Stratus Technologies Bermuda Holdings Ltd. Announces Financial Results for Second Quarter of Fiscal 2012

HAMILTON, BERMUDA--(Marketwire - Oct 13, 2011) - Stratus Technologies Bermuda Holdings Ltd. (together with its consolidated subsidiaries, "Stratus" or the "Company") a global provider of uptime assurance, today furnished its quarterly financial results with the United States Securities and Exchange Commission on Form 6-K for the fiscal quarter ended August 28, 2011.

For the second quarter ended August 28, 2011, total revenue was $50.7 million, a decrease of $0.5 million or 0.9% as compared to the $51.2 million in the second quarter ended August 29, 2010. Profit from operations for the second quarter ended August 28, 2011 was $8.8 million compared to $9.8 million for the same period last year. The net loss for the second quarter ended August 28, 2011 was $6.3 million compared to $3.5 million for the same period last year. The net loss for the second quarter ended August 28, 2011 includes a loss on extinguishment of debt of $1.2 million related to the excess cash flow payment made on June 30, 2011. The Company reported Adjusted EBITDA, a non-GAAP financial measure, for the second quarter ended August 28, 2011 of $11.5 million compared to $13.1 million for the same period last year. Please refer to the reconciliation of Adjusted EBITDA to GAAP financial measures in the below "Consolidated Statements of Operations."

For the year-to-date period ended August 28, 2011, total revenue was $100.3 million, an increase of $2.1 million or 2.2% as compared to the $98.1 million in the year-to-date period ended August 29, 2010. Profit from operations for the year-to-date period ended August 28, 2011 was $15.8 million compared to $20.0 million for the same period last year. Profit from operations for the year-to-date period ended August 29, 2010 included a gain on sale of subsidiary of $3.7 million related to the sale of our proprietary Emergent Networks Solutions VOIP Software business and certain net assets related to our telecommunications business ("Emergent Business") in January 2009. The net loss for the year-to-date period ended August 28, 2011 was $12.2 million compared to $6.6 million for the same period last year. Net loss for the year-to-date period ended August 28, 2011 includes a loss on extinguishment of debt of $1.2 million related to the excess cash flow payment made on June 30, 2011. Net loss for the year-to-date period ended August 29, 2010 includes a loss on extinguishment of debt of $3.8 million related to the April 2010 Refinancing. The Company reported Adjusted EBITDA, a non-GAAP financial measure, for the year-to-date period ended August 28, 2011 of $21.4 million compared to $23.1 million for the same period last year. Please refer to the reconciliation of Adjusted EBITDA to GAAP financial measures in the below "Consolidated Statements of Operations."

Second Quarter Results Conference Call
A conference call to review second quarter financial results will be held today, October 13, 2011 at 1:30 p.m. Eastern Time and may be accessed by calling 1-888-549-7750 (U.S. only) or 1-480-629-9722 with a conference ID of 4480045. A recording of this conference call will be available at 1-800-406-7325 (U.S. only) or 1-303-590-3030 with a conference ID of 4480045 for 30 days.

About Stratus
Stratus delivers uptime assurance for the applications its customers depend on most for their success. With its resilient software and hardware technologies, together with proactive availability monitoring and management, Stratus products help to save lives and to protect the business and reputations of companies, institutions, and governments the world over. To learn more about worry-free computing, visit www.stratus.com.

Forward-Looking Statements: This press release may contain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). You are cautioned that such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in such forward-looking statements. Such risks and uncertainties include, but are not limited to: the continued acceptance of the Company's products by the market; the Company's ability to enter into new service agreements and to retain customers under existing service contracts; the Company's ability to source quality components and key technologies without interruption and at acceptable prices; the Company's ability to comply with certain covenants in the governing documents for the Company's credit facilities and other debt instruments; the Company's ability to refinance indebtedness when required; the Company's reliance on sole source manufacturers and suppliers; the presence of existing competitors and the emergence of new competitors; the Company's financial condition and liquidity and the Company's leverage and debt service obligations; economic conditions globally and in the Company's most important markets; developments in the fault-tolerant and high-availability server markets; claims by third parties that the Company infringes upon their intellectual property rights; the Company's success in adequately protecting its intellectual property rights; the Company's success in maintaining efficient manufacturing and logistics operations; the Company's ability to recruit, retain and develop appropriately skilled employees; exposure for systems and service failures; fluctuations in foreign currency exchange rates; fluctuations in interest rates; current risks of terrorist activity and acts of war; the impact of changing tax laws; the impact of changes in policies, laws, regulations or practices of foreign governments on the Company's international operations; and the impact of natural or man-made disasters. Any forward-looking statements in this press release are made as of the date hereof, and the Company undertakes no duty to further update such forward-looking statements.

Stratus, ftServer, Continuum, ActiveService, CALM and Stratus Avance are trademarks or registered trademarks of Stratus Technologies Bermuda Ltd. The Stratus Technologies logo is a trademark of Stratus Technologies Bermuda Ltd. All other marks are the property of their respective owners.

© 2011 Stratus Technologies Bermuda Ltd. All rights reserved.

Stratus®, ftServer®, Continuum®, ActiveService™, CALM® and Stratus Avance® are trademarks or registered trademarks of ours. All other trade names, service marks and trademarks appearing in this annual report are the property of their respective holders. Our use or display of other parties' trade names, service marks or trademarks is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, the trade name, service mark or trademark owners.

STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS (Unaudited)
		August 28,				February 27,
		2011				2011
		(Dollars in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents		$	24,741			$	28,100
Accounts receivable, net of allowance for doubtful accounts of $146 and $315, respectively			37,354				38,079
Inventory			7,346				7,485
Deferred income taxes			1,559				1,440
Prepaid expenses and other current assets			4,821				4,370
Total current assets			75,821				79,474
Property and equipment, net			11,887				13,695
Intangible assets, net			3,380				3,438
Goodwill			9,622				9,584
Deferred income taxes			1,941				1,803
Deferred financing fees			10,477				10,993
Other assets			4,517				4,867
Total assets		$	117,645			$	123,854
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt		$	5,000			$	5,000
Accounts payable			7,807				7,291
Accrued expenses			11,155				12,828
Accrued interest payable			10,505				10,625
Income taxes payable			234				285
Deferred revenue			36,756				36,199
Total current liabilities			71,457				72,228
Long-term debt, net of discount			252,350				249,069
Embedded derivatives			20,243				18,955
Deferred revenue and other liabilities			15,222				14,328
Total liabilities			359,272				354,580
Redeemable convertible preferred stock:
Series A: 7,000 shares authorized and 6,561 shares issued and outstanding at August 28, 2011 and February 27, 2011 (liquidation preference of $105,145 and $101,101, respectively)			105,145				101,101
Series B: 20,524 shares authorized; 3,532 issued and outstanding at August 28, 2011 and February 27, 2011 (liquidation preference of $56,599 and 54,423, respectively)			56,599				54,423
Right to shares of Series B redeemable convertible preferred stock			5,518				5,518
Total redeemable convertible preferred stock			167,262				161,042
Stockholders' deficit:
Ordinary stock, $0.5801 par value, 181,003 shares authorized and 28,809 shares issued and outstanding at August 28, 2011 and February 27, 2011			16,712				16,712
Series A ordinary stock: $0.5801 par value, 7,678 shares authorized; 0 shares issued and outstanding at August 28, 2011 and February 27, 2011, respectively			-				-
Series B ordinary stock: $0.5801 par value, 90,115 shares authorized; 15,512 shares issued and outstanding at August 28, 2011 and February 27, 2011, respectively			8,998				8,998
Additional paid in capital			-				-
Accumulated deficit			(436,953	)			(418,687	)
Accumulated other comprehensive gain			2,354				1,209
Total stockholders' deficit			(408,889	)			(391,768	)
Total liabilities, redeemable convertible preferred stock and stockholders' deficit		$	117,645			$	123,854

STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the fiscal thirteen week periods ended August 28, 2011 and August 29, 2010
		August 28,				August 29,
		2011				2010
REVENUE
Product		$	17,347			$	18,225
Service			33,356				32,947
Total revenue			50,703				51,172
COST OF REVENUE
Product			7,635				8,112
Service			14,331				14,597
Total cost of revenue			21,966				22,709
Gross profit			28,737				28,463
OPERATING EXPENSES
Research and development			6,930				6,613
Sales and marketing			7,459				7,100
General and administrative			5,246				4,637
Restructuring charges			-				47
Management fees			300				300
Total operating expenses			19,935				18,697
Profit from operations			8,802				9,766
Interest income			5				9
Interest expense			(11,969	)			(11,406	)
Loss on extinguishment of debt			(1,222	)			-
Other expense, net			(1,632	)			(1,794	)
Loss before income taxes			(6,016	)			(3,425	)
Provision for income taxes			309				46
Net loss		$	(6,325	)		$	(3,471	)
EBITDA TABLE:
Net (loss) income		$	(6,325	)		$	(3,471	)
Add:
Interest expense, net			11,964				11,397
Provision for income taxes			309				46
Depreciation and amortization			1,939				2,364
EBITDA (1)		$	7,887			$	10,336
Add (deduct)
Restructuring (a)			-				47
Stock-based compensation expense (b)			81				117
Management fees (c)			300				300
Reserves (e)			160				336
Loss on extinguishment of debt (f)			1,222				-
Other expense, net (g)			1,837				1,998
Total adjustments			3,600				2,798
Adjusted EBITDA (1)		$	11,487			$	13,134

STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the fiscal twenty-six week periods ended August 28, 2011 and August 29, 2010
		August 28,				August 29,
		2011				2010
		(Dollars in thousands)
REVENUE
Product		$	34,236			$	31,331
Service			66,033				66,806
Total revenue			100,269				98,137
COST OF REVENUE
Product			15,123				14,857
Service			28,240				28,817
Total cost of revenue			43,363				43,674
Gross profit			56,906				54,463
OPERATING EXPENSES
Research and development			14,276				13,633
Sales and marketing			15,245				14,064
General and administrative			11,000				9,849
Amortization of intangibles			-				52
Restructuring charges			-				43
(Gain) on sale of subsidiary			-				(3,655	)
Management fees			600				517
Total operating expenses			41,121				34,503
Profit from operations			15,785				19,960
Interest income			11				65
Interest expense			(24,154	)			(20,502	)
Loss on extinguishment of debt			(1,222	)			(3,751	)
Other expense, net			(2,015	)			(1,844	)
Loss before income taxes			(11,595	)			(6,072	)
Provision for income taxes			625				493
Net loss		$	(12,220	)		$	(6,565	)
EBITDA TABLE:
Net loss		$	(12,220	)		$	(6,565	)
Add:
Interest expense, net			24,143				20,437
Provision for income taxes			625				493
Depreciation and amortization			3,917				4,934
EBITDA (1)		$	16,465			$	19,299
Add (deduct)
Restructuring (a)			-				43
Stock-based compensation expense (b)			174				267
Management fees (c)			600				517
(Gain) on sale of subsidiary (d)			-				(3,655	)
Reserves (e)			439				575
Loss on extinguishment of debt (f)			1,222				3,751
Other expense, net (g)			2,548				2,337
Total adjustments			4,983				3,835
Adjusted EBITDA (1)		$	21,448			$	23,134

1) EBITDA represents income (loss) before interest, taxes, depreciation and amortization. We present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. In addition to other applications, EBITDA is used by us and others in our industry to evaluate and price potential acquisition candidates.

Adjusted EBITDA represents EBITDA with certain additional adjustments, as calculated pursuant to the requirements of the interest maintenance covenant under our Revolving Credit Facility. We present Adjusted EBITDA because we believe that it allows investors to assess our ability to meet the interest maintenance covenant under our Revolving Credit Facility.

Our management also uses Adjusted EBITDA internally as a basis upon which to assess our operating performance, and Adjusted EBITDA is also a factor in the evaluation of the performance of our management in determining compensation. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under Generally Accepted Accounting Principles ("GAAP'). Some of these limitations are:

• EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements for capital expenditures, or contractual commitments;
• EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
• EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
• EBITDA and Adjusted EBITDA do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and
• Other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only supplementally, as described above. See the Statements of Cash Flows attached to this report.

1. In order to better align expenses with anticipated revenues, we implemented restructuring programs in prior years. These programs were designed to streamline our business model and centralize certain functions. The expense for the quarter-to-date year-to-date fiscal periods ended August 29, 2010 reflect changes to prior estimates of liability.

2. In the quarter-to-date and year-to-date fiscal periods ended August 28, 2011 we recorded non-cash stock-based compensation expense charges of $0.1 and $0.2 million, respectively. In the quarter-to-date and year-to-date fiscal periods ended August 29, 2010, we recorded non-cash stock-based compensation expense charges of $0.1 and $0.3 million, respectively. These expenses related to share-based awards to employees.

3. On April 30, 2010 we entered into a four year advisory and strategic planning agreement with an investment banking firm. The yearly fee is $0.5 million.
   
   On October 1, 2005, we entered into an Agreement for Management, Advisory, Strategic Planning and Consulting Services with Investcorp International, Inc., an affiliate of the Investcorp Group, and MidOcean US Advisor, LP, an affiliate of MidOcean, for an aggregate yearly fee of $0.7 million which renews on an annual basis. The payment of the yearly fee is restricted in the Senior Secured Notes and in the Second Lien Credit Facility until these credit facilities are paid in full.
   
   The long-term accrued liability related to this yearly fee totaled $2.7 million and $2.4 million at August 28, 2011 and February 27, 2011, respectively.

4. As a result of the sale of our proprietary Emergent Networks Solutions Voice over Internet Protocol ("VOIP") Software business and certain net assets related to our telecommunications business (collectively, the "Emergent Business") in January 2009, we recorded a gain on the sale in the year-to-date fiscal period ended August 29, 2010 of $3.7 million.

5. In the quarter-to-date and year-to-date fiscal periods ended August 28, 2011, we incurred $0.2 million and $0.4 million of non-cash inventory write downs, respectively. In the quarter-to-date and year-to-date fiscal periods ended August 29, 2010, we incurred $0.3 million and $0.6 million of non-cash inventory write downs, respectively.

6. In the quarter-to-date and year-to-date fiscal period ended August 28, 2011 we recorded a $1.2 million loss on extinguishment of debt related to the excess cash flow payment in the fiscal second quarter 2012 related to the Senior Secured Notes. The loss is due to a premium, the write off of a pro rata portion of deferred financing fees along with debt discount and related fees offset by the reduction of the excess cash flow embedded derivative liability.
   
   In the year-to-date fiscal period ended August 29, 2010 we recorded $3.8 million loss on extinguishment of debt for the First Lien Credit Facility and the Second Lien Credit Facility due to the write off of deferred financing fees and debt discount as a result of the April 2010 Refinancing.

7. In the quarter-to-date fiscal period ended August 28, 2011, we recorded other expense, net of $1.8 million, primarily consisting of $1.3 million expense due to the net change in fair value of the embedded derivatives related to the Senior Secured Notes, $0.1 million bank fees, $0.3 million of net foreign currency losses and $0.1 million of net miscellaneous and non-recurring charges. In the quarter-to-date fiscal period ended August 29, 2010, we recorded other expense, net of $2.0 million, primarily consisting of $0.9 million expense due to the net change in fair value of the embedded derivatives related to the Senior Secured Notes, $0.2 million bank fees, $0.7 million of net foreign currency loss and $0.2 million of net miscellaneous and non-recurring charges.
   
   In the year-to-date fiscal period ended August 28, 2011, we recorded other expense, net of $2.5 million, primarily consisting of $1.7 million expense due to the net change in fair value of the embedded derivatives related to the Senior Secured Notes, $0.3 million bank fees, $0.1 million of net foreign currency losses, $0.3 million of one-time public filing registration costs and $0.1 million of net miscellaneous and non-recurring charges. In the year-to-date fiscal period ended August 29, 2010, we recorded other expense, net of $2.3 million, primarily consisting of $0.9 million expense due to the net change in fair value of the embedded derivatives related to the Senior Secured Notes, $0.3 million bank fees, $0.7 million of net foreign currency loss and $0.4 million of net miscellaneous and non-recurring charges.

STRATUS TECHNOLOGIES BERMUDA HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the fiscal twenty-six week periods ended August 28, 2011 and August 29, 2010
			August 28,				August 29,
			2011				2010
			(Dollars in thousands)
OPERATING ACTIVITIES
Cash flows from operating activities:
Net loss			$	(12,220	)		$	(6,565	)
Adjustments to reconcile net loss to net cash provided by operating activities:
	Depreciation and amortization			3,917				4,934
	Amortization of deferred financing costs			5,143				3,807
	Stock-based compensation			174				267
	Provision for doubtful accounts			122				61
	Inventory provision			439				575
	Loss on extinguishment of debt			1,222				3,751
	Premium on excess cash flow payment			(999	)			-
	Loss on change in fair value of embedded derivatives			1,662				882
	Gain from sale of subsidiary			-				(3,655	)
	Gain on retirement of property and equipment			-				(2	)
	Interest payable-in-kind			3,847				2,883
Changes in assets and liabilities
	Accounts receivable			1,265				2,273
	Inventory			(562	)			(1,208	)
	Prepaid expenses and other current assets			(346	)			(943	)
	Accounts payable			323				835
	Accrued expenses			(1,819	)			(1,407	)
	Accrued interest payable			(120	)			7,323
	Income taxes payable			(71	)			353
	Deferred revenue			497				(4,613	)
	Other long-term assets and liabilities			742				1,225
Net cash provided by operating activities				3,216				10,776
INVESTING ACTIVITIES
Cash flows from investing activities:
	Acquisition of property and equipment			(1,787	)			(3,266	)
	Proceeds from sale of subsidiary			-				3,555
	Other long-term assets			(40	)			(36	)
Net cash (used in) provided by investing activities				(1,827	)			253
FINANCING ACTIVITIES
Cash flows from financing activities:
	Proceeds from issuance of long-term debt, Series B preferred stock and Series B ordinary stock			-				207,281
	Payments on long-term debt			(4,997	)			(218,000	)
	Payment of debt and equity issuance fees			(308	)			(12,930	)
	Proceeds from revolving credit facility			-				8,000
	Payments on revolving credit facility			-				(30,000	)
Net cash used in financing activities				(5,305	)			(45,649	)
Effect of exchange rate changes on cash				557				(30	)
Net decrease in cash and cash equivalents				(3,359	)			(34,650	)
Cash and cash equivalents at beginning of period				28,100				56,768
Cash and cash equivalents at end of period			$	24,741			$	22,118