Cabletron Systems Announces Fourth Quarter Results With All-Time High Quarterly Sales - Company Financial Information

Cambridge Telcom Report, April 3, 2000

Cabletron Systems, Inc. (NYSE:CS), a holding company for infrastructure companies focused on the new Internet economy, Wednesday reported financial results for the fourth quarter and fiscal year ended February 29 2000.

"We are very pleased with our results for the fourth quarter, the fifth consecutive quarter Cabletron has met or surpassed Wall Street expectations," said Piyush Patel, Cabletron CEO and chairman. "Our business metrics have continued to greatly improve and our balance sheet is the strongest it has ever been. The total profitability and operating metric ratios for Cabletron in the past fiscal year will rank comfortably with America's top corporations. We are now in a position of strength that allows us to accelerate the transformation of Cabletron into a holding company and four separate entities focused on building the Internet Infrastructure."

Net sales for the fourth quarter of fiscal 2000 were $381.8 million, compared with $371.7 million in the prior quarter and $345.1 million in the fourth quarter of fiscal 1999. Net sales year-over-year increased by approximately 10.6%.

On a pro forma basis, net income increased to $28.1 million or $0.15 per diluted share, compared to pro forma net income of $22.0 million, or $0.12 per diluted share, in the prior quarter. The pro forma net income for the fourth quarter of fiscal 1999 was $3.8 million or $0.02 per diluted share for year-over-year EPS growth of 650.0%.

Including other income and all charges, actual net income for the quarter ended February 29, 2000, was $431.2 million or $2.23 per diluted share. This compares to actual net income of $42.6 million or $0.22 per diluted share for the previous quarter and actual net loss of $12.7 million or $0.07 per diluted share in the same period last year. The quarter ended February 29 2000 contains $697.0 million ($421.6 million, net of tax) related to realized gain from the sale of its FlowPoint division and subsequent sale of a portion of its holdings in publicly traded equities.

          Pro Forma Condensed Statements of Operations
              (in thousands, except per share data)

                    Three Months Ended        Twelve Months Ended
              Q4 FY2000 Q3 FY2000 Q4 FY1999   FY 2000     FY 1999
(Unaudited)    Feb. 29,  Nov. 30,  Feb. 28,   Feb. 29,    Feb. 28,
                 2000      1999      1999       2000        1999

Sales        $ 381,768 $ 371,653 $ 345,073 $ 1,459,593 $ 1,411,279

Net income
 (loss)      $  28,143 $  21,993 $   3,823 $    69,917 ($    9,460)

Net income
 (loss)
 per share
 --basic     $    0.15 $    0.12 $    0.02 $      0.39 ($     0.06)

Net income
 (loss)
 per share
 --diluted   $    0.15 $    0.12 $    0.02 $      0.37 ($     0.06)

Weighted ave
 number of
 common
 shares
 - Basic       182,497   180,504   172,161     177,541     167,432

Weighted ave
 number of
 common
 shares
 - Diluted     193,132   189,561   181,342     188,618     167,432

Earnings (loss)
 before interest,
 taxes,
 depreciation and
 amortization
 (EBITDA)    $  52,316 $  46,682 $  23,079 $   160,142 $    49,802

Note: Pro forma results for the periods ended February 29 2000, November 30, 1999 and February 28, 1999, exclude the amortization of intangible assets related to purchased acquisitions, special charges, other income, net and certain other charges incurred as a result of the manufacturing divestiture. The tax effect of all adjustments has also been excluded. One-time charges included in operating results related to the manufacturing divestiture that were excluded from the pro forma calculations, include $5.2 million of inventory costs and $4.7 million of personnel costs which were reflected in cost of sales and SG&A, respectively, during the quarter and twelve months ended February 29 2000. The twelve months ended February 29 2000 also excludes $15.2 million related to inventory write-offs related to the discontinuations of several product lines.

The Corporate Transformation During the fourth quarter of fiscal 2000, Cabletron announced its plans to transform the company into a holding company from which it would launch four separate companies. The companies, which will focus on high growth segments within the Internet infrastructure market, are Aprisma Management Technologies, Enterasys Networks, Riverstone Networks and GlobalNetwork Technology Services. As a holding company, Cabletron Systems will work with each company on completing a successful subsidiary initial public offering. It is the intention of Cabletron to then spin off these companies to shareholders. The holding company will then focus on incubation investments that are currently in Cabletron's portfolio as well as new growth investment opportunities.

On February 24, 2000, Cabletron announced that Silver Lake Partnership agreed to invest up to $200 million to propel Cabletron and the four newly-launched subsidiary companies into their high growth markets--service provider, e-business enterprise, professional services and infrastructure management. The principals of Silver Lake, which include Jim Davidson, Glenn Hutchins, Dave Roux, and the partners of Integral Capital Partners, whose general partners include Roger McNamee, John Powell, and the partners of Kleiner, Perkins, Caufield and Byers, have extensive experience investing in, managing, and financing, the rapid growth of technology companies.