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Registration No. 333-171863
Each Consisting of
$480 Principal Amount of the Outstanding 12% Senior Secured Notes due 2015 of
Stratus Technologies Bermuda Ltd.
and
$520 Principal Amount of the Outstanding 12% Senior Secured Notes due 2015 of
Stratus Technologies, Inc.
Each Consisting of
$480 Principal Amount of the New 12% Senior Secured Notes due 2015 of
Stratus Technologies Bermuda Ltd.
and
$520 Principal Amount of the New 12% Senior Secured Notes due 2015 of
Stratus Technologies, Inc.
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F-1 |
Stratus Technologies, Inc.
111 Powdermill Road
Maynard, Massachusetts 01754
(978) 461-7000.
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(a) | Stratus Technologies Bermuda Holdings Ltd. is the top tier holding company. Stratus Technologies Bermuda Holdings Ltd. has issued Series A Preference Shares to Technology Holdings Ltd., which is not depicted in the above diagram, and Ordinary Shares to external investors including Technology Holdings. The shareholders of Technology Holdings are the Investcorp Group, MidOcean and Intel Atlantic. Additionally, as a result of the Recapitalization Transactions, the Second Lien Lenders were issued in the aggregate approximately 25% of the issued share capital of Holdings, and the purchasers of the Original Units were issued in the aggregate approximately 10%, of the issued share capital of Holdings. Certain additional share issuances by Holdings to the Second Lien Lenders are contemplated in the event that the Issuers do not repay all outstanding indebtedness under the Second Lien Credit Facility by April 30, 2013 or April 30, 2014. See “Equity Ownership” for additional information about Holdings’ stockholders. | |
(b) | Stratus Technologies Bermuda Ltd. owns all Stratus product and customer service intellectual property, and licenses this intellectual property to SRA Technologies Cyprus Limited and unrelated third parties. Upon termination of the intellectual property licensing arrangements with SRA Technologies Cyprus Limited described more fully in note (c) below, Stratus Technologies Bermuda Ltd. would license this intellectual property directly to Stratus Technologies Ireland Limited and unrelated third parties. Stratus Technologies Bermuda Ltd. is 100% owned by Stratus Technologies Bermuda Holdings Ltd. | |
(c) | SRA Technologies Cyprus Limited licenses product and customer service intellectual property from Stratus Technologies Bermuda Ltd. and then sub-licenses the intellectual property to Stratus Technologies Ireland Limited. In connection with certain contemplated internal corporate organizational structure initiatives, we currently anticipate terminating these intellectual property licensing arrangements in the second half of fiscal 2011. Upon termination of these arrangements, Stratus Technologies Ireland Limited would license this intellectual property directly from Stratus Technologies Bermuda Ltd. It is anticipated that the business and operations of SRA Technologies Cyprus Limited would eventually be unwound and that entity dissolved. SRA Technologies Cyprus Limited is 100% owned by Stratus Technologies Bermuda Ltd. |
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(d) | Stratus Technologies, Inc. sells the Stratus products it purchases from Stratus Technologies Ireland Limited to customers in the U.S. Stratus Technologies, Inc. also provides marketing and administrative support to affiliates, provides customer service support on behalf of Stratus Technologies Ireland Limited and performs research and development on behalf of Stratus Technologies Bermuda Ltd. Stratus Technologies, Inc. is 100% owned by Stratus Technologies Bermuda Ltd. | |
(e) | Stratus Technologies Ireland Limited sells Stratus customer service contracts directly to third parties and sells Stratus products to affiliates and third party distributors. Stratus Technologies Ireland Limited also pays royalties to SRA Technologies Cyprus Limited for the use of Stratus customer service and product intellectual property. Upon termination of the intellectual property licensing arrangements with SRA Technologies Cyprus Limited described more fully in note (c) above, Stratus Technologies Ireland Limited would pay royalties directly to Stratus Technologies Bermuda Ltd. for use of this intellectual property. Stratus Technologies Ireland Limited is 100% owned by Stratus Technologies Bermuda Ltd. | |
(f) | AVANCE Technologies Ltd. is a non-operating entity with no assets or liabilities. AVANCE Technologies Ltd. is 100% owned by Stratus Technologies Bermuda Ltd. | |
(g) | Cemprus Technologies, Inc. owns the membership interests in Cemprus, LLC, which holds strategic licenses for our telecommunications business. Cemprus Technologies, Inc. is 100% owned by Stratus Technologies, Inc. and is the sole member of Cemprus, LLC. |
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Issuers | Stratus Technologies Bermuda Ltd. and Stratus Technologies, Inc. | |
Guarantees | The New Notes will be fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by Holdings, certain of the existing and future foreign restricted subsidiaries of Holdings and each existing and future domestic restricted subsidiary of Holdings. In addition, the New U.S. Notes will be guaranteed by the Bermuda Issuer and the New Bermuda Notes will be guaranteed by the U.S. Issuer. | |
Amount | $215,000,000. | |
New Units | 215,000 New Units registered under the Securities Act, each consisting of: |
• | $480 principal amount of new 12% Senior Secured Notes due 2015 of the Bermuda Issuer registered under the Securities Act; and | ||
• | $520 principal amount of new 12% Senior Secured Notes due 2015 of the U.S. Issuer registered under the Securities Act. |
Outstanding Units | 215,000 Outstanding Units, each consisting of: |
• | $480 principal amount of outstanding 12% Senior Secured Notes due 2015 of the Bermuda Issuer; and | ||
• | $520 principal amount of outstanding 12% Senior Secured Notes due 2015 of the U.S. Issuer. |
Exchange Offer | ||
Exchange Offer | We are offering to issue New Units registered under the Securities Act in exchange for a like principal amount and like denomination of our Outstanding Units. We are offering to issue these registered New Units to satisfy our obligations under a registration rights agreement that we entered into with the initial purchasers of the Outstanding Units when we sold them in a transaction that was exempt from the registration requirements of the Securities Act. This Exchange Offer does not cover any of our outstanding share capital, including the Unit Equity Capital offered in connection with the offering of the Original Units. You may tender your Outstanding Units for exchange by following the procedures described under the caption “The Exchange Offer.” | |
Terms of the New Securities | The terms of the New Units, and of the New Notes underlying such Units, that we are issuing in this Exchange Offer are identical in all material respects to the terms of the Outstanding Units, and of the Outstanding Notes underlying such Units, except that the New Units and New Notes (i) will have been registered under the Securities Act, |
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(ii) will not contain certain transfer restrictions and registration rights that relate to the Outstanding Units and Outstanding Notes, and (iii) will not contain certain provisions relating to the payment of additional interest to the holders of the Outstanding Units and Outstanding Notes under circumstances related to the timing of the Exchange Offer. | ||
Tenders; Expiration Date; Withdrawal | The Exchange Offer will expire at 5:00 p.m., New York City time, on May 16, 2011 unless we extend it. If you decide to exchange your Outstanding Units for New Units, you must acknowledge that you are not engaging in, and do not intend to engage in, a distribution of the New Units. You may withdraw any Outstanding Units that you tender for exchange at any time prior to May 16, 2011. If we decide for any reason not to accept any Outstanding Units you have tendered for exchange, those Outstanding Units will be returned to you without cost promptly after the expiration or termination of the Exchange Offer. See “The Exchange Offer—Terms of the Exchange Offer” for a more complete description of the tender and withdrawal provisions. | |
Conditions to the Exchange Offer | The Exchange Offer is subject to customary conditions, some of which we may waive in our discretion. See “The Exchange Offer—Conditions to the Exchange Offer.” | |
U.S. Federal Income Tax Consequences | Your exchange of Outstanding Units for New Units to be issued in the Exchange Offer will not result in any gain or loss to you for U.S. federal income tax purposes. | |
Use of Proceeds | We will not receive any cash proceeds from the Exchange Offer. | |
Exchange Agent | The Bank of New York Mellon Trust Company, N.A. | |
Consequences of Failure to Exchange Your Outstanding Units | Outstanding Units that are not tendered or that are tendered but not accepted will continue to be subject to the restrictions on transfer that are described in the legend on those Outstanding Units. In general, you may offer or sell your Outstanding Units only if they are registered under, or offered or sold under an exemption from, the Securities Act and applicable state securities laws. We, however, will have no further obligation to register the Outstanding Units. If you do not participate in the Exchange Offer, the liquidity of your Outstanding Units could be adversely affected. See “The Exchange Offer—Consequences of Failure to Exchange Outstanding Securities.” | |
Consequences of Exchanging Your Outstanding Units | Based on interpretations of the staff of the SEC, we believe that you may offer for resale, resell or otherwise transfer the New Units that we issue in the Exchange Offer without complying with the registration and prospectus delivery requirements of the Securities Act if you: |
• | acquire the New Units issued in the Exchange Offer in the ordinary course of your business; | ||
• | are not participating, do not intend to participate, and have no arrangement or undertaking with anyone to participate, in the distribution of the New Units issued to you in the Exchange Offer; and |
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• | are not an “affiliate” of us (as defined in Rule 405 under the Securities Act). |
1. If any of these conditions are not satisfied and you transfer any New Units issued to you in the Exchange Offer without delivering a proper prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act. We will not be responsible for or indemnify you against any liability you may incur in this regard. | ||
2. Any broker-dealer that acquires New Units in the Exchange Offer for its own account in exchange for Outstanding Units which it acquired through market-making or other trading activities must acknowledge that it will deliver a prospectus when it resells or transfers any New Notes issued in the Exchange Offer. See “Plan of Distribution” for a description of the prospectus delivery obligations of broker-dealers in the Exchange Offer. | ||
Interest on Outstanding Notes in the Exchange Offer | Interest on the New Notes will accrue from the last interest payment date on which interest was paid on the Outstanding Notes surrendered in the Exchange Offer; provided, however, that if the New Notes are issued pursuant to the Exchange Offer during the period between a record date and the corresponding interest payment date in respect of the Outstanding Notes, then we will pay to the registered holders of Outstanding Units as of such record date, on the corresponding interest payment date, interest accruing from the interest payment date immediately preceding the consummation of the Exchange Offer, and interest will accrue on the New Notes from the next succeeding interest payment date. | |
Absence of a Public Market | There is currently no established market for the New Units or the New Notes. Neither the New Units nor the New Notes will be listed on any securities exchange or included in any automated quotation system. Accordingly, there can be no assurance as to the development or liquidity of any market for the New Units or the New Notes. | |
Certain U.S. Federal Income Tax Considerations | We intend to treat the New Notes as “contingent payment debt instruments.” Accordingly, each holder will generally be required to use the accrual method with respect to the New Notes and accrue original issue discount based on the “comparable yield” of the New Notes. In addition, a holder will generally be required to recognize ordinary income on the gain, if any, realized on a sale, exchange or other disposition of the New Notes. The proper U.S. federal income tax treatment of a holder of a New Note is uncertain in various respects. See “Certain United States Federal Income Tax Considerations.” | |
U.S. Withholding Tax | Interest income you receive with respect to a New Unit will be treated as U.S. source income to the extent attributable to the New U.S. Notes and any such interest paid to a non-U.S. holder, as defined in “Certain United States Federal Income Tax Considerations,” will be subject to withholding at the rate of 30% unless such non-U.S. holder is eligible for the benefits of the “portfolio interest” exemption, a complete exemption from withholding under the terms of a U.S. income tax treaty, or such interest is effectively connected with such non-U.S. |
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holder’s conduct of a trade or business in the United States and, in each case, provides the Issuers with the appropriate U.S. Internal Revenue Service Form W-8. See “Certain United States Federal Income Tax Considerations.” | ||
New Notes | ||
Maturity Date | March 29, 2015. | |
Interest Rate | Each Issuer will pay interest on its New Notes at an annual interest rate of 12.00%. | |
Interest Payment Dates | Each Issuer will make interest payments on its New Notes semi-annually in cash, in arrears, on April 15 and October 15 of each year. | |
Interest on the New Notes will accrue from the last interest payment date on which interest was paid on the Outstanding Notes surrendered in the Exchange Offer; provided, however, that if the New Notes are issued pursuant to the Exchange Offer during the period between a record date and the corresponding interest payment date in respect of the Outstanding Notes, then we will pay to the registered holders of Outstanding Units as of such record date, on the corresponding interest payment date, interest accruing from the interest payment date immediately preceding the consummation of the Exchange Offer, and interest will accrue on the New Notes from the next succeeding interest payment date. | ||
Separability of New Notes | The New Notes underlying the New Units will not be separately transferable until the satisfaction of the separation condition. The separation condition will be satisfied following the earliest to occur of the following dates (each, a “Notes Separation Event”): |
• | all principal of all of the New Notes shall have become due and payable, whether at maturity, acceleration or otherwise; | ||
• | a tax redemption of the New Notes issued by the Bermuda Issuer related to certain changes affecting withholding taxes has occurred; and | ||
• | there has been a Change of Control (as defined in “Description of the New Notes—Certain Definitions”) under clause (5) or (6) of the definition thereof. |
Upon the occurrence of a Notes Separation Event, the New Notes may be transferable separately from each other, not as a Unit. | ||
Security Interest | The New Notes and the related guarantees will be secured by a first priority security interest in substantially all of our and the Guarantors’ existing and future assets, subject to certain exceptions. The New Notes and the related guarantees will not be secured by any assets of our unrestricted subsidiaries or any of our foreign restricted subsidiaries that are not required to provide guarantees on the New Notes under the terms of the indenture governing the New Notes. | |
Ranking | The New Notes and the related guarantees will rank senior in right of payment to all of our and the Guarantors’ future subordinated indebtedness and equal in right of payment with all of our and the Guarantors’ existing and future senior indebtedness, including |
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indebtedness under the Revolving Credit Facility and the Second Lien Credit Facility. Pursuant to the terms of an intercreditor agreement, the New Notes and the related guarantees will be (i) effectively subordinated to indebtedness under the Revolving Credit Facility to the extent of the value of the collateral secured thereby and (ii) effectively senior to indebtedness under the Second Lien Credit Facility to the extent of the value of the collateral securing the New Notes and related guarantees. | ||
Optional Redemption | On or after April 15, 2013, we may, at our option, redeem some or all of the New Notes at a premium that will decrease over time as set forth in this prospectus, plus accrued and unpaid interest to the date of redemption. | |
Prior to April 15, 2013, we may, at our option, redeem up to 35% of the aggregate principal amount of the New Notes at the premium set forth in this prospectus, plus accrued and unpaid interest, with the net cash proceeds of certain equity offerings. | ||
Prior to April 15, 2013, we may also, at our option, redeem up to 10% of the originally issued principal amount of New Notes per year, at a redemption price equal to 103% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of redemption. | ||
In addition, we may, at our option, redeem some or all of the New Notes at any time prior to April 15, 2013, by paying a “make whole” premium. | ||
See “Description of the New Notes—Optional Redemption.” | ||
Tax Redemption | The Bermuda Issuer may, at its option, redeem the New Bermuda Notes in whole, but not in part, at 100% of their principal amount, plus accrued and unpaid interest and any additional amounts, in the event of certain changes affecting withholding taxes. See “Description of the New Notes—Redemption for Change in Taxes.” | |
Change of Control Offer | If we experience a change of control, the holders of the New Notes will have the right to require us to purchase their New Notes at a price in cash equal to 112% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. | |
Asset Sale Offer | Upon certain asset sales, we may be required to offer to use the net proceeds of the asset sale to purchase a portion of the New Notes at 100% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. | |
Excess Cash Flow Offer | We must make an offer to purchase New Notes with 100% of excess cash flow for each annual period ending on the last day of each fiscal year ending on or after February 27, 2011, at 120% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase;provided, howeverthat if actual excess cash flow for any such annual period is less than $5.0 million, the amount of excess cash flow for such annual period shall be deemed to be $5.0 million. |
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Covenants | The indenture governing the New Notes will limit our ability and the ability of our restricted subsidiaries to, among other things: |
• | incur additional indebtedness or issue disqualified capital stock; | ||
• | pay dividends, redeem certain debt or make other restricted payments; | ||
• | make certain investments or acquisitions; | ||
• | grant or permit certain liens on our assets; | ||
• | enter into certain transactions with affiliates; | ||
• | merge, amalgamate, consolidate or transfer substantially all of our assets; | ||
• | enter into sale and leaseback transactions; | ||
• | incur dividend or other payment restrictions affecting certain of our subsidiaries; | ||
• | transfer, sell or acquire assets, including capital stock of our subsidiaries; | ||
• | change the business we conduct; and | ||
• | make capital expenditures. | ||
These covenants are subject to a number of important exceptions. See “Description of the New Notes—Certain Covenants.” |
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Fiscal Years Ended | Nine Months Ended | |||||||||||||||||||
February 28, | February 22, | February 24, | November 28, | November 22, | ||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Revenue | ||||||||||||||||||||
Product | $ | 66,714 | $ | 92,362 | $ | 106,485 | 52,835 | $ | 47,646 | |||||||||||
Service | 137,699 | 150,662 | 152,301 | 101,359 | 103,885 | |||||||||||||||
Total revenue | 204,413 | 243,024 | 258,786 | 154,194 | 151,531 | |||||||||||||||
Total cost of revenue | 91,577 | 114,477 | 129,856 | 68,907 | 68,041 | |||||||||||||||
Gross profit | 112,836 | 128,547 | 128,930 | 85,287 | 83,490 | |||||||||||||||
Total operating expenses | 81,681 | 107,011 | 104,165 | 54,316 | 60,765 | |||||||||||||||
Profit from operations | 31,155 | 21,536 | 24,765 | 30,971 | 22,725 | |||||||||||||||
Interest income | 461 | 235 | 247 | 73 | 43 | |||||||||||||||
Interest expense | (25,307 | ) | (32,820 | ) | (36,153 | ) | (32,071 | ) | (19,537 | ) | ||||||||||
Loss on extinguishment of debt | — | — | — | (3,751 | ) | — | ||||||||||||||
Other income (expense), net | 1,920 | 918 | 65 | (1,579 | ) | 1,356 | ||||||||||||||
Income (loss) before income taxes | 8,229 | (10,131 | ) | (11,076 | ) | (6,357 | ) | 4,587 | ||||||||||||
Provisions for income taxes | 1,584 | 2,132 | 427 | 827 | 1,088 | |||||||||||||||
Net income (loss) | $ | 6,645 | $ | (12,263 | ) | $ | (11,503 | ) | $ | (7,184 | ) | $ | 3,499 | |||||||
(Dollars in thousands) | ||||||||||||||||||||
Fiscal Years Ended | Nine Months Ended | |||||||||||||||||||
February 28, | February 22, | February 24, | November 28, | November 22, | ||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | ||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents(1) | $ | 56,768 | $ | 35,025 | $ | 13,467 | $ | 17,935 | N/A | |||||||||||
Property, plant and equipment, net(1) | 16,841 | 21,507 | 29,063 | 14,352 | N/A | |||||||||||||||
Total assets(1) | 150,270 | 149,225 | 159,022 | 115,782 | N/A | |||||||||||||||
Total debt before discount(1) | 316,906 | 318,144 | 306,385 | 294,936 | N/A | |||||||||||||||
Redeemable convertible preferred stock(1) | 93,612 | 86,678 | 80,257 | 158,162 | N/A | |||||||||||||||
Total stockholder’s deficit(1) | (337,731 | ) | (344,622 | ) | (326,772 | ) | (384,453 | ) | N/A | |||||||||||
Cash Flow Data: | ||||||||||||||||||||
Net cash provided by operating activities | 29,979 | 17,589 | 15,690 | 7,883 | 22,376 | |||||||||||||||
Net cash (used in) investing activities | (4,950 | ) | (4,597 | ) | (14,787 | ) | (1,352 | ) | (5,033 | ) | ||||||||||
Net cash provided by (used in ) financing activities | (5,267 | ) | 8,861 | 5,466 | (45,786 | ) | (15,701 | ) | ||||||||||||
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Fiscal Years Ended | Nine Months Ended | |||||||||||||||||||
February 28, | February 22, | February 24, | November 28, | November 22, | ||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | ||||||||||||||||
Other Financial Data: | ||||||||||||||||||||
Legacy product revenue | $ | 24,813 | $ | 29,019 | $ | 46,924 | 15,670 | $ | 16,572 | |||||||||||
ftServer product revenue | 41,901 | 63,343 | 59,561 | 37,165 | 31,074 | |||||||||||||||
Depreciation and amortization | 12,580 | 16,559 | 14,694 | 7,106 | 9,967 | |||||||||||||||
Capital expenditures | 5,773 | 6,388 | 14,370 | 4,850 | 4,867 | |||||||||||||||
Other Data (unaudited) | ||||||||||||||||||||
EBITDA (2)(4) | 45,655 | 39,013 | 39,524 | 32,747 | 34,048 | |||||||||||||||
Adjusted EBITDA (2)(4) | 52,955 | 54,680 | 51,901 | 37,074 | 39,432 | |||||||||||||||
Ratio of earnings to fixed charges (3) | 1.3 | x | 0.7 | x | 0.7 | x | 0.8 | x | 1.2 | x | ||||||||||
(1) | Balance sheet data is not presented in this prospectus as of November 22, 2009. | |
(2) | 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 the inclusion of 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 Flow included in our financial statements. | ||
(3) | The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, “earnings” include net income (loss) before taxes and fixed charges. “Fixed charges” include interest expense, amortization of debt expense and one third of rental expense deemed to be representative of the interest factor in these rentals. For fiscal 2009, fiscal 2008 and the nine months ended November 28, 2010, |
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earnings before fixed charges were insufficient to cover fixed charges by approximately $10.1 million, $11.1 million and $6.4 million, respectively. | ||
(4) | The EBITDA and Adjusted EBITDA figures and net interest coverage ratio presented in this table are measures of our performance that are not required by, or presented in accordance with, GAAP. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income, operating income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities in order to measure our liquidity. | |
The following is a reconciliation of EBITDA and Adjusted EBITDA to net income (loss) for the periods indicated: |
Fiscal Years Ended | Nine Months Ended | |||||||||||||||||||
February 28, | February 22, | February 24, | November 28, | November 22, | ||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | ||||||||||||||||
Net income (loss) | $ | 6,645 | $ | (12,263 | ) | $ | (11,503 | ) | $ | (7,184 | ) | $ | 3,499 | |||||||
Add (deduct) | ||||||||||||||||||||
Interest expense, net | 24,846 | 32,585 | 35,906 | 31,998 | 19,494 | |||||||||||||||
Provision for income taxes | 1,584 | 2,132 | 427 | 827 | 1,088 | |||||||||||||||
Depreciation and amortization | 12,580 | 16,559 | 14,694 | 7,106 | 9,967 | |||||||||||||||
EBITDA | $ | 45,655 | $ | 39,013 | $ | 39,524 | $ | 32,747 | $ | 34,048 | ||||||||||
Add (deduct) | ||||||||||||||||||||
Restructuring (a) | 1,484 | 8,652 | 1,881 | 55 | (341 | ) | ||||||||||||||
Stock-based compensation (b) | 3,975 | 387 | 479 | 372 | 3,793 | |||||||||||||||
Management fees (c) | 700 | 700 | 700 | 817 | 525 | |||||||||||||||
(Gain) loss on sale of subsidiary (d) | (818 | ) | 107 | — | (3,655 | ) | 82 | |||||||||||||
Emergent expense and retention bonuses (e) | — | — | 1,605 | — | — | |||||||||||||||
Reserves (f) | 1,715 | 3,614 | 5,988 | 771 | 1,385 | |||||||||||||||
Other expense (income), net (g) | 244 | 180 | 1,724 | 5,967 | (60 | ) | ||||||||||||||
Telco non-recurring (h) | — | 2,027 | — | — | — | |||||||||||||||
Adjusted EBITDA | $ | 52,955 | $ | 54,680 | $ | 51,901 | 37,074 | $ | 39,432 | |||||||||||
(a) | In order to better align expenses with anticipated revenues, we implemented restructuring programs in fiscal 2010, 2009 and 2008. These programs were designed to streamline our business model and centralize certain functions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Restructuring Programs.” | ||
In fiscal 2010, we recorded restructuring charges of $1.5 million. This consisted of $1.8 million for severance, and fringe benefits and a non-cash restructuring charge credit of $0.3 million to release a previously recorded liability due to an expiration of a statute of limitations. | |||
In fiscal 2009, we recorded restructuring charges consisting of $8.4 million of severance and fringe benefits along with facility and exit costs of $0.3 million. | |||
In fiscal 2008, we recorded restructuring charges, consisting of severance and fringe benefits of $1.9 million. | |||
For the nine months ended November 28, 2010 we recorded an adjustment to restructuring charges of $0.1 million to reflect actual payments made related to prior periods. | |||
For the nine months ended November 22, 2009, we recorded a non-cash restructuring charge credit of $0.3 million to release a previously recorded liability due to an expiration of a statute of limitations. | |||
(b) | In fiscal 2010, we recorded non-cash stock compensation expense charges of $3.5 million relating to the grant of new fully vested employee stock options and the re-pricing of certain other employee stock options and $0.5 million relating to share-based payments to employees. |
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In fiscal 2009, we recorded non-cash stock compensation expense charges of $0.4 million relating to share-based payments to employees. | |||
In fiscal 2008, we recorded non-cash stock compensation expense charges of $0.5 million relating to share-based payments to employees. | |||
For the nine months ended November 28, 2010, we recorded non-cash stock compensation expense charges of $0.4 million relating to share-based payments to employees. | |||
For the nine months ended November 22, 2009, we recorded non-cash stock compensation expense charges of $3.5 million relating to the grant of new, fully vested employee stock options and the re-pricing of certain other employee stock options and $0.3 million relating to share-based payments to employees. | |||
(c) | 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. 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. (See Note 8 to the audited financial statements.) | |||
The long-term accrued liability related to this yearly fee totaled $1.7 million, $1.0 million and $0.3 million at each of February 28, 2010, February 22, 2009 and February 24, 2008, respectively, and totaled $2.2 million and $1.5 million at each of November 28, 2010 and November 22, 2009, respectively. | |||
(d) | 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, (See Note 15 of our audited financial statements) we recorded a gain on the sale in fiscal 2010 of $0.8 million and a loss on the sale in fiscal 2009 of $0.1 million. In the nine months ended November 28, 2010 we recorded a gain on sale of $3.7 million. | ||
(e) | In fiscal 2008, we incurred expenses totaling $1.1 million for employee retention bonuses and bonuses related to meeting certain engineering milestones. Additionally, we incurred $0.5 million of expenses related to management retention bonuses. | ||
(f) | In fiscal 2010, we incurred $1.7 million of non-cash inventory write downs. | ||
In fiscal 2009, we incurred $3.1 million of non-cash inventory write downs and $0.5 million of non-cash reserves for doubtful accounts receivable. | |||
In fiscal 2008, we incurred $5.7 million of non-cash inventory write downs and $0.3 million of non-cash reserves for doubtful accounts receivable. | |||
For the nine months ended November 28, 2010, we incurred $0.8 million of non-cash inventory write downs. | |||
For the nine months ended November 22, 2009, we incurred $1.3 million of non-cash inventory write downs and $0.1 million of non-cash reserves for doubtful accounts receivable. |
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(g) | In fiscal 2010, we recorded other expense, net, of $0.2 million, primarily consisting of $0.5 million bank fees and $0.6 million of net miscellaneous expenses and non-recurring charges, offset by $0.8 million of net foreign currency gains. | ||
In fiscal 2009, we recorded other expense, net, of $0.2 million, primarily consisting of $0.6 million of bank fees and $0.2 million of net miscellaneous expenses and non-recurring charges, offset by $0.6 million of net foreign currency gains. | |||
In fiscal 2008, we recorded other expense, net, of $1.7 million, primarily consisting of $0.6 million of bank fees, $0.4 million of internal non-recurring expenses related to our Collaboration and Licensing Agreement with NEC, a prior period adjustment related to a VAT audit of $0.4 million, a prior period one-time adjustment of $0.3 million and $0.8 million of net miscellaneous expenses and non-recurring charges, offset by $0.8 million of net foreign currency gains. | |||
For the nine months ended November 28, 2010, we recorded other expense, net, of $6.0 million, primarily consisting of $0.9 million of net foreign currency losses, $0.4 million of bank fees, $3.8 million related to the loss on debt extinguishment related to the April 2010 refinancing, $0.3 million loss on the revaluation of the embedded derivatives in the Notes and $0.6 million of net miscellaneous expenses and non-recurring charges. | |||
For the nine months ended November 22, 2009, we recorded $0.4 million of net foreign currency gains, offset by $0.4 million bank fees, resulting in negligible net other expense for such period. | |||
(h) | In fiscal 2009, we added back $2.0 million relating to our net Adjusted EBITDA loss which was attributable to the Emergent Business, which was sold in January 2009 (see note d above). |
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• | our ability to obtain additional financing for working capital, capital expenditures, product development efforts, strategic acquisitions, general corporate purposes or other purposes may be impaired in the future; | |
• | we may not be able to refinance our existing indebtedness on terms that are favorable to us or at all; | |
• | a substantial portion of our cash flows from operations must be dedicated to the payment of principal and interest on our indebtedness, decreasing the amount of cash available for other purposes; | |
• | we are substantially more leveraged and have significantly less financial resources than certain of our competitors, which could place us at a competitive disadvantage; | |
• | we may be hindered in our ability to adjust to rapidly changing market conditions; | |
• | our high degree of leverage could make us more vulnerable in the event of a downturn in general economic conditions or our business or in the event of adverse changes in the regulatory environment or other adverse circumstances applicable to us; | |
• | our level of indebtedness may prevent us from raising the funds necessary to repurchase all of the Notes tendered to us upon the occurrence of a change of control; and | |
• | our failure to comply with the restrictive covenants contained in the instruments governing our indebtedness, which, among other things, may require us to maintain certain financial ratios and limit our ability to incur debt and sell assets, could result in an event of default that, if not cured or waived, could have a material adverse effect on our business or our prospects and create substantial doubt about our ability to continue as a going concern. |
• | current economic and competitive conditions in our segments of the computer server industry; | |
• | insolvency of one of our primary suppliers; | |
• | operating difficulties, operating costs or pricing pressures we may experience; | |
• | passage of legislation or other regulatory developments that affect us adversely; and | |
• | delays in implementing any strategic projects we may have. |
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• | incur additional indebtedness or issue disqualified capital stock; | |
• | pay dividends, redeem certain debt or make other restricted payments; | |
• | make certain investments or acquisitions; | |
• | grant or permit certain liens on our assets; | |
• | enter into certain transactions with affiliates; | |
• | merge, amalgamate, consolidate or transfer substantially all of our assets; | |
• | incur dividend or other payment restrictions affecting certain of our subsidiaries; | |
• | enter into sale and leaseback transactions; | |
• | transfer, sell or acquire assets, including capital stock of our subsidiaries; | |
• | change the business we conduct; and | |
• | make capital expenditures. |
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• | whether any payments under the Notes would be made; | |
• | whether or when the trustee could foreclose upon or sell the collateral; | |
• | whether the terms or other conditions of the Notes or any rights of the holders could be altered in a bankruptcy case without the trustee’s or your consent; | |
• | whether the trustee or you would be able to enforce your rights against the Guarantors under their guarantees; or | |
• | whether or to what extent holders of the Notes would be compensated for any delay in payment or decline in the collateral’s value. |
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• | to enable the sale, transfer or other disposal of such collateral in a transaction not prohibited under the indenture governing the Notes; and | |
• | with respect to collateral held by a Guarantor, upon the release of such Guarantor from its guarantee. |
• | was insolvent; | |
• | was rendered insolvent by the issuance of the Outstanding U.S. Notes; | |
• | was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or | |
• | intended to incur, or believed that it would incur, debts beyond its ability to repay those debts as they matured. |
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• | our operating performance and financial condition; | |
• | the interest of securities dealers in making a market for them; and | |
• | the market for similar securities. |
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• | market acceptance of our ftServer systems; | |
• | consumer perception of our technology and our company generally; | |
• | the emergence of newer and more competitive high-availability server products; and | |
• | the accelerated decline of our legacy server sales. |
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• | the marketplace for products such as Avance may evolve much more slowly than we anticipate or may be substantially smaller than is necessary for us to continue to invest in the development and deployment of the Avance product; | |
• | the addressable market may be limited by its reliance on XenserverTM owned by Citrix; | |
• | the price point requires high sales volume to have a meaningful impact; | |
• | since the sales model for this product is through indirect channels, these channels may take significant time to develop and produce meaningful volume; | |
• | there is significant and increasing competition in the high-availability marketplace; and | |
• | continued product advancements and development will be needed to keep the product competitive. |
• | market acceptance of our ftServer systems; | |
• | the continued renewal of existing service contracts; | |
• | the continued migration of legacy customers to ftServer; | |
• | reduction of the number of servers in the installed base; | |
• | the acceptance of our service offerings by purchasers of our new ftServer and legacy V-Series products; | |
• | consumer perception of our service offerings; | |
• | the potential increasing proportion of sales through indirect channels; and | |
• | the emergence of newer and more competitive high-availability server products. |
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• | be expensive and time-consuming to defend; | |
• | cause us to cease making, licensing or using products that incorporate the challenged intellectual property; | |
• | require us to redesign, reengineer, or rebrand our products or packaging, if feasible; | |
• | divert management’s attention and resources; or | |
• | require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property. |
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• | lose revenue due to adverse customer reaction; | |
• | be required to provide additional services to a customer at no charge; | |
• | receive negative publicity, which could damage our reputation and adversely affect our ability to attract or retain customers; or | |
• | suffer claims for substantial damages against us. |
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• | import and export license requirements; | |
• | trade restrictions; | |
• | changes in regulatory standards; | |
• | labor issues in connection with foreign labor laws or practices; | |
• | changes in tariffs and taxes; | |
• | restrictions on repatriating foreign profits back to the United States; | |
• | unfamiliarity with foreign laws and regulations; or | |
• | difficulties in staffing and managing international operations. |
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• | the continued acceptance of our products by the market; | |
• | our ability to enter into new service agreements and to retain customers under existing service contracts; | |
• | our ability to source quality components and key technologies without interruption and at acceptable prices; | |
• | our ability to comply with certain covenants in our current Revolving Credit Facility, our Second Lien Credit Facility and the indenture governing the Notes; | |
• | our ability to refinance indebtedness when required; | |
• | our reliance on sole source manufacturers and suppliers; | |
• | the presence of existing competitors and the emergence of new competitors; | |
• | our financial condition and liquidity and our leverage and debt service obligations; | |
• | economic conditions globally and in our most important markets; | |
• | developments in the fault-tolerant and high-availability server markets; | |
• | claims by third parties that we infringe upon their intellectual property rights; | |
• | our success in adequately protecting our intellectual property rights; | |
• | our success in maintaining efficient manufacturing and logistics operations; | |
• | our ability to recruit, retain and develop appropriately skilled employees; | |
• | exposure for systems and service failures; | |
• | fluctuations in foreign currency exchange rates and interest rates; | |
• | current risks of terrorist activity and acts of war; | |
• | the impact of changes in policies, laws, regulations or practices of foreign governments on our international operations; and | |
• | the other factors discussed under “Risk Factors” and elsewhere in this prospectus. |
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• | to prepare and to file with the SEC not later than February 2, 2011 the registration statement of which this prospectus forms a part, regarding the exchange of the New Securities which are registered under the Securities Act for the Outstanding Securities; | ||
• | to use commercially reasonable efforts to cause the registration statement to become effective no later than June 2, 2011; and | ||
• | to commence the Exchange Offer and to use commercially reasonable efforts to issue, on or prior to 30 business days after the date on which the registration statement is declared effective, the New Securities in exchange for all Outstanding Securities validly tendered prior thereto in the Exchange Offer. |
• | prior to the consummation of the Exchange Offer, the holders of a majority in aggregate principal amount of Outstanding Securities determine in their reasonable judgment and notify the Issuers in writing that the New Securities would not be tradable without restriction; | ||
• | applicable SEC interpretations would not permit the consummation of the Exchange Offer on or prior to June 2, 2011; | ||
• | the Exchange Offer is not consummated within 30 business days from the date on which the registration statement is declared effective; or | ||
• | certain holders of Securities, in certain additional circumstances described in the registration rights agreement, would not be permitted to participate in the Exchange Offer or would receive Securities pursuant thereto that may not be sold without restriction. |
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• | will have been registered under the Securities Act; | ||
• | will not bear the restrictive legends restricting their transfer under the Securities Act; and | ||
• | will not contain the registration rights and additional interest provisions contained in the Outstanding Securities, as described above in “The Exchange Offer—Purpose of the Exchange Offer.” |
• | to extend the expiration date of the Exchange Offer; | ||
• | to delay accepting any Outstanding Units due to an extension of the Exchange Offer; | ||
• | if any of the conditions set forth below under “—Conditions to the Exchange Offer” have not been satisfied, to terminate the Exchange Offer and not accept any Outstanding Securities for exchange; and | ||
• | to amend the Exchange Offer in any manner, provided that in the event of a material change in the Exchange Offer, including the waiver of a material condition, we will extend the Exchange Offer period if necessary so that five business days remain in the Exchange Offer period following notice of a material change. |
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• | transmit a properly completed and duly executed letter of transmittal, including all other documents required by such letter of transmittal, to The Bank of New York Mellon Trust Company, N.A., the exchange agent, at the address set forth below under the heading “The Exchange Agent”; | ||
• | if Outstanding Securities are tendered pursuant to the book-entry procedures set forth below, the tendering holder must transmit an agent’s message to the exchange agent at the address set forth below under the heading “The Exchange Agent”; or | ||
• | comply with the guaranteed delivery procedures described below. |
• | the exchange agent must receive, on or prior to the expiration date, the certificates for the Outstanding Securities and the letter of transmittal; or | ||
• | the exchange agent must receive, on or prior to the expiration date, a timely confirmation of the book-entry transfer of the Outstanding Securities being tendered into the exchange agent’s account at The Depository Trust Company (“DTC”), along with the letter of transmittal or an agent’s message in lieu thereof. |
• | by a holder of Outstanding Securities who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or | ||
• | for the account of an eligible institution. |
• | be endorsed by, or accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by the registered holder with the holder’s signature guaranteed by an eligible institution, or | ||
• | be accompanied by appropriate powers of attorney, |
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• | reject any and all tenders of any Outstanding Security improperly tendered; | ||
• | refuse to accept any Outstanding Security if, in our judgment or the judgment of our counsel, acceptance of the Outstanding Security may be deemed unlawful; | ||
• | waive any defects or irregularities as to any particular Outstanding Security either before or after the expiration date; and | ||
• | waive any conditions of the Exchange Offer before the expiration date, including the right to waive the ineligibility of any class of holder who seeks to tender Outstanding Securities in the Exchange Offer. |
• | may not rely on the applicable interpretations of the staff of the SEC; and | ||
• | must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. |
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• | certificates for such Outstanding Securities or a timely book-entry confirmation of such Outstanding Securities into the exchange agent’s account at DTC; | ||
• | a properly completed and duly executed letter of transmittal or an agent’s message; and | ||
• | all other required documents. |
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• | on or prior to the expiration date, the exchange agent receives from such eligible institution a properly completed and duly executed notice of guaranteed delivery, substantially in the form we have provided, by facsimile transmission, mail or hand delivery, setting forth the name and address of the holder of the Outstanding Securities being tendered and the amount of the Outstanding Securities being tendered. The notice of guaranteed delivery will state that the tender is being made and guarantee that within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered Outstanding Securities, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal or agent’s message in lieu thereof with any required signature guarantees and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and | ||
• | the exchange agent receives the certificates for all physically tendered Outstanding Securities, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal or agent’s message in lieu thereof with any required signature guarantees and any other documents required by the letter of transmittal, within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery. |
• | specify the name of the person having tendered the Outstanding Securities to be withdrawn; | ||
• | identify the Outstanding Securities to be withdrawn, including the number or principal amount of such Outstanding Securities as specified in the Letter of Transmittal relating thereto; and | ||
• | where certificates for Outstanding Securities are transmitted, specify the name in which Outstanding Securities are registered, if different from that of the withdrawing holder. |
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• | any federal law, statute, rule or regulation is adopted or enacted, or any governmental agency creates limits, which in our judgment would reasonably be expected to prohibit, prevent or otherwise impair our ability to proceed with the Exchange Offer; | ||
• | any stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939, as amended; or | ||
• | there is a change in the current interpretation by staff of the SEC which permits the New Securities issued in the Exchange Offer in exchange for the Outstanding Securities to be offered for resale, resold and otherwise transferred by such holders, other than broker-dealers and any such holder which is an “affiliate” of ours within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the New Securities acquired in the Exchange Offer are acquired in the ordinary course of such holder’s business and such holder has no arrangement or understanding with any person to participate in the distribution of the New Securities. |
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c/o The Bank of New York Mellon Corporation
Corporate Trust Operations — Reorganization Unit
480 Washington Boulevard — 27th Floor
Jersey City, New Jersey 07310
Attn: Mr. William Buckley
(for eligible institutions only)
Fax: 212-298-1915
Tel: 212-815-5788
• | the SEC registration fee; | ||
• | fees and expenses of the exchange agent and the trustee; | ||
• | our accounting and legal fees; | ||
• | printing fees; and | ||
• | other related fees and expenses. |
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• | the New Securities issued in the Exchange Offer are acquired in the ordinary course of the holder’s business; and | ||
• | the holder, other than a broker-dealer, has no arrangement or understanding with any person to participate in the distribution of the New Securities issued in the Exchange Offer. |
(a) | it is not an affiliate of our company; | ||
(b) | it is not engaged in, and does not intend to engage in, a distribution of the New Securities issued in the Exchange Offer and has no arrangement or understanding to participate in a distribution of New Securities issued in the Exchange Offer; | ||
(c) | it is acquiring the New Securities issued in the Exchange Offer in the ordinary course of its business; and | ||
(d) | it is not acting on behalf of a person who could not make representations (a)-(c). |
• | such Outstanding Securities were acquired by such broker-dealer as a result of market-making or other trading activities; and | ||
• | it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, including the delivery of a prospectus that contains information with respect to any selling holder required by the Securities Act in connection with any resale of New Securities issued in the Exchange Offer. |
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• | may not rely on the applicable interpretation of the SEC staff’s position contained in Exxon Capital Holdings Corp., SEC No-Action Letter (April 13, 1989), Morgan, Stanley & Co., Incorporated, SEC No-Action Letter (June 5, 1991) and Shearman & Sterling, SEC No-Action Letter (July 2, 1983); and | ||
• | must also be named as a selling holder of the New Securities in connection with the registration and prospectus delivery requirements of the Securities Act relating to any resale transaction. |
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As of November | ||||
28, 2010 | ||||
(Actual, dollars | ||||
in thousands) | ||||
Cash and cash equivalents | $ | 17,935 | ||
Debt (1)(2) | ||||
12% Senior Secured Notes Due 2015 | 215,000 | |||
Second Lien Credit Facility (3) | 79,936 | |||
Revolving Credit Facility (4) | — | |||
Total debt before discount | 294,936 | |||
Redeemable convertible preferred stock (5) | ||||
Series A Preference Shares - 6,561,242 par $1.50 shares issued and outstanding | 99,229 | |||
Series B Preference Shares - 3,531,904.62 par $1.50 shares issued and outstanding | 53,415 | |||
Contingent right to future issuance of Series B Preferred Shares (6) | 5,518 | |||
Total redeemable convertible preferred stock | 158,162 | |||
Stockholders’ deficit | ||||
Ordinary Shares - 28,809,184 par $0.5801 shares issued and outstanding | 16,712 | |||
Series B Ordinary Shares - 15,511,605.38 par $0.5801 shares issued and outstanding (7) | 8,998 | |||
Additional paid-in-capital | — | |||
Accumulated deficit | (411,194 | ) | ||
Accumulated other comprehensive income | 1,031 | |||
Total stockholders’ deficit | (384,453 | ) | ||
Total capitalization | $ | 68,645 | ||
(1) | As of November 28, 2010, all outstanding term debt and the Revolving Credit Facility were guaranteed and secured. | |
(2) | As of November 28, 2010, none of our short-term or long-term bank and other loans or notes were guaranteed by an unaffiliated third party. The Revolving Credit Facility, the Notes underlying the Units offered hereby and the Second Lien Credit Facility are secured. See “Description of Certain Indebtedness.” | |
(3) | The Second Lien Credit Facility includes $4.4 million of interest paid in kind as of November 28, 2010. | |
(4) | As of November 28, 2010, there were no outstanding cash borrowings under the $25.0 million Revolving Credit Facility. See “Description of Certain Indebtedness—Revolving Credit Facility.” | |
(5) | Pursuant to the Subscription and Shareholders Agreement, upon the closing of the Recapitalization Transactions (i) 2,523,554.62 Series B Preference Shares of Holdings were issued to the Second Lien. |
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Lenders and (ii) 1,008,350.00 Series B Preference Shares of Holdings were issued to investors in the Original Units. | ||
(6) | Certain additional share issuances to the Second Lien Lenders and the investors in the Original Units by Holdings are contingent upon the event that the Issuers do not repay all outstanding indebtedness under the Second Lien Credit Facility by April 30, 2013 or April 30, 2014. See “Description of Capital Shares—Subscription and Shareholders Agreement.” | |
(7) | Pursuant to the Subscription and Shareholders Agreement, upon the closing of the Recapitalization Transactions (i) 11,080,455.38 Series B Ordinary Shares of Holdings were issued to the Second Lien Lenders and (ii) 4,431,150.00 Series B Ordinary Shares of Holdings were issued to investors in the Original Units. |
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Fiscal Years Ended | Nine Months Ended | |||||||||||||||||||||||||||
February 28, | February 22, | February 24, | February 25, | February 26, | November 28, | November 22, | ||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2010 | 2009 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||
Product | $ | 66,714 | $ | 92,362 | $ | 106,485 | $ | 113,073 | $ | 111,167 | $ | 52,835 | $ | 47,646 | ||||||||||||||
Service | 137,699 | 150,662 | 152,301 | 146,710 | 150,618 | 101,359 | 103,885 | |||||||||||||||||||||
Total revenue | 204,413 | 243,024 | 258,786 | 259,783 | 261,785 | 154,194 | 151,531 | |||||||||||||||||||||
Total cost of revenue | 91,577 | 114,477 | 129,856 | 129,533 | 126,757 | 68,907 | 68,041 | |||||||||||||||||||||
Gross profit | 112,836 | 128,547 | 128,930 | 130,250 | 135,028 | 85,287 | 83,490 | |||||||||||||||||||||
Total operating expenses | 81,681 | 107,011 | 104,165 | 122,091 | 112,127 | 54,316 | 60,765 | |||||||||||||||||||||
Profit from operations | 31,155 | 21,536 | 24,765 | 8,159 | 22,901 | 30,971 | 22,725 | |||||||||||||||||||||
Interest income | 461 | 235 | 247 | 207 | 386 | 73 | 43 | |||||||||||||||||||||
Interest expense | (25,307 | ) | (32,820 | ) | (36,153 | ) | (32,799 | ) | (21,110 | ) | (32,071 | ) | (19,537 | ) | ||||||||||||||
Loss on extinguishment of debt | — | — | — | — | — | (3,751 | ) | — | ||||||||||||||||||||
Other income (expense), net | 1,920 | 918 | 65 | (20,506 | ) | (278 | ) | (1,579 | ) | 1,356 | ||||||||||||||||||
Income (loss) before income taxes | 8,229 | (10,131 | ) | (11,076 | ) | (44,939 | ) | 1,899 | (6,357 | ) | 4,587 | |||||||||||||||||
Provisions for income taxes | 1,584 | 2,132 | 427 | 1,290 | 1,099 | 827 | 1,088 | |||||||||||||||||||||
Net income (loss) | $ | 6,645 | $ | (12,263 | ) | $ | (11,503 | ) | $ | (46,229 | ) | $ | 800 | $ | 7,184 | $ | 3,499 | |||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Fiscal Years Ended | Nine Months Ended | |||||||||||||||||||||||||||
February 28, | February 22, | February 24, | February 25, | February 26, | November 28, | November 22, | ||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2010 | 2009 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 56,768 | $ | 35,025 | $ | 13,467 | $ | 7,733 | $ | 19,059 | $ | 17,935 | N/A | |||||||||||||||
Property and equipment, net | 16,841 | 21,507 | 29,063 | 21,497 | 29,228 | 14,352 | N/A | |||||||||||||||||||||
Total assets | 150,270 | 149,225 | 159,022 | 161,604 | 158,623 | 115,782 | N/A | |||||||||||||||||||||
Total Liabilities redeemable convertible preferred stock and stockholders’ deficit | ||||||||||||||||||||||||||||
Current portion of long-term debt (1) | 25,000 | 2,000 | 2,000 | 2,000 | — | 5,000 | N/A | |||||||||||||||||||||
Accrued expenses (1) | 17,706 | 30,433 | 31,949 | 34,952 | 37,638 | 20,248 | N/A | |||||||||||||||||||||
Short-term deferred revenue (1) | 42,029 | 39,025 | 40,169 | 40,184 | 32,018 | 31,007 | N/A | |||||||||||||||||||||
Long-term debt, net of discount (1)(2) | 291,906 | 316,144 | 304,385 | 297,000 | 140,685 | 245,417 | N/A | |||||||||||||||||||||
Deferred revenue and other long-term liabilities (1) | 9,892 | 8,158 | 10,954 | 6,071 | 2,295 | 12,177 | N/A | |||||||||||||||||||||
Embedded derivatives (1) | — | — | — | — | 1,507 | 19,656 | N/A | |||||||||||||||||||||
Total redeemable convertible preferred stock (1) | 93,612 | 86,678 | 80,257 | 74,312 | 208,137 | 158,162 | N/A | |||||||||||||||||||||
Total stockholder’s deficit (1) | (337,731 | ) | (344,622 | ) | (326,772 | ) | (307,092 | ) | (280,391 | ) | (384,453 | ) | N/A | |||||||||||||||
Cash Flow Data: | ||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities | 29,979 | 17,589 | 15,690 | (12,066 | ) | 21,421 | 7,883 | 22,376 | ||||||||||||||||||||
Net cash used in investing activities | (4,950 | ) | (4,597 | ) | (14,787 | ) | (13,421 | ) | (9,054 | ) | (1,352 | ) | (5,033 | ) | ||||||||||||||
Net cash (used in) provided by financing activities | (5,267 | ) | 8,861 | 5,466 | 14,579 | (27,808 | ) | (45,786 | ) | (15,701 | ) | |||||||||||||||||
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Fiscal Years Ended | Nine Months Ended | |||||||||||||||||||||||||||
February 28, | February 22, | February 24, | February 25, | February 26, | November 28, | November 22, | ||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2010 | 2009 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
Other Financial Data: | ||||||||||||||||||||||||||||
Legacy product revenue | $ | 24,813 | $ | 29,019 | $ | 46,924 | $ | 57,831 | $ | 61,551 | $ | 15,670 | $ | 16,572 | ||||||||||||||
ftServer product revenue | 41,901 | 63,343 | 59,561 | 55,242 | 49,616 | 37,165 | 31,074 | |||||||||||||||||||||
Depreciation and amortization | 12,580 | 16,559 | 14,694 | 19,821 | 22,502 | 7,106 | 9,967 | |||||||||||||||||||||
Capital expenditures | 5,773 | 6,388 | 14,370 | 10,143 | 8,302 | 4,850 | 4,867 | |||||||||||||||||||||
Ratio of earnings to fixed charges (3)(4) | 1.3 | x | 0.7 | x | 0.7 | x | — | 1.1 | x | 0.8 | x | 1.2 | x | |||||||||||||||
(1) | Balance sheet data is not presented in this prospectus as of November 22, 2009. | |
(2) | Includes all long-term obligations (including long-term debt and capital leases as defined in Rule S-02(28)(a) of Regulation S-X). | |
(3) | The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, “earnings” include net income (loss) before taxes and fixed charges. “Fixed charges” include interest expense, amortization of debt expense and one third of rental expense deemed to be representative of the interest factor in these rentals. For fiscal 2009, fiscal 2008, fiscal 2007 and the nine months ended November 28, 2010, earnings before fixed charges were insufficient to cover fixed charges by $10.1 million, $11.1 million, $44.9 million and $6.4 million, respectively. | |
(4) | For the year ended February 25, 2007, we recognized an earnings net loss as defined in (2) above and as a result, the ratio of earnings to fixed charges has not been presented for that period. |
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• | Product revenueconsists primarily of revenue generated from sales of our servers, which include our proprietary and other operating systems. We have experienced a decline in revenue from sales of legacy systems over the years due to a number of factors, including weakness in information technology spending, the emergence of newer and more competitive high-availability server products, the proprietary nature of the operating systems running on the legacy systems and a shift in our business focus to sales of ftServer systems. We expect our future product revenue growth largely to derive from sales of ftServer systems and our Avance software. We also intend to leverage our current installed base through add-on sales and upgrades. |
• | Service revenueconsists of revenue primarily generated from our customer support activities, which consist of maintenance contracts for which revenue typically is recognized ratably over the contractual period, services such as part repair, time and materials activities, installation, education, managed services and professional consulting services. In the nine-months ended November 28, 2010, over 99% of legacy server sales and 85% of ftServer system sales included service contracts. Our systems tend to remain under service and in operation for long periods of time, historically resulting in a relatively predictable service revenue stream. |
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Fiscal Years Ended | Nine Months Ended | |||||||||||||||||||
February 28, | February 22, | February 24, | November 28, | November 22, | ||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | ||||||||||||||||
Legacy products | $ | 24,813 | $ | 29,019 | $ | 46,924 | $ | 15,670 | $ | 16,572 | ||||||||||
ftServer products | 41,901 | 63,343 | 59,561 | 37,165 | 31,074 | |||||||||||||||
Total product revenue | 66,714 | 92,362 | 106,485 | 52,835 | 47,646 | |||||||||||||||
Customer service revenue | 116,816 | 127,481 | 127,709 | 83,865 | 88,392 | |||||||||||||||
Solution services revenue | 20,883 | 23,181 | 24,592 | 17,494 | 15,493 | |||||||||||||||
Total service revenue | 137,699 | 150,662 | 152,301 | 101,359 | 103,885 | |||||||||||||||
Total revenue | $ | 204,413 | $ | 243,024 | $ | 258,786 | $ | 154,194 | $ | 151,531 | ||||||||||
Fiscal Years Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||
February 28, | % of | February 22, | % of | February 24, | % of | November 28, | % of | November 22, | % of | |||||||||||||||||||||||||||||||
2010 | Rev | 2009 | Rev | 2008 | Rev | 2010 | Rev | 2009 | Rev | |||||||||||||||||||||||||||||||
U.S. | $ | 86,840 | 42.5 | % | $ | 97,730 | 40.2 | % | $ | 99,928 | 38.6 | % | $ | 61,795 | 40.1 | % | $ | 62,487 | 41.3 | % | ||||||||||||||||||||
EMEA | 45,389 | 22.2 | 62,890 | 25.9 | 74,036 | 28.6 | 33,428 | 21.7 | 33,312 | �� | 21.9 | |||||||||||||||||||||||||||||
Japan | 46,887 | 22.9 | 53,033 | 21.8 | 53,030 | 20.5 | 36,551 | 23.7 | 35,777 | 23.6 | ||||||||||||||||||||||||||||||
Asia-Pacific | 22,958 | 11.2 | 27,609 | 11.4 | 23,787 | 9.2 | 18,892 | 12.3 | 18,159 | 12.0 | ||||||||||||||||||||||||||||||
Other | 2,339 | 1.2 | 1,762 | 0.7 | 8,005 | 3.1 | 3,528 | 2.2 | 1,796 | 1.2 | ||||||||||||||||||||||||||||||
Total revenue | $ | 204,413 | 100.0 | % | $ | 243,024 | 100.0 | % | $ | 258,786 | 100.0 | % | $ | 154,194 | 100.0 | % | $ | 151,531 | 100.0 | % | ||||||||||||||||||||
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• | A second lien loan (“Lien 2”), issued pursuant to the Second Lien Credit Agreement | ||
• | Senior secured notes (the “Notes”) | ||
• | Our right to redeem the debt at a specified price in the event of a future equity offering, the right of our creditors to sell back the debt to us at a specified price in the event of a change in control, and our requirement to make an offer to redeem a portion of the debt using a formula based on certain cash-flow metrics on the last day of each fiscal year ending on or after February 27, 2011 (collectively referred to as the “Embedded Derivatives”). | ||
• | Preferred stock and ordinary stock (the “Preferred and Ordinary Shares”) | ||
• | The Lien 2 holders’ contingent right to additional preferred and ordinary stock should we not repay Lien 2 in full by either April 30, 2013 or April 30, 2014 (the “Contingent Equity”). |
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Fiscal Years Ended | Nine Months Ended | |||||||||||||||||||
February 28, | February 22, | February 24, | November 28, | November 22, | ||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Revenue | ||||||||||||||||||||
Product | $ | 66,714 | $ | 92,362 | $ | 106,485 | $ | 52,835 | $ | 47,646 | ||||||||||
Service | 137,699 | 150,662 | 152,301 | 101,359 | 103,885 | |||||||||||||||
Total revenue | 204,413 | 243,024 | 258,786 | 154,194 | 151,531 | |||||||||||||||
Product | 30,011 | 46,939 | 56,236 | 24,721 | 21,768 | |||||||||||||||
Service | 61,566 | 67,538 | 73,556 | 44,186 | 46,273 | |||||||||||||||
Management and transaction costs | — | — | 64 | — | — | |||||||||||||||
Total cost of revenue | 91,577 | 114,477 | 129,856 | 68,907 | 68,041 | |||||||||||||||
Gross profit | 112,836 | 128,547 | 128,930 | 85,287 | 83,490 | |||||||||||||||
Research and development | 30,280 | 33,837 | 34,861 | 20,514 | 22,959 | |||||||||||||||
Sales and marketing | 28,867 | 36,126 | 44,058 | 21,826 | 21,422 | |||||||||||||||
General and administrative | 19,193 | 25,362 | 19,028 | 14,707 | 14,621 | |||||||||||||||
Amortization of intangibles | 1,975 | 2,227 | 2,096 | 52 | 1,497 | |||||||||||||||
Restructuring and asset impairment charges | 1,484 | 8,652 | 1,881 | 55 | (341 | ) | ||||||||||||||
(Gain) loss on sale of subsidiary | (818 | ) | 107 | — | (3,655 | ) | 82 | |||||||||||||
Management fees | 700 | 700 | 2,241 | 817 | 525 | |||||||||||||||
Total operating expenses | 81,681 | 107,011 | 104,165 | 54,316 | 60,765 | |||||||||||||||
Profit from operations | 31,155 | 21,536 | 24,765 | 30,971 | 22,725 | |||||||||||||||
Interest income | 461 | 235 | 247 | 73 | 43 | |||||||||||||||
Interest expense | (25,307 | ) | (32,820 | ) | (36,153 | ) | (32,071 | ) | (19,537 | ) | ||||||||||
Loss on extinguishment of debt | — | — | — | (3,751 | ) | — | ||||||||||||||
Other income (expense), net | 1,920 | 918 | 65 | (1,579 | ) | 1,356 | ||||||||||||||
Profit (loss) before income taxes | 8,229 | (10,131 | ) | (11,076 | ) | (6,357 | ) | 4,587 | ||||||||||||
Provision for income taxes | 1,584 | 2,132 | 427 | 827 | 1,088 | |||||||||||||||
Net income (loss) | $ | 6,645 | $ | (12,263 | ) | $ | (11,503 | ) | $ | (7,184 | ) | $ | 3,499 | |||||||
(Dollars in thousands) | ||||||||||||||||||||
Fiscal Years Ended | Nine Months Ended | |||||||||||||||||||
February 28, | February 22, | February 24, | November 28, | November 22, | ||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Revenue | ||||||||||||||||||||
Product | 32.6 | % | 38.0 | % | 41.1 | % | 34.3 | % | 31.4 | % | ||||||||||
Service | 67.4 | 62.0 | 58.9 | 65.7 | 68.6 | |||||||||||||||
Total revenue | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||
Product | 14.7 | 19.3 | 21.8 | 16.0 | 14.4 | |||||||||||||||
Service | 30.1 | 27.8 | 28.4 | 28.7 | 30.5 | |||||||||||||||
Management and transaction costs | — | — | 0.0 | — | — | |||||||||||||||
Total Cost of Revenue | 44.8 | 47.1 | 50.2 | 44.7 | 44.9 | |||||||||||||||
Gross profit | 55.2 | 52.9 | 49.8 | 55.3 | 55.1 | |||||||||||||||
Research and development | 14.8 | 13.9 | 13.5 | 13.3 | 15.2 | |||||||||||||||
Sales and marketing | 14.1 | 14.9 | 17.0 | 14.2 | 14.1 | |||||||||||||||
General and administrative | 9.4 | 10.4 | 7.4 | 9.5 | 9.6 | |||||||||||||||
Amortization of intangibles | 1.0 | 0.9 | 0.8 | 0.0 | 1.0 | |||||||||||||||
Restructuring and asset impairment charges | 0.7 | 3.6 | 0.7 | 0.0 | (0.2 | ) | ||||||||||||||
(Gain) loss on sale of subsidiary | (0.4 | ) | 0.0 | — | (2.4 | ) | 0.1 | |||||||||||||
Management fees | 0.3 | 0.3 | 0.9 | 0.5 | 0.3 | |||||||||||||||
Total operating expenses | 40.0 | 44.0 | 40.3 | 35.1 | 40.1 | |||||||||||||||
Profit from operations | 15.2 | 8.9 | 9.5 | 20.2 | 15.0 | |||||||||||||||
Interest income | 0.2 | 0.1 | 0.1 | 0.0 | 0.0 | |||||||||||||||
Interest expense | (12.2 | ) | (13.5 | ) | (13.8 | ) | (20.8 | ) | (12.9 | ) | ||||||||||
Loss on extinguishment of debt | — | — | — | (2.6 | ) | — | ||||||||||||||
Other income (expense), net | 0.9 | 0.4 | 0.0 | (1.0 | ) | 0.9 | ||||||||||||||
Profit (loss) before income taxes | 4.1 | (4.1 | ) | (4.2 | ) | (4.2 | ) | 3.0 | ||||||||||||
Provision for income taxes | 0.8 | 0.9 | (0.2 | ) | 0.5 | 0.7 | ||||||||||||||
Net income (loss) | 3.3 | % | (5.0 | %) | (4.4 | %) | (4.7 | %) | 2.3 | % | ||||||||||
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9 Months Ended | Increase (Decrease) | |||||||||||||||
November 28, | November 22, | |||||||||||||||
2010 | 2009 | FY11 vs. FY10 | ||||||||||||||
$ | % | |||||||||||||||
Product revenue | $ | 52,835 | $ | 47,646 | $ | 5,189 | 10.9 | % | ||||||||
Service revenue | 101,359 | 103,885 | (2,526 | ) | (2.4 | ) | ||||||||||
Total revenue | $ | 154,194 | $ | 151,531 | $ | 2,663 | 1.8 | % | ||||||||
` | ||||||||||||||||
9 Months Ended | Increase (Decrease) | |||||||||||||||
November 28, | November 22, | |||||||||||||||
2010 | 2009 | FY11 vs. FY10 | ||||||||||||||
$ | % | |||||||||||||||
Continuum | $ | 2,848 | $ | 2,034 | $ | 814 | 40.0 | % | ||||||||
V-Series | 12,822 | 14,538 | (1,715 | ) | (11.8 | ) | ||||||||||
Total Legacy | 15,670 | 16,572 | (901 | ) | (5.4 | ) | ||||||||||
Windows | 26,266 | 21,618 | 4,648 | 21.5 | ||||||||||||
Linux | 7,489 | 6,471 | 1,018 | 15.7 | ||||||||||||
VMware | 2,676 | 2,739 | (63 | ) | (2.3 | ) | ||||||||||
Avance | 734 | 129 | 604 | 468.2 | ||||||||||||
Emergent | — | 117 | (117 | ) | (100.0 | ) | ||||||||||
Total ft | 37,165 | 31,074 | 6,090 | 19.6 | ||||||||||||
Total product revenue | $ | 52,835 | $ | 47,646 | $ | 5,189 | 10.9 | % | ||||||||
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Fiscal Years Ended | Increase (Decrease) | |||||||||||||||
February 28, | February 22, | |||||||||||||||
2010 | 2009 | FY10 vs. FY09 | ||||||||||||||
$ | % | |||||||||||||||
Product revenue | $ | 66,714 | $ | 92,362 | $ | (25,648 | ) | (27.8 | %) | |||||||
Service revenue | 137,699 | 150,662 | (12,963 | ) | (8.6 | ) | ||||||||||
Total revenue | $ | 204,413 | $ | 243,024 | $ | (38,611 | ) | (15.9 | %) | |||||||
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Fiscal Years Ended | Increase (Decrease) | |||||||||||||||
February 28, | February 22, | |||||||||||||||
2010 | 2009 | FY10 vs. FY09 | ||||||||||||||
$ | % | |||||||||||||||
Continuum | $ | 4,014 | $ | 7,258 | (3,244 | ) | (44.7 | %) | ||||||||
V-Series | 20,799 | 21,761 | (962 | ) | (4.4 | ) | ||||||||||
Total Legacy | 24,813 | 29,019 | (4,206 | ) | (14.5 | ) | ||||||||||
Windows | 30,049 | 43,407 | (13,358 | ) | (30.8 | ) | ||||||||||
Linux | 8,293 | 10,830 | (2,537 | ) | (23.4 | ) | ||||||||||
VMware | 3,279 | 2,709 | 570 | 21.0 | ||||||||||||
Avance | 163 | 19 | 144 | 757.9 | ||||||||||||
Emergent | 117 | 6,378 | (6,261 | ) | (98.2 | ) | ||||||||||
Total ft | 41,901 | 63,343 | (21,442 | ) | (33.9 | ) | ||||||||||
Total product revenue | $ | 66,714 | $ | 92,362 | $ | (25,648 | ) | (27.8 | %) | |||||||
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Fiscal Years Ended | Increase (Decrease) | |||||||||||||||
February 22, | February 24, | |||||||||||||||
2009 | 2008 | FY09 vs. FY08 | ||||||||||||||
(Unaudited) | $ | % | ||||||||||||||
Product revenue | $ | 92,362 | $ | 106,485 | $ | (14,123 | ) | (13.3 | )% | |||||||
Service revenue | 150,662 | 152,301 | (1,639 | ) | (1.1 | ) | ||||||||||
Total revenue | $ | 243,024 | $ | 258,786 | $ | (15,762 | ) | (6.1 | )% | |||||||
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Fiscal Years Ended | Increase (Decrease) | |||||||||||||||
February 22, | February 24, | |||||||||||||||
2009 | 2008 | FY09 vs. FY08 | ||||||||||||||
(Audited) | $ | % | ||||||||||||||
Continuum | 7,258 | 11,184 | (3,926 | ) | (35.1 | )% | ||||||||||
V-Series | 21,761 | 35,740 | (13,979 | ) | (39.1 | ) | ||||||||||
Total Legacy | 29,019 | 46,924 | (17,905 | ) | (38.2 | ) | ||||||||||
Windows | 43,407 | 45,751 | (2,344 | ) | (5.1 | ) | ||||||||||
Linux | 10,830 | 9,240 | 1,590 | 17.2 | ||||||||||||
VMware | 2,709 | 595 | 2,114 | 355.3 | ||||||||||||
Avance | 19 | — | 19 | 0.0 | ||||||||||||
Emergent | 6,378 | 3,975 | 2,403 | 60.5 | ||||||||||||
Total ftServer | 63,343 | 59,561 | 3,782 | 6.3 | ||||||||||||
Total product revenue | $ | 92,362 | $ | 106,485 | $ | (14,123 | ) | (13.3 | )% | |||||||
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Fiscal Years Ending | Beyond | |||||||||||||||||||||||
February 27, | February 26, | February | February | February 23, | ||||||||||||||||||||
Total | 2011 | 2012 | 24, 2013 | 23, 2014 | 2014 | |||||||||||||||||||
Long-term debt (1)(2)(3) | $ | 316,906 | $ | 25,000 | $ | 215,000 | $ | 76,906 | $ | — | $ | — | ||||||||||||
Operating lease obligations | 34,365 | 6,737 | 5,842 | 5,517 | 5,412 | 10,857 | ||||||||||||||||||
Purchase obligations | 6,045 | 6,045 | — | — | — | — | ||||||||||||||||||
Total | $ | 357,316 | $ | 37,782 | $ | 220,842 | $ | 82,423 | $ | 5,412 | $ | 10,857 | ||||||||||||
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(1) | As presented in this table, long-term debt represents the aggregate mandatory repayments of principal, but not interest, for each period under our Previous Revolving Credit Facility, our First Lien Credit Facility and our Second Lien Credit Facility, as of February 28, 2010. See Note 8 to the audited financial statements for the year ended February 28, 2010, for additional information. | |
(2) | On April 8, 2010, we terminated our Previous Revolving Credit Facility and First Lien Credit Facility, entered into a new Revolving Credit Facility, amended our Second Lien Credit Facility and issued $215.0 million in Notes. (See “Prospectus Summary—Recapitalization Transactions” and Note 19 to our consolidated financial statements and Note 6 to our interim financial statements.) Subsequent to February 28, 2010, we completed the Recapitalization Transactions. As of November 28, 2010, our aggregate long-term debt obligations were approximately $5.0 million, $5.0 million, $5.0 million, and $323.6 million, respectively, for each of fiscal 2012, 2013, 2014 and 2015 and beyond, with no long-term debt obligations for fiscal 2011. The foregoing assumes that, within 95 days after the end of each fiscal year commencing with fiscal 2011, $5.0 million per year will be used by us to make Excess Cash Flow Offers (as defined in note 3 below). Assuming a LIBOR interest rate of 0.31% added to a base rate of 5.0% for our variable rate obligations and all fixed rates interest obligations, our aggregate long-term interest obligations would be approximately $22.1 million, $30.2 million, $30.1 million, $29.9 million and $42.8 million, respectively, for each of fiscal 2011, 2012, 2013, 2014 and 2015 and beyond. | |
(3) | Pursuant to the terms of the indenture governing the Notes, we are required, within 95 days after the end of each fiscal year commencing with fiscal 2011, to make an offer (an “Excess Cash Flow Offer”) to repurchase outstanding Notes at 120% of the principal amount thereof, plus accrued and unpaid interest, if any. The amount of each Excess Cash Flow Offer must equal the amount of Excess Cash Flow for the previous fiscal year (as calculated under the indenture governing the Notes), subject to a minimum amount of $5.0 million. The presentation of long-term debt obligations as of April 8, 2010 in note 2 above assumes a minimum Excess Cash Flow Offer of $5.0 million per year. Depending on the amount of Excess Cash Flow actually available to make Excess Cash Flow Offers in each such period, the actual amount of such payments could be significantly higher. See “Description of the Notes—Repurchase at the Option of Holders—Excess Cash Flow” for more information. | |
(4) | At February 28, 2010 we have gross unrecognized income tax benefits of $0.2 million. Due to immateriality this is not presented within the tabular disclosure of contractual obligations. |
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Productivity Loss/Hour | Revenue Loss/Hour | Downtime Hours | ||||||||||
Financial | $ | 3.64 | $ | 9,997.50 | 3.57 | |||||||
Retail | $ | 2.58 | $ | 397.50 | 7.75 | |||||||
Healthcare | $ | 1.25 | $ | 157.50 | 21.70 | |||||||
Manufacturing | $ | 3.06 | $ | 59.93 | 8.01 | |||||||
Public Sector | $ | 0.85 | $ | .00 | 9.41 |
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• | Lockstep Technology. Lockstep technology uses replicated, fault-tolerant hardware components that process the same instructions at the same time. In the event of a component malfunction, the partner component acts as an active spare that continues normal operation and averts system downtime. The system also detects and corrects transient hardware errors that could cause software failures if left unchecked. |
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• | Failsafe Software. Proprietary, failsafe software works in concert with lockstep technology to prevent many software errors from escalating into outages. Unlike typical servers or clusters, our server hardware and software handles most errors transparently, shielding the operating system, middleware, and application software. Another advantage of our approach is that it constantly protects and maintains in-memory data. |
• | ActiveService Architecture and Value-Added Services. Our ActiveService capabilities enable built-in serviceability, allowing our server systems to constantly monitor their own operation. When a fault is detected, the server isolates the condition and automatically opens a call that tells our support center exactly what action to take. |
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• | automatic availability in excess of 99.99% and built-in virtualization for standard x86 servers; |
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• | prevention of downtime and data loss with automated 24/7 monitoring, error detection, isolation and fault-management features; |
• | 24/7 access to critical business solutions from a single management console; |
• | support for multiple Windows and Linux virtual machines with integrated Avance virtualization; |
• | reduction of cost and complexity of traditional and virtualized IT environments with a solution that is easy to install, use and maintain; and |
• | no need for failover scripting, repeated test procedures or extra effort to make applications cluster-aware. |
• | proactive remote monitoring capabilities, including predictive analysis, remote system commands and the ability to pinpoint and duplicate system level problems; |
• | automatic notification of any hardware problems; |
• | 24/7 same-day, on-site service for critical remedial service; |
• | immediate access to our on-line database for call history information to expedite the resolution of problems; and |
• | transmission of technical information and documentation from the Stratus CAC. |
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• | 24/7 access to availability engineers, software assistance, hardware assistance and hardware monitoring; |
• | problem relief focused on resuming operation, plus problem root-cause determination; |
• | service engineer response to critical problems; |
• | same-day onsite emergency service; and |
• | premium services with Microsoft. |
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Square | ||||||||||
Company | Location | Use | Feet | Lease Expiration | ||||||
Stratus Technologies, Inc. | Maynard, MA | Corporate and R&D | 287,037 | 5/31/16 | ||||||
Stratus Technologies, Inc. | Phoenix, AZ | Service | 20,660 | 12/31/16 | ||||||
As of | ||||||||||
November 28, | ||||||||||
2010 | ||||||||||
U.S. | 447 | |||||||||
EMEA | 59 | |||||||||
Japan | 47 | |||||||||
Asia/Pacific | 43 | |||||||||
Total | 596 | |||||||||
Sales | 80 | |||||||||
Marketing | 30 | |||||||||
Engineering | 142 | |||||||||
Services | 234 | |||||||||
Manufacturing | 16 | |||||||||
Finance and Administration | 94 | |||||||||
Total | 596 | |||||||||
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Name | Age | Title | ||||
David C. Laurello | 55 | Chairman of the Board of Directors; President (1) | ||||
Robert C. Laufer | 52 | Director; Vice President and Treasurer (2) | ||||
Frederick S. Prifty | 66 | Vice President and Assistant Secretary (3) | ||||
Stephen B. Baus | 45 | Director (4) | ||||
Lars C. Haegg | 45 | Director (5) | ||||
Stephen C. Kiely | 64 | Director (5) | ||||
Ernest Morrison | 55 | Director (6) | ||||
Robert Sharp | 45 | Director (5) |
(1) | Mr. Laurello also serves as Chairman of the Board of Directors and President and Chief Executive Officer of the U.S. Issuer. Mr. Laurello does not hold a director or executive officer position with the Bermuda Issuer. | |
(2) | Mr. Laufer also serves as a director and Vice President of the Bermuda Issuer and as a Director and Senior Vice President, Chief Financial Officer and Treasurer of the U.S. Issuer. | |
(3) | Mr. Prifty also serves as a director and President of the Bermuda Issuer and as Vice President, General Counsel and Secretary of the U.S. Issuer. | |
(4) | Mr. Baus also serves as a director of each of the Bermuda Issuer and the U.S. Issuer. Mr. Baus is the appointee of the Second Lien Lenders holding a majority in interest of the loans outstanding under the Second Lien Credit Facility, pursuant to Subscription and Shareholders Agreement entered into on April 8, 2010. | |
(5) | Mr. Haegg, Mr. Sharp and Mr. Kiely also each serve as directors of each of the Bermuda Issuer and the U.S. Issuer. Mr. Haegg and Mr. Sharp are the appointees of Technology Holdings, pursuant to Subscription and Shareholders Agreement entered into on April 8, 2010. | |
(6) | Mr. Morrison also serves as a director of the Bermuda Issuer. Mr. Morrison does not hold a director or executive officer position with the U.S. Issuer. |
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Holdings | Holdings | |||||||||||||||
Ordinary | Preference | |||||||||||||||
Shares(a) | Shares(b) | |||||||||||||||
Number | Percent | Number | Percent | |||||||||||||
of | of | of | of | |||||||||||||
Name | Shares | Class | Shares | Class | ||||||||||||
Technology Holdings Ltd. (c) | 37,679,352.00 | 56.9 | % | 6,561,242.00 | 65.0 | % | ||||||||||
Northwestern Mutual Life Insurance Co. (d) | 3,559,743.91 | 5.4 | % | 542,564.24 | 5.4 | % |
(a) | Includes 10,093,146.62 preference shares that are convertible into ordinary shares at any time at the option of the holder. | |
(b) | Preference shares vote and are convertible into ordinary shares on a 2.17:1 basis. | |
(c) | As described under the captions “Principal Stockholders” and “Our Structure” beginning on pages 3 and 4 of this prospectus, respectively, a majority of our outstanding share capital is owned of record by Technology Holdings, which is a Bermuda exempted company. The shareholders of Technology Holdings are in turn the Investcorp Group, MidOcean and Intel Atlantic. | |
Investcorp Stratus Limited Partnership, a Cayman Islands exempted limited partnership, and Stratus Holdings Limited, a Cayman Islands exempt company (which we refer to collectively in this prospectus as the “Investcorp Group”), own securities representing approximately 56.5% of the voting power of Technology Holdings. Investcorp Bank B.S.C., a Bahraini public joint stock company (which we refer to in this prospectus as “Investcorp”), may be deemed to share beneficial ownership of the shares of voting stock of Technology Holdings held by the Investcorp Group because the holders of the voting stock of the Investcorp Group, or such entities’ stockholders or principals, have entered into revocable management services or similar agreements with an affiliate of Investcorp pursuant to which each of the entities owning the voting stock issued by the entities in the Investcorp Group, or such entities’ stockholders, has granted such affiliate the authority to direct the voting and disposition of the voting shares issued by such entity, which permits Investcorp to control the voting and disposition of the voting stock of Technology Holdings owned by each member of the Investcorp Group for so long as such agreements are in effect. Investcorp may also be deemed to share beneficial ownership of the shares of voting stock of Technology Holdings held by Investcorp Stratus Limited Partnership because the general partner of such partnership is an indirect subsidiary of Investcorp. The address for Investcorp Bank B.S.C. is P.O. Box 5340, Manama, Bahrain. The address for each of Investcorp Stratus Limited Partnership and Stratus Holdings Limited is c/o Paget-Brown Trust Company Ltd., P.O. Box 1111, Boundary Hall, Cricket Square, Grand Cayman, Cayman Islands. | ||
MidOcean Capital Partners Europe, L.P., a Cayman Islands exempted limited partnership (which we refer to in this prospectus as “MidOcean”), owns securities representing approximately 30.8% of the voting power of Technology Holdings. As a result of their direct or indirect control relationship with MidOcean, Ultramar Capital, Ltd., a Cayman Islands exempt company, Existing Fund GP, Ltd., a Cayman Islands exempt company, MidOcean Partners, LP a Cayman Islands exempted limited partnership, and MidOcean Associates, SPC, a Cayman Islands exempt company registered as a segregated portfolio company, may all be deemed to be beneficial owners of the stock of Technology Holdings owned by MidOcean. Existing Fund GP, Ltd. is the general partner of MidOcean, MidOcean Partners, LP is the sole owner of Existing Fund GP, Ltd. and MidOcean Associates, SPC is the general partner of MidOcean Partners, LP. J. Edward Virtue may be deemed the beneficial owner of the shares of voting stock of Technology Holdings held by such entities because he indirectly controls the voting or disposition of such securities, but he disclaims beneficial ownership except to the extent of his pecuniary interest therein. The address for MidOcean Capital Partners Europe, L.P. is P.O. Box 26 GT, Grand Cayman, Cayman Islands. The address for each of Existing Fund GP, Ltd., MidOcean Partners, LP, MidOcean Associates, SPC and Ultramar Capital, Ltd. is c/o Maples Corporate Services Limited, P.O. Box 309, Ugland House, South Church Street, Grand Cayman, Cayman Islands. | ||
Intel Atlantic, Inc., a Delaware corporation (which we refer to in this prospectus as “Intel Atlantic”), owns securities representing approximately 12.7% of the voting power of Technology Holdings. The address for Intel Atlantic, Inc. is Corporation Trust Company, 1209 Orange St., Wilmington, Delaware, 19801. |
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(d) | The Northwestern Mutual Life Insurance Company is a Second Lien Lender. The address for the Northwestern Mutual Life Insurance Company is 720 East Wisconsin Avenue, Milwaukee, Wisconsin, 53202. |
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• | are senior secured obligations of such Issuer; | ||
• | rank equal in right of payment with all existing and future senior Indebtedness of such Issuer, including its obligations under the Revolving Credit Facility and the Second Lien Credit Facility; | ||
• | rank senior in right of payment to all existing and future subordinated Indebtedness of such Issuer; | ||
• | are secured on a first priority basis by Liens on substantially all of such Issuer’s assets, other than the Excluded Assets, subject to Permitted Prior Liens; | ||
• | are effectively junior to such Issuer’s obligations secured by Permitted Prior Liens, including such Issuer’s obligations under the Revolving Credit Facility pursuant to the Intercreditor Agreement, to the extent of the value of the collateral securing such obligations; | ||
• | are effectively senior to such Issuer’s obligations under the Second Lien Credit Facility pursuant to the Intercreditor Agreement, to the extent of the value of the Collateral securing the Notes; and | ||
• | are unconditionally Guaranteed, jointly and severally, on a senior secured basis, by all of the Initial Guarantors, all of the future Domestic Restricted Subsidiaries of Stratus Technologies Bermuda Holdings Ltd., an exempted limited liability company and the direct parent of the Bermuda Issuer(“Holdings”), and, if applicable, certain of Holdings’ future Foreign Restricted Subsidiaries, as set forth below. |
• | a senior secured obligation of the Guarantor; |
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• | ranks equal in right of payment with all existing and future senior Indebtedness of such Guarantor, including such Guarantor’s obligations under the Revolving Credit Facility and the Second Lien Credit Facility; | ||
• | ranks senior in right of payment to all existing and future subordinated Indebtedness of such Guarantor; | ||
• | is secured on a first priority basis by Liens on substantially all of the Guarantor’s assets, other than the Excluded Assets, subject to Permitted Prior Liens; | ||
• | is effectively junior to such Guarantor’s obligations secured by Permitted Prior Liens, including such Guarantor’s obligations under the Revolving Credit Facility pursuant to the Intercreditor Agreement, to the extent of the value of the collateral securing such obligations; and | ||
• | is effectively senior to such Guarantor’s obligations under the Second Lien Credit Facility pursuant to the Intercreditor Agreement, to the extent of the value of the Collateral securing the Notes. |
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• | at the office or agency maintained for that purpose; | ||
• | at its option, by check mailed to the holders of the Notes at their respective addresses set forth in the register of holders of the Notes; or | ||
• | with respect to Notes represented by Global Notes the holders of which have provided the Issuers with wire transfer instructions, by wire transfer of immediately available funds to the account or accounts specified. |
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first, as specified in the relevant Super Priority Loan Documents; | ||
second, after the Discharge of Super Priority Claims, as specified in the relevant Indenture Documents; and | ||
third, after the Discharge of Indenture Claims, as specified in the Second Lien Loan Documents. |
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For the period below | Percentage | |||
On or after April 15, 2013 but prior to January 15, 2015 | 112.000 | % | ||
On or after January 15, 2015 | 100.000 | % | ||
• | such redemption is made with the net cash proceeds of one or more Equity Offerings; | ||
• | at least 65% of the aggregate principal amount of the Notes (including Additional Notes) originally issued under the Indenture remain outstanding immediately after the occurrence of such redemption (excluding Notes held by Holdings or any of its Subsidiaries); and | ||
• | the redemption occurs within 90 days of such Equity Offering. |
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• | that a Change of Control has occurred and that such holder has the right to require the Issuers to purchase such holder’s Notes at a purchase price in cash equal to 112% of the principal amount thereof on the date of purchase,plusaccrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on an interest payment date falling on or prior to the Change of Control Payment Date); | ||
• | the circumstances and relevant facts regarding such Change of Control; |
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• | the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and | ||
• | the instructions, as determined by the Issuers, consistent with the covenant described hereunder, that a holder must follow in order to have its Notes purchased. |
• | accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer; | ||
• | deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered; and | ||
• | deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Issuers. |
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(i) | Holdings (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and |
(ii) | at least 75% of the consideration therefor received by Holdings or such Restricted Subsidiary is in the form of cash or Cash Equivalents; |
(A) | any liabilities (as shown on Holdings’ or such Restricted Subsidiary’s most recent balance sheet) of Holdings or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement releasing Holdings or such Restricted Subsidiary from further liability; and |
(B) | any securities, notes or other obligations received by Holdings or any such Restricted Subsidiary from such transferee that are converted by Holdings or such Restricted Subsidiary into cash or Cash Equivalents within 120 days of their receipt (to the extent of the cash or Cash Equivalents received in that conversion), |
(1) | to permanently reduce commitments under the Revolving Credit Facility (and, if applicable, to correspondingly prepay Indebtedness thereunder to the extent such Indebtedness exceeded the amount of the commitments thereunder as so reduced with respect thereto); |
(2) | with respect to Asset Sales of assets of a Restricted Subsidiary that is not a Guarantor, to permanently reduce Indebtedness of a Restricted Subsidiary that is not a Guarantor (and to correspondingly reduce commitments with respect thereto), other than Indebtedness owed to Holdings or another Subsidiary; |
(3) | to the making of a Capital Expenditure or the acquisition of a controlling interest in another business or other assets, in each case, that are used or useful in a Similar Business or that replace the assets that are the subject of such Asset Sale; or |
(4) | any combination of the foregoing. |
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(1) | any aspect of DTC’s records or any participant’s or indirect participant’s records relating to or payments made on account of beneficial ownership interest in the Global Securities or for maintaining, supervising or reviewing any of DTC’s records or any participant’s or indirect participant’s records relating to beneficial ownership interests in the Global Securities; or | ||
(2) | any other matter relating to the actions and practices of DTC or any of its participants or indirect participants. |
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• | holders must give two days’ notice to Holdings before any transfers; | ||
• | any transfer by a holder of Equity Shares must not increase the total number of Second Lien Lenders holding preference shares or ordinary shares in Holdings and holders of Unit Equity Capital offered thereby, together with their permitted transferees, successors and assignees, beyond 200; | ||
• | the transferee must not be a competitor of Holdings; | ||
• | the transferee must sign a joinder to the Subscription and Shareholders Agreement; | ||
• | such transfer must not cause a violation of securities laws or cause Holdings to become an SEC reporting company; and | ||
• | the transferor must provide additional information reasonably requested for Holdings to determine compliance with the foregoing restrictions. |
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• | any creation or issuance of shares having preference over any series of preference shares; | ||
• | any amalgamation, consolidation, acquisition or similar transaction of Holdings in which the shareholders of Holdings prior to such transaction, or series of related transactions, would hold shares representing less than a majority of the voting power after such transaction or series of transactions; | ||
• | the sale of all or substantially all of Holdings’ assets; | ||
• | the liquidation, dissolution or winding up of Holdings; and | ||
• | the incurrence of certain indebtedness. |
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INCOME TAX CONSIDERATIONS
• | acquired the Outstanding Notes for cash in this offering at the initial offering price; and |
• | hold the Notes as capital assets within the meaning of Section 1221 of the Code. |
• | an individual citizen or resident of the United States; | ||
• | a corporation or partnership created or organized under the laws of the United States, any state thereof or the District of Columbia; | ||
• | an estate the income of which is subject to United States federal income tax without regard to its source; or | ||
• | a trust if: | ||
a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons (within the meaning of the Code) have the authority to control all substantial decisions of the trust; or | |||
the trust has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. |
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• | the amount you realize upon the sale, exchange, redemption, retirement or other taxable disposition; and | ||
• | your adjusted tax basis in the Note. Your adjusted tax basis in a Note will, in general, be your cost for the Note, increased by any OID previously accrued by you (determined without regard to any positive or negative adjustments to interest accruals described above), less any noncontingent principal and interest payments you receive in respect of the Note and the projected amount of any contingent payment previously made to you on the Note. |
• | you do not, directly or indirectly, actually or constructively, own 10% or more of the voting power of the stock of the U.S. Issuer; | ||
• | you are not a bank receiving interest on an extension of credit pursuant to a loan agreement entered into in the ordinary course of your trade or business; | ||
• | you are not a controlled foreign corporation for United States federal income tax purposes that is, actually or constructively, related to the U.S. Issuer (as provided in the Code); | ||
• | the interest payments are not effectively connected with your conduct of a trade or business within the United States; and |
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• | you meet certain certification requirements. You will satisfy these requirements if you provide the withholding agent with a properly completed IRS Form W-8BEN, or a substantially similar substitute form. |
• | You are entitled to an exemption from or reduction in withholding tax on interest under a tax treaty between the United States and your country of residence. To claim this exemption or reduction, you must generally complete Form W-8BEN and claim this exemption or reduction on the form. In some cases, you may instead be permitted to provide documentary evidence of your claim to the intermediary, or a qualified intermediary may already have some or all of the necessary evidence in its files; or | ||
• | Such interest income is effectively connected with the conduct of your trade or business in the United States. To claim this exemption, you must complete Form W-8ECI. |
• | the gain is effectively connected with your conduct of a trade or business within the United States and, if a treaty applies, is generally attributable to a United States “permanent establishment”; | ||
• | you are an individual and have been present in the United States for 183 days or more in the taxable year of disposition and certain other requirements are met; or | ||
• | in the case of an amount received with respect to a Note which is attributable to OID, you do not meet the conditions for exemption from United States federal withholding tax described above. |
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• | the individual does not, directly or indirectly, actually or constructively, own 10% or more of the combined voting power of the U.S. Issuer; and | ||
• | the interest accrued with respect to the U.S. Note was not effectively connected with the conduct of a trade or business within the United States. |
• | a United States person (within the meaning of the Code); | ||
• | a controlled foreign corporation; | ||
• | a foreign person 50% or more of whose gross income is effectively connected with a United States trade or business for a specified three-year period; or | ||
• | a foreign partnership with certain connections to the United States; |
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• | that any New Securities to be received by such holder will be acquired in the ordinary course of its business; | ||
• | that at the time of the consummation of the Exchange Offer such holder will have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the New Securities in violation of the Securities Act; | ||
• | that such holder is not an “affiliate” (as defined in Rule 405 promulgated under the Securities Act) of the Issuers or any Guarantor; | ||
• | if such holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of New Securities; and | ||
• | if such holder is a broker-dealer (a “Participating Broker-Dealer”), such holder will receive New Securities for its own account in exchange for Outstanding Securities that were acquired as a result of market-making or other trading activities and that such holder will deliver a prospectus (or, to the extent permitted by law, make available a prospectus to purchasers) in connection with any resale of such New Securities. |
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• | the U.S. court had jurisdiction in accordance with the laws of Bermuda; | ||
• | the U.S. judgment was not obtained by fraud; | ||
• | the U.S. judgment is not contrary to public policy or natural justice as understood under Bermuda law; | ||
• | the U.S. judgment is final and conclusive; | ||
• | the U.S. judgment is for a definite sum of money; and | ||
• | the procedural rules of the court giving the U.S. judgment have been observed. |
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• | that the U.S. court had jurisdiction, according to the laws of Ireland; | ||
• | that the U.S. judgment was not obtained by fraud; | ||
• | that the U.S. judgment is not contrary to public policy or natural justice as understood in Irish law; | ||
• | that the U.S. judgment is final and conclusive; | ||
• | that the U.S. judgment is for a definite sum of money; and | ||
• | that the procedural rules of the court giving the U.S. judgment have been observed. |
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• | if the judgment was obtained by fraud (such fraud may be either fraud on the part of the party in whose favor the judgment is given or fraud on the part of the court pronouncing the judgment); | ||
• | its enforcement or, as the case may be, recognition would be contrary to or manifestly incompatible with the public policy of Cyprus; | ||
• | if the proceedings in which the judgment was obtained were opposed to natural justice; or | ||
• | if the courts of the foreign country did not, in the circumstances of the case, have jurisdiction to give the judgment in view of the Cyprus law in accordance with the principles set out below. |
• | if the judgment debtor was, at the time the proceedings were instituted, resident (or present) in the foreign country; | ||
• | if the judgment debtor was plaintiff in, or counterclaimed, in the proceedings in the foreign court; | ||
• | if the judgment debtor, being a defendant in the foreign court, submitted to the jurisdiction of that court by voluntarily appearing in the proceedings; or | ||
• | if the judgment debtor, being a defendant in the original court, had before the commencement of the proceedings agreed, in respect of the subject matter of the proceedings, to submit to the jurisdiction of the courts of that country. |
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Page No. | ||||
F-2 | ||||
F-3 | ||||
For the Fiscal Years Ended February 28, 2010 and February 22, 2009 and February 24, 2008: | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-38 | ||||
For the Nine Months Ended November 28, 2010 and November 22, 2009: | ||||
F-39 | ||||
F-40 | ||||
F-41 | ||||
F-42 |
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of Stratus Technologies Bermuda Holdings LTD:
May 27, 2010, except for Note 18, as to which the date is January 25, 2011
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February 28, | February 22, | |||||||
2010 | 2009 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 56,768 | $ | 35,025 | ||||
Accounts receivable, net of allowance for doubtful accounts of $1,036 and $672, respectively | 41,417 | 53,678 | ||||||
Inventory | 6,525 | 6,536 | ||||||
Deferred income taxes | 1,200 | 1,271 | ||||||
Income taxes receivable | — | 45 | ||||||
Prepaid expenses and other current assets | 5,420 | 5,484 | ||||||
Total current assets | 111,330 | 102,039 | ||||||
Property and equipment, net | 16,841 | 21,507 | ||||||
Intangible assets, net | 3,598 | 5,719 | ||||||
Goodwill | 9,544 | 9,502 | ||||||
Deferred income taxes | 1,723 | 1,637 | ||||||
Other assets | 7,234 | 8,821 | ||||||
Total assets | $ | 150,270 | $ | 149,225 | ||||
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 25,000 | $ | 2,000 | ||||
Accounts payable | 7,789 | 11,409 | ||||||
Accrued expenses | 17,706 | 30,433 | ||||||
Income taxes payable | 67 | — | ||||||
Deferred revenue | 42,029 | 39,025 | ||||||
Total current liabilities | 92,591 | 82,867 | ||||||
Long-term debt | 291,906 | 316,144 | ||||||
Deferred revenue and other liabilities | 9,892 | 8,158 | ||||||
Total liabilities | 394,389 | 407,169 | ||||||
Commitments and contingencies (Note 9) | ||||||||
Redeemable convertible preferred stock: | ||||||||
Undesignated authorized share capital: 152,633 and 152,633, respectively, designated as either preferred or ordinary | ||||||||
Series A redeemable convertible preferred stock, $1.50 par value, 6,561 and 6,561 shares authorized, issued and outstanding, (liquidation preference of $93,612 and $86,678, respectively) | 93,612 | 86,678 | ||||||
Total redeemable convertible preferred stock | 93,612 | 86,678 | ||||||
Stockholders’ deficit: | ||||||||
Ordinary stock, $0.5801 par value, 28,809 and 28,809 shares authorized and issued, respectively | 16,712 | 16,712 | ||||||
Additional paid in capital | 9,704 | 12,663 | ||||||
Accumulated deficit | (364,010 | ) | (370,655 | ) | ||||
Accumulated other comprehensive loss | (137 | ) | (3,342 | ) | ||||
Total stockholders’ deficit | (337,731 | ) | (344,622 | ) | ||||
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit | ||||||||
$ | 150,270 | $ | 149,225 | |||||
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February 28, | February 22, | February 24, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
REVENUE | ||||||||||||
Product | $ | 66,714 | $ | 92,362 | $ | 106,485 | ||||||
Service | 137,699 | 150,662 | 152,301 | |||||||||
Total revenue | 204,413 | 243,024 | 258,786 | |||||||||
COST OF REVENUE | ||||||||||||
Product | 30,011 | 46,939 | 56,236 | |||||||||
Service | 61,566 | 67,538 | 73,556 | |||||||||
Management and transaction costs | — | — | 64 | |||||||||
Total cost of revenue | 91,577 | 114,477 | 129,856 | |||||||||
Gross profit | 112,836 | 128,547 | 128,930 | |||||||||
OPERATING EXPENSES | ||||||||||||
Research and development | 30,280 | 33,837 | 34,861 | |||||||||
Sales and marketing | 28,867 | 36,126 | 44,058 | |||||||||
General and administrative | 19,193 | 25,362 | 19,028 | |||||||||
Amortization of intangibles | 1,975 | 2,227 | 2,096 | |||||||||
Restructuring charges | 1,484 | 8,652 | 1,881 | |||||||||
(Gain) loss on sale of subsidiary | (818 | ) | 107 | — | ||||||||
Management and transaction costs | 700 | 700 | 2,241 | |||||||||
Total operating expenses | 81,681 | 107,011 | 104,165 | |||||||||
Profit from operations | 31,155 | 21,536 | 24,765 | |||||||||
Interest income | 461 | 235 | 247 | |||||||||
Interest expense | (25,307 | ) | (32,820 | ) | (36,153 | ) | ||||||
Other income | 1,920 | 918 | 65 | |||||||||
Income (loss) before income taxes | 8,229 | (10,131 | ) | (11,076 | ) | |||||||
Provision for income taxes | 1,584 | 2,132 | 427 | |||||||||
Net income (loss) | $ | 6,645 | $ | (12,263 | ) | $ | (11,503 | ) | ||||
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Accumulated | |||||||||||||||||||||||||||||||||||||||||
Series A Redeemable | Total Redeemable | other | Total | ||||||||||||||||||||||||||||||||||||||
Convertible Preferred | Convertible | Ordinary Stock | Additional | Accumulated | comprehensive | stockholders’ | Comprehensive | ||||||||||||||||||||||||||||||||||
In thousands USD | Shares | Value | Preferred Stock | Shares | Par value | paid-in capital | deficit | loss | (deficit) | income (loss) | |||||||||||||||||||||||||||||||
Balance at February 25, 2007 | 6,561 | $ | 74,312 | $ | 74,312 | 28,748 | $ | 16,677 | $ | 24,108 | $ | (346,883 | ) | $ | (994 | ) | $ | (307,092 | ) | ||||||||||||||||||||||
Net loss | (11,503 | ) | (11,503 | ) | (11,503 | ) | |||||||||||||||||||||||||||||||||||
Loss on derivative instrument | (3,615 | ) | (3,615 | ) | (3,615 | ) | |||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | 881 | 881 | 881 | ||||||||||||||||||||||||||||||||||||||
Adoption of accounting for uncertain income tax positions | (6 | ) | (6 | ) | |||||||||||||||||||||||||||||||||||||
Unrealized loss on corporate equity security (net of tax of $30) | (46 | ) | (46 | ) | (46 | ) | |||||||||||||||||||||||||||||||||||
Accretion of Series A redeemable, convertible preferred stock to redemption value | 5,945 | 5,945 | (5,945 | ) | (5,945 | ) | |||||||||||||||||||||||||||||||||||
Exercise of employee stock options | 50 | 29 | 46 | 75 | |||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 479 | 479 | |||||||||||||||||||||||||||||||||||||||
Comprehensive loss | $ | (14,283 | ) | ||||||||||||||||||||||||||||||||||||||
Balance at February 24, 2008 | 6,561 | $ | 80,257 | $ | 80,257 | 28,798 | $ | 16,706 | $ | 18,688 | $ | (358,392 | ) | $ | (3,774 | ) | $ | (326,772 | ) | ||||||||||||||||||||||
Net loss | (12,263 | ) | (12,263 | ) | (12,263 | ) | |||||||||||||||||||||||||||||||||||
Gain on derivative instrument | 2,314 | 2,314 | 2,314 | ||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | (1,835 | ) | (1,835 | ) | (1,835 | ) | |||||||||||||||||||||||||||||||||||
Unrealized loss on corporate equity security (net of tax of $5) | (47 | ) | (47 | ) | (47 | ) | |||||||||||||||||||||||||||||||||||
Accretion of Series A redeemable, convertible preferred stock to redemption value | 6,421 | 6,421 | (6,421 | ) | (6,421 | ) | |||||||||||||||||||||||||||||||||||
Exercise of employee stock options | 11 | 6 | 9 | 15 | |||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 387 | 387 | |||||||||||||||||||||||||||||||||||||||
Comprehensive loss | $ | (11,831 | ) | ||||||||||||||||||||||||||||||||||||||
Balance at February 22 2009 | 6,561 | $ | 86,678 | $ | 86,678 | 28,809 | $ | 16,712 | $ | 12,663 | $ | (370,655 | ) | $ | (3,342 | ) | $ | (344,622 | ) | ||||||||||||||||||||||
Net income | 6,645 | 6,645 | 6,645 | ||||||||||||||||||||||||||||||||||||||
Gain on derivative instrument | 1,892 | 1,892 | 1,892 | ||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | 1,324 | 1,324 | 1,324 | ||||||||||||||||||||||||||||||||||||||
Unrealized loss on corporate equity security (net of tax of $7) | (11 | ) | (11 | ) | (11 | ) | |||||||||||||||||||||||||||||||||||
Accretion of Series A redeemable, convertible preferred stock to redemption value | 6,934 | 6,934 | (6,934 | ) | (6,934 | ) | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 3,975 | 3,975 | |||||||||||||||||||||||||||||||||||||||
Comprehensive income | $ | 9,850 | |||||||||||||||||||||||||||||||||||||||
Balance at February 28, 2010 | 6,561 | $ | 93,612 | $ | 93,612 | 28,809 | $ | 16,712 | $ | 9,704 | $ | (364,010 | ) | $ | (137 | ) | $ | (337,731 | ) | ||||||||||||||||||||||
F-5
Table of Contents
February 28, | February 22, | February 24, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
OPERATING ACTIVITIES | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income/(loss) | $ | 6,645 | $ | (12,263 | ) | $ | (11,503 | ) | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||||||||||||
Depreciation and amortization | 12,580 | 16,559 | 14,694 | |||||||||
Amortization of deferred financing costs | 2,596 | 2,596 | 2,533 | |||||||||
Stock-based compensation | 3,975 | 387 | 479 | |||||||||
Non-cash portion of restructuring and other charges | (286 | ) | — | — | ||||||||
Deferred income taxes | (881 | ) | 18 | (192 | ) | |||||||
Provision for doubtful accounts | 1,092 | 517 | 265 | |||||||||
Inventory provision | 1,660 | 3,097 | 5,723 | |||||||||
(Gain) loss from sale of subsidiary | (818 | ) | 107 | — | ||||||||
Loss on retirement of property and equipment | 8 | 266 | 92 | |||||||||
Interest payable-in-kind | 773 | 759 | 502 | |||||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable | 11,700 | 8,175 | 6,222 | |||||||||
Inventory | (2,116 | ) | 960 | (3,985 | ) | |||||||
Prepaid expenses and other current assets | 152 | 2,796 | (321 | ) | ||||||||
Accounts payable | (5,125 | ) | (3,222 | ) | 3,827 | |||||||
Accrued expenses | (9,800 | ) | (4,067 | ) | (4,759 | ) | ||||||
Interest payable | 1,538 | 492 | 943 | |||||||||
Income taxes payable | 174 | (818 | ) | (1,332 | ) | |||||||
Deferred revenue | 4,917 | (420 | ) | 357 | ||||||||
Other long-term assets and liabilities | 1,195 | 1,650 | 2,145 | |||||||||
Net cash provided by operating activities | 29,979 | 17,589 | 15,690 | |||||||||
INVESTING ACTIVITIES | ||||||||||||
Cash flows from investing activities: | ||||||||||||
Acquisition of property and equipment | (5,773 | ) | (6,388 | ) | (14,370 | ) | ||||||
Proceeds from sale of subsidiary | 1,000 | 1,900 | — | |||||||||
Price adjustment for sale of subsidiary | (110 | ) | — | — | ||||||||
Capitalized software | — | — | (372 | ) | ||||||||
Proceeds from sale of property, plant and equipment | — | — | 48 | |||||||||
Acquisition of other long-term assets | (67 | ) | (109 | ) | (93 | ) | ||||||
Net cash used in investing activities | (4,950 | ) | (4,597 | ) | (14,787 | ) | ||||||
FINANCING ACTIVITIES | ||||||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from exercise stock options | — | 15 | 75 | |||||||||
Payment of debt amendment fees | — | — | (95 | ) | ||||||||
Deferred financing fees | (566 | ) | — | (1,043 | ) | |||||||
Cash overdraft | — | — | (476 | ) | ||||||||
Proceeds from revolving credit facility | 24,000 | 24,000 | 41,050 | |||||||||
Payments on revolving credit facility | (24,000 | ) | (11,000 | ) | (32,050 | ) | ||||||
(Payments) proceeds on interest rate swap and collar | (2,701 | ) | (2,154 | ) | 5 | |||||||
Payments on short and long-term debt | (2,000 | ) | (2,000 | ) | (2,000 | ) | ||||||
Net cash (used in) provided by financing activities | (5,267 | ) | 8,861 | 5,466 | ||||||||
Effect of exchange rate changes on cash | 1,981 | (295 | ) | (635 | ) | |||||||
Net increase in cash and cash equivalents | 21,743 | 21,558 | 5,734 | |||||||||
Cash and cash equivalents at beginning of year | 35,025 | 13,467 | 7,733 | |||||||||
Cash and cash equivalents at end of year | $ | 56,768 | $ | 35,025 | $ | 13,467 | ||||||
Supplemental cash flow information: | ||||||||||||
Interest paid | $ | 23,075 | $ | 30,255 | $ | 31,941 | ||||||
Income taxes paid | 1,842 | 3,165 | 2,607 | |||||||||
Supplemental disclosure of noncash investing and financing activities Accretion of preferred stock | $ | 6,934 | $ | 6,421 | $ | 5,945 | ||||||
F-6
Table of Contents
(Dollars in thousands, except per share data)
F-7
Table of Contents
(Dollars in thousands, except per share data)
Quoted Prices | ||||||||||||||||
in Active | ||||||||||||||||
Total | Market for | Significant Other | Significant | |||||||||||||
February 28, | Identical Assets | Observable | Unobservable | |||||||||||||
2010 | (Level 1) | Inputs (Level 2) | Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents in highly liquid money market fund | $ | 20,929 | $ | 20,929 | $ | — | $ | — | ||||||||
Investment in corporate equity security | 34 | 34 | — | — | ||||||||||||
Total | $ | 20,963 | 20,963 | — | — | |||||||||||
Quoted Prices | ||||||||||||||||
in Active | ||||||||||||||||
Total | Market for | Significant Other | Significant | |||||||||||||
February 22, | Identical Assets | Observable | Unobservable | |||||||||||||
2009 | (Level 1) | Inputs (Level 2) | Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents in highly liquid money market fund | $ | 3,460 | $ | 3,460 | $ | — | $ | — | ||||||||
Investment in corporate equity security | 15 | 15 | — | — | ||||||||||||
Foreign currency forward contract agreements | 1,914 | — | 1,914 | — | ||||||||||||
Total | $ | 5,389 | $ | 3,475 | $ | 1,914 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Interest rate swap and collar agreements | 1,892 | — | 1,892 | $ | — | |||||||||||
Total | $ | 1,892 | — | $ | 1,892 | $ | — | |||||||||
F-8
Table of Contents
(Dollars in thousands, except per share data)
F-9
Table of Contents
(Dollars in thousands, except per share data)
Balance at | Charge | Foreign | ||||||||||||||||||||||
Beginning of | (Benefit) to | Exchange | Balance at | |||||||||||||||||||||
Year | Expense | Impact | Recoveries | Write-Offs | End of Year | |||||||||||||||||||
February 24, 2008 | 407 | 346 | - | 81 | (378 | ) | 456 | |||||||||||||||||
February 22, 2009 | 456 | 565 | - | 43 | (391 | ) | 673 | |||||||||||||||||
February 28, 2010 | 673 | 1,138 | (6 | ) | 45 | (814 | ) | 1,036 |
2010 | 2009 | |||||||
Parts and assemblies | $ | 1,375 | $ | 2,042 | ||||
Work-in-process | 823 | 946 | ||||||
Finished products | 4,327 | 3,548 | ||||||
Total Inventory | $ | 6,525 | $ | 6,536 | ||||
Machinery, computer equipment and software | 2-5 years | |
Leasehold improvements | shorter of lease term or life of asset | |
Service and spare parts | 4 years |
F-10
Table of Contents
(Dollars in thousands, except per share data)
Customer related intangibles | 7-11 years | |
Trademark and trade names | 10 years to indefinite life |
F-11
Table of Contents
(Dollars in thousands, except per share data)
F-12
Table of Contents
(Dollars in thousands, except per share data)
F-13
Table of Contents
(Dollars in thousands, except per share data)
2010 | 2009 | 2008 | ||||||||||
Cost of revenue | $ | 882 | $ | 107 | $ | 107 | ||||||
Selling, marketing, general and administrative | 2,010 | 136 | 180 | |||||||||
Research and development | 1,083 | 144 | 192 | |||||||||
Total stock-based compensation expense | $ | 3,975 | $ | 387 | $ | 479 | ||||||
2010 | 2009 | 2008 | ||||||||||
Balancing, beginning of the year | $ | 179 | $ | 150 | $ | 77 | ||||||
Current period accrual | 281 | 445 | 406 | |||||||||
Amounts charged to the accrual | (360 | ) | (416 | ) | (333 | ) | ||||||
Balance, end of the year | $ | 100 | $ | 179 | $ | 150 | ||||||
Excess facility | ||||||||||||
Severance and | charges & | |||||||||||
Fringe Benefits | other exit costs | Total | ||||||||||
Restructuring Liability as of February 25, 2007 | $ | 425 | $ | 1,763 | $ | 2,188 | ||||||
Restructuring Charges | 2,421 | (540 | ) | 1,881 | ||||||||
Cash payments | (1,525 | ) | (780 | ) | (2,305 | ) | ||||||
Restructuring Liability as of February 24, 2008 | 1,321 | 443 | 1,764 | |||||||||
Restructuring Charges | 8,390 | 262 | 8,652 | |||||||||
Currency Translation | (590 | ) | (58 | ) | (648 | ) | ||||||
Cash payments | (6,769 | ) | (269 | ) | (7,038 | ) | ||||||
Restructuring Liability as of February 22, 2009 | 2,352 | 378 | 2,730 | |||||||||
Restructuring Charges | 1,770 | (286 | ) | 1,484 | ||||||||
Currency Translation | 18 | (92 | ) | (74 | ) | |||||||
Cash payments | (1,803 | ) | — | (1,803 | ) | |||||||
Restructuring Liability as of February 28, 2010 | $ | 2,337 | $ | — | $ | 2,337 | ||||||
F-14
Table of Contents
(Dollars in thousands, except per share data)
2010 | 2009 | |||||||
Machinery, computer equipment and software | $ | 44,307 | $ | 57,817 | ||||
Leasehold improvements | 10,012 | 9,796 | ||||||
Service and spare parts | 29,258 | 37,250 | ||||||
Total property and equipment | 83,577 | 104,863 | ||||||
Accumulated depreciation and amortization | (66,736 | ) | (83,356 | ) | ||||
Property and equipment, net | $ | 16,841 | $ | 21,507 | ||||
F-15
Table of Contents
(Dollars in thousands, except per share data)
2010 | 2009 | |||||||
Customer related intangibles | $ | 28,466 | $ | 28,466 | ||||
Core technology | 18,671 | 18,671 | ||||||
Trademark and trade names | 3,558 | 3,548 | ||||||
Capitalized software | 3,564 | 3,564 | ||||||
Patents | 1,957 | 1,900 | ||||||
Total intangible assets | 56,216 | 56,149 | ||||||
Customer related amortization | (28,414 | ) | (26,440 | ) | ||||
Core technology amortization | (18,671 | ) | (18,671 | ) | ||||
Trademark and trade name amortization | (1,507 | ) | (1,485 | ) | ||||
Capitalized software amortization | (3,358 | ) | (3,275 | ) | ||||
Patent amortization | (668 | ) | (559 | ) | ||||
Total accumulated amortization | (52,618 | ) | (50,430 | ) | ||||
Intangible assets, net | $ | 3,598 | $ | 5,719 | ||||
Fiscal Year | ||||
2011 | $ | 266 | ||
2012 | 214 | |||
2013 | 171 | |||
2014 | 131 | |||
2015 and thereafter | 861 | |||
Total | $ | 1,643 | ||
2010 | 2009 | |||||||
Compensation and benefits | $ | 5,908 | $ | 13,252 | ||||
Interest | 2,889 | 4,053 | ||||||
Restructuring | 2,337 | 2,730 | ||||||
Sales use and other taxes | 458 | 1,825 | ||||||
Other | 6,114 | 8,573 | ||||||
Total | $ | 17,706 | $ | 30,433 | ||||
Fiscal year ended | 2010 | 2009 | 2008 | |||||||||
United States | $ | 1,082 | $ | (2,944 | ) | $ | (4,274 | ) | ||||
Non-U.S. | 7,147 | (7,187 | ) | (6,802 | ) | |||||||
Income (loss) before income taxes | $ | 8,229 | $ | (10,131 | ) | $ | (11,076 | ) | ||||
F-16
Table of Contents
(Dollars in thousands, except per share data)
Fiscal year ended | 2010 | 2009 | 2008 | |||||||||
CURRENT | ||||||||||||
United States—Federal | $ | 615 | $ | (220 | ) | $ | (132 | ) | ||||
United States—State | 136 | 75 | 75 | |||||||||
Non-U.S. | 1,714 | 2,259 | 676 | |||||||||
Total Current | $ | 2,465 | $ | 2,114 | $ | 619 | ||||||
DEFERRED | ||||||||||||
United States—Federal | (565 | ) | — | — | ||||||||
United States—State | (86 | ) | — | — | ||||||||
Non-U.S. | (230 | ) | 18 | (192 | ) | |||||||
Total Deferred | (881 | ) | 18 | (192 | ) | |||||||
Provision for income taxes | $ | 1,584 | $ | 2,132 | $ | 427 | ||||||
Fiscal year ended | 2010 | 2009 | 2008 | |||||||||
Income tax at U.S. Federal statutory rate | 34.0 | % | (34.0 | %) | (34.0 | %) | ||||||
State income taxes, net of Federal benefit | 0.4 | 0.5 | 0.4 | |||||||||
Tax effect of non-U.S. operations | (5.9 | ) | 32.3 | 22.2 | ||||||||
Valuation allowance | (9.3 | ) | 19.2 | 17.3 | ||||||||
Permanent items | 1.4 | 2.3 | 1.3 | |||||||||
Other Net | (1.3 | ) | 0.7 | (3.3 | ) | |||||||
Effective tax rate | 19.3 | % | 21.0 | % | 3.9 | % | ||||||
Fiscal year ended | 2010 | 2009 | ||||||
DEFERRED INCOME TAX ASSETS | ||||||||
Depreciation and Amortization | $ | 2,642 | $ | 2,663 | ||||
Inventory / Other Reserves | 4,649 | 6,958 | ||||||
Intangibles | 1,244 | 1,024 | ||||||
Intercompany Profit Elimination | 2,573 | 2,651 | ||||||
Net Operating Loss Carryforwards | 14,928 | 15,626 | ||||||
Capital Loss Carryforwards | 651 | 608 | ||||||
Stock-Based Compensation | 1,737 | 496 | ||||||
Deferred Revenue | — | 16 | ||||||
Interest Rate Swap and Collar | — | 391 | ||||||
Other | 45 | 32 | ||||||
Total Gross Deferred Income Tax Assets | 28,469 | 30,465 | ||||||
Deferred Income Tax Asset Valuation Allowance | (24,910 | ) | (27,057 | ) | ||||
Total Net Deferred Income Tax Assets | 3,559 | 3,408 | ||||||
DEFERRED INCOME TAX LIABILITIES | ||||||||
Prepaid Expenses | (636 | ) | (500 | ) | ||||
Total net deferred income tax assets | $ | 2,923 | $ | 2,908 | ||||
Beginning | Ending | |||||||||||||||
Fiscal year ended | Balance | Additions | Deductions | Balance | ||||||||||||
February 24, 2008 | (21,312 | ) | (6,287 | ) | 1,489 | (26,110 | ) | |||||||||
February 22, 2009 | (26,110 | ) | (4,318 | ) | 3,371 | (27,057 | ) | |||||||||
February 28, 2010 | (27,057 | ) | (980 | ) | 3,127 | (24,910 | ) |
F-17
Table of Contents
2010 | 2009 | 2008 | ||||||||||
Balance, beginning of year | $ | 310 | $ | 730 | $ | 1,891 | ||||||
Settlement with taxing authority | — | (298 | ) | — | ||||||||
Statute of limitation expirations | (135 | ) | (130 | ) | (1,079 | ) | ||||||
Foreign currency fluctuations | 13 | 8 | (82 | ) | ||||||||
Balance, end of year | $ | 188 | $ | 310 | $ | 730 | ||||||
F-18
Table of Contents
Fiscal year ended | 2010 | 2009 | ||||||
First Lien Credit Agreement | $ | 193,000 | $ | 195,000 | ||||
Second Lien Credit Agreement | 101,906 | 101,144 | ||||||
Revolving Credit Facility | 22,000 | 22,000 | ||||||
Total | $ | 316,906 | $ | 318,144 | ||||
• | declare all or a portion of the obligations of the Borrowers in respect of the letters of credit, although contingent and unmatured, to be due and payable (to be cash collateralized in the case of undrawn letters of credit); |
F-19
Table of Contents
• | may by written notice, suspend the ability of the Borrowers to continue Eurodollar loans and force such Loans to be converted to Alternative Base Rate loans at the end of the applicable interest period; and |
Fiscal | Payment | |||
2011 | $ | 25,000 | ||
2012 | 215,000 | |||
2013 | 76,906 | |||
Total | $ | 316,906 | ||
Operating | ||||
Fiscal year ending | Leases | |||
2011 | $ | 6,737 | ||
2012 | 5,842 | |||
2013 | 5,517 | |||
2014 | 5,412 | |||
2015 and subsequent years | 10,857 | |||
Total future minimum lease payments | $ | 34,365 | ||
F-20
Table of Contents
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
Series A | $ | 101,101 | $ | 109,189 | $ | 117,924 | $ | 127,358 | $ | 137,547 |
F-21
Table of Contents
F-22
Table of Contents
F-23
Table of Contents
For Fiscal Year | 2010 | 2009 | 2008 | |||||||||
Option term (in years) * | 9.0 | 9.0 | 9.0 | |||||||||
Volatility ** | 45 | % | 45 | % | 45 | % | ||||||
Risk-free interest rate (zero coupon U.S. treasury note) | 3.9 | % | 4.5 | % | 4.8 | % | ||||||
Dividend yield | 0 | % | 0 | % | 0 | % | ||||||
Weighted-average fair value per option granted | $ | 0.22 | $ | 0.09 | $ | 0.64 |
* | The option term is the number of years the Company estimates, using historical data, that options will be outstanding prior to exercise or forfeiture. | |
** | The Company’s estimates of expected volatility are principally based on daily price changes of the stock of comparable companies over the expected option term as well as guidance provided by the accounting standard for stock based compensation. |
Weighted- | ||||||||||||
Weighted- | average | |||||||||||
Shares under | average exercise | remaining | ||||||||||
options | price | contractual term | ||||||||||
Outstanding at February 22, 2009 | 22,590,168 | $ | 1.61 | 3.48 | ||||||||
Granted | 22,399,520 | $ | 0.60 | |||||||||
Canceled | (18,909,688 | ) | $ | 1.54 | ||||||||
Forfeited | (2,195,703 | ) | $ | 1.58 | ||||||||
Exercised | 0 | $ | 0.00 | |||||||||
Outstanding at February 28, 2010 | 23,884,297 | $ | 0.72 | 8.38 | ||||||||
Exercisable at February 28, 2010 | 18,211,806 | $ | 0.76 | 8.10 | ||||||||
Exercisable and expected to vest at February 28, 2010 | 23,234,452 | $ | 0.73 | 8.35 |
F-24
Table of Contents
Weighted-average | Weighted | |||||||||||||||
Outstanding | remaining | Exercisable | Average | |||||||||||||
Exercise price | Number | contractual life | Number | Exercise Price | ||||||||||||
$0.60 | 21,165,101 | 9.06 | 15,556,570 | $ | 0.60 | |||||||||||
$1.50 | 2,264,140 | 2.99 | 2,264,140 | 1.50 | ||||||||||||
$2.00 | 345,148 | 4.15 | 282,313 | 2.00 | ||||||||||||
$4.50 | 93,448 | 0.46 | 93,448 | 4.50 | ||||||||||||
$4.52 | 6,300 | 6.11 | 5,175 | 4.52 | ||||||||||||
$6.50 | 10,160 | 1.18 | 10,160 | 6.50 | ||||||||||||
$0.60-$6.50 | 23,884,297 | 8.38 | 18,211,806 | $ | 0.76 | |||||||||||
Fiscal year ended | 2010 | 2009 | ||||||
Foreign currency translation | $ | (139 | ) | $ | (1,441 | ) | ||
Net loss on derivative instruments | — | (1,892 | ) | |||||
Unrealized gain (loss) on corporate equity security | 2 | (9 | ) | |||||
Total accumulated other comprehensive loss | $ | (137 | ) | $ | (3,342 | ) | ||
F-25
Table of Contents
United States | Japan | EMEA | Asia | Other | Eliminations | Total | ||||||||||||||||||||||
Revenues from external customers | ||||||||||||||||||||||||||||
Product | ||||||||||||||||||||||||||||
2008 | $ | 33,438 | $ | 24,047 | $ | 32,115 | $ | 12,418 | $ | 4,467 | $ | — | $ | 106,485 | ||||||||||||||
2009 | 29,513 | 23,710 | 21,478 | 15,922 | 1,739 | — | 92,362 | |||||||||||||||||||||
2010 | 23,115 | 16,659 | 11,990 | 12,632 | 2,318 | — | 66,714 | |||||||||||||||||||||
Service | ||||||||||||||||||||||||||||
2008 | 66,490 | 28,982 | 41,920 | 11,369 | 3,540 | — | 152,301 | |||||||||||||||||||||
2009 | 68,216 | 29,323 | 41,412 | 11,687 | 24 | — | 150,662 | |||||||||||||||||||||
2010 | 63,725 | 30,228 | 33,399 | 10,326 | 21 | — | 137,699 | |||||||||||||||||||||
Long-lived assets | ||||||||||||||||||||||||||||
2008 | 26,463 | 1,958 | 3,615 | 2,127 | 307 | (2,979 | ) | 31,491 | ||||||||||||||||||||
2009 | 17,720 | 2,426 | 2,368 | 1,966 | 207 | (985 | ) | 23,702 | ||||||||||||||||||||
2010 | $ | 15,087 | $ | 1,500 | $ | 2,409 | $ | 814 | $ | 218 | $ | 18 | $ | 20,046 |
Fiscal year ended | 2010 | 2009 | 2008 | |||||||||
Legacy | $ | 24,813 | $ | 29,019 | $ | 46,924 | ||||||
ftServer | 41,901 | 63,343 | 59,561 | |||||||||
Total product revenue | $ | 66,714 | $ | 92,362 | $ | 106,485 | ||||||
F-26
Table of Contents
1. | Consolidating balance sheets as of February 28, 2010 and February 22, 2009. | ||
2. | Consolidating statements of operations and cash flows for each of the three fiscal years in the period ended February 28, 2010, February 22, 2009 and February 24, 2008. |
F-27
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of February 28, 2010
(In thousands)
Bermuda | Guarantor | Non Guarantor | ||||||||||||||||||||||||||
Holdings | Bermuda Ltd. | Stratus US | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 131 | $ | 5 | $ | 22,194 | $ | 30,298 | $ | 4,140 | $ | — | $ | 56,768 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts | — | — | 9,788 | 23,785 | 7,844 | — | 41,417 | |||||||||||||||||||||
Intercompany receivable | 771 | — | 35,410 | — | 11,315 | (47,496 | ) | — | ||||||||||||||||||||
Inventory | — | — | 5,874 | 2,022 | 2,964 | (4,335 | ) | 6,525 | ||||||||||||||||||||
Deferred income taxes | — | — | — | — | 1,200 | — | 1,200 | |||||||||||||||||||||
Income taxes receivable | — | — | 185 | 130 | — | (315 | ) | — | ||||||||||||||||||||
Prepaid expenses and other current assets | — | 107 | 3,103 | 31 | 2,757 | (578 | ) | 5,420 | ||||||||||||||||||||
Total current assets | 902 | 112 | 76,554 | 56,266 | 30,220 | (52,724 | ) | 111,330 | ||||||||||||||||||||
Property and equipment, net | — | — | 13,770 | 984 | 2,069 | 18 | 16,841 | |||||||||||||||||||||
Intangible assets, net | — | 2,824 | 774 | — | — | — | 3,598 | |||||||||||||||||||||
Goodwill | — | 6,197 | 1,306 | 1,345 | 696 | — | 9,544 | |||||||||||||||||||||
Deferred income taxes | — | — | — | — | 1,723 | — | 1,723 | |||||||||||||||||||||
Deferred financing fees | — | 1,344 | 1,639 | — | — | — | 2,983 | |||||||||||||||||||||
Investment in subsidiaries | — | 21,839 | 36,323 | 1,872 | — | (60,034 | ) | — | ||||||||||||||||||||
Other assets | 111 | 627 | 1,872 | — | 1,641 | — | 4,251 | |||||||||||||||||||||
Long-term intercompany receivable | 7,850 | — | 90,568 | — | — | (98,418 | ) | — | ||||||||||||||||||||
Total assets | $ | 8,863 | $ | 32,943 | $ | 222,806 | $ | 60,467 | $ | 36,349 | $ | (211,158 | ) | $ | 150,270 | |||||||||||||
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | 12,082 | $ | 12,918 | $ | — | $ | — | $ | — | $ | 25,000 | ||||||||||||||
Accounts payable | — | — | 1,748 | 4,254 | 2,095 | (308 | ) | 7,789 | ||||||||||||||||||||
Intercompany payable | — | 33,391 | 10,064 | 4,043 | — | (47,498 | ) | — | ||||||||||||||||||||
Accrued expenses | (8 | ) | 1,543 | 7,334 | 1,653 | 7,454 | (270 | ) | 17,706 | |||||||||||||||||||
Income taxes payable | — | 120 | — | — | 262 | (315 | ) | 67 | ||||||||||||||||||||
Deferred revenue | — | — | 1,687 | 38,249 | 2,093 | — | 42,029 | |||||||||||||||||||||
Total current liabilities | (8 | ) | 47,136 | 33,751 | 48,199 | 11,904 | (48,391 | ) | 92,591 | |||||||||||||||||||
Long-term debt | — | 130,455 | 161,451 | — | — | — | 291,906 | |||||||||||||||||||||
Long-term intercompany payable | — | 25,975 | — | 72,443 | — | (98,418 | ) | — | ||||||||||||||||||||
Liability in subsidiaries | 8,821 | — | — | — | — | (8,821 | ) | — | ||||||||||||||||||||
Deferred revenue and other liabilities | — | — | 4,198 | 5,059 | 635 | — | 9,892 | |||||||||||||||||||||
Total liabilities | 8,813 | 203,566 | 199,400 | 125,701 | 12,539 | (155,630 | ) | 394,389 | ||||||||||||||||||||
Redeemable convertible preferred stock and stockholders’ deficit: | ||||||||||||||||||||||||||||
Redeemable convertible preferred stock | 93,612 | — | — | — | — | — | 93,612 | |||||||||||||||||||||
Total redeembable convertible preferred stock | 93,612 | — | — | — | — | — | 93,612 | |||||||||||||||||||||
Stockholders’ (Deficit) Equity: | ||||||||||||||||||||||||||||
Ordinary stock | 16,712 | 71 | 20,000 | 2,370 | 5,318 | (27,759 | ) | 16,712 | ||||||||||||||||||||
Additional paid in capital | 6,841 | 29,562 | 25,715 | 118 | 4,304 | (56,836 | ) | 9,704 | ||||||||||||||||||||
Accumulated deficit | (117,115 | ) | (200,256 | ) | (22,418 | ) | (68,029 | ) | 14,908 | 28,900 | (364,010 | ) | ||||||||||||||||
Accumulated other comprehensive (loss) gain | — | — | 109 | 307 | (720 | ) | 167 | (137 | ) | |||||||||||||||||||
Total stockholders’ (deficit) equity | (93,562 | ) | (170,623 | ) | 23,406 | (65,234 | ) | 23,810 | (55,528 | ) | (337,731 | ) | ||||||||||||||||
Total liabilities and stockholders’ (deficit) equity | $ | 8,863 | $ | 32,943 | $ | 222,806 | $ | 60,467 | $ | 36,349 | $ | (211,158 | ) | $ | 150,270 | |||||||||||||
F-28
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of February 22, 2009
(In thousands)
Bermuda | Guarantor | Non Guarantor | ||||||||||||||||||||||||||
Holdings | Bermuda Ltd. | Stratus US | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 537 | $ | 22 | $ | 4,568 | $ | 24,403 | $ | 5,495 | $ | — | $ | 35,025 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts | — | — | 7,127 | 30,896 | 15,655 | — | 53,678 | |||||||||||||||||||||
Intercompany receivable | 321 | — | 63,100 | — | 1,934 | (65,355 | ) | — | ||||||||||||||||||||
Inventory | — | — | 4,157 | 1,760 | 3,691 | (3,072 | ) | 6,536 | ||||||||||||||||||||
Deferred income taxes | — | — | — | — | 1,271 | — | 1,271 | |||||||||||||||||||||
Income taxes receivable | — | — | 185 | 38 | — | (178 | ) | 45 | ||||||||||||||||||||
Prepaid expenses and other current assets | — | 107 | 3,111 | 106 | 2,589 | (429 | ) | 5,484 | ||||||||||||||||||||
Total current assets | 858 | 129 | 82,248 | 57,203 | 30,635 | (69,034 | ) | 102,039 | ||||||||||||||||||||
Property and equipment, net | — | — | 17,369 | 999 | 4,124 | (985 | ) | 21,507 | ||||||||||||||||||||
Intangible assets, net | — | 3,060 | 975 | 1,684 | — | — | 5,719 | |||||||||||||||||||||
Goodwill | — | 6,197 | 1,306 | 1,345 | 654 | — | 9,502 | |||||||||||||||||||||
Deferred income taxes | — | — | — | — | 1,637 | — | 1,637 | |||||||||||||||||||||
Investment in subsidiaries | — | 15,414 | 34,823 | 1,850 | — | (52,087 | ) | — | ||||||||||||||||||||
Other assets | — | 3,235 | 3,966 | — | 1,620 | — | 8,821 | |||||||||||||||||||||
Long-term intercompany receivable | 7,850 | — | 72,443 | — | — | (80,293 | ) | — | ||||||||||||||||||||
Total assets | $ | 8,708 | $ | 28,035 | $ | 213,130 | $ | 63,081 | $ | 38,670 | $ | (202,399 | ) | $ | 149,225 | |||||||||||||
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | 967 | $ | 1,033 | $ | — | $ | — | $ | — | $ | 2,000 | ||||||||||||||
Accounts payable | — | — | 2,035 | 5,179 | 4,419 | (224 | ) | 11,409 | ||||||||||||||||||||
Intercompany payable | — | 52,444 | — | 12,912 | — | (65,356 | ) | — | ||||||||||||||||||||
Accrued expenses | (14 | ) | 2,858 | 15,314 | 3,546 | 8,934 | (205 | ) | 30,433 | |||||||||||||||||||
Income taxes payable | — | — | — | — | 178 | (178 | ) | — | ||||||||||||||||||||
Deferred revenue | — | 18 | 1,222 | 35,332 | 2,453 | — | 39,025 | |||||||||||||||||||||
Total current liabilities | (14 | ) | 56,287 | 19,604 | 56,969 | 15,984 | (65,963 | ) | 82,867 | |||||||||||||||||||
Long-term debt | — | 142,169 | 173,975 | — | — | — | 316,144 | |||||||||||||||||||||
Long-term intercompany payable | — | 7,850 | — | 72,443 | — | (80,293 | ) | — | ||||||||||||||||||||
Liability in subsidiaries | 15,612 | — | — | — | — | (15,612 | ) | — | ||||||||||||||||||||
Deferred revenue and other liabilities | — | 56 | 3,571 | 3,930 | 601 | — | 8,158 | |||||||||||||||||||||
Total liabilities | 15,598 | 206,362 | 197,150 | 133,342 | 16,585 | (161,868 | ) | 407,169 | ||||||||||||||||||||
Redeemable convertible preferred stock and stockholders’ deficit: | ||||||||||||||||||||||||||||
Redeemable convertible preferred stock | 86,678 | — | — | — | — | — | 86,678 | |||||||||||||||||||||
Total redeemable convertible preferred stock | 86,678 | — | — | — | — | — | 86,678 | |||||||||||||||||||||
Stockholders’ (Deficit) Equity: | ||||||||||||||||||||||||||||
Ordinary stock | 16,712 | 71 | 20,000 | 2,370 | 5,316 | (27,757 | ) | 16,712 | ||||||||||||||||||||
Additional paid in capital | 13,775 | 29,563 | 22,299 | 102 | 3,761 | (56,837 | ) | 12,663 | ||||||||||||||||||||
Accumulated deficit | (124,055 | ) | (207,047 | ) | (25,446 | ) | (72,947 | ) | 14,944 | 43,896 | (370,655 | ) | ||||||||||||||||
Accumulated other comprehensive (loss) gain | — | (914 | ) | (873 | ) | 214 | (1,936 | ) | 167 | (3,342 | ) | |||||||||||||||||
Total stockholders’ (deficit) equity | (93,568 | ) | (178,327 | ) | 15,980 | (70,261 | ) | 22,085 | (40,531 | ) | (344,622 | ) | ||||||||||||||||
Total liabilities and stockholders’ (deficit) equity | $ | 8,708 | $ | 28,035 | $ | 213,130 | $ | 63,081 | $ | 38,670 | $ | (202,399 | ) | $ | 149,225 | |||||||||||||
F-29
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Twelve-month period ended February 28, 2010
(In thousands)
Bermuda | Bermuda | Guarantor | Non Guarantor | |||||||||||||||||||||||||
Holdings | Ltd | Stratus US | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
REVENUE | ||||||||||||||||||||||||||||
Product | $ | — | $ | 84 | $ | 23,853 | $ | 6,211 | $ | 36,566 | $ | — | $ | 66,714 | ||||||||||||||
Service | — | — | 6,541 | 117,486 | 13,672 | — | 137,699 | |||||||||||||||||||||
Intercompany | — | 47,563 | 80,195 | 27,078 | 17,499 | (172,335 | ) | — | ||||||||||||||||||||
Total revenue | — | 47,647 | 110,589 | 150,775 | 67,737 | (172,335 | ) | 204,413 | ||||||||||||||||||||
COST OF REVENUE | ||||||||||||||||||||||||||||
Product | — | 234 | 11,386 | 23,117 | 24,906 | (29,632 | ) | 30,011 | ||||||||||||||||||||
Service | — | — | 32,360 | 3,334 | 26,095 | (223 | ) | 61,566 | ||||||||||||||||||||
Intercompany | — | 33,974 | — | 107,366 | — | (141,340 | ) | — | ||||||||||||||||||||
Total cost of revenue | — | 34,208 | 43,746 | 133,817 | 51,001 | (171,195 | ) | 91,577 | ||||||||||||||||||||
Gross profit | — | 13,439 | 66,843 | 16,958 | 16,736 | (1,140 | ) | 112,836 | ||||||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||||||||
Research and development | — | — | 30,456 | 31 | — | (207 | ) | 30,280 | ||||||||||||||||||||
Sales and marketing | — | — | 15,654 | — | 13,338 | (125 | ) | 28,867 | ||||||||||||||||||||
General and administrative | 450 | 48 | 15,240 | 378 | 3,525 | (448 | ) | 19,193 | ||||||||||||||||||||
Amortization of intangibles | — | 290 | — | 1,685 | — | — | 1,975 | |||||||||||||||||||||
Restructuring charges | — | — | 814 | (294 | ) | 964 | — | 1,484 | ||||||||||||||||||||
(Gain) Loss on sale of subsidiary | — | (900 | ) | 101 | (19 | ) | — | — | (818 | ) | ||||||||||||||||||
Intercompany | — | — | (814 | ) | 1,924 | (1,015 | ) | (95 | ) | — | ||||||||||||||||||
Management and transaction costs | — | — | 700 | — | — | — | 700 | |||||||||||||||||||||
Total operating expenses | 450 | (562 | ) | 62,151 | 3,705 | 16,812 | (875 | ) | 81,681 | |||||||||||||||||||
Profit (loss) from operations | (450 | ) | 14,001 | 4,692 | 13,253 | (76 | ) | (265 | ) | 31,155 | ||||||||||||||||||
Interest income | 1 | 400 | 19 | 28 | 13 | — | 461 | |||||||||||||||||||||
Interest expense | — | (11,680 | ) | (13,613 | ) | (13 | ) | (1 | ) | — | (25,307 | ) | ||||||||||||||||
Interest income (expense), intercompany | 608 | (2,134 | ) | 9,776 | (8,250 | ) | — | — | — | |||||||||||||||||||
Other income (expense), net | (10 | ) | (88 | ) | (117 | ) | 2,222 | (56 | ) | (31 | ) | 1,920 | ||||||||||||||||
Other income (expense), intercompany | — | — | (317 | ) | (1,381 | ) | 1,698 | — | — | |||||||||||||||||||
Income (loss) before income taxes | 149 | 499 | 440 | 5,859 | 1,578 | (296 | ) | 8,229 | ||||||||||||||||||||
Provision for income taxes | — | 133 | 101 | 925 | 425 | — | 1,584 | |||||||||||||||||||||
Equity in profit (loss) in subsidiaries | 6,791 | 6,425 | 1,508 | 20 | — | (14,744 | ) | — | ||||||||||||||||||||
Net income (loss) | $ | 6,940 | $ | 6,791 | $ | 1,847 | $ | 4,954 | $ | 1,153 | $ | (15,040 | ) | $ | 6,645 | |||||||||||||
F-30
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Twelve-month period ended February 22, 2009
(In thousands)
Bermuda | Bermuda | Guarantor | Non Guarantor | |||||||||||||||||||||||||
Holdings | Ltd | Stratus US | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
REVENUE | ||||||||||||||||||||||||||||
Product | $ | — | $ | 27 | $ | 28,671 | $ | 11,995 | $ | 51,669 | $ | — | $ | 92,362 | ||||||||||||||
Service | — | — | 7,279 | 128,757 | 14,626 | — | 150,662 | |||||||||||||||||||||
Intercompany | — | 50,980 | 92,728 | 24,772 | 20,330 | (188,810 | ) | — | ||||||||||||||||||||
Total revenue | — | 51,007 | 128,678 | 165,524 | 86,625 | (188,810 | ) | 243,024 | ||||||||||||||||||||
COST OF REVENUE | ||||||||||||||||||||||||||||
Product | — | 1,207 | 13,660 | 32,017 | 33,575 | (33,520 | ) | 46,939 | ||||||||||||||||||||
Service | — | — | 34,339 | 4,030 | 29,793 | (624 | ) | 67,538 | ||||||||||||||||||||
Intercompany | — | 36,851 | — | 121,246 | — | (158,097 | ) | — | ||||||||||||||||||||
Total cost of revenue | — | 38,058 | 47,999 | 157,293 | 63,368 | (192,241 | ) | 114,477 | ||||||||||||||||||||
Gross profit | — | 12,949 | 80,679 | 8,231 | 23,257 | 3,431 | 128,547 | |||||||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||||||||
Research and development | — | (400 | ) | 34,909 | 32 | 2 | (706 | ) | 33,837 | |||||||||||||||||||
Sales and marketing | — | — | 20,625 | — | 16,045 | (544 | ) | 36,126 | ||||||||||||||||||||
General and administrative | 105 | 32 | 19,880 | 455 | 4,923 | (33 | ) | 25,362 | ||||||||||||||||||||
Amortization of intangibles | — | 469 | — | 1,758 | — | — | 2,227 | |||||||||||||||||||||
Restructuring charges | — | — | 4,485 | — | 4,167 | — | 8,652 | |||||||||||||||||||||
Loss (gain) on sale of subsidiary | — | 93 | 48 | (34 | ) | — | — | 107 | ||||||||||||||||||||
Intercompany | — | — | (4,485 | ) | 9,379 | (4,119 | ) | (775 | ) | — | ||||||||||||||||||
Management and transaction costs | — | — | 700 | — | — | — | 700 | |||||||||||||||||||||
Total operating expenses | 105 | 194 | 76,162 | 11,590 | 21,018 | (2,058 | ) | 107,011 | ||||||||||||||||||||
Profit (loss) from operations | (105 | ) | 12,755 | 4,517 | (3,359 | ) | 2,239 | 5,489 | 21,536 | |||||||||||||||||||
Interest income | 2 | 1 | 60 | 113 | 59 | — | 235 | |||||||||||||||||||||
Interest expense | — | (15,332 | ) | (17,434 | ) | (52 | ) | (2 | ) | — | (32,820 | ) | ||||||||||||||||
Interest income (expense), intercompany | 608 | (2,149 | ) | 9,781 | (8,240 | ) | — | — | — | |||||||||||||||||||
Other income (expense), net | (10 | ) | 12 | (417 | ) | 1,086 | 345 | (98 | ) | 918 | ||||||||||||||||||
Other income (expense), intercompany | — | — | 268 | (1,605 | ) | 1,337 | — | — | ||||||||||||||||||||
(Loss) income before income taxes | 495 | (4,713 | ) | (3,225 | ) | (12,057 | ) | 3,978 | 5,391 | (10,131 | ) | |||||||||||||||||
Provision (benefit) for income taxes | — | 39 | (145 | ) | 956 | 1,282 | — | 2,132 | ||||||||||||||||||||
Equity in profit (loss) in subsidiaries | (18,150 | ) | (13,399 | ) | 2,689 | — | — | 28,860 | — | |||||||||||||||||||
Net (loss) income | $ | (17,655 | ) | $ | (18,151 | ) | $ | (391 | ) | $ | (13,013 | ) | $ | 2,696 | $ | 34,251 | $ | (12,263 | ) | |||||||||
F-31
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Twelve-month period ended February 24, 2008
(In thousands)
Bermuda | Bermuda | Guarantor | Non Guarantor | |||||||||||||||||||||||||
Holdings | Ltd | Stratus US | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
REVENUE | ||||||||||||||||||||||||||||
Product | $ | — | $ | 20 | $ | 45,455 | $ | 7,385 | $ | 53,625 | $ | — | $ | 106,485 | ||||||||||||||
Service | — | 299 | 6,717 | 129,185 | 16,100 | — | 152,301 | |||||||||||||||||||||
Intercompany | — | 53,407 | 91,733 | 45,677 | 19,206 | (210,023 | ) | — | ||||||||||||||||||||
Total revenue | — | 53,726 | 143,905 | 182,247 | 88,931 | (210,023 | ) | 258,786 | ||||||||||||||||||||
COST OF REVENUE | ||||||||||||||||||||||||||||
Product | $ | — | $ | 1,079 | $ | 27,766 | $ | 40,752 | $ | 32,171 | $ | (45,532 | ) | $ | 56,236 | |||||||||||||
Service | — | — | 36,787 | 3,880 | 33,798 | (909 | ) | 73,556 | ||||||||||||||||||||
Intercompany | — | 39,097 | — | 121,965 | — | (161,062 | ) | — | ||||||||||||||||||||
Management and transaction costs | — | — | 64 | — | — | — | 64 | |||||||||||||||||||||
Total cost of revenue | — | 40,176 | 64,617 | 166,597 | 65,969 | (207,503 | ) | 129,856 | ||||||||||||||||||||
Gross profit | — | 13,550 | 79,288 | 15,650 | 22,962 | (2,520 | ) | 128,930 | ||||||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||||||||
Research and development | — | (750 | ) | 35,858 | 437 | — | (684 | ) | 34,861 | |||||||||||||||||||
Sales and marketing | — | — | 23,328 | (1 | ) | 21,986 | (1,255 | ) | 44,058 | |||||||||||||||||||
General and administrative | 352 | 91 | 13,857 | 449 | 4,312 | (33 | ) | 19,028 | ||||||||||||||||||||
Amortization of intangibles | — | 355 | — | 1,741 | — | — | 2,096 | |||||||||||||||||||||
Restructuring charges | — | — | 1,469 | 1,870 | (1,458 | ) | — | 1,881 | ||||||||||||||||||||
Intercompany | — | — | (1,469 | ) | 1,093 | 1,442 | (1,066 | ) | — | |||||||||||||||||||
Management and transaction costs | 70 | 700 | 1,369 | — | 102 | — | 2,241 | |||||||||||||||||||||
Total operating expenses | 422 | 396 | 74,412 | 5,589 | 26,384 | (3,038 | ) | 104,165 | ||||||||||||||||||||
Profit (loss) from operations | (422 | ) | 13,154 | 4,876 | 10,061 | (3,422 | ) | 518 | 24,765 | |||||||||||||||||||
Interest income | 1 | 1 | 46 | 122 | 77 | — | 247 | |||||||||||||||||||||
Interest expense | — | (16,874 | ) | (19,078 | ) | (201 | ) | — | — | (36,153 | ) | |||||||||||||||||
Interest income (expense), intercompany | 608 | (2,149 | ) | 9,781 | (8,240 | ) | — | — | — | |||||||||||||||||||
Other income (expense), net | (6 | ) | (130 | ) | (277 | ) | 413 | (82 | ) | 147 | 65 | |||||||||||||||||
Other income (expense), intercompany | — | — | — | (5,935 | ) | 5,935 | — | — | ||||||||||||||||||||
(Loss) income before income taxes | 181 | (5,998 | ) | (4,652 | ) | (3,780 | ) | 2,508 | 665 | (11,076 | ) | |||||||||||||||||
Provision (benefit) for income taxes | — | 4 | 105 | 819 | (501 | ) | — | 427 | ||||||||||||||||||||
Equity in profit (loss) in subsidiaries | (12,349 | ) | (6,347 | ) | 3,007 | — | — | 15,689 | — | |||||||||||||||||||
Net (loss) income | $ | (12,168 | ) | $ | (12,349 | ) | $ | (1,750 | ) | $ | (4,599 | ) | $ | 3,009 | $ | 16,354 | $ | (11,503 | ) | |||||||||
F-32
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Twelve-month period ended February 28, 2010
(In thousands)
Bermuda | Bermuda | Guarantor | Non Guarantor | |||||||||||||||||||||||||
Holdings | Ltd | Stratus US | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||
Net Income (loss) | $ | 6,940 | $ | 6,791 | $ | 1,847 | $ | 4,954 | $ | 1,153 | ($15,040 | ) | $ | 6,645 | ||||||||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||||||||||
Depreciation and amortization | — | 420 | 9,315 | 2,240 | 1,608 | (1,003 | ) | 12,580 | ||||||||||||||||||||
Amortization of deferred financing cost | — | 1,163 | 1,433 | — | — | — | 2,596 | |||||||||||||||||||||
Stock-based compensation | — | — | 3,414 | 16 | 545 | — | 3,975 | |||||||||||||||||||||
Non-cash potion of restructuring and other charges | — | — | (286 | ) | — | — | — | (286 | ) | |||||||||||||||||||
Deferred income taxes | — | — | — | — | (881 | ) | — | (881 | ) | |||||||||||||||||||
Provision for doubtful accounts | — | — | 30 | 959 | 103 | — | 1,092 | |||||||||||||||||||||
Inventory provision | — | — | 1,579 | (800 | ) | 881 | — | 1,660 | ||||||||||||||||||||
(Gain) loss from sale of subsidiary | — | (900 | ) | 101 | (19 | ) | — | — | (818 | ) | ||||||||||||||||||
Loss on retirement of property and equipment | — | — | 8 | — | — | — | 8 | |||||||||||||||||||||
Interest payable-in-kind | — | 374 | 399 | — | — | — | 773 | |||||||||||||||||||||
Equity in (profit) loss subsidiaries | (6,791 | ) | (6,425 | ) | (1,508 | ) | (20 | ) | — | 14,744 | — | |||||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||||||||||
Accounts receivable | — | — | (2,691 | ) | 6,150 | 8,241 | — | 11,700 | ||||||||||||||||||||
Inventory | — | — | (4,051 | ) | 538 | 134 | 1,263 | (2,116 | ) | |||||||||||||||||||
Prepaid expenses and other current assets | — | — | 7 | 74 | (79 | ) | 150 | 152 | ||||||||||||||||||||
Accounts payable | (450 | ) | (929 | ) | 20,079 | (9,829 | ) | (13,947 | ) | (49 | ) | (5,125 | ) | |||||||||||||||
Accrued expenses | 5 | 55 | (5,993 | ) | (1,892 | ) | (1,910 | ) | (65 | ) | (9,800 | ) | ||||||||||||||||
Interest payable | — | 734 | 804 | — | — | — | 1,538 | |||||||||||||||||||||
Income taxes payable | — | 120 | (1 | ) | (91 | ) | 146 | — | 174 | |||||||||||||||||||
Deferred revenue | — | (18 | ) | 494 | 5,004 | (563 | ) | — | 4,917 | |||||||||||||||||||
Other long-term assets and liabilities | (111 | ) | 200 | (200 | ) | (997 | ) | 2,303 | — | 1,195 | ||||||||||||||||||
Net cash provided by (used in) operating activities | (407 | ) | 1,584 | 24,781 | 6,287 | (2,266 | ) | — | 29,979 | |||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||
Acquisition of property and equipment | — | — | (4,368 | ) | (391 | ) | (1,014 | ) | — | (5,773 | ) | |||||||||||||||||
Proceeds from sale of subsidiary | — | 1,000 | — | — | — | — | 1,000 | |||||||||||||||||||||
Price adjustment for sale of subsidiary | — | — | (110 | ) | — | — | — | (110 | ) | |||||||||||||||||||
Acquisition of other long term assets | — | (67 | ) | — | — | — | — | (67 | ) | |||||||||||||||||||
Net cash (used in) provided by investing activities | — | 933 | (4,478 | ) | (391 | ) | (1,014 | ) | — | (4,950 | ) | |||||||||||||||||
Financing activities | ||||||||||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||||||
Deferred financing fees | — | (272 | ) | (294 | ) | — | — | — | (566 | ) | ||||||||||||||||||
Proceeds from revolving credit facility | — | — | 24,000 | — | — | — | 24,000 | |||||||||||||||||||||
Payments on revolving credit facility | — | — | (24,000 | ) | — | — | — | (24,000 | ) | |||||||||||||||||||
Payments on interest rate swap and collar | — | (1,296 | ) | (1,405 | ) | — | — | — | (2,701 | ) | ||||||||||||||||||
Payments on short and long-term debt | — | (967 | ) | (1,033 | ) | — | — | — | (2,000 | ) | ||||||||||||||||||
Net cash (used in) financing activities | — | (2,535 | ) | (2,732 | ) | — | — | — | (5,267 | ) | ||||||||||||||||||
Effect of exchange rate changes on cash | 1 | 1 | 56 | — | 1,923 | — | 1,981 | |||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (406 | ) | (17 | ) | 17,627 | 5,896 | (1,357 | ) | — | 21,743 | ||||||||||||||||||
Cash and cash equivalents at beginning of period | 537 | 22 | 4,567 | 24,402 | 5,497 | — | 35,025 | |||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 131 | $ | 5 | $ | 22,194 | $ | 30,298 | $ | 4,140 | — | $ | 56,768 | |||||||||||||||
F-33
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Twelve-month period ended February 22, 2009
(In thousands)
Bermuda | Bermuda | Guarantor | Non Guarantor | |||||||||||||||||||||||||
Holdings | Ltd | Stratus US | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||
Net (Loss) income | $ | (17,655 | ) | $ | (18,151 | ) | $ | (391 | ) | $ | (13,013 | ) | $ | 2,696 | $ | 34,251 | $ | (12,263 | ) | |||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||||||||||
Depreciation and amortization | — | 1,566 | 11,929 | 2,401 | 2,657 | (1,994 | ) | 16,559 | ||||||||||||||||||||
Amortization of deferred financing cost | — | 1,163 | 1,433 | — | — | — | 2,596 | |||||||||||||||||||||
Stock-based compensation | — | — | 276 | 14 | 97 | — | 387 | |||||||||||||||||||||
Deferred income taxes | — | — | — | — | 18 | — | 18 | |||||||||||||||||||||
Provision for doubtful accounts | — | — | (70 | ) | 591 | (4 | ) | — | 517 | |||||||||||||||||||
Inventory provision | — | — | 8,368 | (4,250 | ) | (1,021 | ) | — | 3,097 | |||||||||||||||||||
Loss (gain) from sale of subsidiary | — | 93 | 49 | (35 | ) | — | — | 107 | ||||||||||||||||||||
Loss (gain) on retirement of property and equipment | — | (170 | ) | 436 | — | — | — | 266 | ||||||||||||||||||||
Interest payable-in-kind | — | 367 | 392 | — | — | — | 759 | |||||||||||||||||||||
Equity in (profit) loss subsidiaries | 18,150 | 13,399 | (2,689 | ) | — | — | (28,860 | ) | — | |||||||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||||||||||
Accounts receivable | — | 698 | 5,238 | 4,403 | (2,164 | ) | — | 8,175 | ||||||||||||||||||||
Inventory | — | (102 | ) | (7,791 | ) | 6,306 | 6,043 | (3,496 | ) | 960 | ||||||||||||||||||
Prepaid expenses and other current assets | — | (16 | ) | (803 | ) | 860 | 2,324 | 431 | 2,796 | |||||||||||||||||||
Accounts payable | 106 | 1,467 | (20,325 | ) | 20,419 | (4,766 | ) | (123 | ) | (3,222 | ) | |||||||||||||||||
Accrued expenses | (151 | ) | 124 | (974 | ) | (1,210 | ) | (1,650 | ) | (206 | ) | (4,067 | ) | |||||||||||||||
Interest payable | — | 234 | 258 | — | — | — | 492 | |||||||||||||||||||||
Income taxes payable | — | — | (731 | ) | 17 | (104 | ) | — | (818 | ) | ||||||||||||||||||
Deferred revenue | — | 206 | (1,067 | ) | 1,646 | (1,205 | ) | — | (420 | ) | ||||||||||||||||||
Other long-term assets and liabilities | — | (670 | ) | 3,748 | (580 | ) | (845 | ) | (3 | ) | 1,650 | |||||||||||||||||
Net cash provided by (used in) operating activities | 451 | 207 | (2,714 | ) | 17,569 | 2,076 | — | 17,589 | ||||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||
Acquisition of property and equipment | — | — | (5,153 | ) | — | (1,235 | ) | — | (6,388 | ) | ||||||||||||||||||
Proceeds from sale of subsidiary | — | 1,900 | — | — | — | — | 1,900 | |||||||||||||||||||||
Acquisition of other long term assets | — | (109 | ) | — | — | — | — | (109 | ) | |||||||||||||||||||
Net cash (used in) provided by investing activities | — | 1,791 | (5,153 | ) | — | (1,235 | ) | — | (4,597 | ) | ||||||||||||||||||
Financing activities | ||||||||||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||||||
Payments on short and long-term debt | — | (967 | ) | (1,033 | ) | — | — | — | (2,000 | ) | ||||||||||||||||||
Proceeds from exercise of stock option | 15 | — | — | — | — | — | 15 | |||||||||||||||||||||
Payments on interest rate swap and collar | — | (1,036 | ) | (1,118 | ) | — | — | — | (2,154 | ) | ||||||||||||||||||
Proceeds from revolving credit facility | — | — | 24,000 | — | — | — | 24,000 | |||||||||||||||||||||
Payments on revolving credit facility | — | — | (11,000 | ) | — | — | — | (11,000 | ) | |||||||||||||||||||
Net cash provided by (used in) financing activities | 15 | (2,003 | ) | 10,849 | — | — | — | 8,861 | ||||||||||||||||||||
Effect of exchange rate changes on cash | — | (1 | ) | 109 | (205 | ) | (198 | ) | — | (295 | ) | |||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 466 | (6 | ) | 3,091 | 17,364 | 643 | — | 21,558 | ||||||||||||||||||||
Cash and cash equivalents at beginning of period | 71 | 28 | 1,477 | 7,039 | 4,852 | — | 13,467 | |||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 537 | $ | 22 | $ | 4,568 | $ | 24,403 | $ | 5,495 | $ | — | $ | 35,025 | ||||||||||||||
F-34
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Twelve-month period ended February 24, 2008
(In thousands)
Bermuda | Bermuda | Guarantor | Non Guarantor | |||||||||||||||||||||||||
Holdings | Ltd | Stratus US | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||
Net (Loss) Income | $ | (12,168 | ) | $ | (12,349 | ) | $ | (1,750 | ) | $ | (4,599 | ) | $ | 3,009 | $ | 16,354 | $ | (11,503 | ) | |||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||||||||||
Depreciation and amortization | — | 1,372 | 10,799 | 2,168 | 3,362 | (3,007 | ) | 14,694 | ||||||||||||||||||||
Amortization of deferred financing cost | — | 1,137 | 1,396 | — | — | — | 2,533 | |||||||||||||||||||||
Stock-based compensation | — | — | 356 | 12 | 111 | — | 479 | |||||||||||||||||||||
Deferred income taxes | — | — | — | — | (192 | ) | — | (192 | ) | |||||||||||||||||||
Provision for doubtful accounts | — | — | (3 | ) | 268 | — | — | 265 | ||||||||||||||||||||
Inventory provision | — | — | 4,799 | 378 | 363 | 183 | 5,723 | |||||||||||||||||||||
Loss on retirement of property and equipment | — | 16 | 76 | — | — | — | 92 | |||||||||||||||||||||
Interest payable-in-kind | — | 243 | 259 | — | — | — | 502 | |||||||||||||||||||||
Equity in (profit) loss subsidiaries | 12,349 | 6,347 | (3,007 | ) | — | — | (15,689 | ) | — | |||||||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||||||||||
Accounts receivable | — | 1 | 3,451 | (1,442 | ) | 4,212 | — | 6,222 | ||||||||||||||||||||
Inventory | — | — | (4,018 | ) | 638 | (397 | ) | (208 | ) | (3,985 | ) | |||||||||||||||||
Prepaid expenses and other current assets | 28 | (75 | ) | 1,364 | 65 | (1,703 | ) | — | (321 | ) | ||||||||||||||||||
Accounts payable | (290 | ) | 4,051 | (4,706 | ) | 3,824 | (572 | ) | 1,520 | 3,827 | ||||||||||||||||||
Accrued expenses | 69 | 504 | (3,826 | ) | (1,903 | ) | 397 | — | (4,759 | ) | ||||||||||||||||||
Interest payable | — | 460 | 483 | — | — | — | 943 | |||||||||||||||||||||
Income taxes payable | — | — | (2,423 | ) | (21 | ) | 1,112 | — | (1,332 | ) | ||||||||||||||||||
Deferred revenue | — | — | (170 | ) | 930 | (403 | ) | — | 357 | |||||||||||||||||||
Other long-term assets and liabilities | — | (110 | ) | 4,896 | 2,412 | (5,349 | ) | 296 | 2,145 | |||||||||||||||||||
Net cash provided by (used in) operating activities | (12 | ) | 1,596 | 7,977 | 2,730 | 3,950 | (551 | ) | 15,690 | |||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||
Acquisition of property and equipment | — | — | (13,543 | ) | — | (1,378 | ) | 551 | (14,370 | ) | ||||||||||||||||||
Capitalized software | — | (1 | ) | (371 | ) | — | — | — | (372 | ) | ||||||||||||||||||
Proceeds from sale of property and equipment | — | — | 48 | — | — | — | 48 | |||||||||||||||||||||
Acquisition of other long term assets | — | (94 | ) | 1 | — | — | — | (93 | ) | |||||||||||||||||||
Net cash (used in) provided by investing activities | — | (95 | ) | (13,865 | ) | — | (1,378 | ) | 551 | (14,787 | ) | |||||||||||||||||
Financing activities | ||||||||||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||||||
Proceeds from exercise of stock option | 75 | — | — | — | — | — | 75 | |||||||||||||||||||||
Payment of debt amendment fees | — | (42 | ) | (53 | ) | — | — | — | (95 | ) | ||||||||||||||||||
Deferred financing fees | — | (470 | ) | (573 | ) | — | — | — | (1,043 | ) | ||||||||||||||||||
Cash over draft | — | — | (476 | ) | — | — | — | (476 | ) | |||||||||||||||||||
Proceeds from revolving credit facility | — | — | 41,050 | — | — | — | 41,050 | |||||||||||||||||||||
Payments on revolving credit facility | — | — | (32,050 | ) | — | — | — | (32,050 | ) | |||||||||||||||||||
Proceeds on interest rate swap and collar | — | 2 | 3 | — | — | — | 5 | |||||||||||||||||||||
Payments on short and long term debt | — | (967 | ) | (1,033 | ) | — | — | — | (2,000 | ) | ||||||||||||||||||
Net cash provided by (used in) financing activities | 75 | (1,477 | ) | 6,868 | — | — | — | 5,466 | ||||||||||||||||||||
Effect of exchange rate changes on cash | — | — | 280 | — | (721 | ) | (194 | ) | (635 | ) | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 63 | 24 | 1,260 | 2,730 | 1,851 | (194 | ) | 5,734 | ||||||||||||||||||||
Cash and cash equivalents at beginning of period | 8 | 5 | 217 | 4,308 | 3,001 | 194 | 7,733 | |||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 71 | $ | 29 | $ | 1,477 | $ | 7,038 | $ | 4,852 | $ | — | $ | 13,467 | ||||||||||||||
F-35
Table of Contents
F-36
Table of Contents
F-37
Table of Contents
November 28, | February 28, | |||||||
2010 | 2010 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 17,935 | $ | 56,768 | ||||
Accounts receivable, net of allowance for doubtful accounts of $260 and $1,036, respectively | 38,397 | 41,417 | ||||||
Inventory | 7,594 | 6,525 | ||||||
Deferred income taxes | 1,313 | 1,200 | ||||||
Income taxes receivable | 71 | — | ||||||
Prepaid expenses and other current assets | 4,629 | 5,420 | ||||||
Total current assets | 69,939 | 111,330 | ||||||
Property and equipment, net | 14,352 | 16,841 | ||||||
Intangible assets, net | 3,458 | 3,598 | ||||||
Goodwill | 9,579 | 9,544 | ||||||
Deferred income taxes | 1,831 | 1,723 | ||||||
Deferred financing fees | 11,529 | 2,983 | ||||||
Other assets | 5,094 | 4,251 | ||||||
Total assets | $ | 115,782 | $ | 150,270 | ||||
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 5,000 | $ | 25,000 | ||||
Accounts payable | 8,568 | 7,789 | ||||||
Accrued expenses | 20,248 | 17,706 | ||||||
Income taxes payable | — | 67 | ||||||
Deferred revenue | 31,007 | 42,029 | ||||||
Total current liabilities | 64,823 | 92,591 | ||||||
Long-term debt, net of debt discount | 245,417 | 291,906 | ||||||
Embedded derivatives | 19,656 | — | ||||||
Deferred revenue and other liabilities | 12,177 | 9,892 | ||||||
Total liabilities | 342,073 | 394,389 | ||||||
Commitments and contingencies (Note 7) | ||||||||
Redeemable convertible preferred stock: | ||||||||
Series A: 7,000 shares authorized and 6,561 shares issued and outstanding at November 28 and February 28, 2010, respectively (liquidation preference of $99,229 and $93,612, respectively) | 99,229 | 93,612 | ||||||
Series B: 20,524 and 0 shares authorized; 3,532 and 0 issued and outstanding at November 28, 2010 and February 28, 2010, respectively (liquidation preference of $53,415 and 0, respectively) | 53,415 | — | ||||||
Contingent right to future shares of Series B redeemable convertible preferred stock | 5,518 | — | ||||||
Total redeemable convertible preferred stock | 158,162 | 93,612 | ||||||
Stockholders’ deficit: | ||||||||
Ordinary stock, $0.5801 par value, 188,681 shares authorized and 28,809 shares issued and outstanding at November 28, 2010; 152,633 shares authorized and 28,809 shares issued and outstanding at February 28, 2010 | 16,712 | 16,712 | ||||||
Series B ordinary stock: $0.5801 par value, 90,115 and 0 shares authorized; 15,512 and 0 shares issued and outstanding at November 28, 2010 and February 28, 2010, respectively | 8,998 | — | ||||||
Additional paid in capital | — | 9,704 | ||||||
Accumulated deficit | (411,194 | ) | (364,010 | ) | ||||
Accumulated other comprehensive gain (loss) | 1,031 | (137 | ) | |||||
Total stockholders’ deficit | (384,453 | ) | (337,731 | ) | ||||
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit | $ | 115,782 | $ | 150,270 | ||||
F-38
Table of Contents
(In thousands)
November 28, | November 22, | |||||||
2010 | 2009 | |||||||
REVENUE | ||||||||
Product | $ | 52,835 | $ | 47,646 | ||||
Service | 101,359 | 103,885 | ||||||
Total revenue | 154,194 | 151,531 | ||||||
COST OF REVENUE | ||||||||
Product | 24,721 | 21,768 | ||||||
Service | 44,186 | 46,273 | ||||||
Total cost of revenue | 68,907 | 68,041 | ||||||
Gross profit | 85,287 | 83,490 | ||||||
OPERATING EXPENSES | ||||||||
Research and development | 20,514 | 22,959 | ||||||
Sales and marketing | 21,826 | 21,422 | ||||||
General and administrative | 14,707 | 14,621 | ||||||
Amortization of intangibles | 52 | 1,497 | ||||||
Restructuring charges | 55 | (341 | ) | |||||
Gain (loss) on sale of subsidiary | (3,655 | ) | 82 | |||||
Management and transaction costs | 817 | 525 | ||||||
Total operating expenses | 54,316 | 60,765 | ||||||
Profit from operations | 30,971 | 22,725 | ||||||
Interest income | 73 | 43 | ||||||
Interest expense | (32,071 | ) | (19,537 | ) | ||||
Loss on extinguishment of debt | (3,751 | ) | — | |||||
Other (expense) income | (1,579 | ) | 1,356 | |||||
(Loss) income before income taxes | (6,357 | ) | 4,587 | |||||
Provision for income taxes | 827 | 1,088 | ||||||
Net (loss) income | $ | (7,184 | ) | $ | 3,499 | |||
F-39
Table of Contents
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (Unaudited)
(Dollars in thousands, except per share data)
Right to | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A | Series B | of Series B | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable | Redeemable | Redeemable | Total | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible | Convertible | Convertible | Redeemable | Series B | Additional | other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred | Preferred | Preferred | Convertible | Ordinary Stock | Ordinary Stock | paid-in | Accumulated | comprehensive | stockholders’ | Comprehensive | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
In thousands USD | Shares | Value | Shares | Value | Shares | Par value | Preferred Stock | Shares | Par value | Shares | Par value | capital | deficit | income (loss) | deficit | loss | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at February 28, 2010 | 6,561 | $ | 93,612 | — | $ | — | — | $ | — | $ | 93,612 | 28,809 | $ | 16,712 | — | $ | — | 9,704 | (364,010 | ) | $ | (137 | ) | $ | (337,731 | ) | |||||||||||||||||||||||||||||||||||||||
Net loss | (7,184 | ) | (7,184 | ) | (7,184 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | 1,179 | 1,179 | 1,179 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized loss on corporate equity security (net of tax of $1) | (11 | ) | (11 | ) | (11 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Series B preferred shares, net of issuance cost of $428 | 3,532 | 11,023 | 11,023 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accretion of Series B preferred stock to redemption value | 42,392 | 42,392 | (10,014 | ) | (32,378 | ) | (42,392 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Series B ordinary shares, net of issuance cost of $205 | 15,512 | 8,998 | (205 | ) | (3,395 | ) | 5,398 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accretion of Series A preferred stock to redemption value | 5,617 | 5,617 | (1,390 | ) | (4,227 | ) | (5,617 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of right to shares of Series B ordinary | 1,533 | 1,533 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of right to shares of Series B preferred | 5,518 | 5,518 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 372 | 372 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive loss | $ | (6,016 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at November 28, 2010 | 6,561 | $ | 99,229 | 3,532 | $ | 53,415 | — | $ | 5,518 | $ | 158,162 | 28,809 | $ | 16,712 | 15,512 | $ | 8,998 | $ | — | $ | (411,194 | ) | $ | 1,031 | $ | (384,453 | ) | ||||||||||||||||||||||||||||||||||||||
F-40
Table of Contents
For the fiscal nine-month period ended November 28, 2010 and November 22, 2009
(In thousands)
November 28, | November 22, | |||||||
2010 | 2009 | |||||||
OPERATING ACTIVITIES | ||||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | (7,184 | ) | $ | 3,499 | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 7,106 | 9,967 | ||||||
Amortization of deferred financing costs | 6,096 | 1,947 | ||||||
Stock-based compensation | 372 | 3,793 | ||||||
Non-cash portion of restructuring | (293 | ) | ||||||
Provision for doubtful accounts | 136 | 1,075 | ||||||
Inventory provision | 771 | 1,331 | ||||||
Loss on extinguishment of debt | 3,751 | — | ||||||
Change in fair value of embedded derivatives | 297 | |||||||
(Gain) loss from sale of subsidiary | (3,655 | ) | 82 | |||||
(Gain) loss on retirement of property and equipment | (2 | ) | 6 | |||||
Interest payable-in-kind | 4,701 | 570 | ||||||
Changes in assets and liabilities | ||||||||
Accounts receivable | 3,513 | 19,565 | ||||||
Inventory | (2,070 | ) | (152 | ) | ||||
Prepaid expenses and other current assets | 943 | 1,208 | ||||||
Accounts payable | 568 | (3,591 | ) | |||||
Accrued expenses | 894 | (10,226 | ) | |||||
Interest payable | 1,372 | 1,257 | ||||||
Income taxes payable | (81 | ) | 22 | |||||
Deferred revenue | (10,720 | ) | (8,953 | ) | ||||
Other long-term assets and liabilities | 1,075 | 1,269 | ||||||
Net cash provided by operating activities | 7,883 | 22,376 | ||||||
INVESTING ACTIVITIES | ||||||||
Cash flows from investing activities: | ||||||||
Acquisition of property and equipment | (4,850 | ) | (4,867 | ) | ||||
Proceeds from sale of subsidiary | 3,555 | — | ||||||
Price adjustment for sale of subsidiary | — | (110 | ) | |||||
Other long-term assets | (57 | ) | (56 | ) | ||||
Net cash used in investing activities | (1,352 | ) | (5,033 | ) | ||||
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 short and long-term debt | (218,000 | ) | (1,000 | ) | ||||
Payment of debt and equity issuance fees | (13,067 | ) | — | |||||
Proceeds from revolving credit facility | 8,000 | 12,000 | ||||||
Payments on revolving credit facility | (30,000 | ) | (24,000 | ) | ||||
Payments on interest rate swap and collar | — | (2,701 | ) | |||||
Net cash used in financing activities | (45,786 | ) | (15,701 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 422 | 1,608 | ||||||
Net (decrease) increase in cash and cash equivalents | (38,833 | ) | 3,250 | |||||
Cash and cash equivalents at beginning of period | 56,768 | 35,025 | ||||||
Cash and cash equivalents at end of period | $ | 17,935 | $ | 38,275 | ||||
F-41
Table of Contents
• | A second lien loan (“Lien 2”) | ||
• | Senior secured notes (the “Notes”) | ||
• | The Company’s right to redeem the debt at a specified price in the event of a future equity offering, the right of the Company’s creditors to sell back the debt to it at a specified price in the event of a change in control, and the Company’s requirement to make an offer to redeem a portion of the debt using a formula based on certain cash-flow metrics on the last day of each fiscal year ending on or after February 27, 2011, (collectively referred to as the “Embedded Derivatives”) | ||
• | Preferred stock and ordinary stock (the “Preferred and Ordinary Shares”) | ||
• | The Lien 2 holders’ contingent right to additional preferred and ordinary stock should the Company not repay Lien 2 in full by either April 30, 2013 or April 30, 2014 (the “Contingent Equity”) |
F-42
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F-43
Table of Contents
Quoted Prices in | ||||||||||||||||
Total | Active Market for | Significant Other | Significant | |||||||||||||
November 28, | Identical Assets | Observable | Unobservable | |||||||||||||
2010 | (Level 1) | Inputs (Level 2) | Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents in highly liquid money market fund | $ | 982 | $ | 982 | $ | — | $ | — | ||||||||
Investment in corporate equity security | 33 | 33 | — | — | ||||||||||||
Embedded derivative in Senior Secured Notes (see Note 6) | 2,175 | — | 2,175 | — | ||||||||||||
Total | $ | 3,190 | $ | 1,015 | $ | 2,175 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Embedded derivatives in Senior Secured Notes (see Note 6) | 19,656 | — | 19,656 | — | ||||||||||||
Total | $ | 19,656 | $ | — | $ | 19,656 | $ | — | ||||||||
Quoted Prices in | ||||||||||||||||
Total | Active Market for | Significant Other | Significant | |||||||||||||
February 28, | Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||||||
2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents in highly liquid money market fund | $ | 20,929 | $ | 20,929 | $ | — | $ | — | ||||||||
Investment in corporate equity security | 34 | 34 | — | — | ||||||||||||
Total | $ | 20,963 | $ | 20,963 | $ | — | $ | — | ||||||||
November 28, | February 28, | |||||||
2010 | 2010 | |||||||
Parts and assemblies | $ | 1,377 | $ | 1,375 | ||||
Work-in-process | 1,296 | 823 | ||||||
Finished products | 4,921 | 4,327 | ||||||
Total Inventory | $ | 7,594 | $ | 6,525 | ||||
November 28, | February 28, | |||||||
2010 | 2010 | |||||||
Machinery, computer equipment and software | $ | 46,961 | $ | 44,307 | ||||
Leasehold improvements | 10,182 | 10,012 | ||||||
Service and spare parts | 27,113 | 29,258 | ||||||
Total property and equipment | 84,256 | 83,577 | ||||||
Accumulated depreciation and amortization | (69,904 | ) | (66,736 | ) | ||||
Property and equipment, net | $ | 14,352 | $ | 16,841 | ||||
F-44
Table of Contents
November 28, | February 28, | |||||||
2010 | 2010 | |||||||
Compensation and benefits | $ | 8,279 | $ | 5,938 | ||||
Interest | 4,261 | 2,889 | ||||||
Restructuring | 371 | 2,337 | ||||||
Sales, use and other taxes | 994 | 458 | ||||||
Other | 6,343 | 6,084 | ||||||
Total | $ | 20,248 | $ | 17,706 | ||||
November 28, | November 22, | |||||||
2010 | 2009 | |||||||
Balance, beginning of the period | 100 | 179 | ||||||
Current period accrual | 203 | 218 | ||||||
Amounts charged to the accrual | (190 | ) | (290 | ) | ||||
Balance, end of the period | 113 | 107 | ||||||
November 28, | February 28, | |||||||
Fiscal year ended | 2010 | 2010 | ||||||
Foreign currency translation | $ | 1,040 | $ | (139 | ) | |||
Unrealized (loss) gain on corporate equity security | (9 | ) | 2 | |||||
Total accumulated other comprehensive loss | $ | 1,031 | $ | (137 | ) | |||
Severance and | ||||
Fringe Benefits | ||||
Restructuring Liability as of February 28, 2010 | $ | 2,337 | ||
Adjustment to estimates for restructuring liability | 55 | |||
Currency Translation | (57 | ) | ||
Cash payments | (1,964 | ) | ||
Restructuring Liability as of November 28, 2010 | $ | 371 | ||
F-45
Table of Contents
November 28, | February 28, | |||||||
2010 | 2010 | |||||||
Customer related | $ | 28,466 | $ | 28,466 | ||||
Core technology | 18,671 | 18,671 | ||||||
Trademark and trade names | 3,584 | 3,558 | ||||||
Capitalized software | 3,564 | 3,564 | ||||||
Patents | 1,987 | 1,957 | ||||||
Total intangible assets | 56,272 | 56,216 | ||||||
Customer related amortization | (28,466 | ) | (28,414 | ) | ||||
Core technology amortization | (18,671 | ) | (18,671 | ) | ||||
Trademark and trade names amortization | (1,522 | ) | (1,507 | ) | ||||
Capitalized software amortization | (3,420 | ) | (3,358 | ) | ||||
Patent amortization | (735 | ) | (668 | ) | ||||
Total accumulated amortization | (52,814 | ) | (52,618 | ) | ||||
Intangible assets, net | $ | 3,458 | $ | 3,598 | ||||
Fiscal Year | ||||
2011 (remaining three months) | $ | 54 | ||
2012 | 216 | |||
2013 | 173 | |||
2014 | 133 | |||
2015 and thereafter | 927 | |||
Total | $ | 1,503 | ||
November 28, | February 28, | |||||||
2010 | 2010 | |||||||
Senior Secured Notes | $ | 215,000 | $ | — | ||||
First Lien Credit Agreement | — | 193,000 | ||||||
Second Lien Credit Agreement | 79,936 | 101,906 | ||||||
Revolving Credit Facility | — | 22,000 | ||||||
$ | 294,936 | $ | 316,906 | |||||
Debt Discount | (44,519 | ) | — | |||||
Total | $ | 250,417 | $ | 316,906 | ||||
F-46
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F-47
Table of Contents
• | the Issuer’s right to redeem the Senior Secured Notes at a specified price in the event of an Equity Offering; | ||
• | the right of the holder of the Senior Secured Notes to sell back the Senior Secured Notes to the Company at a specified price in the event of a Change in Control; | ||
• | the Issuer’s requirement to make an offer to purchase the Senior Secured Notes with 100% of Excess Cash Flow for each annual period ending on the last day of each fiscal year ending on or after February 27, 2011 at 120% of the principal amount together with accrued and unpaid interest. |
F-48
Table of Contents
Allocated Amount | ||||
Senior Secured Notes | 184,458 | |||
Second Lien Credit Agreement Notes | 58,629 | |||
Series B preferred stock | 11,451 | |||
Series B ordinary stock | 5,603 | |||
Right to shares of Series B preferred stock | 5,518 | |||
Right to shares of Series B ordinary stock | 1,533 |
F-49
Table of Contents
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
Series A | $ | 101,101 | $ | 109,189 | $ | 117,924 | $ | 127,358 | $ | 132,547 | ||||||||||
Series B | $ | 54,422 | $ | 58,776 | $ | 63,478 | $ | 68,557 | $ | 74,041 |
F-50
Table of Contents
1. | Consolidating balance sheet as of November 28, 2010 and February 28, 2010. | ||
2. | Consolidating statements of operations and cash flows for each of the nine month periods ended November 28, 2010 and November 22, 2009. |
F-51
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
As of November 28, 2010
(In thousands)
Bermuda | Guarantor | Non Guarantor | ||||||||||||||||||||||||||
Holdings | Bermuda Ltd. | Stratus US | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 220 | $ | 697 | $ | 2,422 | $ | 7,340 | $ | 7,256 | $ | — | $ | 17,935 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts | — | 75 | 6,372 | 17,741 | 14,209 | — | 38,397 | |||||||||||||||||||||
Intercompany receivable | 23,114 | — | 100,743 | 5,995 | 5,469 | (135,321 | ) | — | ||||||||||||||||||||
Inventory | — | — | 6,922 | 1,286 | 2,681 | (3,295 | ) | 7,594 | ||||||||||||||||||||
Deferred income taxes | — | — | — | — | 1,313 | — | 1,313 | |||||||||||||||||||||
Income taxes receivable | — | — | 138 | 120 | — | (187 | ) | 71 | ||||||||||||||||||||
Prepaid expenses and other current assets | 500 | 133 | 2,610 | 270 | 1,339 | (223 | ) | 4,629 | ||||||||||||||||||||
Total current assets | 23,834 | 905 | 119,207 | 32,752 | 32,267 | (139,026 | ) | 69,939 | ||||||||||||||||||||
Property and equipment, net | — | — | 11,823 | 716 | 1,813 | — | 14,352 | |||||||||||||||||||||
Intangible assets, net | — | 3,097 | 361 | — | — | — | 3,458 | |||||||||||||||||||||
Goodwill | — | 6,197 | 1,306 | 1,345 | 731 | — | 9,579 | |||||||||||||||||||||
Deferred income taxes | — | — | — | — | 1,831 | — | 1,831 | |||||||||||||||||||||
Deferred financing fees | — | 4,927 | 6,602 | — | — | — | 11,529 | |||||||||||||||||||||
Investment in subsidiaries | — | 45,867 | 38,127 | 1,886 | — | (85,880 | ) | — | ||||||||||||||||||||
Other assets | 671 | 1,094 | 1,427 | 62 | 1,840 | — | 5,094 | |||||||||||||||||||||
Long-term intercompany receivable | 7,850 | — | 48,125 | — | — | (55,975 | ) | — | ||||||||||||||||||||
Total assets | $ | 32,355 | $ | 62,087 | $ | 226,978 | $ | 36,761 | $ | 38,482 | $ | (280,881 | ) | $ | 115,782 | |||||||||||||
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | 2,400 | $ | 2,600 | $ | — | $ | — | $ | — | $ | 5,000 | ||||||||||||||
Accounts payable | — | — | 2,547 | 2,818 | 3,203 | — | 8,568 | |||||||||||||||||||||
Intercompany payable | — | 51,887 | 21,684 | 61,749 | — | (135,320 | ) | — | ||||||||||||||||||||
Accrued expenses | 8 | 2,089 | 9,304 | 2,149 | 6,921 | (223 | ) | 20,248 | ||||||||||||||||||||
Income taxes payable | — | 132 | — | — | 55 | (187 | ) | — | ||||||||||||||||||||
Deferred revenue | — | — | 1,432 | 27,142 | 2,433 | — | 31,007 | |||||||||||||||||||||
Total current liabilities | 8 | 56,508 | 37,567 | 93,858 | 12,612 | (135,730 | ) | 64,823 | ||||||||||||||||||||
Long-term debt, net of discount | — | 118,009 | 127,408 | — | — | — | 245,417 | |||||||||||||||||||||
Long-term intercompany payable | — | 55,975 | — | — | — | (55,975 | ) | — | ||||||||||||||||||||
Liability in subsidiaries | 16,908 | — | — | — | — | (16,908 | ) | — | ||||||||||||||||||||
Embedded derivates | — | 9,435 | 10,221 | — | — | — | 19,656 | |||||||||||||||||||||
Deferred revenue and other liabilities | — | 869 | 5,521 | 5,365 | 422 | — | 12,177 | |||||||||||||||||||||
Total liabilities | 16,916 | 240,796 | 180,717 | 99,223 | 13,033 | (208,612 | ) | 342,073 | ||||||||||||||||||||
Redeemable convertible preferred stock: | ||||||||||||||||||||||||||||
Redeemable convertible preferred stock | 152,644 | — | — | — | — | — | 152,644 | |||||||||||||||||||||
Right to shares of Series B redeembable convertible preferred stock | 5,518 | — | — | — | — | — | 5,518 | |||||||||||||||||||||
Total redeemable convertible preferred stock | 158,162 | — | — | — | — | — | 158,162 | |||||||||||||||||||||
Stockholders’ (Deficit) Equity: | ||||||||||||||||||||||||||||
Ordinary stock | 25,710 | 71 | 20,000 | 2,370 | 5,318 | (27,759 | ) | 25,710 | ||||||||||||||||||||
Additional paid in capital | (3,234 | ) | 29,562 | 56,015 | 126 | 4,367 | (86,836 | ) | — | |||||||||||||||||||
Accumulated deficit | (165,199 | ) | (208,342 | ) | (29,865 | ) | (65,265 | ) | 15,317 | 42,160 | (411,194 | ) | ||||||||||||||||
Accumulated other comprehensive gain (loss) | — | — | 111 | 307 | 446 | 167 | 1,031 | |||||||||||||||||||||
Total stockholders’ (deficit) equity | (142,724 | ) | (178,709 | ) | 46,260 | (62,462 | ) | 25,450 | (72,268 | ) | (384,453 | ) | ||||||||||||||||
Total liabilities and stockholders’ (deficit) equity | $ | 32,355 | $ | 62,087 | $ | 226,978 | $ | 36,761 | $ | 38,482 | $ | (280,881 | ) | $ | 115,782 | |||||||||||||
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of February 28, 2010
(In thousands)
Bermuda | Guarantor | Non Guarantor | ||||||||||||||||||||||||||
Holdings | Bermuda Ltd. | Stratus US | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 131 | $ | 5 | $ | 22,194 | $ | 30,298 | $ | 4,140 | $ | — | $ | 56,768 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts | — | — | 9,788 | 23,785 | 7,844 | — | 41,417 | |||||||||||||||||||||
Intercompany receivable | 771 | — | 35,410 | — | 11,315 | (47,496 | ) | — | ||||||||||||||||||||
Inventory | — | — | 5,874 | 2,022 | 2,964 | (4,335 | ) | 6,525 | ||||||||||||||||||||
Deferred income taxes | — | — | — | — | 1,200 | — | 1,200 | |||||||||||||||||||||
Income taxes receivable | — | — | 185 | 130 | — | (315 | ) | — | ||||||||||||||||||||
Prepaid expenses and other current assets | — | 107 | 3,103 | 31 | 2,757 | (578 | ) | 5,420 | ||||||||||||||||||||
Total current assets | 902 | 112 | 76,554 | 56,266 | 30,220 | (52,724 | ) | 111,330 | ||||||||||||||||||||
Property and equipment, net | — | — | 13,770 | 984 | 2,069 | 18 | 16,841 | |||||||||||||||||||||
Intangible assets, net | — | 2,824 | 774 | — | — | — | 3,598 | |||||||||||||||||||||
Goodwill | — | 6,197 | 1,306 | 1,345 | 696 | — | 9,544 | |||||||||||||||||||||
Deferred income taxes | — | — | — | — | 1,723 | — | 1,723 | |||||||||||||||||||||
Deferred financing fees | — | 1,344 | 1,639 | — | — | — | 2,983 | |||||||||||||||||||||
Investment in subsidiaries | — | 21,839 | 36,323 | 1,872 | — | (60,034 | ) | — | ||||||||||||||||||||
Other assets | 111 | 627 | 1,872 | — | 1,641 | — | 4,251 | |||||||||||||||||||||
Long-term intercompany receivable | 7,850 | — | 90,568 | — | — | (98,418 | ) | — | ||||||||||||||||||||
Total assets | $ | 8,863 | $ | 32,943 | $ | 222,806 | $ | 60,467 | $ | 36,349 | $ | (211,158 | ) | $ | 150,270 | |||||||||||||
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | 12,082 | $ | 12,918 | $ | — | $ | — | $ | — | $ | 25,000 | ||||||||||||||
Accounts payable | — | — | 1,748 | 4,254 | 2,095 | (308 | ) | 7,789 | ||||||||||||||||||||
Intercompany payable | — | 33,391 | 10,064 | 4,043 | — | (47,498 | ) | — | ||||||||||||||||||||
Accrued expenses | (8 | ) | 1,543 | 7,334 | 1,653 | 7,454 | (270 | ) | 17,706 | |||||||||||||||||||
Income taxes payable | — | 120 | — | — | 262 | (315 | ) | 67 | ||||||||||||||||||||
Deferred revenue | — | — | 1,687 | 38,249 | 2,093 | — | 42,029 | |||||||||||||||||||||
Total current liabilities | (8 | ) | 47,136 | 33,751 | 48,199 | 11,904 | (48,391 | ) | 92,591 | |||||||||||||||||||
Long-term debt | — | 130,455 | 161,451 | — | — | — | 291,906 | |||||||||||||||||||||
Long-term intercompany payable | — | 25,975 | — | 72,443 | — | (98,418 | ) | — | ||||||||||||||||||||
Liability in subsidiaries | 8,821 | — | — | — | — | (8,821 | ) | — | ||||||||||||||||||||
Deferred revenue and other liabilities | — | — | 4,198 | 5,059 | 635 | — | 9,892 | |||||||||||||||||||||
Total liabilities | 8,813 | 203,566 | 199,400 | 125,701 | 12,539 | (155,630 | ) | 394,389 | ||||||||||||||||||||
Redeemable convertible preferred stock and stockholders’ deficit: | ||||||||||||||||||||||||||||
Redeemable convertible preferred stock | 93,612 | — | — | — | — | — | 93,612 | |||||||||||||||||||||
Total redeembable convertible preferred stock | 93,612 | — | — | — | — | — | 93,612 | |||||||||||||||||||||
Stockholders’ (Deficit) Equity: | ||||||||||||||||||||||||||||
Ordinary stock | 16,712 | 71 | 20,000 | 2,370 | 5,318 | (27,759 | ) | 16,712 | ||||||||||||||||||||
Additional paid in capital | 6,841 | 29,562 | 25,715 | 118 | 4,304 | (56,836 | ) | 9,704 | ||||||||||||||||||||
Accumulated deficit | (117,115 | ) | (200,256 | ) | (22,418 | ) | (68,029 | ) | 14,908 | 28,900 | (364,010 | ) | ||||||||||||||||
Accumulated other comprehensive (loss) gain | — | — | 109 | 307 | (720 | ) | 167 | (137 | ) | |||||||||||||||||||
Total stockholders’ (deficit) equity | (93,562 | ) | (170,623 | ) | 23,406 | (65,234 | ) | 23,810 | (55,528 | ) | (337,731 | ) | ||||||||||||||||
Total liabilities and stockholders’ (deficit) equity | $ | 8,863 | $ | 32,943 | $ | 222,806 | $ | 60,467 | $ | 36,349 | $ | (211,158 | ) | $ | 150,270 | |||||||||||||
F-53
Table of Contents
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS (Unaudited)
Nine-month period ended November 28, 2010
(In thousands)
Bermuda | Bermuda | Guarantor | Non Guarantor | November | ||||||||||||||||||||||||
Holdings | Ltd | Stratus US | Subsidiaries | Subsidiaries | Eliminations | 2010 | ||||||||||||||||||||||
REVENUE | ||||||||||||||||||||||||||||
Product | $ | — | $ | 251 | $ | 14,095 | $ | 5,848 | $ | 32,641 | — | $ | 52,835 | |||||||||||||||
Service | — | 300 | 6,733 | 84,042 | 10,284 | — | 101,359 | |||||||||||||||||||||
Intercompany | — | 34,458 | 63,415 | 23,638 | 12,150 | (133,661 | ) | — | ||||||||||||||||||||
Total revenue | — | 35,009 | 84,243 | 113,528 | 55,075 | (133,661 | ) | 154,194 | ||||||||||||||||||||
COST OF REVENUE | ||||||||||||||||||||||||||||
Product | $ | — | $ | 142 | $ | 11,972 | $ | 21,807 | $ | 23,731 | $ | (32,931 | ) | $ | 24,721 | |||||||||||||
Service | — | — | 24,431 | 2,522 | 17,244 | (11 | ) | 44,186 | ||||||||||||||||||||
Intercompany | — | 21,767 | 0 | 79,607 | 395 | (101,769 | ) | — | ||||||||||||||||||||
Total cost of revenue | — | 21,909 | 36,403 | 103,936 | 41,370 | (134,711 | ) | 68,907 | ||||||||||||||||||||
Gross profit | — | 13,100 | 47,840 | 9,592 | 13,705 | 1,050 | 85,287 | |||||||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||||||||
Research and development | — | — | 20,535 | 23 | — | (44 | ) | 20,514 | ||||||||||||||||||||
Sales and marketing | — | — | 12,041 | 4 | 9,805 | (24 | ) | 21,826 | ||||||||||||||||||||
General and administrative | 158 | 71 | 11,180 | 387 | 2,814 | 97 | 14,707 | |||||||||||||||||||||
Amortization of intangibles | — | 52 | — | — | — | — | 52 | |||||||||||||||||||||
Restructuring charges | — | — | (7 | ) | 1 | 61 | — | 55 | ||||||||||||||||||||
Gain on sale of subsidiary | — | (3,655 | ) | — | — | — | — | (3,655 | ) | |||||||||||||||||||
Intercompany | — | — | 7 | 54 | (61 | ) | — | — | ||||||||||||||||||||
Management and transaction costs | 292 | — | 525 | — | — | — | 817 | |||||||||||||||||||||
Total operating expenses | 450 | (3,532 | ) | 44,281 | 469 | 12,619 | 29 | 54,316 | ||||||||||||||||||||
Profit from operations | (450 | ) | 16,632 | 3,559 | 9,123 | 1,086 | 1,021 | 30,971 | ||||||||||||||||||||
Interest income | 0 | 41 | 3 | 26 | 3 | — | 73 | |||||||||||||||||||||
Interest expense | — | (15,236 | ) | (16,835 | ) | — | — | — | (32,071 | ) | ||||||||||||||||||
Interest income (expense), intercompany | 456 | (1,570 | ) | 6,210 | (5,096 | ) | — | — | — | |||||||||||||||||||
Loss on extinguishment of debt | — | (1,725 | ) | (2,026 | ) | — | — | — | (3,751 | ) | ||||||||||||||||||
Other income (expense), net | (6 | ) | (194 | ) | (408 | ) | (724 | ) | (128 | ) | (119 | ) | (1,579 | ) | ||||||||||||||
(Loss) income before income taxes | — | (2,052 | ) | (9,497 | ) | 3,329 | 961 | 902 | (6,357 | ) | ||||||||||||||||||
Provision for income taxes | — | 63 | (37 | ) | 461 | 340 | — | 827 | ||||||||||||||||||||
Equity in profit (loss) in subsidiaries | (8,087 | ) | (5,972 | ) | 1,631 | 14 | — | 12,414 | — | |||||||||||||||||||
Net (loss) income | $ | (8,087 | ) | $ | (8,087 | ) | $ | (7,829 | ) | $ | 2,882 | $ | 621 | $ | 13,316 | $ | (7,184 | ) | ||||||||||
F-54
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Nine-month period ended November 22, 2009
(In thousands)
Bermuda | Bermuda | Guarantor | Non Guarantor | November 22, | ||||||||||||||||||||||||
Holdings | Ltd | Stratus US | Subsidiaries | Subsidiaries | Eliminations | 2009 | ||||||||||||||||||||||
REVENUE | ||||||||||||||||||||||||||||
Product | $ | — | $ | 79 | $ | 14,705 | $ | 6,195 | $ | 26,667 | $ | — | $ | 47,646 | ||||||||||||||
Service | — | — | 5,483 | 88,168 | 10,234 | — | 103,885 | |||||||||||||||||||||
Intercompany | — | 35,368 | 61,309 | 15,643 | 11,999 | (124,319 | ) | — | ||||||||||||||||||||
Total revenue | — | 35,447 | 81,497 | 110,006 | 48,900 | (124,319 | ) | 151,531 | ||||||||||||||||||||
COST OF REVENUE | ||||||||||||||||||||||||||||
Product | — | 162 | 6,642 | 16,389 | 16,265 | (17,690 | ) | 21,768 | ||||||||||||||||||||
Service | — | — | 24,379 | 2,717 | 19,380 | (203 | ) | 46,273 | ||||||||||||||||||||
Intercompany | — | 26,202 | — | 79,780 | — | (105,982 | ) | — | ||||||||||||||||||||
Total cost of revenue | — | 26,364 | 31,021 | 98,886 | 35,645 | (123,875 | ) | 68,041 | ||||||||||||||||||||
Gross profit | — | 9,083 | 50,476 | 11,120 | 13,255 | (444 | ) | 83,490 | ||||||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||||||||
Research and development | — | — | 23,124 | 23 | — | (188 | ) | 22,959 | ||||||||||||||||||||
Sales and marketing | — | — | 11,896 | — | 9,637 | (111 | ) | 21,422 | ||||||||||||||||||||
General and administrative | 366 | 25 | 11,444 | 265 | 2,525 | (4 | ) | 14,621 | ||||||||||||||||||||
Amortization of intangibles | — | 217 | — | 1,280 | — | — | 1,497 | |||||||||||||||||||||
Restructuring charges | — | — | — | (293 | ) | (48 | ) | — | (341 | ) | ||||||||||||||||||
Loss (gain) on sale of subsidiary | — | — | 101 | (19 | ) | — | — | 82 | ||||||||||||||||||||
Intercompany | — | — | — | 167 | (72 | ) | (95 | ) | — | |||||||||||||||||||
Management and transaction costs | — | — | 525 | — | — | — | 525 | |||||||||||||||||||||
Total operating expenses | 366 | 242 | 47,090 | 1,423 | 12,042 | (398 | ) | 60,765 | ||||||||||||||||||||
Profit (loss) from operations | (366 | ) | 8,841 | 3,386 | 9,697 | 1,213 | (46 | ) | 22,725 | |||||||||||||||||||
Interest income | 1 | — | 14 | 21 | 7 | — | 43 | |||||||||||||||||||||
Interest expense | — | (9,025 | ) | (10,497 | ) | (14 | ) | (1 | ) | — | (19,537 | ) | ||||||||||||||||
Interest income(expense), intercompany | 456 | (1,612 | ) | 7,357 | (6,201 | ) | — | — | — | |||||||||||||||||||
Other income (expense), net | (7 | ) | (66 | ) | (51 | ) | 1,660 | (81 | ) | (100 | ) | 1,355 | ||||||||||||||||
Other income (expense), intercompany | — | — | (268 | ) | 268 | — | — | — | ||||||||||||||||||||
Income (loss) before income taxes | 83 | (1,862 | ) | (59 | ) | 5,431 | 1,139 | (146 | ) | 4,586 | ||||||||||||||||||
Provision for income taxes | — | 12 | 233 | 692 | 151 | — | 1,088 | |||||||||||||||||||||
Equity in profit (loss) in subsidiaries | 3,561 | 5,435 | 1,267 | 16 | — | (10,279 | ) | — | ||||||||||||||||||||
Net income (loss) | $ | 3,644 | $ | 3,561 | $ | 975 | $ | 4,755 | $ | 988 | $ | (10,425 | ) | $ | 3,499 | |||||||||||||
F-55
Table of Contents
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS (Unaudited)
Nine-month period ended November 28, 2010
(In thousands)
Bermuda | Bermuda | Guarantor | Non Guarantor | |||||||||||||||||||||||||
Holdings | Ltd | Stratus US | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||
Net (loss) income | $ | (8,087 | ) | $ | (8,087 | ) | $ | (7,829 | ) | $ | 2,882 | $ | 621 | $ | 13,316 | $ | (7,184 | ) | ||||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||||||||||
Depreciation and amortization | — | 135 | 5,726 | 332 | 895 | 18 | 7,106 | |||||||||||||||||||||
Amortization of deferred financing cost | — | 2,818 | 3,278 | — | — | — | 6,096 | |||||||||||||||||||||
Stock-based compensation | — | — | 300 | 9 | 63 | — | 372 | |||||||||||||||||||||
Provision for doubtful accounts | — | — | (24 | ) | 248 | (88 | ) | — | 136 | |||||||||||||||||||
Inventory provision | — | — | 1,059 | (286 | ) | (2 | ) | — | 771 | |||||||||||||||||||
Loss on debt extinguishment | — | 1,800 | 1,951 | — | — | — | 3,751 | |||||||||||||||||||||
Change in fair value of embedded derivatives | — | 142 | 155 | — | — | — | 297 | |||||||||||||||||||||
Gain from sale of subsidiary | — | (3,655 | ) | — | — | — | — | (3,655 | ) | |||||||||||||||||||
Gain on retirement of property and equipment | — | — | (2 | ) | — | — | — | (2 | ) | |||||||||||||||||||
Interest payable-in-kind | — | 2,272 | 2,429 | — | — | — | 4,701 | |||||||||||||||||||||
Equity in (profit) loss subsidiaries | 8,087 | 5,972 | (1,631 | ) | (14 | ) | — | (12,414 | ) | — | ||||||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||||||||||
Accounts receivable | — | (75 | ) | 3,440 | 5,796 | (5,648 | ) | — | 3,513 | |||||||||||||||||||
Inventory | — | — | (2,503 | ) | 1,022 | 450 | (1,039 | ) | (2,070 | ) | ||||||||||||||||||
Prepaid expenses and other current assets | (500 | ) | (26 | ) | 493 | (239 | ) | 1,571 | (356 | ) | 943 | |||||||||||||||||
Accounts payable | 1,132 | 7,217 | 7,782 | (22,286 | ) | 6,294 | 429 | 568 | ||||||||||||||||||||
Accrued expenses | 17 | (10 | ) | 1,255 | 495 | (909 | ) | 46 | 894 | |||||||||||||||||||
Interest payable | — | 656 | 716 | — | — | — | 1,372 | |||||||||||||||||||||
Income taxes payable | — | 13 | 47 | 10 | (151 | ) | — | (81 | ) | |||||||||||||||||||
Deferred revenue | — | — | (256 | ) | (10,661 | ) | 197 | — | (10,720 | ) | ||||||||||||||||||
Other long-term assets and liabilities | 72 | (863 | ) | 2,103 | (225 | ) | (12 | ) | — | 1,075 | ||||||||||||||||||
Net cash provided by (used in) operating activities | 721 | 8,309 | 18,489 | (22,917 | ) | 3,281 | — | 7,883 | ||||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||
Acquisition of property and equipment | — | — | (4,253 | ) | (41 | ) | (556 | ) | — | (4,850 | ) | |||||||||||||||||
Proceeds from sale of subsidiary | — | 3,555 | — | — | — | — | 3,555 | |||||||||||||||||||||
Other long term assets | — | (57 | ) | — | — | — | — | (57 | ) | |||||||||||||||||||
Net cash (used in) provided by investing activities | — | 3,498 | (4,253 | ) | (41 | ) | (556 | ) | — | (1,352 | ) | |||||||||||||||||
Financing activities | ||||||||||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||||||
Proceeds from issuance of long-term debt, Series B preferred stock and Series B ordinary stock | — | 99,495 | 107,786 | — | — | — | 207,281 | |||||||||||||||||||||
Payments on short and long-term debt | — | (105,359 | ) | (112,641 | ) | — | — | — | (218,000 | ) | ||||||||||||||||||
Payment of debt and equity issuance fees | (632 | ) | (5,251 | ) | (7,184 | ) | — | — | — | (13,067 | ) | |||||||||||||||||
Proceeds from revolving credit facility | — | — | 8,000 | — | — | — | 8,000 | |||||||||||||||||||||
Payments on revolving credit facility | — | — | (30,000 | ) | — | — | — | (30,000 | ) | |||||||||||||||||||
Net cash (used in) financing activities | (632 | ) | (11,115 | ) | (34,039 | ) | — | — | — | (45,786 | ) | |||||||||||||||||
Effect of exchange rate changes on cash | — | — | 31 | — | 391 | — | 422 | |||||||||||||||||||||
Net (decrease) increase in cash and cash equivalents | 89 | 692 | (19,772 | ) | (22,958 | ) | 3,116 | — | (38,833 | ) | ||||||||||||||||||
Cash and cash equivalents at beginning of period | 131 | 5 | 22,194 | 30,298 | 4,140 | — | 56,768 | |||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 220 | $ | 697 | $ | 2,422 | $ | 7,340 | $ | 7,256 | $ | — | $ | 17,935 |
F-56
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Nine-month period ended November 22, 2009
(In thousands)
Bermuda | Bermuda | Guarantor | Non Guarantor | |||||||||||||||||||||||||
Holdings | Ltd | Stratus US | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||
Net Income (loss) | $ | 3,644 | $ | 3,561 | $ | 975 | $ | 4,755 | $ | 988 | $ | (10,425 | ) | $ | 3,499 | |||||||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||||||||||
Depreciation and amortization | — | 321 | 7,214 | 1,703 | 1,235 | (506 | ) | 9,967 | ||||||||||||||||||||
Amortization of deferred financing cost | — | 872 | 1,075 | — | — | — | 1,947 | |||||||||||||||||||||
Stock-based compensation | — | — | 3,277 | 11 | 505 | — | 3,793 | |||||||||||||||||||||
Non-cash portion of restructuring | — | — | (293 | ) | — | — | — | (293 | ) | |||||||||||||||||||
Provision for doubtful accounts | — | — | 5 | 966 | 105 | — | 1,075 | |||||||||||||||||||||
Inventory provision | — | — | 885 | (386 | ) | 832 | — | 1,331 | ||||||||||||||||||||
Loss (Gain) from sale of subsidiary | — | — | 101 | (19 | ) | — | — | 82 | ||||||||||||||||||||
Loss on retirement of property and equipment | — | — | 6 | — | — | — | 6 | |||||||||||||||||||||
Interest payable-in-kind | — | 275 | 295 | — | — | — | 570 | |||||||||||||||||||||
Equity in (profit) loss subsidiaries | (3,561 | ) | (5,435 | ) | (1,267 | ) | (16 | ) | — | 10,279 | — | |||||||||||||||||
Changes in assets and liabilities: | — | |||||||||||||||||||||||||||
Accounts receivable | — | — | 478 | 11,002 | 8,085 | — | 19,565 | |||||||||||||||||||||
Inventory | — | — | (883 | ) | 780 | (596 | ) | 547 | (152 | ) | ||||||||||||||||||
Prepaid expenses and other current assets | — | (21 | ) | 1,337 | 97 | (278 | ) | 73 | 1,208 | |||||||||||||||||||
Accounts payable | — | 1,808 | 5,828 | (852 | ) | (10,422 | ) | 47 | (3,591 | ) | ||||||||||||||||||
Accrued expenses | (15 | ) | 1 | (6,403 | ) | (1,644 | ) | (2,150 | ) | (15 | ) | (10,226 | ) | |||||||||||||||
Interest payable | — | 601 | 656 | — | — | — | 1,257 | |||||||||||||||||||||
Income taxes payable | — | — | 183 | (4 | ) | (157 | ) | — | 22 | |||||||||||||||||||
Deferred revenue | — | (18 | ) | (477 | ) | (7,867 | ) | (591 | ) | — | (8,953 | ) | ||||||||||||||||
Other long-term assets and liabilities | — | (41 | ) | 2,397 | (638 | ) | (449 | ) | — | 1,269 | ||||||||||||||||||
Net cash provided by (used in) operating activities | 68 | 1,924 | 15,389 | 7,888 | (2,893 | ) | — | 22,376 | ||||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||
Acquisition of property and equipment | — | — | (3,590 | ) | (375 | ) | (902 | ) | — | (4,867 | ) | |||||||||||||||||
Price adjustment for sale of subsidiary | — | — | (110 | ) | — | — | — | (110 | ) | |||||||||||||||||||
Other long term assets | — | (56 | ) | — | — | — | — | (56 | ) | |||||||||||||||||||
Net cash (used in) investing activities | — | (56 | ) | (3,700 | ) | (375 | ) | (902 | ) | — | (5,033 | ) | ||||||||||||||||
Financing activities | ||||||||||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||||||
Payments on short and long-term debt | — | (483 | ) | (517 | ) | — | — | — | (1,000 | ) | ||||||||||||||||||
Proceeds from revolving credit facility | — | — | 12,000 | — | — | — | 12,000 | |||||||||||||||||||||
Payments on revolving credit facility | — | — | (24,000 | ) | — | — | — | (24,000 | ) | |||||||||||||||||||
Payments on interest rate swap and collar | — | (1,305 | ) | (1,396 | ) | — | — | — | (2,701 | ) | ||||||||||||||||||
Net cash (used in) financing activities | — | (1,788 | ) | (13,913 | ) | — | — | — | (15,701 | ) | ||||||||||||||||||
Effect of exchange rate changes on cash | — | — | 29 | — | 1,579 | — | 1,608 | |||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 68 | 80 | (2,195 | ) | 7,513 | (2,216 | ) | — | 3,250 | |||||||||||||||||||
Cash and cash equivalents at beginning of period | 537 | 22 | 4,568 | 24,403 | 5,495 | — | 35,025 | |||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 605 | $ | 102 | $ | 2,373 | $ | 31,916 | $ | 3,279 | $ | — | $ | 38,275 | ||||||||||||||
F-57