                           120,473       71,197
Non-controlling interest                                          20,042       22,899
                                                              ----------   ----------
 
                                                                 940,578      733,205
                                                              ----------   ----------
 
Common shares - 178,579,303 outstanding
  (April 30, 1998 - 175,686,083 outstanding)                     528,548      456,510
Accumulated foreign currency translation adjustment               55,858       27,280
Retained earnings                                                958,783      749,830
                                                              ----------   ----------
                                                               1,543,189    1,233,620
                                                              ----------   ----------
                                                              $2,483,767   $1,966,825
                                                              ==========   ==========
</TABLE>

        See accompanying Notes to the Consolidated Financial Statements.

                                (Page 4 of 32)

<PAGE>
 
                         NEWBRIDGE NETWORKS CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                        (Canadian dollars in thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                              Three fiscal quarters ended
                                                             -----------------------------
                                                              January 31,     February 1,
                                                                  1999           1998
                                                             --------------  -------------
<S>                                                          <C>             <C>
OPERATING ACTIVITIES
 
Net earnings (loss)                                              $ 208,953      $ (21,936)
                                                            
Items not affecting cash                                    
  Amortization                                                     134,177         91,746
  Future tax benefits and obligations                               39,801         35,817
  Non-controlling interest                                            (254)          (516)
  Layer 2 switching end of life                                     37,928             --
  Asia Pacific resources relocation                                  6,532             --
  Restructuring costs                                                   --        181,444
  Amortization of purchased research
   and development in process                                           --         26,381
  Net gain on investments                                         (185,840)       (47,960)
  Other                                                                413            189
 
Cash effect of changes in:
  Accounts receivable                                              (46,421)        (8,607)
  Inventories                                                      (13,229)       (97,552)
  Prepaid expenses and other current assets                        (27,200)       (16,559)
  Accounts payable and accrued liabilities                          18,960        (25,332)
  Income taxes                                                      41,973        (51,093)
                                                                 ---------      ---------
                                                                   215,793         66,022
                                                                 ---------      ---------
INVESTING ACTIVITIES                                        
 
Additions to property, plant and equipment                        (165,772)      (205,134)
Proceeds from sale of investments                                  434,612         66,672
Acquisition of subsidiaries,                                
  excluding cash acquired                                               --        (58,936)
Capitalized software development costs                             (15,614)       (11,505)
Additions to other assets                                         (127,975)       (93,791)
                                                                 ---------      ---------
                                                                   125,251       (302,694)
                                                                 ---------      ---------
FINANCING ACTIVITIES
 
Issue of common shares                                              69,625         83,787
Increase in long term obligations                                   43,149         54,445
Repayment of long term obligations                                 (16,231)        (8,811)
                                                                 ---------      ---------
                                                                    96,543        129,421
                                                                 ---------      ---------
Increase (decrease) in cash and cash equivalents                   437,587       (107,251)
Effect of foreign currency translation on cash                      (7,860)         5,605
Cash from acquisition of subsidiaries                                   --          1,875
                                                                 ---------      ---------
                                                                   429,727        (99,771)
Cash and cash equivalents, beginning of period                     499,278        333,904
                                                                 ---------      ---------
Cash and cash equivalents, end of period                         $ 929,005      $ 234,133
                                                                 =========      =========
</TABLE>
        See accompanying Notes to the Consolidated Financial Statements.

                                (Page 5 of 32)
<PAGE>
 
                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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



1.  BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of
Newbridge Networks Corporation (the "Company") have been prepared in accordance
with accounting principles generally accepted in Canada for interim financial
information. These accounting principles are also generally accepted in the
United States ("U.S. GAAP") in all material respects except for the disclosure
of certain cash equivalents on the Consolidated Balance Sheets and investing
activities on the Consolidated Statements of Cash Flows, as disclosed in Note 2,
the write off of purchased research and development in process, as disclosed in
Note 10, and the method of calculation of earnings per share, as disclosed in
Note 12.

In the opinion of Management, the unaudited interim consolidated financial
statements reflect all normal and recurring adjustments considered necessary for
fair presentation.

The results of operations for the third fiscal quarter and three fiscal quarters
ended January 31, 1999 are not necessarily indicative of the results to be
expected for the fiscal year ending May 2, 1999.
<TABLE>
<CAPTION>
 
 
2.  CASH AND CASH EQUIVALENTS
<S>                                                                       <C>          <C>
Components of cash and cash equivalents are:                          
                                                                          January 31,  April 30,
                                                                             1999        1998
                                                                          -----------  ---------
                                                                      
     Cash                                                                    $690,331   $467,464
     Held to maturity marketable securities                           
       Maturing within one year:                                      
         Corporate debt securities                                            238,624     22,447
                                                                      
     Available for sale marketable securities                         
       Equity securities                                                           50      9,367
                                                                             --------  ---------
                                                                             $929,005   $499,278
                                                                             ========  =========
</TABLE>

Held to maturity marketable securities are investments with original maturities
of three months or more. Available for sale marketable securities are common
shares of publicly traded companies acquired upon the Company's disposition of
minority interests in privately held companies. Under U.S. GAAP, marketable
securities would be disclosed as a separate caption on the Consolidated Balance
Sheets.

Held to maturity marketable securities are carried at amortized cost. The
unrealized gains and losses are not included in the Consolidated Statements of
Earnings as these gains and losses are unlikely to be realized due to the
Company's intent to hold the underlying securities to maturity. Available for
sale securities are carried at the lower of cost and market.

                                (Page 6 of 32)
<PAGE>
 
                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

If the Consolidated Statements of Cash Flows were prepared under U.S. GAAP,
maturities, purchases and sales of marketable securities would be disclosed as
an investing activity. Disclosure in the Consolidated Statements of Cash Flows
under U.S. GAAP would be as follows.
<TABLE>
<CAPTION>
                                                                           Three fiscal quarters ended
                                                                          -----------------------------
                                                                           January 31,     February 1,
                                                                               1999           1998
                                                                          --------------  -------------
<S>                                                                       <C>             <C>
     Investing activities in short
      term marketable securities:
 
       Held to maturity securities
          Maturities                                                          $ 103,369      $ 186,282
          Purchases                                                            (319,546)       (50,797)
                                                                              ---------      ---------
                                                                               (216,177)       135,485
       Available for sale securities
          Sales                                                                   9,317            569
          Purchases                                                                  --         (6,098)
                                                                              ---------      ---------
                                                                               (206,860)       129,956
     Investing activities, as reported                                          125,251       (302,694)
                                                                              ---------      ---------
     Investing activities, U.S. GAAP                                          $ (81,609)     $(172,738)
                                                                              =========      =========
     Net increase (decrease) in cash and cash equivalents, as reported        $ 429,727      $ (99,771)
 
     Investing activities in short term marketable securities                  (206,860)       129,956
                                                                              ---------      ---------
     Net increase in cash and cash equivalents, U.S. GAAP                     $ 222,867      $  30,185
                                                                              =========      =========
</TABLE> 
<TABLE> 
<CAPTION>  
3.  INVENTORIES
                                                                            January 31,      April 30,
                                                                               1999             1998
                                                                            -----------      ---------
<S>                                                                       <C>             <C>
 
      Finished goods                                                          $ 127,143      $ 129,850
      Work in process                                                            16,144         18,178
      Raw materials                                                              49,603         48,257
                                                                              ---------      ---------
                                                                              $ 192,890      $ 196,285
                                                                              =========      =========
</TABLE> 
<TABLE> 
<CAPTION>  
4.  GOODWILL
 
                                                                            January 31,      April 30,
                                                                               1999             1998
                                                                            -----------      ---------
<S>                                                                       <C>             <C>
      Goodwill                                                                $  48,857      $  83,817
      Accumulated amortization                                                   (6,667)       (11,098)
                                                                              ---------      ---------
                                                                              $  42,190      $  72,719
                                                                              =========      =========
</TABLE>
                                (Page 7 of 32) 
<PAGE>
 
                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

     (Canadian dollars, tabular amounts in thousands except per share data)
                                  (Unaudited)
<TABLE>
<CAPTION>  
5.  OTHER ASSETS
 
                                                                          January 31,  April 30,
                                                                             1999        1998
                                                                          ----------  ---------
<S>                                                                       <C>          <C>
      Long term investments                                            
       Accounted for by the equity method                                    $ 34,922   $ 30,163
       Accounted for by the cost method                                       135,964    103,980
                                                                             --------  ---------
                                                                      
                                                                              170,886    134,143
      Other Assets                                                             39,283     28,796
                                                                             --------  ---------
                                                                      
                                                                             $210,169   $162,939
                                                                             ========  =========
</TABLE>

Investments in associated companies over which the Company has significant
influence are accounted for by the equity method and, as a result, the carrying
value equals the Company's proportionate share of the shareholders' equity of
the investee company. Investees which the Company does not control or have
significant influence over are accounted for by the cost method. In accordance
with Canadian and U.S. GAAP, the carrying value of long term investments in
common shares that are publicly traded or privately held are not adjusted to
reflect increases in fair value.



6.  COMPREHENSIVE INCOME

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

<TABLE>
<CAPTION>
 
                                            Fiscal quarters ended     Three fiscal quarters ended
                                          --------------------------  ----------------------------
                                          January 31,   February 1,    January 31,    February 1,
                                              1999          1998          1999           1998
                                          ------------  ------------  -------------  -------------
<S>                                       <C>           <C>           <C>            <C>
 
  Comprehensive income for the period:
 
     Net earnings                            $120,119     $(144,283)       $208,953      $(21,936)
     Other comprehensive income:
       Foreign currency translation
         adjustment                           (21,631)        8,920        $ 28,578        22,659
                                             --------     ---------        --------      --------
 
     Comprehensive income                    $ 98,488     $(135,363)       $237,531      $    723
                                             ========     =========        ========      ========
</TABLE>

7.  LAYER 2 SWITCHING END OF LIFE

In October 1998, the Company decided to discontinue the sale and development of
local area network (LAN) Layer 2 Switching products as part of its determination
to enhance the focus on the Company's dominant and more profitable products.
This program created impairment losses associated with certain assets deployed
in this business and obligations related to fulfilling previous customer 
commitments. The program associated with meeting these obligations is expected 
to be substantially completed by the end of fiscal 1999.

                                (Page 8 of 32)
<PAGE>
 
                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

     (Canadian dollars, tabular amounts in thousands except per share data)
                                  (Unaudited)
                                        
8.  ASIA PACIFIC RESOURCES RELOCATION

In October 1998, the Company commenced relocating certain employees and
activities that support the Asia Pacific region from Kanata, Ontario to Hong
Kong and Malaysia in order to provide more efficient and cost effective services
to customers in that region. The charge of $6,532,000 incurred in October 1998
reflects involuntary termination benefits, lease cancellation penalties and
other direct costs associated with the transition. Additional costs related to
the transfer of personnel and equipment, the recruitment of new staff and the
expansion of facilities in Hong Kong are being expensed as incurred. These
additional costs were not significant in the second or third quarter of fiscal
1999.


9.  RESTRUCTURING COSTS

In November 1997, the Company restructured its activities relating to its LAN
business. The restructuring plan involved the formation of a strategic alliance
with a company strongly positioned in the LAN business, and the reduction of the
Company's direct participation, and related costs, in the LAN business. In
repositioning the way in which the Company addressed the LAN market, the
restructuring plan created impairment losses on certain assets associated with
the LAN business and liabilities associated with restructuring activities.
Accordingly, the Company recognized restructuring costs of $181,444,000 in the
third quarter of fiscal 1998. The restructuring plan is substantially completed.


10.  AMORTIZATION OF PURCHASED RESEARCH AND DEVELOPMENT IN PROCESS

In November 1997, the Company acquired a 49.9% equity interest in RadNet Ltd.,
an Israeli developer and manufacturer of access switches for asynchronous
transfer mode ("ATM") networks, for cash consideration of $53,676,000. The
majority of the purchase price ($52,762,000) was allocated to purchased research
and development in process. The amount allocated to purchased research and
development in process was determined through valuation techniques common in the
high technology industry. Under accounting principles generally accepted in
Canada, the purchased research and development in process was amortized on a
straight line basis over its estimated useful life of six months. Under U.S.
GAAP, purchased research and development in process acquired by the Company was
written off at the time of acquisition. The determination of net earnings (loss)
under U.S. GAAP is as follows.

<TABLE>
<CAPTION>
                                            Fiscal quarters ended    Three fiscal quarters ended
                                          -------------------------  ----------------------------
                                          January 31,  February 1,    January 31,    February 1,
                                             1999          1998          1999           1998
                                          -----------  ------------  -------------  -------------
<S>                                       <C>          <C>           <C>            <C>
Net earnings (loss), as reported
 under Canadian GAAP                         $120,119    $(144,283)       $208,953      $(21,936)
 
Add back:
 Amortization of research and
  development in process                           --       26,381              --        26,381
 
Less:
 Write off of research and development
  in process                                       --      (52,762)             --       (52,762)
                                            ---------    ---------      ----------      --------
 
Net earnings (loss), U.S. GAAP               $120,119    $(170,664)       $208,953      $(48,317)
                                            =========    =========      ==========      ========
</TABLE>
                                (Page 9 of 32)
                                       
<PAGE>
 
                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

     (Canadian dollars, tabular amounts in thousands except per share data)
                                  (Unaudited)
<TABLE>
<CAPTION>
 
11.  NET GAIN ON INVESTMENTS
                                         Fiscal quarter ended     Three fiscal quarters ended
                                       -------------------------  ----------------------------
                                       January 31,   February 1,   January 31,    February 1,
                                           1999         1998           1999           1998
                                       ------------  -----------  --------------  ------------
<S>                                    <C>           <C>          <C>             <C>
 
  Cambrian Systems Corporation            $128,893       $    --       $128,893        $    --
  Vienna Systems Corporation                15,846            --         15,846             --
  Advanced Computer Communications              --            --        128,336             --
  Broadband Networks Inc.                       --        47,960             --         47,960
  West End Systems Corp.                   (19,994)           --        (33,521)            --
  Investment impairment write downs         (8,563)           --        (56,520)            --
                                          --------       -------       --------       --------
                                          $116,182       $47,960       $183,034        $47,960
                                          ========       =======       ========       ========
</TABLE>

In December 1998, the Company sold its minority ownership position in Cambrian
Systems Corporation ("Cambrian") to Northern Telecom Limited ("Nortel") for cash
proceeds of US$93,739,000 (Cdn$144,303,000). The proceeds exclude potential
earn-out payments of approximately US$23,000,000 which are to be received by the
Company if certain specified financial performance targets are met by Cambrian.

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

In October 1998, the Company completed the sale of its majority ownership
position in Advanced Computer Communications ("ACC") to Telefonaktiebolaget LM
Ericsson for cash proceeds of US$167,319,000 (Cdn$258,308,000).

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

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

The Company evaluates on an ongoing basis the value of its long term investments
considering the evolution of the market segments of investee companies, any
impact of deteriorating economic conditions in various countries, and any other
specific information which indicates impairment of value of these investments.
The Company determined that the values of certain investee companies were
impaired based on these considerations and recognized write downs of $8,563,000
in the third quarter of fiscal 1999 and $56,520,000 in the first nine months of
fiscal 1999 associated with these impairments.

                                (Page 10 of 32)
<PAGE>
 
                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

12.  EARNINGS PER SHARE

Basic earnings per share has been calculated as net earnings for the period
divided by the daily weighted average number of Common Shares outstanding during
the period. Fully diluted earnings per share has been calculated as net earnings
plus after tax imputed earnings on the cash which would have been received on
the exercise of options, divided by the daily weighted average number of Common
Shares and common share equivalents outstanding during the period.

Under U.S. GAAP, basic earnings per share has been calculated as net earnings
for the period divided by the daily weighted average number of Common Shares
outstanding during the period, consistent with the calculation of basic earnings
per share under accounting principles generally accepted in Canada. Diluted
earnings per share is calculated using the treasury stock method. Earnings per
share in U.S. dollars is disclosed for the convenience of the reader. The
exchange rates used for translation are based on the average of the daily noon
buying rates for Canadian dollars in U.S. dollars as reported by the Federal
Reserve Bank of New York. The calculation of earnings per share under U.S. GAAP
is as follows.

<TABLE>
<CAPTION>
                                               Fiscal quarters ended      Three fiscal quarters ended
                                             -------------------------    ----------------------------
                                              January 31,  February 1,      January 31,    February 1,
                                                1999          1998            1999           1998
                                             -----------  ------------    -----------      -----------
<S>                                          <C>          <C>             <C>              <C>
Net earnings (loss), U.S. GAAP (Note  10)       $120,119    $(170,664)       $208,953       $(48,317)
                                                ========    =========        ========       ========
                                                                                         
Earnings per share                                                                       
     Basic                                      $   0.68    $   (0.97)       $   1.18       $  (0.28)
                                                ========    =========        ========       ========
     Diluted                                    $   0.66    $   (0.97)       $   1.18       $  (0.28)
                                                ========    =========        ========       ========
                                                                                           
Earnings per share - in U.S. dollars                                                       
     Basic                                      $   0.44    $   (0.68)       $   0.78       $  (0.20)
                                                ========    =========        ========       ========
     Diluted                                    $   0.43    $   (0.68)       $   0.78       $  (0.20)
                                                ========    =========        ========       ========
                                                                                         
Weighted average number of shares                                                        
     Basic                                       177,596      175,376         176,814        174,338
                                                ========    =========        ========       ========
     Diluted                                     182,030      175,376         176,814        174,338
                                                ========    =========        ========       ========
</TABLE>   
                                (Page 11 of 32)
<PAGE>
 
                         NEWBRIDGE NETWORKS CORPORATION 
                                                        
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  
                                                                 
     (Canadian dollars, tabular amounts in thousands except per share data) 
                                  (Unaudited)


13.  BUSINESS SEGMENT INFORMATION

Management organizes the Company into four principal operating segments for
making operating decisions and assessing performance. The four operating
segments comprise three sales and support organizations (North and South
America, Europe Middle East and Africa, and Asia Pacific) and one Corporate
resources group which develops and manufactures products, provides marketing and
operational support and makes strategic investments. Revenues generated by the
Corporate group are predominantly derived from the consolidation of non-wholly
owned subsidiaries. Effective in the first quarter of fiscal 1999, the three
sales and support organizations are no longer responsible for general and
administrative activities with these activities now managed by the Corporate
group. Prior periods presented have been restated to reflect this change.
<TABLE>
<CAPTION>
 
                                          Fiscal quarters ended      Three fiscal quarters ended
                                        --------------------------  -----------------------------
                                        January 31,   February 1,    January 31,     February 1,
                                            1999          1998           1999           1998
                                        ------------  ------------  --------------  -------------
<S>                                     <C>           <C>           <C>             <C>
NORTH AND SOUTH AMERICA
  Sales                                   $ 201,135     $ 133,419      $  580,744     $  473,710
  Cost of sales and expenses                104,275        79,693         291,639        270,332
                                          ---------     ---------      ----------     ----------
  Operating contribution                     96,860        53,726         289,105        203,378
                                          ---------     ---------      ----------     ----------
EUROPE, MIDDLE EAST AND AFRICA
  Sales                                   $ 151,017     $ 107,659      $  427,816     $  389,942
  Cost of sales and expenses                 78,263        62,368         215,893        193,686
                                          ---------     ---------      ----------     ----------
  Operating contribution                     72,754        45,291         211,923        196,256
                                          ---------     ---------      ----------     ----------
ASIA PACIFIC
  Sales                                   $  64,239     $  64,049      $  185,045     $  219,485
  Cost of sales and expenses                 34,498        32,193          97,706         97,360
                                          ---------     ---------      ----------     ----------
  Operating contribution                     29,741        31,856          87,339        122,125
                                          ---------     ---------      ----------     ----------
CORPORATE
  Sales                                   $  34,362     $  53,393      $  139,985     $  142,290
  Cost of sales and expenses                165,747       156,949         537,998        463,467
                                          ---------     ---------      ----------     ----------
  Operating contribution                   (131,385)     (103,556)       (398,013)      (321,177)
                                          ---------     ---------      ----------     ----------
TOTAL
  Sales                                   $ 450,753     $ 358,520      $1,333,590     $1,225,427
  Cost of sales and expenses                382,783       331,203       1,143,236      1,024,845
                                          ---------     ---------      ----------     ----------
  Operating contribution                     67,970        27,317         190,354        200,582
  Layer 2 switching end of life                  --            --         (37,928)            --
  Asia Pacific resources relocation              --            --          (6,532)            --
  Restructuring costs                            --      (181,444)             --       (181,444)
  Amortization of purchased research
     and development in process                  --       (26,381)             --        (26,381)
                                          ---------     ---------      ----------     ----------
  Income (loss) from operations              67,970      (180,508)        145,894         (7,243)
 
  Net gain on investments                   116,182        47,960         183,034         47,960
  Net interest and other expenses              (863)         (516)         (7,409)          (335)
  Provision for income taxes                (62,019)       (9,457)       (112,841)       (60,815)
  Non-controlling interest                   (1,151)       (1,762)            275         (1,503)
                                          ---------     ---------      ----------     ----------
  Net earnings (loss)                     $ 120,119     $(144,283)     $  208,953     $  (21,936)
                                          =========     =========      ==========     ==========
</TABLE>
                                (Page 12 of 32)

<PAGE> 
                         NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

14.  LITIGATION

In the fourth quarter of fiscal 1998 the Company reached an agreement in
principle to settle the class action lawsuit which was filed in United States
District Court in Washington, D.C. during the fiscal year ended April 30, 1995.
The lawsuit purported to be a class action on behalf of a class of persons who
purchased securities of the Company between March 29 and August 1, 1994 and
alleged that the Company made false and misleading statements in violation of
United States securities law and common law. The Court entered an order and
final judgment approving the settlement and dismissing the lawsuit with
prejudice on October 23, 1998. The Company recorded the expense in connection
with the settlement of $2,642,000 in the fourth quarter of fiscal 1998
representing the direct costs incurred.

Lucent Technologies Inc. ("Lucent Technologies") filed a complaint during the
fiscal year ended April 30, 1998 in United States District Court in Delaware
against the Company and its United States subsidiary, Newbridge Networks Inc.
Lucent Technologies manufactures and sells telecommunications systems, software
and products, and is both a distributor of the Company's products and a
competitor of the Company. The complaint alleges that the Company's manufacture
and sale in the United States of Newbridge frame relay and ATM (asynchronous
transfer mode) switch products infringe certain United States patent rights
claimed by Lucent Technologies, and requests actual and trebled damages in an
unspecified amount. Based upon its present understanding of the laws in the
United States and the facts, the Company believes it has meritorious defenses to
these claims. The Company has filed an answer to the complaint, as well as a
counterclaim alleging unfair competition by Lucent Technologies, and intends to
defend this action vigorously. Because the outcome of the action is not certain
at this time, no provision for any liability that may result upon adjudication
has been made in these Consolidated Financial Statements.

From time to time, the Company receives notifications that it is or may be
infringing the intellectual property rights of third parties. There can be no
assurance that any such claims or potential claims will not require the Company
to enter into license agreements or result in protracted and costly litigation,
regardless of the merits of such claims. No assurance can be given that any
necessary licenses will be available or that, if available, such licenses can be
obtained on commercially reasonable terms.


15.  SUBSEQUENT EVENT

In February 1999, the Company agreed to sell a portion of its minority ownership
position in Tundra Semiconductor Corporation ("Tundra") as part of an initial
and secondary public offering by Tundra.  The Company will record a non-
recurring gain in the fourth quarter of fiscal 1999 associated with the
transaction.

                                (Page 13 of 32)
<PAGE>
                          NEWBRIDGE NETWORKS CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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


16.  RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the United States Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS 133 requires that an entity
recognize all derivative instruments as either assets or liabilities on its
balance sheet and requires that the instruments be recorded at fair value. SFAS
133 is effective for fiscal periods beginning after June 15, 1999. The Company
is currently assessing the impact that SFAS 133 will have on its financial
statements.

                                (Page 14 of 32)
<PAGE>
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS


Certain parts of the following discussion and analysis may be forward-looking
statements that involve a number of risks and uncertainties. As a consequence,
actual results might differ materially from results forecast or suggested in any
forward-looking statements. See "Market for Registrant's Common Equity and
Related Stockholder Matters -- Cautionary Statement Regarding Forward-Looking
Information" in the Company's Annual Report on Form 10-K, which is incorporated
by reference herein.


RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of
sales represented by certain items in the Company's Consolidated Statements of
Earnings.
<TABLE>
<CAPTION>
                                             Fiscal quarters ended    Three fiscal quarters ended
                                            -----------------------  -----------------------------
                                              Jan 31,      Feb 1,       Jan 31,         Feb 1,
                                               1999         1998          1999           1998
                                            -----------  ----------  --------------  -------------
<S>                                         <C>          <C>         <C>             <C>
  Sales                                          100.0%      100.0%          100.0%         100.0%
  Cost of sales                                   41.7        40.4            41.5           38.0
                                                 -----      ------           -----          -----
  Gross margin                                    58.3        59.6            58.5           62.0
 
  Expenses
     Selling, general and administrative          28.8        33.5            29.5           30.0
     Research and development                     14.4        18.5            14.7           15.6
     Layer 2 switching end of life                  --          --             2.9             --
     Asia Pacific resources relocation              --          --             0.5             --
     Restructuring costs                            --        50.6              --           14.8
     Amortization of purchased research
       and development in process                   --         7.3              --            2.2
                                                 -----      ------           -----          -----
 
  Income (loss) from operations                   15.1       (50.3)           10.9           (0.6)
 
  Interest income, net                             0.6         0.4             0.2            0.6
  Net gain on investments                         25.8        13.3            13.7            3.9
  Other expenses                                  (0.8)       (0.5)           (0.7)          (0.6)
                                                 -----      ------           -----          -----
 
  Earnings (loss) before income taxes
     and non-controlling interest                 40.7       (37.1)           24.1            3.3
 
  Provision for income taxes                      13.8         2.6             8.4            5.0
 
  Non-controlling interest                         0.3         0.5             0.0            0.1
                                                 -----      ------           -----          -----
  Net earnings (loss)                             26.6%     (40.2)%           15.7%         (1.8)%
                                                 =====      ======           =====          =====
</TABLE>

                                (Page 15 of 32)
<PAGE>
 
<TABLE>
<CAPTION>
SALES
 
                                         Fiscal Quarters Ended            Three Fiscal Quarters Ended
                                     -----------------------------     --------------------------------
                                      Jan 31,    Feb 1,      %          Jan 31,      Feb 1,        %
                                       1999      1998     Increase       1999        1998       Increase
                                     --------  --------   --------     ----------  ----------  --------
                                                   (Canadian dollars in thousands)                  
<S>                                  <C>       <C>       <C>           <C>         <C>         <C>
 Sales                               $450,753  $358,520     26%         $1,333,590  $1,225,427    9%
                                     ========  ========                 ==========  ==========            
</TABLE>

The increase in sales in the third quarter and first nine months of fiscal 1999
compared to the third quarter and first nine months of fiscal 1998 was
principally due to an increase in sales of products based on packet technologies
for wide area network applications (WAN Packet products), partially offset by a
decline in revenues from products based on packet technologies for local area
network applications (LAN Packet products).

Sales for the third quarter of fiscal 1999 of $450,753,000 represented a 1%
decline compared to sales of $456,781,000 for the second quarter of fiscal 1999.
The decline was principally the result of revenue declines throughout Latin
America and in China of the Company's circuit switched networking products.

The following table illustrates, for the periods indicated, the percentage of
sales that comprise each of the Company's major product lines.
<TABLE>
<CAPTION>
                                  Fiscal quarters ended    Three fiscal quarters ended
                                 -----------------------  -----------------------------
                                   Jan 31,      Feb 1,       Jan 31,         Feb 1,
                                    1999         1998          1999           1998
                                 -----------  ----------  --------------  -------------
<S>                              <C>          <C>         <C>             <C>
  WAN Packet                             62%         50%             56%            45%
  Circuit switched networking            37          37              41             42
  LAN Packet                              1          13               3             13
                                       ----        ----            ----           ----
                                        100%        100%            100%           100%
                                       ====        ====            ====           ====
</TABLE>

Sales of WAN Packet products grew approximately 55% in the third quarter of
fiscal 1999 compared to the third quarter of fiscal 1998 and approximately 37%
in the first nine months of fiscal 1999 compared to the first nine months of
fiscal 1998. Growth in sales of WAN Packet products was predominantly the result
of increased acceptance and demand by carriers throughout the world for the
Company's asynchronous transfer mode (ATM) products.

Sales of circuit switched networking products in the third quarter of fiscal
1999 increased 25% relative to sales in the third quarter of fiscal 1998 and
sales for the first nine months of fiscal 1999 increased 4% relative to sales in
the comparable period of fiscal 1998. Sales of these networking products have
been and are expected to be subject to potential declines and quarterly
variability as customers throughout the world increasingly adopt packet
technologies.

LAN Packet product revenues declined approximately 71% in the first nine months
of fiscal 1999 as compared to the first nine months of fiscal 1998. The decline
was the result of sharp decreases in revenue derived from products associated
with the former Ungermann-Bass Networks Inc. ("UB") organization, which the
Company acquired in January 1997. The Company previously restructured its
activities in the LAN business, including the former UB, in the third quarter of
fiscal 1998 and instituted an end of life program in the second quarter of
fiscal 1999 to discontinue the sale and development of LAN Layer 2 Switching
products.

The Company expects the proportion of sales derived from WAN Packet products to
continue to increase relative to sales derived from circuit switched networking
products in fiscal 1999 when compared to fiscal 1998. As a result, sales growth
may be impeded due to longer sales cycles often associated with the adoption of
newer, less established technologies.

                                (Page 16 of 32)
<PAGE>
 
The Company sells its products to carriers for applications that provide a range
of value-added services, such as Virtual Private Networks (VPNs), wide area
network support and Internet access, and for resale to end users.  Sales to
carriers and enterprises as a percentage of total sales were as follows.
<TABLE>
<CAPTION>
                            Fiscal quarters ended    Three fiscal quarters ended
                           -----------------------  -----------------------------
                             Jan 31,      Feb 1,       Jan 31,         Feb 1,
                              1999         1998          1999           1998
                           -----------  ----------  --------------  -------------
<S>                        <C>          <C>         <C>             <C>
  Carriers                         75%         70%             74%            68%
  Enterprises                      25          30              26             32
                                 ----        ----            ----           ----
                                  100%        100%            100%           100%
                                 ====        ====            ====           ====
 
  Sales to Siemens A.G.            20%         16%             16%            19%
                                 ====        ====            ====           ====
</TABLE>

The proportion of revenue derived from carriers in the third quarter and first
nine months of fiscal 1999 increased relative to the comparable periods of
fiscal 1998 due to the decline in revenues of former UB Networks products, which
largely serve enterprise customers. Deliveries to original equipment
manufacturers (OEMs) for carrier customers and deliveries under certain large
contracts with carriers contributed significantly to sales in the third quarter
and first nine months of fiscal 1999 and fiscal 1998. Sales to Siemens A.G. and
subsidiaries were generally under OEM arrangements for resale to end users.

The following table sets forth, for the periods indicated, the percentage of
consolidated sales derived by sales management in each of the principal
geographic regions in which the Company operates.
<TABLE>
<CAPTION>
                          Fiscal quarters ended    Three fiscal quarters ended
                         -----------------------  -----------------------------
                           Jan 31,      Feb 1,       Jan 31,         Feb 1,
                            1999         1998          1999           1998
                         -----------  ----------  --------------  -------------
<S>                      <C>          <C>         <C>             <C>
  Americas Region                52%         52%             52%            50%
  European Region                34          29              33             31
  Asia Pacific Region            14          19              15             19
                               ----        ----            ----           ----
                                100%        100%            100%           100%
                               ====        ====            ====           ====
</TABLE>

Because substantial portions of the Company's sales, cost of sales and other
expenses are denominated in U.S. dollars and Pounds Sterling, the Company's
results of operations are subject to change based on fluctuations in the rates
of exchange of those currencies for the Canadian dollar. The decrease in
exchange rates of the Canadian dollar for the Pound Sterling and the U.S. dollar
during the third quarter of fiscal 1999, relative to exchange rates during the
third quarter of fiscal 1998, resulted in a 6% or $19,962,000 positive variance
in reported sales as compared to the third quarter of fiscal 1998. During the
first nine months of fiscal 1999, the decrease in exchange rates of the Canadian
dollar for the Pound Sterling and the U.S. dollar, relative to exchange rates
for the first nine months of fiscal 1998, resulted in a 6% or $67,780,000
positive variance in reported sales as compared to the first nine months of
fiscal 1998. As substantial portions of the Company's cost of sales and other
expenses are also incurred in U.S. dollars and Pounds Sterling, the variations
in rates of exchange did not result in a material variance in net earnings for
the third quarter and first nine months of fiscal 1999.

The Company derives a significant portion of its sales from products shipped
against orders received in each fiscal quarter and from products shipped against
firm purchase orders released in that fiscal quarter. As is prevalent in
emerging segments of the networking industry, a disproportionate amount of the
Company's shipments occur in the third month of each fiscal quarter. In
addition, customers have the ability to revise or cancel orders and change
delivery schedules without significant penalty. As a result, the Company
operates without significant backlog and schedules some production and budgets
expenses based on forecasts of sales, which are 

                                (Page 17 of 32)
<PAGE>
 
difficult to predict. Unforeseen delays in product deliveries or closing large
sales, introductions of new products by the Company or its competitors, seasonal
patterns of customer capital expenditures or other conditions affecting the
networking industry in particular or the economy generally during any fiscal
quarter could cause quarterly revenue and, to a greater degree, net earnings, to
vary greatly. Quarterly operating results are consequently difficult to predict,
even towards the end of a given fiscal quarter.

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

                                       Fiscal Quarters Ended                  Three Fiscal Quarters Ended
                                       ---------------------                  --------------------------
                                        Jan 31,      Feb 1,                       Jan 31,     Feb 1,
                                         1999        1998                          1999       1998
                                       --------    --------                      --------   --------
                                                        (Canadian dollars in thousands)
<S>                                  <C>          <C>                           <C>        <C>
 Gross margin                          $262,791    $213,707                      $779,742   $760,083
                                       ========    ========                      ========   ========
 
 As % of sales                               58%         60%                           58%        62%
</TABLE>

Cost of sales consists of manufacturing costs, warranty expense and costs
associated with the provision of services. The gross margin as a percentage of
sales declined in the third quarter and first nine months of fiscal 1999
relative to the third quarter and first nine months of fiscal 1998 due to lower
average selling prices as a result of increased competition on product pricing,
particularly in the market for products based on packet technologies.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
                                          Fiscal Quarters Ended         Three Fiscal Quarters Ended
                                     -------------------------------  -------------------------------
                                      Jan 31,    Feb 1,        %       Jan 31,    Feb 1,        %
                                       1999       1998     Increase     1999       1998     Increase
                                     ---------  ---------  ---------  ---------  ---------  ---------
                                                  (Canadian dollars in thousands)
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>
Selling, general and
and administrative                   $129,630   $120,082      8%      $393,500   $367,341      7%
                                     ========   ========              ========   ========
 As % of sales                             29%        33%                   30%        30%
</TABLE>

Selling, general and administrative expenses increased in the third quarter and
first nine months of fiscal 1999 relative to the third quarter and first nine
months of fiscal 1998 principally as a result of increased remuneration costs
associated with salary increases as well as the addition of sales, marketing and
technical support personnel, amortization costs associated with upgrading the

                                (Page 18 of 32)
<PAGE>
 
information technology infrastructure, and increased marketing costs related to
the introduction of new products and expanded advertising programs.

The decrease in selling, general and administrative expenses as a percentage of
sales in the third quarter of fiscal 1999 over the third quarter of fiscal 1998
is a result of the lower percentage increase  in expenditures as compared to the
larger percentage increase in revenues over the same period. Management
anticipates that selling, general and administrative expenses as a percentage of
sales will decline in fiscal 1999 relative to fiscal 1998.
  
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
                                              Fiscal Quarters Ended          Three Fiscal Quarters Ended
                                         -------------------------------    ------------------------------
                                          Jan 31,      Feb 1,     %           Jan 31,    Feb 1,      %
                                           1999         1998   Increase        1999      1998     Increase
                                         --------    --------  ---------    --------   --------   --------
 
                                                            (Canadian dollars in thousands)
<S>                                    <C>          <C>         <C>         <C>        <C>        <C>
 Gross research and
  development expenditures                $83,039     $77,519       7%      $253,881   $225,815      12%
                                                                                                   
 Investment tax credits                    (9,215)     (8,969)      3%       (28,584)   (25,969)     10%
                                                                                                   
 Customer, government                                                                              
   and other funding                       (6,733)       (886)    660%       (23,744)    (3,823)    521%
 
 Net deferral of software
   development costs                       (1,900)     (1,356)     40%        (5,665)    (3,863)     47%
                                          -------     -------               --------   --------
 
 Net research and
  development expenses                    $65,191     $66,308      (2%)     $195,888   $192,160       2%
                                          =======     =======               ========   ========
 
 Gross expenditures
  as a % of sales                              18%         22%                    19%        18%
 
 Recoveries as a %
  of gross expenditures                        21%         14%                    23%        15%
 
 Net expenses as a % of sales                  14%         18%                    15%        16%
</TABLE>

Research and development expenditures consist primarily of software and hardware
engineering personnel expenses, costs associated with equipment and facilities,
and subcontracted research and development costs. The increased gross research
and development expenditures in the third quarter and first nine months of
fiscal 1999 relative to the third quarter and first nine months of fiscal 1998
reflect spending to expand the breadth of network solutions for new value-added
service capabilities and access technologies, particularly with respect to ATM
and Internet Protocol (IP) technologies and network and service management
software in carrier and carrier access applications. The majority of the
increase resulted from salary increases for engineering staff and increased
amortization associated with capital expenditures.

Recoveries increased as a percentage of gross expenditures in the third quarter
and first nine months of fiscal 1999 compared to the third quarter and first
nine months of fiscal 1998 due to an increase in customer, government and other
funding. The increase in customer, government and other funding is mainly as a
result of funding secured for the Company's wireless access product initiative.
Based on Management's estimates of the proportion of fiscal 1999 gross research
and development expenditures to be incurred in Canada and therefore eligible for
investment tax credits, and current levels of committed and expected funding,
Management expects the level of recoveries as a percentage of gross research and
development expenditures in fiscal 1999 to exceed the level in fiscal 1998.

                                (Page 19 of 32)
<PAGE>
 
The markets for the Company's products are characterized by continuing
technological change. The Company plans to increase gross research and
development expenditures in fiscal 1999 relative to fiscal 1998 to address the
requirements of carriers as they invest in new infrastructures to meet the
challenges of growing demand for new communications services and increased
competition.

LAYER 2 SWITCHING END OF LIFE

In October 1998, the Company decided to discontinue the sale and development of
local area network (LAN) Layer 2 Switching products as part of its determination
to enhance the focus on the Company's dominant and more profitable products.
This program created impairment losses associated with certain assets deployed
in this business and obligations related to fulfilling previous customer 
commitments. The program associated with meeting these obligations is expected 
to be substantially completed by the end of fiscal 1999.


ASIA PACIFIC RESOURCES RELOCATION

In October 1998, the Company commenced relocating certain employees and
activities that support the Asia Pacific region from Kanata, Ontario to Hong
Kong and Malaysia in order to provide more efficient and cost effective services
to customers in that region. The charge of $6,532,000 incurred in October 1998
reflects involuntary termination benefits, lease cancellation penalties and
other direct costs associated with the transition. Additional costs related to
the transfer of personnel and equipment, the recruitment of new staff and the
expansion of facilities in Hong Kong are being expensed as incurred. These
additional costs were not significant in the second or third quarter of fiscal
1999.


RESTRUCTURING COSTS

In November 1997, the Company restructured its activities relating to its LAN
business.  The restructuring plan involved the formation of a strategic alliance
with a company strongly positioned in the LAN business, and the reduction of the
Company's direct participation, and related costs, in the LAN business. In
repositioning the way in which the Company addressed the LAN market, the
restructuring plan created impairment losses on certain assets associated with
the LAN business and liabilities associated with restructuring activities.
Accordingly, the Company recognized restructuring costs of $181,444,000 in the
third quarter of fiscal 1998. The restructuring plan is substantially completed.


AMORTIZATION OF PURCHASED RESEARCH AND DEVELOPMENT IN PROCESS

In November 1997, the Company acquired a 49.9% equity interest in RadNet Ltd.,
an Israeli developer and manufacturer of access switches for asynchronous
transfer mode ("ATM") networks, for cash consideration of $53,676,000. The
majority of the purchase price ($52,762,000) was allocated to purchased research
and development in process.  Under accounting principles generally accepted in
Canada, the purchased research and development in process was amortized on a
straight line basis over its estimated useful life of six months.  Accordingly,
the Company recorded amortization of $26,381,000 in the third quarter of fiscal
1998.

                                (Page 20 of 32)
<PAGE>
 
<TABLE>
<CAPTION>
 
INTEREST AND OTHER EXPENSES
 
                                             Fiscal Quarters Ended        Three Fiscal Quarters Ended
                                         ------------------------------   -----------------------------
                                         Jan 31,      Feb 1,      %        Jan 31,   Feb 1,      %
                                          1999         1998   Increase      1999      1998    Increase
                                         -------   ---------  ---------   --------   -------  ---------
                                                        (Canadian dollars in thousands)
<S>                                   <C>          <C>         <C>        <C>        <C>       <C>
 Interest income                         $10,472     $ 2,067      407%    $ 23,844   $ 7,881     203%
                                                                                                
 Interest expense on                                                                            
  long term obligations                   (7,633)       (625)    1121%     (21,111)   (1,116)   1792%
                                                                                                
 Other expenses                           (3,702)     (1,958)      89%     (10,142)   (7,100)     43%
</TABLE>

Interest income and interest expense on long term obligations for the third
quarter and first nine months of fiscal 1999 both increased compared to the
third quarter and first nine months of fiscal 1998. The increases are primarily
the result of interest income earned and interest expense incurred on the
proceeds of the issuance of US$225,000,000 of Senior Notes due 2003 in the
fourth quarter of fiscal 1998. Interest income also grew in the third quarter
and first nine months of fiscal 1999 as a result of proceeds received from the
sale of the Company's equity interests in certain associated companies. Other
expenses represented less than 1% of sales in the third quarter and first nine
months of fiscal 1999 and fiscal 1998.
<TABLE>
<CAPTION>
 
NET GAIN ON INVESTMENTS
 
                                        Fiscal quarter ended   Three fiscal quarters ended
                                        --------------------   ---------------------------
                                          Jan 31,     Feb 1,        Jan 31,         Feb 1,
                                           1999       1998           1999            1998
                                         --------   --------       --------        ------- 
<S>                                    <C>          <C>       <C>             <C>
  Cambrian Systems Corporation           $128,893    $    --       $128,893        $    --
  Vienna Systems Corporation               15,846         --         15,846             --
  Advanced Computer Communications             --         --        128,336             --
  Broadband Networks Inc.                      --     47,960             --         47,960
  West End Systems Corp.                  (19,994)        --        (33,521)            --
  Investment impairment write downs        (8,563)        --        (56,520)            --
                                         --------   --------       --------        -------
 
                                         $116,182    $47,960       $183,034        $47,960
                                         ========   ========       ========        =======
</TABLE>

In December 1998, the Company sold its minority ownership position in Cambrian
Systems Corporation ("Cambrian") to Northern Telecom Limited ("Nortel") for cash
proceeds of US$93,739,000 (Cdn$144,303,000). The proceeds exclude potential
earn-out payments of approximately US$23,000,000 which are to be received by the
Company if certain specified financial performance targets are met by Cambrian.

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

In October 1998, the Company completed the sale of its majority ownership
position in Advanced Computer Communications ("ACC") to Telefonaktiebolaget LM
Ericsson for cash proceeds of US$167,319,000 (Cdn$258,308,000).

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

                                (Page 21 of 32)
<PAGE>
On February 10, 1999 West End Systems Corp., a manufacturer of access and
transmission products for the communications and cable television industries,
filed an assignment in bankruptcy under the Canadian Bankruptcy and Insolvency
Act.  As a result, the Company recorded losses related to the Company's minority
ownership position in West End Systems Corp. and unsecured trade accounts
outstanding.

The Company evaluates on an ongoing basis the value of its long term investments
considering the evolution of the market segments of investee companies, any
impact of deteriorating economic conditions in various countries, and any other
specific information which indicates impairment of value of these investments.
The Company determined that the values of certain investee companies were
impaired based on these considerations and recognized write downs of $8,563,000
in the third quarter of fiscal 1999 and $56,520,000 in the first nine months of
fiscal 1999 associated with these impairments.
<TABLE>
<CAPTION>
  
INCOME TAXES

                                        Fiscal Quarter Ended          Three Fiscal Quarters Ended
                                      ------------------------        ---------------------------
                                        Jan 31,         Feb 1,           Jan 31,         Feb 1,
                                         1999           1998              1999            1998
                                      ----------     ---------         ----------     --------- 
<S>                                   <C>            <C>               <C>             <C>
 Income tax rate                          34%             (7)%             35%            151%
 Income tax rate, excluding                                                        
   non-recurring gains and charges        30%             30%              30%             30%
</TABLE>

The income tax rates for the third quarter and first nine months of fiscal 1999
vary from the rates for the third quarter and first nine months of fiscal 1998
due to the income tax on various non-recurring gains and charges reported in the
third quarters of fiscal 1999 and fiscal 1998. See "Net Earnings" below.
Excluding the impact of these non-recurring gains and charges, the income tax
rates reported in the third quarter and first nine months of fiscal 1999 are
consistent with the corresponding periods in fiscal 1998. The composite rates of
income tax have been reduced from the statutory rates primarily as a result of
the application of certain deductions related to manufacturing and processing
activities and to research and development expenditures in Canada. Future
changes in the composite rates of income tax will be primarily due to the
relative profitability of operations and the national tax policies in each of
the various countries in which the Company operates. Management believes that
the composite rate of income tax will remain lower than the statutory rate
because of the availability of deductions related to manufacturing and
processing activities and research and development expenditures in Canada as
well as other tax planning measures undertaken by the Company.


NON-CONTROLLING INTEREST

The non-controlling interests' share of subsidiary net earnings reflects third
party interests of approximately 49% in each of three Latin American
distributors (Transistemas S.A., Coasin S.A. and Acacia S.A.) and, prior to the
third quarter of fiscal 1999, also reflected third party interests of
approximately 40% in Advanced Computer Communications.

                                (Page 22 of 32)
<PAGE>
 
<TABLE>
<CAPTION>
NET EARNINGS (LOSS)
                                                      Fiscal quarters ended   Three fiscal quarters ended
                                                      ---------------------   ---------------------------
                                                       Jan 31,      Feb 1,         Jan 31,         Feb 1,
                                                        1999         1998           1999            1998
                                                      ---------   ---------       ---------       --------
<S>                                                  <C>          <C>         <C>             <C>
  Net earnings (loss)                                 $ 120,119   $(144,283)      $ 208,953       $(21,936)
 
  Non recurring gains and charges
     Layer 2 switching end of life                           --          --          37,928             --
     Asia Pacific resources relocation                       --          --           6,532             --
     Restructuring costs                                     --     181,444              --        181,444
     Amortization of purchased research
       and development in process                            --      26,381              --         26,381
     Net gain on investments                           (116,182)    (47,960)       (183,034)       (47,960)
     Provision for income taxes on
       non-recurring gains and charges                   42,223       1,547          58,873          1,547
                                                      ---------   ---------       ---------       --------
 
  Pro forma net earnings, excluding
   non-recurring gains and charges                    $  46,160   $  17,129       $ 129,252       $139,476
                                                      =========   =========       =========       ========
 
  Pro forma net earnings, excluding non-recurring
   gains and charges, as a percent of sales                  10%          5%             10%            11%
 
  Pro forma net earnings, excluding non-recurring
     gains and charges, per share
 
   Canadian GAAP
     Basic                                             $   0.26    $   0.10        $   0.73       $   0.80
     Fully Diluted                                     $   0.26    $   0.10        $   0.73       $   0.80
                                                                
   U.S. GAAP                                                    
     Basic - Cdn$                                      $   0.26    $   0.10        $   0.73       $   0.80
     Diluted - Cdn$                                    $   0.25    $   0.10        $   0.73       $   0.77
     Basic - US$                                     US$   0.17  US$   0.07      US$   0.48     US$   0.57
     Diluted - US$                                   US$   0.17  US$   0.07      US$   0.48     US$   0.55
</TABLE>

Sales increased in the third quarter of fiscal 1999 ended January 31, 1999 by
26% compared to sales in the third quarter of fiscal 1998 ended February 1,
1998. Sales for the first nine months of fiscal 1999 increased by 9% over sales
for the first nine months of fiscal 1998. Excluding the effects of non-recurring
charges and gains, the increase in sales was reduced by a decline in the gross
margin as a percentage of sales and an increase in operating expenses, resulting
in net earnings of $46,160,000 for the third quarter of fiscal 1999 and
$129,252,000 for the first nine months of fiscal 1999. Non-recurring charges and
gains recorded in the third quarter of fiscal 1999 related to divestitures and
write downs of the Company's equity interests in certain associated companies.

Pro forma net earnings of $46,160,000 for the third quarter of fiscal 1999
represent an increase of 169% from the pro forma net earnings of $17,129,000 for
the third quarter of fiscal 1998. Pro forma net earnings of $129,252,000 for the
first nine months of fiscal 1999, excluding non-recurring charges and gains,
represent a 7% decline from pro forma net earnings of $139,476,000 for the first
nine months of fiscal 1998.

                                (Page 23 of 32)
<PAGE>
 
Pro forma net earnings of $46,160,000 for the third quarter of fiscal 1999
decreased 3% compared to pro forma net earnings of $47,572,000 for the second
quarter of fiscal 1999 due to a decline in sales and a decline in the gross
margin as a percentage of sales offset partially by a decline in operating
expenses. The declines in sales and pro forma net earnings in the third quarter
of fiscal 1999 compared to the second quarter of fiscal 1999 were principally
the result of revenue declines associated with the Company's circuit switched
networking products.


FINANCIAL CONDITION

During the first nine months of fiscal 1999 ended January 31, 1999, working
capital increased from $945,892,000 to $1,251,751,000. The Company's cash and
equivalents of $929,005,000 represented an increase of $429,727,000 during the
first nine months of fiscal 1999, due mainly to the sale of the Company's equity
interests in certain associated companies which yielded proceeds of 
$434,612,000. Cash flow from operations of $215,793,000 during the first nine 
months of fiscal 1999, due mainly to net earnings of $208,953,000, and the 
cash flow from stock option exercises of $69,695,000 were more than offset by 
additions to property, plant and equipment of $165,772,000 and additions to 
other assets of $127,975,000.

Two principal components of the Company's working capital are accounts
receivable and inventory. Management believes that the payment terms and
conditions extended to the Company's customers, arrangements with the Company's
suppliers, and the levels of inventory the Company carries relative to its
levels of sales are consistent with practices generally prevailing in the
networking industry.

Existing short term bank credit facilities consist of operating lines of credit
with certain banks in the aggregate amount of $176,992,000, primarily with banks
in Canada, the United Kingdom, the United States, Chile and Brazil. At 
January 31, 1999, $5,852,000 was being utilized under these credit facilities,
all of which was attributable to Coasin S.A. and Acacia S.A. The Company has a
51% equity interest in each of Coasin S.A. and Acacia S.A.

In December 1998, the Company sold its minority ownership position in Cambrian
Systems Corporation ("Cambrian") to Northern Telecom Limited ("Nortel") for cash
proceeds of US$93,739,000 (Cdn$144,303,000). The proceeds exclude potential
earn-out payments of approximately US$23,000,000 which are to be received by the
Company if certain specified financial performance targets are met by Cambrian.

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

In October 1998, the Company completed the sale of its majority ownership
position in Advanced Computer Communications ("ACC") to Telefonaktiebolaget LM
Ericsson for cash proceeds of US$167,319,000 (Cdn$258,308,000).

Management anticipates that the level of capital expenditures for fiscal 1999
will be lower than the level of capital expenditures incurred in fiscal 1998.
The Company may also increase its current investments in associated companies.
The Company intends to fund capital expenditures and investments with existing
cash and cash expected to be generated from operations during fiscal 1999,
supplemented as appropriate by divestitures or the issuance of shares or debt.
In addition, the Company may use a portion of its cash resources to extend or
enhance its business and diversify its marketing and distribution channels
through acquisitions of or investments in businesses, products or technologies
or through the formation of strategic partnerships with other companies.

Management believes that the Company's liquidity in the form of existing cash
resources, its credit facilities, as well as cash generated from operations and
financing activities, will prove adequate to meet its operating and capital
expenditure requirements through the end of fiscal 1999 and into the foreseeable
future.

                                (Page 24 of 32)
<PAGE>
 
YEAR 2000 DATE COMPLIANCE

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

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

 .  Year 2000 Date Compliance Statement to Customers, which indicates how the
   Company interprets "Year 2000 Date Compliance" ;

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

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

The Company has completed the evaluation of its major product offerings. The
majority of products have been classified as either Compliant, having Compliant
versions currently available or are Date Compliance Not Applicable. The majority
of older or "discontinued" product offerings have been reviewed, with certain
offerings found to be Non-Compliant, and others that will not be evaluated for
Year 2000 Date Compliance. All the formal messages and Year 2000 Date Compliance
Additional Notes are available on the Company's world wide web site at
http://www.newbridge.com/year2000/index.html.

All operating groups within the Company are addressing the Year 2000 date
compliance issue as it pertains to assessment, remediation and testing of
information technology (IT) systems and non-IT systems both internal and
external to their organizations. The costs incurred by each operating group are
financed internally by those groups within the framework of their operating
budgets and are assumed not to cause any change in the structure of the
Company's financial results (operating expenses as a percentage of sales, for
example). Incremental spending on the Year 2000 date compliance issue is limited
to specific program costs which are outside of the normal course of business and
are necessitated purely as a result of Year 2000 date compliance. For example,
the Company's operating groups regularly update IT infrastructure in order to
better service their customers and operate more efficiently; the fact that a
normal course upgrade moves the organization to a Year 2000 compliant system is
obviously beneficial to achieving Company-wide compliance but the cost is not
considered to be incremental to the Company's normal spending. Incremental
spending incurred in fiscal periods reported to date and projected to be spent
in fiscal 1999 and fiscal 2000 associated with the Year 2000 transition
represent less than 1% of the Company's revenues and expected revenues. There
can be no assurance that these costs will not be greater than anticipated,
however, as the Company progresses through its program greater certainty
regarding costs, particularly related to remediation and contingency plans for
identified risks, will be possible.

                                (Page 25 of 32)
<PAGE>
 
The Company introduced a formal supplier contact process in March 1998 and the
subsequent assessment of Year 2000 responses is active with priority allocated
to critical suppliers. The process of obtaining information on Year 2000 date
compliance from certain suppliers has not been completed.

The Company is still assessing the potential impact of Year 2000 date compliance
on its suppliers and customers and is currently not able to fully determine the
effect on its operations and financial condition if key suppliers or customers
do not adequately prepare for Year 2000 date compliance transition on a timely
basis. Failure of suppliers on which the Company relies or customers to address
this issue in a timely manner could result in a material financial risk to the
Company. As a result, the Company is actively undertaking Year 2000 Date
Compliance contingency planning as an integral part of the overall program.
Included in the contingency plan the Company is addressing the service and
support requirements for its customers over the Year 2000 rollover period.

                                (Page 26 of 32)
<PAGE>
 
                          PART II.   OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

In the fourth quarter of fiscal 1998 the Company reached an agreement in
principle to settle the class action lawsuit which was filed in United States
District Court in Washington, D.C. during the fiscal year ended April 30, 1995.
The lawsuit purported to be a class action on behalf of a class of persons who
purchased securities of the Company between March 29 and August 1, 1994 and
alleged that the Company made false and misleading statements in violation of
United States securities law and common law. The Court entered an order and
final judgment approving the settlement and dismissing the lawsuit with
prejudice on October 23, 1998. The Company recorded the expense in connection
with the settlement of $2,642,000 in the fourth quarter of fiscal 1998
representing the direct costs incurred.

Lucent Technologies Inc. ("Lucent Technologies") filed a complaint during the
fiscal year ended April 30, 1998 in United States District Court in Delaware
against the Company and its United States subsidiary, Newbridge Networks Inc.
Lucent Technologies manufactures and sells telecommunications systems, software
and products, and is both a distributor of the Company's products and a
competitor of the Company. The complaint alleges that the Company's manufacture
and sale in the United States of Newbridge frame relay and ATM (asynchronous
transfer mode) switch products infringe certain United States patent rights
claimed by Lucent Technologies, and requests actual and trebled damages in an
unspecified amount. Based upon its present understanding of the laws in the
United States and the facts, the Company believes it has meritorious defenses to
these claims. The Company has filed an answer to the complaint, as well as a
counterclaim alleging unfair competition by Lucent Technologies, and intends to
defend this action vigorously.

From time to time, the Company receives notifications that it is or may be
infringing the intellectual property rights of third parties. There can be no
assurance that any such claims or potential claims will not require the Company
to enter into license agreements or result in protracted and costly litigation,
regardless of the merits of such claims. No assurance can be given that any
necessary licenses will be available or that, if available, such licenses can be
obtained on commercially reasonable terms.

ITEM 5.   OTHER INFORMATION

The "Cautionary Statement Regarding Forward-Looking Information" contained in
"Market for Registrant's Common Equity and Related Stockholder Matters" in the
Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1998 is
incorporated herein by reference and made a part hereof.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

  a)  Exhibits

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

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


          Exhibit 27    Financial data schedule

                                (Page 27 of 32)
<PAGE>
 
                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                         NEWBRIDGE NETWORKS CORPORATION
                                  (Registrant)



Date: March 10, 1999       By: /s/ Terence H. Matthews
                               ----------------------------------- 
                               Terence H. Matthews,
                               Chairman of the Board of
                               Directors and Chief
                               Executive Officer



Date: March 10, 1999       By: /s/ Kenneth B. Wigglesworth
                               ----------------------------------- 
                               Kenneth B. Wigglesworth,
                               Executive Vice President,
                               Chief Financial Officer

                                (Page 28 of 32)
<PAGE>
 
                         EXHIBIT INDEX

<TABLE> 
<CAPTION> 

                                                                   Page No.
                                                                   --------
<S>         <C>                                                    <C>
     11.1    Computation of earnings per share under accounting 
             principles generally accepted in Canada...............    30
 
     11.2    Computation of earnings per share under accounting
             principles generally accepted in the United States....    31
 
     27      Financial data schedule...............................    32
</TABLE>

                                (Page 29 of 32)