8-K 1 d8k.htm FORM 8-K FORM 8-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported):
  August 6, 2001  
 
 

 

Enterasys Networks, Inc.
(Exact name of registrant as specified in its charter)

 

Delaware
1-10228
04-2797263
(State or other Jurisdiction
of Incorporation)
(Commission
File number)
(IRS Employer
Identification No.)

 
 35 Industrial Way, Rochester, NH
            03867
(Address of principal executive offices)
        ( Zip Code)
 

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

Item 2. Acquisition or Disposition of Assets

Enterasys Networks, Inc. (“Enterasys” or the “Company”, formerly known as Cabletron Systems, Inc. (“Cabletron”)), previously announced a plan to spin-off Riverstone Networks, Inc. (“Riverstone”) to its stockholders. Riverstone will continue to be a provider of Internet infrastructure equipment to telecommunications service providers in the metropolitan area network. On August 6, 2001, the Company completed its spin-off of the shares of Riverstone common stock that it owned through a tax-free distribution of those shares to its stockholders at an exchange ratio of approximately 0.51 shares of Riverstone common stock for each share of Cabletron common stock.

Item 5. Other Events

Stockholder proposals intended to be presented at the Company's 2001 Annual Meeting of Stockholders must be received by the Company no later than September 3, 2001 in order to be considered by the Company's management to be included in the next annual proxy statement and related proxy materials.

If a stockholder wishing to present a proposal at the 2001 Annual Meeting of Stockholders (without regard to whether it will be included in the proxy materials for that meeting) fails to notify the Company by September 3, 2001, the proxies management receives for the meeting will confer discretionary authority to vote on any stockholder proposals properly presented at that meeting.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits

The accompanying pro forma financial statements reflect the treatment of the Riverstone business as discontinued operations and were prepared consistent with Accounting Principles Board Opinion No. 30 “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“APB 30”). The revenues, costs and expenses and assets and liabilities of the Riverstone business have been segregated and reported as “Discontinued Operations” in the accompanying pro forma financial statements.

The discontinued operations financial information presented by Enterasys will differ from the information reported by Riverstone because of intercompany revenue and compensation charges resulting from stock options issued by Riverstone to non-Riverstone employees that were eliminated in consolidation.

The pro forma consolidated statements of operations for the three months ended June 2, 2001 and June 3, 2000 and the three years ended March 3, 2001, February 29, 2000 and February 28, 1999 and pro forma consolidated balance sheet at June 2, 2001, prepared consistent with APB 30, follow.

 

ENTERASYS NETWORKS, INC.
 
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
 
(in thousands, except per share amounts)
 
(unaudited)
 
     Three months ended June 2, 2001
     Enterasys
Segment
    Aprisma
Segment
    Riverstone
Segment
    Other
Segment
    Eliminations
and Other
Reconciling
Items
    As
reported on
Form 10-Q
    Pro forma Riverstone
adjustments of
Discontinued
Operations
    Pro
forma
Consolidated
Net revenues    $232,186    $22,335    $44,167      $ 11,914      $ (3,704 )    $306,898      $(43,770 )    $263,128  
Cost of revenues (excludes stock-based
    compensation of $93)		    116,216    5,672    19,071      7,518      (396 )    148,081      (19,071 )    129,010  
    
 
 
    
    
    
    
    
  
    Gross margin    115,970    16,663    25,096      4,396      (3,308 )    158,817      (24,699 )    134,118  
Operating expenses:
    Research and development (excludes
        stock-based compensation of $1,906)		    20,798    4,016    13,286      1,220      —      39,320      (13,286 )    26,034  
    Selling, general and administrative
        (excludes stock-based compensation
        of $233)		    66,723    12,211    17,746      21,623      —      118,303      (17,746 )    100,557  
    Amortization of intangible assets    —    —    —      —      11,284      11,284      (388 )    10,896  
    Stock based compensation    —    —    —      —      2,232      2,232      (644 )    1,588  
    Special charges    —    —    —      —      —      —      —      —  
    
 
 
    
    
    
    
    
  
            Income (loss) from operations    28,449    436    (5,936 )    (18,447 )    (16,824 )    (12,322 )    7,365      (4,957 )
Interest income, net    2,584    968    2,300      4,550      —      10,402      (2,300 )    8,102  
Other income (expense), net    —    —    —      —    12,600      12,600      —      12,600  
Minority interest    —    —    —      —    652      652      (675 )    (23 )
    
 
 
    
    
    
    
    
  
            Income (loss) from continuing
                operations before income taxes
                and cumulative effect of a change
                in accounting principle		    31,033    1,404    (3,636 )    (13,897 )    (3,572 )    11,332      4,390      15,722  
Income tax expense (benefit)    —    —    —      —      —      6,206      1,985      8,191  
    
 
 
    
    
    
    
    
  
            Income (loss) from continuing
                operations		    31,033    1,404    (3,636 )    (13,897 )    (3,572 )    5,126      2,405      7,531  
Income (loss) from discontinued operations
    (net of tax of $2.0 million)		                   —      (2,405 )    (2,405 )
                                      
    
    
  
            Income (loss) before cumulative
                effect of accounting change		                   5,126      —      5,126  
Cumulative effect of a change in
    accounting principle, net of $4.9 million
    tax expense		                   7,742 *    —    7,742  
                                      
    
    
  
            Net income (loss)                   12,868      —      12,868  
                                      
    
    
  
Dividend effect of beneficial conversion
    feature to Series A and Series B
    Preferred Stockholders		                   —      —    —  
Accretive Dividend of Series A and Series
    B Preferred Shares		                   (3,067 )    —    (3,067 )
                                      
    
    
  
            Net income (loss) to common
                shareholders		                   $    9,801      $          0      $    9,801  
                                      
    
    
  
Per common share:
Basic earnings:
    Income (loss) from continuing
        operations and dividends related to
        Series A and Series B Preferred
        Shares		                   $0.01         $0.02  
    Income (loss) from discontinued
        operations		                   $0.00         $(0.01 )
    Cumulative effect of a change in
        accounting principle		                   $0.04         $0.04  
    Net income (loss) attributable to
        common shareholders		                   $0.05         $0.05  
Diluted earnings:                        
    Income (loss) from continuing
        operations and dividends related to
        Series A and Series B Preferred
        Shares		                   $0.01         $0.02  
    Income (loss) from discontinued
        operations		                   $0.00         $(0.01 )
    Cumulative effect of a change in
        accounting principle		                   $0.04         $0.04  
    Net income (loss) attributable to
        common shareholders		                   $0.05         $0.05  
Weighted-average number of common
    shares outstanding:
        Basic                   188,833         188,833  
                                      
            
  
        Diluted                   192,103         192,103  
                                      
            
  
ENTERASYS NETWORKS, INC.
 
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
 
(in thousands, except per share amounts)
 
(unaudited)
 
     Three months ended June 3, 2000
     Enterasys
Segment
    Aprisma
Segment
    Riverstone
Segment
    Other
Segment
    Eliminations
and Other
Reconciling
Items
    As
reported on
Form 10-Q
    Pro forma Riverstone
adjustments of
Discontinued
Operations
    Pro
forma
Consolidated
Net revenues    $175,703      $15,136      $ 15,778      $ 72,536      $ (4,089 )    $275,064      $(14,122 )    $260,942  
Cost of revenues    91,620      5,442      7,271      52,976      (3,750 )    153,559      (7,271 )    146,288  
    
    
    
    
    
    
    
    
  
    Gross margin    84,083      9,694      8,507      19,560      (339 )    121,505      (6,851 )    114,654  
Operating expenses:
    Research and development    22,421      5,093      10,177      2,808      —      40,499      (10,177 )    30,322  
    Selling, general and administrative    69,433      8,252      10,061      31,169      —      118,915      (10,061 )    108,854  
    Amortization of intangible assets    —      —      —      —      6,488      6,488      (508 )    5,980  
    Special charges    —      —      —      —      25,550      25,550      —      25,550  
    
    
    
    
    
    
    
    
  
            Income (loss) from operations    (7,771 )    (3,651 )    (11,731 )    (14,417 )    (32,377 )    (69,947 )    13,895      (56,052 )
Interest income, net    —      —      (4 )    —      9,480      9,476      4      9,480  
Other income (expense), net    —      —      —      —      1,900      1,900      —      1,900  
Minority interest    —      —      —      —      —      —      —      —  
    
    
    
    
    
    
    
    
  
            Income (loss) from continuing
                operations before income
                taxes		    (7,771 )    (3,651 )    (11,735 )    (14,417 )    (20,997 )    (58,571 )    13,899      (44,672 )
Income tax expense (benefit)    —    —      —      —    —      (20,711 )    5,453      (15,258 )
    
    
    
    
    
    
    
    
  
            Income (loss) from continuing
                operations		    (7,771 )    (3,651 )    (11,735 )    (14,417 )    (20,997 )    (37,860 )    8,446      (29,414 )
Income (loss) from discontinued
    operations (net of tax of $5.5
    million)		                   —      (8,446 )    (8,446 )
                                            
    
    
  
            Net income (loss) to common
                shareholders		                   (37,860 )    —      (37,860 )
                                            
    
    
  
Per common share:
Basic earnings:
    Income (loss) from continuing
        operations		                   $(0.21 )       $(0.16 )
    Income (loss) from discontinued
        operations		                   $0.00         $(0.05 )
    Net income (loss) attributable to
        common shareholders		                   $(0.21 )       $(0.21 )
Diluted earnings:                        
    Income (loss) from continuing
        operations		                   $(0.21 )       $(0.16 )
    Income (loss) from discontinued
        operations		                   $0.00         $(0.05 )
    Net income (loss) attributable to
        common shareholders		                   $(0.21 )       $(0.21 )
Weighted-average number of common
    shares outstanding:
    Basic                   184,116         184,116  
                                            
            
  
    Diluted                   184,116         184,116  
                                            
            
  
ENTERASYS NETWORKS, INC.
 
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
 
(in thousands, except per share amounts)
 
(unaudited)
 
     Year ended March 3, 2001
     Enterasys
Segment
    Aprisma
Segment
    Riverstone
Segment
    Other
Segment
    Eliminations
and Other
Reconciling
Items
    As
reported on
Form 10-K
    Pro forma Riverstone
adjustments of
Discontinued
Operations
    Pro
forma
Consolidated
Net revenues    $793,243    $74,071      $ 98,258      $ 120,393      $ (14,512 )    $1,071,453      $(94,897 )    $ 976,556  
Cost of revenues (excludes stock-based
    compensation of $102)		    397,871    23,016      43,271      107,194      (13,002 )    558,350      (43,271 )    515,079  
    
 
    
    
    
    
    
    
  
    Gross margin    395,372    51,055      54,987      13,199      (1,510 )    513,103      (51,626 )    461,477  
Operating expenses:
    Research and development (excludes
        stock-based compensation of
        $1,758)		    80,717    18,796      41,959      4,662      —      146,134      (41,959 )    104,175  
    Selling, general and administrative
        (excludes stock-based
        compensation of $3,120)		    260,454    41,966      47,947      121,376      —      471,743      (47,947 )    423,796  
    Amortization of intangible assets    —    —      —      —      37,280      37,280      (1,673 )    35,607  
    Stock based compensation    —    —      —      —      4,980      4,980      (3,538 )    1,442  
    Special charges    —    —      —      —      51,150      51,150      —      51,150  
    
 
    
    
    
    
    
    
  
            Income (loss) from operations    54,201    (9,707 )    (34,919 )    (112,839 )    (94,920 )    (198,184 )    43,491      (154,693 )
Interest income, net    6,775    3,038      2,139      —      23,227      35,179      (2,139 )    33,040  
Other income (expense), net    —    —      —      —      (541,127 )    (541,127 )    —      (541,127 )
Minority interest    —    —      —      —      166      166      (166 )    —  
    
 
    
    
    
    
    
    
  
            Income (loss) from continuing
                operations before income
                taxes and cumulative effect of
                a change in accounting
                principle		    60,976    (6,669 )    (32,780 )    (112,839 )    (612,654 )    (703,966 )    41,186      (662,780 )
Income tax expense (benefit)    —    —      —      —      —      (97,963 )    6,088      (91,875 )
    
 
    
    
    
    
    
    
  
            Income (loss) from continuing
                operations		    60,976    (6,669 )    (32,780 )    (112,839 )    (612,654 )    (606,003 )    35,098      (570,905 )
Income (loss) from discontinued
    operations (net of tax of $6.1
    million)		                   —      (35,098 )    (35,098 )
                                         
    
    
  
            Net income (loss)                   (606,003 )    —      (606,003 )
                                         
    
    
  
Dividend effect of beneficial conversion
    feature to Series A and Series B
    Preferred Stockholders		                   (16,854 )    —    (16,854 )
Accretive Dividend of Series A and
    Series B Preferred Shares		                   (6,044 )    —    (6,044 )
                                         
    
    
  
            Net income (loss) to common
                shareholders		                   (628,901 )    —      (628,901 )
                                         
    
    
  
Per common share:
Basic earnings:
    Income (loss) from continuing
        operations and dividends related to
        Series A and Series B Preferred
        Shares		                   $(3.40 )       $(3.21 )
    Income (loss) from discontinued
        operations		                   $0.00         $(0.19 )
    Net income (loss) attributable to
        common shareholders		                   $(3.40 )       $(3.40 )
Diluted earnings:                             
    Income (loss) from continuing
        operations and dividends related to
        Series A and Series B Preferred
        Shares		                   $(3.40 )       $(3.21 )
    Income (loss) from discontinued
        operations		                   $0.00         $(0.19 )
    Net income (loss) attributable to
        common shareholders		                   $(3.40 )       $(3.40 )
Weighted-average number of common
    shares outstanding:
            Basic                   184,770         184,770  
                                         
            
  
            Diluted                   184,770         184,770  
                                         
            
  
ENTERASYS NETWORKS, INC.
 
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
 
(in thousands, except per share amounts)
 
(unaudited)
 
     Year ended February 29, 2000
     Enterasys
Segment
    Aprisma
Segment
    Riverstone
Segment
    Other
Segment
    Eliminations
and Other
Reconciling
Items
    As
reported on
Form 10-K
    Pro forma Riverstone
adjustments of
Discontinued
Operations
    Pro forma
Consolidated
Net revenues    $642,540      $ 52,266      $ 23,076      $741,711       $1,459,593      $(23,076 )    $1,436,517  
Cost of revenues    379,325      17,425      11,976      395,094    —      803,820      (11,976 )    791,844  
    
    
    
    
 
    
    
    
  
    Gross margin    263,215      34,841      11,100      346,617    —      655,773      (11,100 )    644,673  
Operating expenses:
    Research and development    107,243      20,916      30,691      25,764    —      184,614      (30,691 )    153,923  
    Selling, general and
        administrative		    209,831      23,919      15,753      165,065    —      414,568      (15,753 )    398,815  
    Amortization of intangible assets    —      —      —      —    41,270      41,270      (2,060 )    39,210  
    Special charges    —      —      —      —    21,096      21,096      —      21,096  
    
    
    
    
 
    
    
    
  
            Income (loss) from
                operations		    (53,859 )    (9,994 )    (35,344 )    155,788    (62,366 )    (5,775 )    37,404      31,629  
Interest income, net    —    —    (27 )    —    18,614      18,587      27      18,614  
Other income (expense), net    —    —    —    —    746,209      746,209      —      746,209  
    
    
    
    
 
    
    
    
  
            Income (loss) from
                continuing operations
                before income taxes		    (53,859 )    (9,994 )    (35,371 )    155,788    702,457      759,021      37,431      796,452  
Income tax expense (benefit)    —    —    —    —    —    294,750      14,374      309,124  
    
    
    
    
 
    
    
    
  
            Income (loss) from
                continuing operations		    (53,859 )    (9,994 )    (35,371 )    155,788   702,457      464,271      23,057      487,328  
Income (loss) from discontinued
    operations (net of tax of $14.4
    million)		                   —      (23,057 )    (23,057 )
                                        
    
    
  
            Net income (loss) to common
                shareholders		                       $    464,271      $          0      $    464,271  
                                        
    
    
  
Per common share:
Basic earnings:
    Income (loss) from continuing
        operations		                   $2.62         $2.75  
    Income (loss) from discontinued
        operations		                   $0.00         $(0.13 )
    Net income (loss) attributable to
        common shareholders		                   $2.62         $2.62  
Diluted earnings:                        
    Income (loss) from continuing
        operations and dividends
        related to Series A and Series B
        Preferred Shares		                   $2.46         $2.58  
    Income (loss) from discontinued
        operations		                   $0.00         $(0.12 )
    Net income (loss) attributable to
        common shareholders		                   $2.46         $2.46  
Weighted-average number of
    common shares outstanding:
            Basic                   177,541         177,541  
                                         
            
  
            Diluted                   188,618         188,618  
                                         
            
  
 
 
ENTERASYS NETWORKS, INC.
 
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
 
(in thousands, except per share amounts)
 
(unaudited)
 
     Year ended February 28, 1999
     Enterasys
Segment
    Aprisma
Segment
    Riverstone
Segment
    Other
Segment
    Eliminations
and Other
Reconciling
Items
    As
reported on
Form 10-K
    Pro forma Riverstone
adjustments of
Discontinued
Operations
    Pro forma
Consolidated
Net revenues    $ 625,067      $44,391      $  3,284      $738,537       $1,411,279      $  (3,284 )    $1,407,995  
Cost of revenues    404,173      9,217      3,009      394,951       811,350      (3,009 )    808,341  
    
    
    
    
 
    
    
    
  
    Gross margin    220,894      35,174      275      343,586    —      599,929      (275 )    599,654  
Operating expenses:
    Research and development    125,389      24,364      26,647      33,993    —      210,393      (26,647 )    183,746  
    Selling, general and
        administrative		    220,530      18,998      6,264      190,032    —      435,824      (6,264 )    429,560  
    Amortization of intangible assets    —      —      —      —    27,978      27,978      (1,949 )    26,029  
    Special charges    —      —      —      —    217,350      217,350      (150,382 )    66,968  
    
    
    
    
 
    
    
    
  
            Income (loss) from
                operations		    (125,025 )    (8,188 )    (32,636 )    119,561    (245,328 )    (291,616 )    184,967      (106,649 )
Interest income, net    —    —    (28 )    —    15,117      15,089      28      15,117  
Other income (expense), net    —    —    —    —    —    —      —      —  
Minority interest    —    —    —    —    —    —      —    —  
    
    
    
    
 
    
    
    
  
            Income (loss) from
                continuing operations
                before income taxes		    (125,025 )    (8,188 )    (32,664 )    119,561    (230,211 )    (276,527 )    184,995      (91,532 )
Income tax expense (benefit)    —    —    —    —    (31,136 )    (31,136 )    13,265      (17,871 )
    
    
    
    
 
    
    
    
  
            Income (loss) from
                continuing operations		    (125,025 )    (8,188 )    (32,664 )    119,561    (199,075 )    (245,391 )    171,730      (73,661 )
Income (loss) from discontinued
    operations (net of tax of $13.3
    million)		                   —      (171,730 )    (171,730 )
                                         
    
    
  
            Net income (loss) to
                common shareholders		                   $  (245,391 )    $            0      $  (245,391 )
                                         
    
    
  
Per common share:
Basic earnings:
    Income (loss) from continuing
        operations		                   $(1.47 )       $(0.44 )
    Income (loss) from discontinued
        operations		                   $0.00         $(1.03 )
    Net income (loss) attributable to
        common shareholders		                   $(1.47 )       $(1.47 )
Diluted earnings:                        
    Income (loss) from continuing
        operations		                   $(1.47 )       $(0.44 )
    Income (loss) from discontinued
        operations		                   $0.00         $(1.03 )
    Net income (loss) attributable to
        common shareholders		                   $(1.47 )       $(1.47 )
Weighted-average number of
    common shares outstanding:		   
            Basic                   167,432         167,432  
                                         
            
  
            Diluted                   167,432         167,432  
                                         
            
  
 

The accompanying pro forma consolidated balance sheet is the consolidated balance sheet as previously reported in the Form 10-Q for the period ended June 2, 2001, excluding the assets and liabilities of the Riverstone subsidiary, which are recorded as "discontinued operations". This balance sheet includes Enterasys, Aprisma Management Technologies, Inc., GlobalNetwork Technology Services, Inc. and Cabletron items, and does not reflect the balance sheet position of Enterasys as a stand-alone entity. Enterasys intends to release additional balance sheet information shortly.

 

ENTERASYS NETWORKS, INC.      
       
PRO FORMA CONSOLIDATED BALANCE SHEET      
(in thousands, except per share amounts)      
       
(unaudited)   June 2,
2001		  
Assets    
   
 
Current assets:      
   Cash and cash equivalents $ 353,682  
   Investments   104,884  
   Accounts receivable, net of $27,463 allowance for doubtful accounts   177,183  
   Inventories   83,821  
   Deferred income taxes   83,764  
   Prepaid expenses and other assets   113,610  
   Net assets of discontinued operations   188,063  
 
 
         Total current assets   1,105,007  
 
 
Investments   328,514  
Property, plant and equipment, net   73,502  
Intangible assets, net   173,752  
 
 
         Total assets $ 1,680,775  
 
 
       
Liabilities and Stockholders' Equity      
Current liabilities:      
   Accounts payable $ 52,870  
   Accrued expenses   69,573  
   Deferred revenue   70,524  
   Deferred gain   --  
   Income taxes payable   61,345  
 
 
         Total current liabilities   254,312  
   Deferred income taxes   1,199  
 
 
         Total liabilities   255,511  
Minority interest   3,715  
Redeemable convertible preferred stock, $1.00 par value, 65 shares of      
   Series A, 25 shares of Series B and 45 shares of Series C were designated,      
   issued and outstanding (aggregate liquidation preference of Series A and B,      
   65 and 25, respectively)   112,669  
Commitments and contingencies      
Stockholders' equity:      
   Undesignated preferred stock, $1.00 par value. Authorized 1,859 shares   --  
   Common stock, $0.01 par value. Authorized 450,000 shares; issued      
      191,513 shares   1,915  
   Additional paid-in capital   997,870  
   Retained earnings   381,658  
   Unearned stock-based compensation   (14,438 )
   Treasury stock, at cost (2,150 shares)   (57,732 )
 
 
    1,309,273  
   Accumulated other comprehensive income   (393 )
 
 
         Total stockholders' equity   1,308,880  
 
 
         Total liabilities and stockholders' equity $ 1,680,775  
 
 

 

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.

 

 
        ENTERASYS NETWORKS, INC.
August 21, 2001
By: /s/ Enrique P. Fiallo
      Date             Enrique P. Fiallo
              Chairman, President and Chief Executive Officer
   
August 21, 2001
By: /s/ Robert J. Gagalis
      Date              Robert J. Gagalis
               Executive Vice President, Chief Financial Officer