Stratus Technologies Bermuda Holdings Ltd.

CIK:0001507842|SEC Filings

Nature of Business	12 Months Ended
Feb. 24, 2013
Nature of Business	NOTE 1 — NATURE OF BUSINESS Stratus Technologies Bermuda Holdings Ltd (“Stratus” or the “Company”) is a leading global provider of a differentiated suite of continuous availability solutions for mission-critical enterprise applications for the enterprise data center and small to medium-sized businesses. The Company’s customer base includes some of the most recognizable companies in the world across a variety of large industries, including financial services, healthcare and life sciences, manufacturing and logistics, and government and public safety. These customers rely on our products and services for their critical computer-based operations that they require to be continuously or highly available for the proper functioning of their businesses. Stratus’ suite of products includes servers, services and software. The servers utilize a true, fault-tolerant systems architecture supported by a value-added services platform, which together provide industry-leading continuous availability with 99.999% uptime (i.e., less than five minutes of annual unplanned downtime). The Company’s value added services include maintenance services and managed services. Maintenance services are comprised of remote service management, predictive fault detection, root cause analysis and uptime guarantees. Managed services include long-term engagements where we manage many elements of a customer’s mission-critical server environment, as well as onsite consulting and project management. The Company provides its products and services through direct sales and third-party channels, including distributors, value added resellers, independent software vendors and systems integrators around the world. As of February 24, 2013, the Company employed 536 people globally. We believe our cash on hand, expected future operating cash inflows and borrowings available under our Revolving Credit Facility will be sufficient to fund operations, debt payment requirements and capital expenditures and to maintain compliance with the covenants under our debt agreements over the next twelve month period. However, there is no assurance that cash flows from operations and additional financings will be available in the future to fund such obligations in the long-term. Should we not maintain compliance with the covenants under our debt agreements we would not have the funds to repay the debt should the creditors demand payment and there can be no assurance that we will be able to refinance any of our indebtedness obligations on commercially reasonable terms or at all. The Company currently anticipates that it will not have the funds to repay the debt upon maturity and will most likely seek to refinance or restructure the debt in the future.

Nature of Business

12 Months Ended

Feb. 24, 2013

NOTE 1 — NATURE OF BUSINESS

Stratus Technologies Bermuda Holdings Ltd (“Stratus” or the “Company”) is a leading global provider of a differentiated suite of continuous availability solutions for mission-critical enterprise applications for the enterprise data center and small to medium-sized businesses. The Company’s customer base includes some of the most recognizable companies in the world across a variety of large industries, including financial services, healthcare and life sciences, manufacturing and logistics, and government and public safety. These customers rely on our products and services for their critical computer-based operations that they require to be continuously or highly available for the proper functioning of their businesses.

Stratus’ suite of products includes servers, services and software. The servers utilize a true, fault-tolerant systems architecture supported by a value-added services platform, which together provide industry-leading continuous availability with 99.999% uptime (i.e., less than five minutes of annual unplanned downtime). The Company’s value added services include maintenance services and managed services. Maintenance services are comprised of remote service management, predictive fault detection, root cause analysis and uptime guarantees. Managed services include long-term engagements where we manage many elements of a customer’s mission-critical server environment, as well as onsite consulting and project management.

The Company provides its products and services through direct sales and third-party channels, including distributors, value added resellers, independent software vendors and systems integrators around the world. As of February 24, 2013, the Company employed 536 people globally.

We believe our cash on hand, expected future operating cash inflows and borrowings available under our Revolving Credit Facility will be sufficient to fund operations, debt payment requirements and capital expenditures and to maintain compliance with the covenants under our debt agreements over the next twelve month period. However, there is no assurance that cash flows from operations and additional financings will be available in the future to fund such obligations in the long-term. Should we not maintain compliance with the covenants under our debt agreements we would not have the funds to repay the debt should the creditors demand payment and there can be no assurance that we will be able to refinance any of our indebtedness obligations on commercially reasonable terms or at all. The Company currently anticipates that it will not have the funds to repay the debt upon maturity and will most likely seek to refinance or restructure the debt in the future.

Consolidating Financial Statements - Consolidating Statement of Cash Flows (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Feb. 24, 2013	Feb. 26, 2012	Feb. 27, 2011
Cash flows (used in) provided by operating activities:
Net income (loss)	$ (13,468)	$ (19,002)	$ (12,200)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	7,031	7,490	9,116
Amortization of deferred financing cost and debt discount	11,733	10,501	8,466
Stock-based compensation	216	336	468
Non-cash portion of restructuring charges	393
Deferred tax (income) expense	614	(8,585)	(2,163)
Provision for doubtful accounts	(93)	121	163
Inventory provision	812	716	959
Loss on extinguishment of debt	939	1,222	3,751
Premium on excess cash flow payment	(999)	(999)
Loss on change in fair value of embedded derivatives		8,873	297
Gain on change in fair value of embedded derivatives	(4,752)	(630)
(Gain) from sale of subsidiary			(3,655)
Loss on sale of asset		13	27
Loss on retirement of property and equipment	72	144	482
Loss on abandoned patents		45
Interest payable-in-kind	8,611	7,871	6,560
Changes in assets and liabilities:
Accounts receivable	(1,158)	982	3,840
Inventory	(451)	(2,012)	(2,315)
Prepaid expenses and other current assets	430	(84)	1,211
Accounts payable	31	604	(721)
Accrued expenses	2,399	309	(50)
Accrued interest	(370)	(1,017)	7,735
Income taxes payable	(44)	(142)	184
Deferred revenue	(333)	(37)	(5,564)
Other long-term assets and liabilities	2,377	1,068	3,158
Net cash provided by (used in) operating activities	13,990	8,417	19,749
Cash flows (used in) investing activities:
Acquisition of property and equipment	(6,249)	(3,665)	(6,238)
Proceeds from the disposition of property and equipment		19
Proceeds from sale of subsidiary			3,555
Acquisition of business, net of cash acquired of $34	(6,821)
Acquisition of other long lived assets	(142)	(100)	(86)
Net cash (used in) provided by investing activities	(13,212)	(3,746)	(2,769)
Cash flows used in financing activities:
Proceeds from issuance of long-term debt, Series B preferred stock and Series B ordinary stock			207,281
Payments on long-term debt	(4,995)	(4,997)	(218,000)
Payment of debt and equity issuance fees		(308)	(13,515)
Proceeds from the exercise of stock options		2
Proceeds from revolving credit facility			8,000
Payments on revolving credit facility			(30,000)
Net cash used in financing activities	(4,995)	(5,303)	(46,234)
Effect of exchange rate changes on cash	(1,130)	42	586
Net (decrease) increase in cash and cash equivalents	(5,347)	(590)	(28,668)
Cash and cash equivalents at beginning of period	27,510	28,100	56,768
Cash and cash equivalents at end of period	22,163	27,510	28,100
Bermuda Holdings [Member]
Cash flows (used in) provided by operating activities:
Net income (loss)	(13,468)	(19,002)	(12,200)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization of deferred financing cost and debt discount	209	177
Loss on extinguishment of debt	14	90
Equity in profit (loss) subsidiaries	12,531	17,670	11,991
Changes in assets and liabilities:
Prepaid expenses and other current assets	29	(29)	(500)
Accounts payable	80	1,554	1,464
Accrued expenses	62	(188)	325
Other long-term assets and liabilities	500	63	27
Net cash provided by (used in) operating activities	(43)	335	1,107
Cash flows used in financing activities:
Payment of debt and equity issuance fees		(264)	(1,218)
Proceeds from the exercise of stock options		2
Net cash used in financing activities		(262)	(1,218)
Net (decrease) increase in cash and cash equivalents	(43)	73	(111)
Cash and cash equivalents at beginning of period	93	20	131
Cash and cash equivalents at end of period	50	93	20
Bermuda Ltd [Member]
Cash flows (used in) provided by operating activities:
Net income (loss)	(13,248)	(17,036)	(13,907)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	381	90	133
Amortization of deferred financing cost and debt discount	5,380	4,798	3,918
Loss on extinguishment of debt	444	543	1,724
Premium on excess cash flow payment	(480)	(480)
Loss on change in fair value of embedded derivatives		4,260	142
Gain on change in fair value of embedded derivatives	(2,281)
(Gain) from sale of subsidiary			(3,655)
Loss on abandoned patents		45
Interest payable-in-kind	4,133	3,785	3,170
Equity in profit (loss) subsidiaries	7,928	4,302	9,806
Changes in assets and liabilities:
Accounts receivable	(26)		(75)
Prepaid expenses and other current assets	31	69	(9)
Accounts payable	4,284	(14,924)	4,031
Accrued expenses	194	(30)	(20)
Accrued interest	(177)	(490)	3,713
Income taxes payable			12
Proceeds (payments) on intercompany dividend		17,428
Other long-term assets and liabilities	(72)	(179)	(832)
Net cash provided by (used in) operating activities	6,491	2,181	8,151
Cash flows (used in) investing activities:
Proceeds from sale of subsidiary			3,555
Acquisition of business, net of cash acquired of $34	(4,069)
Acquisition of other long lived assets	(142)	(100)	(86)
Net cash (used in) provided by investing activities	(4,211)	(100)	3,469
Cash flows used in financing activities:
Proceeds from issuance of long-term debt, Series B preferred stock and Series B ordinary stock			99,495
Payments on long-term debt	(2,398)	(2,399)	(105,359)
Payment of debt and equity issuance fees			(5,189)
Proceeds (payments) on intercompany financing		(10,999)
Proceeds (payments) on intercompany financing		10,999
Net cash used in financing activities	(2,398)	(2,399)	(11,053)
Effect of exchange rate changes on cash			8
Net (decrease) increase in cash and cash equivalents	(118)	(318)	575
Cash and cash equivalents at beginning of period	262	580	5
Cash and cash equivalents at end of period	144	262	580
Stratus US [Member]
Cash flows (used in) provided by operating activities:
Net income (loss)	(10,906)	(16,665)	(9,959)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	5,141	6,097	7,380
Amortization of deferred financing cost and debt discount	6,144	5,526	4,548
Stock-based compensation	186	297	384
Non-cash portion of restructuring charges	393
Deferred tax (income) expense			(828)
Provision for doubtful accounts	1	7	(18)
Inventory provision	1,723	546	1,472
Loss on extinguishment of debt	481	589	2,027
Premium on excess cash flow payment	(519)	(519)
Loss on change in fair value of embedded derivatives		4,613	155
Gain on change in fair value of embedded derivatives	(2,471)
Loss on sale of asset		13	27
Loss on retirement of property and equipment	72	144	482
Interest payable-in-kind	4,478	4,086	3,390
Equity in profit (loss) subsidiaries	(923)	(1,457)	(2,391)
Changes in assets and liabilities:
Accounts receivable	(1,218)	(1,318)	3,149
Inventory	(1,578)	(1,605)	(3,055)
Prepaid expenses and other current assets	84	303	715
Accounts payable	(7,854)	7,587	(7,113)
Accrued expenses	4,814	397	167
Accrued interest	(193)	(527)	4,022
Income taxes payable	(482)	18	22
Deferred revenue	963	659	(1,172)
Other long-term assets and liabilities	2,837	1,577	2,593
Net cash provided by (used in) operating activities	1,173	10,368	5,997
Cash flows (used in) investing activities:
Acquisition of property and equipment	(5,394)	(3,233)	(5,280)
Proceeds from the disposition of property and equipment		19
Acquisition of business, net of cash acquired of $34	(525)
Net cash (used in) provided by investing activities	(5,919)	(3,214)	(5,280)
Cash flows used in financing activities:
Proceeds from issuance of long-term debt, Series B preferred stock and Series B ordinary stock			107,786
Payments on long-term debt	(2,597)	(2,598)	(112,641)
Payment of debt and equity issuance fees		(44)	(7,108)
Proceeds (payments) on intercompany financing			15,000
Proceeds from revolving credit facility			8,000
Payments on revolving credit facility			(30,000)
Net cash used in financing activities	(2,597)	(2,642)	(18,963)
Effect of exchange rate changes on cash	(115)	58	(129)
Net (decrease) increase in cash and cash equivalents	(7,458)	4,570	(18,375)
Cash and cash equivalents at beginning of period	8,389	3,819	22,194
Cash and cash equivalents at end of period	931	8,389	3,819
Guarantor Subsidiaries [Member]
Cash flows (used in) provided by operating activities:
Net income (loss)	2,977	13,124	1,503
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	635	387	426
Stock-based compensation			9
Deferred tax (income) expense	443	(8,954)	(1,288)
Provision for doubtful accounts	(93)	118	270
Inventory provision	(254)	48	(541)
Equity in profit (loss) subsidiaries	(15)	(16)	(15)
Changes in assets and liabilities:
Accounts receivable	(1,093)	1,757	3,083
Inventory	103	249	1,468
Prepaid expenses and other current assets	92	(100)	(240)
Accounts payable	4,644	6,683	(59)
Accrued expenses	(3,087)	(20)	(263)
Income taxes payable	53	(17)	57
Deferred revenue	(1,510)	(612)	(3,735)
Proceeds (payments) on intercompany dividend		(17,428)
Other long-term assets and liabilities	(552)	(340)	1,132
Net cash provided by (used in) operating activities	2,343	(5,121)	1,807
Cash flows (used in) investing activities:
Acquisition of property and equipment	(3)		(262)
Acquisition of business, net of cash acquired of $34	(2,265)
Net cash (used in) provided by investing activities	(2,268)		(262)
Cash flows used in financing activities:
Proceeds (payments) on intercompany financing		10,999	(15,000)
Proceeds (payments) on intercompany financing		(10,999)
Net cash used in financing activities			(15,000)
Effect of exchange rate changes on cash	83	58	(13)
Net (decrease) increase in cash and cash equivalents	158	(5,063)	(13,468)
Cash and cash equivalents at beginning of period	11,767	16,830	30,298
Cash and cash equivalents at end of period	11,925	11,767	16,830
Non Guarantor Subsidiaries [Member]
Cash flows (used in) provided by operating activities:
Net income (loss)	940	712	1,057
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	966	916	1,159
Stock-based compensation	30	39	75
Deferred tax (income) expense	171	369	(47)
Provision for doubtful accounts	(1)	(4)	(89)
Inventory provision	(657)	122	28
Changes in assets and liabilities:
Accounts receivable	1,369	308	(2,317)
Inventory	1,428	(1,245)	1,329
Prepaid expenses and other current assets	794	(1,247)	1,599
Accounts payable	(1,561)	661	561
Accrued expenses	284	303	(342)
Income taxes payable	385	(143)	93
Deferred revenue	214	(84)	(657)
Other long-term assets and liabilities	(336)	(53)	238
Net cash provided by (used in) operating activities	4,026	654	2,687
Cash flows (used in) investing activities:
Acquisition of property and equipment	(852)	(432)	(696)
Acquisition of business, net of cash acquired of $34	38
Net cash (used in) provided by investing activities	(814)	(432)	(696)
Cash flows used in financing activities:
Effect of exchange rate changes on cash	(1,098)	(74)	720
Net (decrease) increase in cash and cash equivalents	2,114	148	2,711
Cash and cash equivalents at beginning of period	6,999	6,851	4,140
Cash and cash equivalents at end of period	9,113	6,999	6,851
Eliminations [Member]
Cash flows (used in) provided by operating activities:
Net income (loss)	20,237	19,865	21,306
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	(92)		18
Equity in profit (loss) subsidiaries	(19,521)	(20,499)	(19,391)
Changes in assets and liabilities:
Accounts receivable	(190)	235
Inventory	(404)	589	(2,057)
Prepaid expenses and other current assets	(600)	920	(354)
Accounts payable	438	(957)	395
Accrued expenses	$ 132	$ (153)	$ 83

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Feb. 24, 2013	Feb. 26, 2012
Current assets:
Cash and cash equivalents	$ 22,163	$ 27,510
Accounts receivable, net of allowance for doubtful accounts of $281 and $160, respectively	38,330	37,066
Inventory	6,687	7,884
Deferred income taxes	1,667	1,613
Prepaid expenses and other current assets	3,989	4,454
Total current assets	72,836	78,527
Property and equipment, net	10,443	10,490
Intangible assets, net	7,258	3,024
Goodwill	13,024	9,591
Deferred income taxes	9,687	11,655
Deferred financing fees	6,381	9,216
Other assets	1,795	2,810
Total assets	121,424	125,313
Current liabilities:
Current portion of long-term debt	5,000	5,000
Accounts payable	7,763	7,927
Accrued expenses	15,661	13,617
Accrued interest payable	9,238	9,608
Income taxes payable	500	103
Deferred income taxes		1,075
Deferred revenue	37,740	36,713
Total current liabilities	75,902	74,043
Long-term debt, net of discount	273,393	260,405
Embedded derivatives	20,252	25,884
Long-term deferred income taxes	424	232
Deferred revenue and other long-term liabilities	17,556	15,909
Total liabilities	387,527	376,473
Commitments and contingencies (Note 11)
Redeemable convertible preferred stock and redeemable ordinary stock:
Total redeemable convertible preferred stock and redeemable ordinary stock	188,080	174,664
Stockholders' deficit:
Additional paid-in-capital
Accumulated deficit	(478,778)	(452,102)
Accumulated other comprehensive (loss) income	(668)	1,023
Total stockholders' deficit	(454,183)	(425,824)
Total liabilities, redeemable convertible preferred stock and redeemable ordinary stock, and stockholders' deficit	121,424	125,313
Series A Redeemable Convertible Preferred Stock [Member]
Redeemable convertible preferred stock and redeemable ordinary stock:
Total redeemable convertible preferred stock and redeemable ordinary stock	117,923	109,189
Stockholders' deficit:
Total stockholders' deficit	117,923	109,189
Series B Redeemable Convertible Preferred Stock [Member]
Redeemable convertible preferred stock and redeemable ordinary stock:
Total redeemable convertible preferred stock and redeemable ordinary stock	63,479	58,776
Stockholders' deficit:
Total stockholders' deficit	63,479	58,776
Right to Shares of Series B Redeemable Convertible Preferred Stock [Member]
Redeemable convertible preferred stock and redeemable ordinary stock:
Total redeemable convertible preferred stock and redeemable ordinary stock	5,518	5,518
Stockholders' deficit:
Total stockholders' deficit	5,518	5,518
Ordinary Shares Subject to Put Rights [Member]
Redeemable convertible preferred stock and redeemable ordinary stock:
Total redeemable convertible preferred stock and redeemable ordinary stock	1,160	1,181
Stockholders' deficit:
Total stockholders' deficit	1,160	1,181
Ordinary Stock [Member]
Stockholders' deficit:
Ordinary stock	16,265	16,257
Total stockholders' deficit	16,265	16,257
Series B Ordinary Stock [Member]
Stockholders' deficit:
Ordinary stock	8,998	8,998
Total stockholders' deficit	$ 8,998	$ 8,998