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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2005
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  to
 Commission file number 0-30869 STRATOS INTERNATIONAL, INC. (Exact name of Registrant as specified in its charter)   Delaware
    
    36-4360035(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)7444 West Wilson Avenue
    
    60706Chicago, Illinois 60706(Address of Principal Executive Offices)
    
    (Zip Code)
 (708) 867-9600
(Registrants Telephone Number, Including Area Code)   Not Applicable 
  Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ o
 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Securities Exchange Act of 1934). o þ
 As of March 11, 2005, there were 14,603,515 shares of the registrants common stock, par value
$0.01 per share, outstanding.




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STRATOS INTERNATIONAL, INC. INDEX PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    1Condensed Consolidated Balance Sheets as of January 31, 2005 (unaudited), and April 30, 2004
    
    
    2Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended January 31, 2005 and 2004
    
    
    3Condensed
Consolidated Statements of Cash Flows (unaudited) for the nine months
ended January 31, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended January 31, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited) as of January 31, 2005
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    26PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 4.
    
    Submission of Matters to Vote of Security Holders
    
    
    29Item 6.
    
    Exhibits
    
    
    30SIGNATURES
    
    
    32INDEX TO EXHIBITS
    
    
    33Rule 13a-14(a)/15-14(a) Certification of Principal Financial OfficerRule 13a-14(a)/15-14(a) Certification of Chief Executive OfficerRule 1350 Certification of Chief Financial OfficerRule 1350 Certification of Chief Executive OfficerCautionary Statements
  i




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\

PART I FINANCIAL INFORMATION 
 Item 1. Financial Statements. STRATOS INTERNATIONAL, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands)
 January 31,
    
    
    April 30,2005
    
    
    2004(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    23,709
    
    
    $
    15,501Short-term investments
    
    
    9,447
    
    
    
    21,488Accounts receivable,
less allowance (2005 - $834, 2004 - $358)
    
    
    11,776
    
    
    
    12,544Inventories:Finished products
    
    
    2,839
    
    
    
    2,831Work in process
    
    
    912
    
    
    
    1,042Materials
    
    
    12,689
    
    
    
    12,091Total Inventories
    
    
    16,440
    
    
    
    15,964Recoverable income taxes
    
    
    4,212
    
    
    
    4,176Prepaid expenses
    
    
    1,140
    
    
    
    1,326Total current assets
    
    
    66,724
    
    
    
    70,999Goodwill and other indefinite lived assets
    
    
    6,110
    
    
    
    6,110Intangible assets, net of amortization
    
    
    13,710
    
    
    
    14,665Assets held for sale
    
    
    2,989
    
    
    
    4,441Other assets
    
    
    5,698
    
    
    
    5,879Total other assets
    
    
    28,507
    
    
    
    31,095Property, plant and equipment
    
    
    89,940
    
    
    
    91,530Less allowances for depreciation
    
    
    (67,445
    )
    
    
    (64,574
    )Net property, plant and equipment
    
    
    22,495
    
    
    
    26,956Total assets
    
    $
    117,726
    
    
    $
    129,050LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,834
    
    
    $
    8,422Other current liabilities
    
    
    12,019
    
    
    
    7,373Current portion of long-term debt
    
    
    1,458
    
    
    
    2,230Total current liabilities
    
    
    20,311
    
    
    
    18,025Long-term debt, less current portion
    
    
    
    
    
    
    801Deferred income taxes
    
    
    445
    
    
    
    445Redeemable preferred stock
    
    
    5,000
    
    
    
    5,000Total Liabilities
    
    
    25,756
    
    
    
    24,271Shareholders equity:Preferred stock  Series B
    
    
    
    
    
    
    Common stock
    
    
    143
    
    
    
    143Additional paid-in capital
    
    
    318,431
    
    
    
    319,212Accumulated deficit
    
    
    (223,854
    )
    
    
    (210,633
    )Unearned compensation
    
    
    (2,415
    )
    
    
    (3,809
    )Foreign currency translation adjustments
    
    
    (87
    )
    
    
    114Cost of shares in treasury
    
    
    (248
    )
    
    
    (248
    )Total shareholders equity
    
    
    91,970
    
    
    
    104,779Total liabilities and shareholders equity
    
    $
    117,726
    
    
    $
    129,050
 See notes to condensed consolidated financial statements. 2




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STRATOS INTERNATIONAL, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (in thousands, except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue:Net sales
    
    $
    19,430
    
    
    $
    16,034
    
    
    $
    58,634
    
    
    $
    29,716License fees and royalties
    
    
    103
    
    
    
    333
    
    
    
    352
    
    
    
    868Total revenue
    
    
    19,533
    
    
    
    16,367
    
    
    
    58,986
    
    
    
    30,584Costs and expenses:Costs of sales
    
    
    13,737
    
    
    
    12,608
    
    
    
    39,991
    
    
    
    28,106Research and development
    
    
    2,557
    
    
    
    2,054
    
    
    
    7,385
    
    
    
    6,752Sales and marketing
    
    
    2,856
    
    
    
    2,429
    
    
    
    8,274
    
    
    
    5,275General and administrative
    
    
    9,651
    
    
    
    5,344
    
    
    
    20,993
    
    
    
    13,529Total costs and expenses
    
    
    28,801
    
    
    
    22,435
    
    
    
    76,643
    
    
    
    53,662Loss from operations
    
    
    (9,268
    )
    
    
    (6,068
    )
    
    
    (17,657
    )
    
    
    (23,078
    )Gain on sale of business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,305Investment and other income, net
    
    
    640
    
    
    
    629
    
    
    
    609
    
    
    
    1,460Income from settlements of litigation
    
    
    63
    
    
    
    63
    
    
    
    4,090
    
    
    
    148Loss before income taxes
    
    
    (8,565
    )
    
    
    (5,376
    )
    
    
    (12,958
    )
    
    
    (20,165
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (8,565
    )
    
    
    (5,376
    )
    
    
    (12,958
    )
    
    
    (20,165
    )Preferred stock dividend requirements
    
    
    (88
    )
    
    
    (55
    )
    
    
    (263
    )
    
    
    (55
    )Net loss attributable to common shareholders
    
    $
    (8,653
    )
    
    $
    (5,431
    )
    
    $
    (13,221
    )
    
    $
    (20,220
    )Net loss per share attributable to common shareholders,
basic and diluted:Net loss
    
    $
    (0.63
    )
    
    $
    (0.40
    )
    
    $
    (0.95
    )
    
    $
    (2.14
    )Preferred stock dividend requirements
    
    
    (0.01
    )
    
    
    (0.00
    )
    
    
    (0.02
    )
    
    
    (0.01
    )Net loss per share attributable to common shareholders
    
    $
    (0.64
    )
    
    $
    (0.40
    )
    
    $
    (0.97
    )
    
    $
    (2.15
    )Weighted average number of common shares outstanding:Basic and diluted
    
    
    13,559
    
    
    
    13,507
    
    
    
    13,670
    
    
    
    9,421
 See notes to condensed consolidated financial statements. 3




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STRATOS INTERNATIONAL, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (in thousands)
 Nine Months EndedJanuary 31,2005
    
    
    2004Operating activities:Net loss
    
    $
    (12,958
    )
    
    $
    (20,165
    )Adjustments to reconcile net loss to net cash used in operating activities:Provision for depreciation and amortization
    
    
    6,440
    
    
    
    4,325Gain on sale of business
    
    
    
    
    
    
    (1,305
    )Change in operating assets and liabilities
    
    
    3,568
    
    
    
    3,022Net cash used in operating activities
    
    
    (2,950
    )
    
    
    (14,123
    )Investing activities:Purchases of property, plant and equipment
    
    
    (525
    )
    
    
    (2,627
    )Purchases of short-term investments
    
    
    (6,747
    )
    
    
    (31,803
    )Sales of short-term investments
    
    
    18,788
    
    
    
    25,294Acquisition, net of cash acquired
    
    
    
    
    
    
    8,119Proceeds from sale of property, plant and equipment
    
    
    186
    
    
    
    Proceeds from sale of business
    
    
    
    
    
    
    4,381Proceeds from sale of assets held for sale
    
    
    1,480
    
    
    
    Net cash provided by investing activities
    
    
    13,182
    
    
    
    3,364Financing activities:Repayments on long-term borrowings
    
    
    (1,573
    )
    
    
    (2,796
    )Distribution to former owners of acquired business
    
    
    
    
    
    
    (12,000
    )Net proceeds from exercise of stock options
    
    
    119
    
    
    
    223Dividends on preferred stock
    
    
    (263
    )
    
    
    Treasury stock transactions
    
    
    
    
    
    
    (216
    )Net cash used in financing activities
    
    
    (1,717
    )
    
    
    (14,789
    )Effect of exchange rates on cash
    
    
    (307
    )
    
    
    -Net increase (decrease) in cash and cash equivalents
    
    
    8,208
    
    
    
    (25,548
    )Cash and cash equivalents at beginning of period
    
    
    15,501
    
    
    
    43,649Cash and cash equivalents at end of period
    
    $
    23,709
    
    
    $
    18,101Supplemental schedule of non-cash investing and financing activities:Preferred and common stock issued in acquisition of subsidiary
    
    $
    
    
    
    $
    35,957Issuance of 112,000 shares of restricted stock
    
    
    466
    
    
    
    
 See notes to condensed consolidated financial statements. 4




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STRATOS INTERNATIONAL, INC. 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)
 (in thousands)
 Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss
    
    $
    (8,565
    )
    
    $
    (5,376
    )
    
    $
    (12,958
    )
    
    $
    (20,165
    )Other comprehensive income (loss):Foreign currency
translation adjustments
    
    
    184
    
    
    
    (165
    )
    
    
    (201
    )
    
    
    (246
    )Comprehensive loss
    
    $
    (8,381
    )
    
    $
    (5,541
    )
    
    $
    (13,159
    )
    
    $
    (20,411
    )
 See notes to condensed consolidated financial statements. 5




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STRATOS INTERNATIONAL, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 January 31, 2005
(All amounts in thousands, except share and per share data) 1.     Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. Certain items included in these statements are based
on managements estimates. In our opinion, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. Operating results for
the three and nine month periods ended January 31, 2005 are not necessarily indicative of the
results that may be expected for the fiscal year ending April 30, 2005. This unaudited quarterly
information should be read in conjunction with the audited consolidated financial statements and
related notes for the fiscal year ended April 30, 2004 included in our Annual Report on Form 10-K,
as amended, filed with the Securities and Exchange Commission. Certain amounts in prior periods have been reclassified to confirm to the current period
presentation. 2.     Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB) issued the revised SFAS No.
123, Share-Based Payment (SFAS 123(R)). SFAS No. 123(R) requires compensation costs related to
share-based payment transactions to be recognized in the financial statements. Generally,
compensation cost will be measured based on the grant-date fair value of the equity or liability
instrument issued. In addition, liability awards will be remeasured each reporting period.
Compensation cost will be recognized over the requisite service period, generally as the award
vests. We are required to adopt SFAS No. 123(R) in the second quarter of fiscal year 2006. SFAS No.
123(R) applies to all awards granted after June 30, 2005 and to previously granted awards unvested
as of the adoption date. At the present time, we are evaluating the effect of SFAS 123(R) on our
financial statements including the related disclosures that will be required. 3.     Stock-Based Compensation In the first quarter of fiscal 2004, we adopted Statement of Financial Accounting Standards
(SFAS) No. 148, Accounting for Stock-Based Compensation.The provisions of SFAS No. 148 did not
have a material impact on our financial position or results of operations. We will continue to
account for stock-based compensation plans using the intrinsic value method described in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to 6




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STRATOS INTERNATIONAL, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Employees,and related interpretations. All stock options are granted at market price and
thus no compensation expense is recorded in our results of operations. Under SFAS No. 148, we are
required to report quarterly and year to date pro forma net loss and loss per share as if we had
accounted for stock options plans under the fair value method. The following table shows the pro
forma net loss and loss per share as if we had recorded the fair value of stock options as
compensation expense: Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,(Dollars in thousands, except per share amounts)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Reported net loss attributable to common shareholders
    
    $
    (8,653
    )
    
    $
    (5,431
    )
    
    $
    (13,221
    )
    
    $
    (20,220
    )Stock-based compensation, net of tax
    
    
    (104
    )
    
    
    (486
    )
    
    
    (587
    )
    
    
    (1,693
    )Pro forma net loss
    
    $
    (8,757
    )
    
    $
    (5,917
    )
    
    $
    (13,808
    )
    
    $
    (21,913
    )Reported basic and diluted net loss per share
attributable to common shareholders
    
    $
    (0.64
    )
    
    $
    (0.40
    )
    
    $
    (0.97
    )
    
    $
    (2.15
    )Pro forma basic and diluted net loss per share
attributable to common shareholders
    
    $
    (0.65
    )
    
    $
    (0.44
    )
    
    $
    (1.01
    )
    
    $
    (2.33
    )
 No stock options were issued during the nine months ended January 31, 2005. Subsequent to January 31, 2005 we issued 280,934 shares of restricted stock to key employees
and directors. 4.     Loss Per Share Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss attributable to common shareholders
    
    $
    (8,653
    )
    
    $
    (5,431
    )
    
    $
    (13,221
    )
    
    $
    (20,220
    )Weighted average number of shares
outstanding, basic and diluted
    
    
    13,559
    
    
    
    13,507
    
    
    
    13,670
    
    
    
    9,421Basic and diluted loss per share
    
    $
    (0.64
    )
    
    $
    (0.40
    )
    
    $
    (0.97
    )
    
    $
    (2.15
    )
 The effect of outstanding stock options and unvested restricted stock awards have not been
considered in the determination of diluted weighted average shares outstanding because their effect
would be antidilutive. 7




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STRATOS INTERNATIONAL, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5.     Sale of a Business Effective May 23, 2003, we sold the assets and business of our wholly-owned subsidiary
Bandwidth Semiconductor LLC, located in Hudson, New Hampshire, realizing a net gain of
approximately $1.3 million. 6.     Business Combinations In November 2003, we acquired Sterling Holding Company (Sterling), a privately held company
based in Mesa, Arizona that designs and manufactures Radio Frequency (RF) and microwave
interconnect products via its two operating units, Trompeter Electronics, Inc. and Semflex, Inc. We
completed this merger on November 6, 2003, following approval by both our and Sterlings
shareholders. At closing, Sterling became a wholly-owned subsidiary, with Sterling shareholders
receiving 6,082,000 shares of our common stock, which represented approximately 82% of total shares
outstanding immediately prior to the consummation of the merger. Of such amount, 608,189 shares
were placed in escrow to provide indemnification to us with respect to certain matters provided for
in the merger agreement. These shares were released from escrow and distributed on the first
anniversary of the merger, which fell in our third quarter of fiscal 2005. Our common shares issued
in this transaction were valued at $5.09 per share, the closing price on July 2, 2003, the day the
merger was announced. We also issued 50,000 shares of Series B redeemable preferred stock with a
face value of $5.0 million and a contingent value of up to an additional $6.3 million based on
certain events, including the future performance of our common share price. If and when any
contingent value is established, such amount will be recorded as an increase in purchase price and
recorded as goodwill. The total purchase consideration was $38.8 million, consisting of common and
preferred shares of our stock valued at $35.9 million and $2.8 million of acquisition related
costs. The primary reasons for the acquisition included Stratos desire to expand the size of its
business, Stratos belief that Sterlings electronic interconnect operations would be a positive
addition to Stratos existing product lines, and Stratos goal of acquiring profitable operations.
Sterlings historical operating results, future operating forecasts and the fair value of
Sterlings assets, less liabilities assumed, contributed to the determination of the purchase price
and the recognition of goodwill. The Sterling acquisition was accounted for using the purchase method of accounting and the
results of operations of Sterling have been included in our consolidated financial statements from
the date of acquisition. 8




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STRATOS INTERNATIONAL, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Under the purchase method of accounting, the total purchase price as shown in the table below was
allocated to the net tangible and intangible assets based on their estimated fair values
as of the date of the completion of the transaction. Assets acquired:Cash
    
    $
    10,918Accounts receivable
    
    
    5,312Inventories
    
    
    7,785Developed technology
    
    
    3,185Computer software
    
    
    700Company trade names
    
    
    2,700Customer relationships
    
    
    10,800Deferred income taxes
    
    
    7,572Property, plant and equipment
    
    
    8,489Other
    
    
    3,099Total assets
    
    $
    60,560Liabilities assumed:Accounts payable
    
    $
    1,430Accrued expenses
    
    
    3,673Dividend payable
    
    
    12,000Deferred income taxes
    
    
    8,112Total liabilities
    
    
    25,215Net assets acquired
    
    
    35,345Goodwill
    
    
    3,410Purchase price
    
    $
    38,755Cash paid, including transaction costs
    
    $
    2,798Stock consideration
    
    
    35,957Total purchase price
    
    $
    38,755
 The intangible assets and their associated useful lives are as follows ($ in thousands): Amount
    
    
    Useful LifePatents and related technology
    
    $
    3,185
    
    
    14.25 yearsDeveloped software
    
    
    700
    
    
    5.00 yearsTradenames
    
    
    2,700
    
    
    IndefiniteCustomer relationships
    
    
    10,800
    
    
    12.50 years$
    17,385
 9




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STRATOS INTERNATIONAL, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Had the acquisition been made as of May 1, 2003, unaudited pro forma sales and net loss are
estimated to have been as follows: Pro formaNine months ended January 31, 2004
    
    Stratos
    
    
    Sterling
    
    
    Adjustments
    
    
    ConsolidatedNet sales
    
    $
    21,050
    
    
    $
    26,267
    
    
    $
    
    
    
    $
    47,317Net loss
    
    
    (20,706
    )
    
    
    (6,366
    )
    
    
    (997
    )
    
    
    (28,069
    )Net loss per share, basic and diluted
    
    $
    (2.20
    )
    
    $
    (0.68
    )
    
    $
    (0.11
    )
    
    $
    (2.99
    )
 The pro forma adjustments represent additional depreciation related to the step-up in value of
fixed assets and amortization of intangibles acquired. The pro forma results reported above are not
necessarily indicative of future results. Under current tax regulations, the goodwill related to
the acquisition of Sterling cannot be deducted for federal and state income tax purposes. Goodwill and other indefinite lived assets at January 31, 2005 and April 30, 2004 are
comprised of goodwill of $3.4 million and trade names of $2.7 million related to the Sterling
acquisition. 7.     Intangible Assets Amortizable intangible assets were comprised of the following: January 31, 2005
    
    
    April 30, 2004Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmortizable Intangible Assets
    
    Amount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetCustomer relationships
    
    $
    10,800
    
    
    $
    (1,080
    )
    
    $
    9,720
    
    
    $
    10,800
    
    
    $
    (432
    )
    
    $
    10,368Patents and related technology
    
    
    4,085
    
    
    
    (573
    )
    
    
    3,512
    
    
    
    4,039
    
    
    
    (325
    )
    
    
    3,714Developed software
    
    
    700
    
    
    
    (222
    )
    
    
    478
    
    
    
    700
    
    
    
    (117
    )
    
    
    583Total amortized intangible assets
    
    $
    15,585
    
    
    $
    (1,875
    )
    
    $
    13,710
    
    
    $
    15,539
    
    
    $
    (874
    )
    
    $
    14,665
 Amortization for intangible assets was $0.3 million, and $1.0 million for the three and nine
months ended January 31, 2005, respectively. Amortization for intangible assets was $0.3 million
and 0.4 million for the three and nine months ended January 31, 2004, respectively. 10




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##### Table of Contents



STRATOS INTERNATIONAL, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table shows the estimated future amortization expense for intangible assets: AmortizationFiscal year
    
    Amount2006
    
    $
    (1,291
    )2007
    
    
    (1,291
    )2008
    
    
    (1,291
    )2009
    
    
    (1,174
    )2010
    
    
    (1,151
    )Thereafter
    
    $
    (7,224
    )
 8.     Assets Held For Sale Assets held for sale at January 31, 2005 are comprised of real property and machinery and
equipment that are no longer in use. We are actively marketing those assets for sale, and we expect
to sell those assets within a one-year period. We recorded a charge of $0.9 million in fiscal year
2004 to adjust the carrying value of assets held for sale to their estimated net realizable value.
We used independent appraisals or realtors letters of opinion of value to determine the estimated
net realizable value of assets held for sale. During the nine month period in fiscal 2005 we
received $1.5 million in cash for the sale of assets held for sale. 9.     Restructuring Charges During each of our 2004 and 2005 fiscal years, we recorded restructuring charges related to
the consolidation and elimination of various operating units. These charges included excess and
obsolete inventory write downs, charges for goodwill and fixed asset impairment, personnel
expenses, lease expenses for limited-use facilities, and legal costs related to the restructuring
of operations. We terminated 95 employees in fiscal 2004 during the restructuring of operations, including
both production and administrative personnel. Accruals relating to restructuring charges and the
subsequent activity in fiscal 2004 and 2005 are summarized as follows: Balance
    
    
    2005
    
    
    Utilized through
    
    
    BalancePrior year Restructuring
    
    April 30, 2004
    
    
    Charges
    
    
    January 31, 2005
    
    
    January 31, 2005Employee costs
    
    $
    240
    
    
    
    
    
    
    $
    (79
    )
    
    $
    161Limited-use facility rental
    
    
    738
    
    
    
    
    
    
    
    (738
    )
    
    $
    Total
    
    $
    978
    
    
    $
    
    
    
    $
    (817
    )
    
    $
    161
 11




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##### Table of Contents



STRATOS INTERNATIONAL, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) On January 25, 2005, we announced that we had concluded the process initiated in May of 2004
to explore various strategic alternatives for Stratos to maximize shareholder value, and that we
had adopted broad companywide plans to enhance our strategic and operational direction. As part of
the plans, we terminated approximately 45 employees, including both production and administrative
personnel, to allow us to compete more effectively in our markets and to create a cost structure
more in line with the current level of our business. Additionally, we wrote down the values of
certain assets by $0.5 million, and recorded a reserve for future obligations for an idle leased
facility, which has been difficult to sub-lease through the end of the lease term in 2007. We
completed the workforce reduction during our third fiscal quarter of 2005. Accruals relating to restructuring charges and the subsequent activities are summarized as
follows: 2005
    
    
    Utilized through
    
    
    Balance2005 Restructuring
    
    Charges
    
    
    January 31, 2005
    
    
    January 31, 2005Employee costs
    
    $
    2,473
    
    
    $
    (644
    )
    
    $
    1,829Idle facility rental
    
    
    1,802
    
    
    
    (13
    )
    
    
    1,789Total
    
    $
    4,275
    
    
    $
    (657
    )
    
    $
    3,618
 Severance costs not paid as of the end of the third quarter of fiscal 2005 will be paid during
the fourth quarter of fiscal 2005, and the idle facility costs will be paid in monthly installments
though the end of the lease term in 2007. These expenses have been classified in the condensed consolidated statement of operations for
the three and nine months ended January 31, 2005 as follows: AmountCost of sales
    
    $
    337Research and development
    
    
    175Sales and marketing
    
    
    413General and administrative
    
    
    3,350Total
    
    $
    4,275
 10.     Income Taxes Through April 30, 2004, we had recorded a valuation allowance of $65.2 million against
deferred income tax assets primarily associated with tax loss carry forwards because the
significant operating losses experienced in recent years establishes a presumption that realization
of these income tax benefits does not meet a more likely than not standard. We continued to
experience operating losses during the nine months ended January 31, 2005, and an additional 12




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STRATOS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) valuation reserve of $4.9 million was recorded, which eliminated the tax benefit attributable
to the net loss incurred in the first nine months of fiscal 2005. We have net operating loss carryforwards of approximately $174.6 million that are available to
offset taxable income in the future. The net operating loss carry forwards will expire between 2022
and 2025, and may be subject to loss utilization limitations under Internal Revenue Code Section
382. 11.     Long-Term Debt The current portion of long-term debt consists of a note payable for the purchase of computer
software and hardware in connection with the implementation of a new information technology system
in fiscal 2002. At January 31, 2005, the remaining principal payments totaling $1.5 million are
considered current because such payments are due within one year of the balance sheet date. The
note is supported by a letter of credit in the amount of $2.7 million that expires on August 1,
2005. 12.       Other Current Liabilities Other current liabilities consist of accrued expenses, and are detailed as follows: Balance
    
    
    BalanceOther Current Liabilities
    
    January 31, 2005
    
    
    April 30, 2004Payroll, Severance
    
    $
    5,084
    
    
    $
    2,674Rent for idle facilities
    
    
    1,789
    
    
    
    738Legal fees
    
    
    1,114
    
    
    
    431Commissions
    
    
    779
    
    
    
    605Inventory received, not vouchered
    
    
    460
    
    
    
    305Real estate and other taxes
    
    
    352
    
    
    
    361Other
    
    
    2,441
    
    
    
    2,259Total
    
    $
    12,019
    
    
    $
    7,373
 13




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##### Table of Contents



STRATOS INTERNATIONAL, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 13.     Litigation From time to time, Stratos becomes involved in various lawsuits and legal proceedings that
arise in the normal course of business. We believe that the resolution of these lawsuits and legal
proceedings will not have a significant effect on our business, financial condition or results of
operations. Stratos and certain of our directors and executive officers have been named as defendants in
purported class action lawsuits filed in the United States District Court, Southern District of New
York. The first of these lawsuits, filed on July 25, 2001, is captioned Kucera v. Stratos
Lightwave, Inc. et.al. No. 01 CV 6821. Three other similar lawsuits have also been filed against
Stratos and certain of our directors and executive officers. The complaints also name as defendants
the underwriters for Stratos initial public offering. The complaints are substantially identical
to numerous other complaints filed against other companies that went public during the time of
Stratos IPO. The complaints generally allege, among other things, that the registration statement
and prospectus from our June 26, 2000 initial public offering failed to disclose certain alleged
actions by the underwriters for the offering. The complaints charge Stratos and several of our
directors and executive officers with violations of Sections 11 and 15 of the Securities Act of
1933, as amended, and/or Section 10(b) and Section 20(a) to the Security Exchange Act of 1934, as
amended. The complaints also allege claims solely against the underwriting defendants under Section
12(a)(2) of the Securities Act of 1933, as amended. In 2003, we agreed to a Memorandum of Understanding, which reflects a settlement of these
class actions as between the purported class action plaintiffs, Stratos and the defendant officers
and directors, and our liability insurer. Under the terms of the Memorandum of Understanding, our
liability insurers will pay certain sums to the plaintiffs, with the amount dependent upon the
plaintiffs recovery from the underwriters in the IPO class actions as a whole. The plaintiffs will
dismiss with prejudice their claims against Stratos and our officers and directors, and we will
assign to the plaintiffs certain claims that it may have against the underwriters. The plaintiffs
have filed with the court a motion for preliminary approval of the settlement, which, if granted,
will lead to the mailing of class-wide notices of the settlement and a hearing date for approval of
the settlement. The issuers filed a statement joining in the plaintiffs motion for preliminary
approval of the settlement. The underwriter defendants opposed the motion. On February 15, 2005,
the Court issued its ruling granting the plaintiffs motion for preliminary approval of the
settlement with the issuers, pending certain changes to the bar order to be included as part of the
settlement and to the notice to the class. The settlement still remains subject to final approval
by the Court after notice of the settlement is sent to the class and the class members and other
parties have an opportunity to have their objections, if any, to the settlement heard at a final
fairness hearing. In February 2002, we acquired Tsunami Optics, Inc. The acquisition agreement contemplated a
potential earn-out payment of up to $18 million in common stock if certain financial targets were
achieved following the acquisition. In June 2002, Catherine Lego, as representative of the former
Tsunami shareholders, filed a lawsuit against Stratos alleging, 14




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##### Table of Contents



STRATOS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) among other things, that Stratos breached the acquisition agreement by refusing to allow
Tsunami to operate as a separate subsidiary, firing the Tsunami executives that were necessary to
operate the business and thereby making it impossible for Tsunami to achieve the targets required
to receive any earnout payments. The complaint also alleged fraud and violations of federal
securities laws in connection with the acquisition of Tsunami. Plaintiffs sought $38 million in
damages or the rescission of the acquisition agreement. Stratos filed a counterclaim against Ms.
Lego and several other shareholders and officers of Tsunami which alleged fraud, breach of contract
and violations of federal securities laws. The counterclaim sought compensatory and punitive
damages. In April 2004, the Court entered an order in favor of Stratos to dismiss with prejudice 11 of
13 counts of the plaintiffs complaint. The damages sought for the plaintiffs two remaining claims
(breach of contract and rescission) remained unchanged at $38 million. A trial of this action was
held in December 2004 in the United States District Court, Northern District of California. On
February 16, 2005, the Court entered judgment in Stratos favor on both of plaintiffs two
remaining claims. The Court entered judgment against Stratos on its counterclaim against the
plaintiffs. In August 2002, James Campbell, the former CEO of Tsunami, filed a lawsuit against Stratos
alleging wrongful termination in breach of his employment contract, fraud and age discrimination.
Campbells claims were subsequently amended to include intentional infliction of emotional
distress. Campbell seeks unspecified damages, punitive damages and attorneys fees. We believe
that this lawsuit is without merit and intends to vigorously defend against these claims. An
August 2004 trial date was originally set but was vacated, and a new trial date has not been set. In August 2004, Federal Insurance Company, issuer of the Directors and Officers Insurance
policy for Stratos, filed suit against Stratos and others in the United States District Court,
Northern District of Illinois. The Complaint for Declaratory Judgment has been filed to deny
coverage to Stratos, under our Director and Officer policy, for the Lego and Campbell lawsuits.
The suit was filed in response to Stratos submission of a claim for insurance coverage for the
Lego and Campbell lawsuits and the tender of defense costs to the insurer for reimbursement.
Federal does not seek damages from Stratos and Stratos disputes denial of the coverage. This
action is scheduled for trial in June 2005. In March 2003, Alcatel USA filed suit against Stratos and others, seeking unspecified damages
and alleging breach of contract, breach of warranty, negligent misrepresentation, fraud and
conspiracy in connection with Alcatels purchase of certain goods from the defendants over a period
spanning 2000 and 2001. We asserted certain counterclaims against Alcatel relating to the same type
of goods at issue in Alcatels complaint. In April 2004, Alcatel and Stratos executed a written
settlement agreement resolving all disputes. Pursuant to the terms of the written settlement
agreement, the parties executed mutual releases and the case was dismissed with prejudice on August
13, 2004. 15




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##### Table of Contents



STRATOS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Stratos has a pending patent infringement suit against Picolight in the U.S. District Court
for the District of Delaware. Picolight has asserted defenses and counterclaims including
non-infringement, patent invalidity and unenforceability and antitrust claims. Picolight has also
counterclaimed for infringement of four of its patents. Honeywell International, Inc., indemnified Stratos with respect to the products it supplies to
Stratos that relate to all but one Picolight patent. Honeywell settled with Picolight prior to
trial. We are vigorously defending the remaining counterclaims. On November 24, 2003, a jury returned a verdict finding that Picolight infringed six Stratos
patents. Picolights unenforceability counterclaim was bench tried shortly after the infringement
trial. We are awaiting a ruling on unenforceability. The trial will proceed to the patent
validity and damages phases if a favorable unenforceability ruling is entered. Stratos has also brought a patent infringement suit against Picolight in the U.S. District
Court for the Northern District of Illinois. This suit has been transferred to the U.S. District
Court for the District of Delaware. This suit, which is in the early stages, asserts patents
different from those in the other Delaware suit. During the second quarter of fiscal year 2005 we settled a patent infringement case and as a
result of this settlement we received approximately $1.4 million, which was recorded as income from
settlement of litigation in the consolidated statement of operations. 16




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition and Results of Operations. Overview We are a leading designer, developer and manufacturer of active and passive optical,
optoelectronic, RF and Microwave components, subsystems and interconnect products used in telecom,
enterprise, military and video markets. We have a rich history of optical and mechanical packaging expertise and have been a pioneer
in developing several optical devices using innovative form factors for telecom, datacom, video,
military, and harsh environment applications. We have a broad range of products and a strong
intellectual property portfolio of more than 100 patents. We are a market leader in several niches
including specialty optical products such as RJ and low rider transceivers, Media Interface
Adapters, flex circuits, as well as high performance RF and microwave coax and triax interconnect
products. We currently serve more than 400 active customers in telecom, military and video markets. Results of Operations Three Months Ended January 31, 2005 and 2004 The following table sets forth certain statement of operations data as a percentage of net
sales for the periods indicated: Three Months EndedJanuary 31,2005
    
    2004
    
    ChangeRevenue:
    
    Dollars
    
    %
    
    Dollars
    
    %
    
    Dollars
    
    %Net sales
    
    $
    19,430
    
    
    
    100.0
    %
    
    $
    16,034
    
    
    
    100.0
    %
    
    $
    3,396
    
    
    
    21.2
    %License fees and royalties
    
    
    103
    
    
    
    0.5
    %
    
    
    333
    
    
    
    2.1
    %
    
    
    (230
    )
    
    
    (69.1
    %)Total revenue
    
    
    19,533
    
    
    
    100.5
    %
    
    
    16,367
    
    
    
    102.1
    %
    
    
    3,166
    
    
    
    19.3
    %Costs and expenses:Costs of sales
    
    
    13,737
    
    
    
    70.7
    %
    
    
    12,608
    
    
    
    78.6
    %
    
    
    1,129
    
    
    
    9.0
    %Research and development
    
    
    2,557
    
    
    
    13.2
    %
    
    
    2,054
    
    
    
    12.8
    %
    
    
    503
    
    
    
    24.5
    %Sales and marketing
    
    
    2,856
    
    
    
    14.7
    %
    
    
    2,429
    
    
    
    15.1
    %
    
    
    427
    
    
    
    17.6
    %General and administrative
    
    
    9,651
    
    
    
    49.7
    %
    
    
    5,344
    
    
    
    33.3
    %
    
    
    4,307
    
    
    
    80.6
    %Total costs and expenses
    
    
    28,801
    
    
    
    148.2
    %
    
    
    22,435
    
    
    
    139.9
    %
    
    
    6,366
    
    
    
    28.4
    %Loss from operations
    
    
    (9,268
    )
    
    
    (47.7
    %)
    
    
    (6,068
    )
    
    
    (37.8
    %)
    
    
    (3,200
    )
    
    
    (52.7
    %)Investment and other income, net
    
    
    640
    
    
    
    3.3
    %
    
    
    629
    
    
    
    3.9
    %
    
    
    11
    
    
    
    1.7
    %Income from settlements of litigation
    
    
    63
    
    
    
    0.3
    %
    
    
    63
    
    
    
    0.4
    %
    
    
    
    
    
    
    0.0
    %Loss before income taxes
    
    
    (8,565
    )
    
    
    (44.1
    %)
    
    
    (5,376
    )
    
    
    (33.5
    %)
    
    
    (3,189
    )
    
    
    (59.3
    %)Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (8,565
    )
    
    
    (44.1
    %)
    
    $
    (5,376
    )
    
    
    (33.5
    %)
    
    $
    (3,189
    )
    
    
    (59.3
    %)
 17




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##### Table of Contents



Net Sales:Net sales for the third quarter of fiscal 2005 increased to $19.4 million from
$16.0 million a year ago. Of the $3.4 million increase in the third quarter, $1.1 million was from
an increase in net sales to the telecom/enterprise end market, $1.0 million was from an increase in
net sales of radio frequency and microwave products, $1.1 million was from an increase in net sales
to the military and harsh environment end markets, $0.2 million was due to an increase in net sales
to the video end market. Included in the amounts above are $9.7 million and $8.7 million in sales
for the three months ended January 31, 2005 and 2004, respectively, from product lines acquired in
the merger with Sterling. Excluding the sales attributable to the product lines acquired from
Sterling, sales increased $2.4 million or 32.3% in the three months ended January 31, 2005 over the
comparable period last year. License Fees and Royalties:Income from license fees and royalties decreased to $0.1 million
in the three months ended January 31, 2005 from $0.3 million in the three months ended January 31,
2004. License fees consist of payments contingent on sales volumes of licensed products. Backlog:Our total sales order backlog increased to $13.0 million as of January 31, 2005 from
$12.3 million as of October 31, 2004. Cost of Sales and Gross Margins:Cost of sales increased to $13.7 million in the three months
ended January 31, 2005 from $12.6 million in the three months ended January 31, 2004. Gross margin
as a percentage of net sales improved to 29.3% in the three months ended January 31, 2005 from
21.4% in the comparable prior year period. This increase is mainly due to higher sales of high
profit margin products, offset in part by an increase of charges for excess and obsolete inventory
of $0.5 million in the period just ended, as compared to $0.2 million in the prior year period.
Also included in the current quarter cost of sales are approximately $0.3 million for severance
payments due to our restructuring. Research and Development:Research and development expenses increased to $2.6 million in the
three months ended January 31, 2005 from $2.1 million in the three months ended January 31, 2004.
This increase is primarily due to a $0.2 million restructuring charge and a $0.3 million increase
in costs of personnel dedicated to research and development. Additionally, a write down of assets
in the amount of $0.3 million was offset by lower operating expenses and costs for materials. The
above amounts include $0.2 million and $0.1 million of research and development expenses
attributable to the product lines acquired from Sterling for the three months ended January 31,
2005 and 2004, respectively. Research and Development is an ongoing activity in our business, and we anticipate continued
investment in R&D programs in the future. We cannot be certain that those activities will result in
future products to generate revenues. Sales and Marketing:Sales and marketing expenses increased to $2.9 million in the three
months ended January 31, 2005 from $2.4 million for the three months ended January 31, 2004. This
increase was primarily attributable to restructuring charges of $0.4 million. The above 18




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##### Table of Contents



amounts include $1.3 million and $1.1 million of sales and marketing expenses attributable to
the product lines acquired from Sterling for the three months ended January 31, 2005 and 2004,
respectively. General and Administrative:General and administrative expenses increased to $9.6 million in
the three months ended January 31, 2005 from $5.3 million in the comparable period last year.
Restructuring charges of $1.5 million for severance payments and $1.8 million for an idle facility
were the main factors for this increase. Additionally, we recorded a write down of the value of
assets in the amount of $0.2 million during the period just ended. Legal expenses were $0.7 million
higher during the quarter just ended when compared to the same period last year. The amounts above
include $1.2 million and $1.0 million of general and administrative expenses attributable to the
product lines acquired from Sterling for the three months ended
January 31, 2005 and 2004,
respectively. Total Restructuring Charges:On January 25th, 2005 we announced a restructuring of
our business. As a result, we recorded $4.3 million in restructuring charges, of which $2.5 million
related to personnel and severance costs and $1.8 million related to an idle facility.
Additionally, we wrote down the value of certain assets by $0.5 million. Investment and Other Income, Net:Investment and other income was $0.6 million in the quarter
just ended, as well as in the prior year period. We recorded investment income, net of investment
expense, of $0.2 million in the period just ended, as well as during the comparable period last
year. Investment income consists of earnings on the short-term investments of excess cash balances.
Other income of $0.4 million in the period just ended, as well as in the prior year period, related
to unrealized foreign exchange gains on loans recorded in Pound Sterling in our operations in the
United Kingdom. Income Taxes:Through October 31, 2004 we had recorded a valuation allowance of $66.8 million
against deferred income tax assets primarily associated with tax loss carry forwards, because the
significant operating losses experienced in recent years establishes a presumption that realization
of these income tax benefits does not meet a more likely than not standard. We continued to
experience operating losses during the three months just ended, and an additional valuation
allowance of $3.3 million was recorded, which eliminated the tax benefit attributable to the net
loss incurred in the third quarter of fiscal year 2005. 19




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##### Table of Contents



Nine Months Ended January 31, 2005 and 2004 Nine Months EndedJanuary 31,2005
    
    
    2004
    
    
    ChangeRevenue:
    
    Dollars
    
    
    %
    
    
    Dollars
    
    
    %
    
    
    Dollars
    
    
    %Net sales
    
    $
    58,634
    
    
    
    100.0
    %
    
    $
    29,716
    
    
    
    100.0
    %
    
    $
    28,918
    
    
    
    97.3
    %License fees and royalties
    
    
    352
    
    
    
    0.6
    %
    
    
    868
    
    
    
    2.9
    %
    
    
    (516
    )
    
    
    (59.4
    %)Total revenue
    
    
    58,986
    
    
    
    100.6
    %
    
    
    30,584
    
    
    
    102.9
    %
    
    
    28,402
    
    
    
    92.9
    %Costs and expenses:Costs of sales
    
    
    39,991
    
    
    
    68.2
    %
    
    
    28,106
    
    
    
    94.6
    %
    
    
    11,885
    
    
    
    42.3
    %Research and development
    
    
    7,385
    
    
    
    12.6
    %
    
    
    6,752
    
    
    
    22.7
    %
    
    
    633
    
    
    
    9.4
    %Sales and marketing
    
    
    8,274
    
    
    
    14.1
    %
    
    
    5,275
    
    
    
    17.8
    %
    
    
    2,999
    
    
    
    56.9
    %General and administrative
    
    
    20,993
    
    
    
    35.8
    %
    
    
    13,529
    
    
    
    45.5
    %
    
    
    7,464
    
    
    
    55.2
    %Total costs and expenses
    
    
    76,643
    
    
    
    130.7
    %
    
    
    53,662
    
    
    
    180.6
    %
    
    
    22,981
    
    
    
    42.8
    %Loss from operations
    
    
    (17,657
    )
    
    
    (30.1
    %)
    
    
    (23,078
    )
    
    
    (77.7
    %)
    
    
    5,421
    
    
    
    23.5
    %Gain on sale of business
    
    
    
    
    
    
    
    
    
    
    1,305
    
    
    
    4.4
    %
    
    
    (1,305
    )
    
    
    Investment and other income, net
    
    
    609
    
    
    
    1.0
    %
    
    
    1,460
    
    
    
    4.9
    %
    
    
    (851
    )
    
    
    (58.3
    %)Income from settlements of litigation
    
    
    4,090
    
    
    
    7.0
    %
    
    
    148
    
    
    
    0.5
    %
    
    
    3,942
    
    
    
    ++Loss before income taxes
    
    
    (12,958
    )
    
    
    (22.1
    %)
    
    
    (20,165
    )
    
    
    (67.9
    %)
    
    
    7,207
    
    
    
    35.7
    %Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (12,958
    )
    
    
    (22.1
    %)
    
    $
    (20,165
    )
    
    
    (67.9
    %)
    
    $
    7,207
    
    
    
    35.7
    %
 Net Sales:Net sales for the nine-month period ended January 31, 2005 increased to $58.6
million from $29.7 million a year ago. Of the $28.9 million increase in the nine-month period of
fiscal 2005, $22.1 million came from the product lines acquired from Sterling, $4.9 million was
from an increase in net sales to the military and harsh environment end markets, $1.3 million was
from an increase to the telecom/enterprise end market and $0.6 million was from an increase in net
sales to the video end market. Included in the amounts above are $30.8 million and $8.7 million in
sales for the nine months ended January 31, 2005 and 2004, respectively, from product lines
acquired in the merger with Sterling. Excluding the sales attributable to the product lines
acquired from Sterling, sales increased $6.8 million or 32.2% in the nine months ended January 31,
2005 over the comparable period last year. License Fees and Royalties:Income from license fees and royalties decreased to $0.4 million
in the nine months ended January 31, 2005 from $0.9 million in the nine months ended January 31,
2004. License fees consist of payments contingent on sales volumes of licensed products. Backlog:Our total sales order backlog remained constant at $13.0 million on January 31,
2005, compared to April 30, 2004. Cost of Sales and Gross Margins:Gross margin increased to 31.8% for the nine months ended
January 31, 2005 from 5.4% in the comparable period last year. This increase is due to higher
profit margins in our products acquired in the Sterling acquisition, which was not fully 20




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reflected
in the prior year period, because the acquisition closed on November 6th, 2003.
Additionally, charges to increase the reserve for excess and obsolete inventory of $0.9 million in
the first nine months of fiscal 2005, was $0.8 million lower than in the comparable period last
year. Also included in cost of sales in the nine months just ended are approximately $0.3 million
for severance payments due to our 2005 restructuring. Research and Development:Research and development expenses increased to $7.4 million in the
nine months ended January 31, 2005 from $6.8 million during the same period last year. This
increase was primarily the result of reflecting the expenses relating to Sterling for the full
nine-month period, a write down of assets in the amount of $0.3 million during the nine months just
ended and $0.2 million in severance charged due to our 2005 restructuring. The above amounts
include $0.5 million and $0.1 million of research and development expenses attributable to the
product lines acquired from Sterling for the nine months ended January 31, 2005 and 2004,
respectively. Sales and Marketing:Sales and marketing expenses increased to $8.3 million in the nine
months ended January 31, 2005 from $5.3 million in the comparable period last year. This increase
was primarily attributable to the full nine-month effect of expenses related to Sterling, and
higher commissions due to higher sales. The above amounts include $4.1 million and $1.1 million of
sales and marketing expenses attributable to the product lines acquired from Sterling for the nine
months ended January 31, 2005 and 2004, respectively. Also included in sales and marketing expenses
for nine months just ended are approximately $0.4 million for severance payments due to our
restructuring. General and Administrative:General and administrative expenses increased to $21.0 million in
the nine months ended January 31, 2005 from $13.5 million in the comparable period last year. This
increase was mainly attributable to restructuring charges of $3.4 million recorded during the third
quarter of fiscal 2005, and is described above. Additionally, legal fees were $0.9 million higher
in the nine-month period just ended when compared to the same period last year. We also incurred
the full nine-month expenses related to Sterling, which we acquired during the third quarter of
fiscal 2004. The amounts above include $3.6 million and $1.0 million of general and administrative
expenses attributable to the product lines acquired from Sterling for the nine months ended January
31, 2005 and 2004, respectively. Gain on Sale of Business:Effective May 23, 2003, we sold the assets and business of our
wholly-owned subsidiary Bandwidth Semiconductor LLC, located in Hudson, New Hampshire, realizing a
net gain of approximately $1.3 million in the nine month period ending January 31, 2004. Investment and Other Income, Net. Investment and other income was $0.6 million for the nine
month period just ended, compared to $1.5 million in the prior year period. Investment income, net
of investment expense, decreased to $0.3 million in the nine months ended January 31, 2005, from
$0.6 million in the comparable period last year. Investment income consisted of earnings on the
short-term investments of excess cash balances. The decrease of investment
income in the current year period reflected the reduction of excess cash balances as well as
lower prevailing interest rates during the period. Other income of $0.3 million in first nine
months of 21




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fiscal 2005, and $0.9 million in the comparable period last year, related to unrealized
foreign exchange gains on loans recorded in Pound Sterling in our operations in the United Kingdom. Income from Settlements of Litigation:Income from settlements of litigation is the result of
settling two patent infringement cases in July and August 2004, respectively. We recorded $2.6
million in the period ended July 31, 2004 and $1.5 million in the period ended October 31, 2004.
Such income is non-recurring in nature. Income Taxes:Through April 30, 2004, we had recorded a valuation allowance of $65.2 million
against deferred income tax assets primarily associated with tax loss carry forwards, because the
significant operating losses experienced in recent years establishes a presumption that realization
of these income tax benefits does not meet a more likely than not standard. We continued to
experience operating losses during the nine months ended January 31, 2005, and an additional
valuation allowance of $4.9 million was recorded, which eliminated the tax benefit attributable to
the net loss incurred in the first nine months of fiscal 2005. We have net operating loss carryforwards of approximately $174.6 million that are available to
offset taxable income in the future. The net operating loss carry forwards will expire between 2022
and 2025, and may be subject to loss utilization limitations under
Internal Revenue Code Section 382. Liquidity and Capital Resources Net cash used in operating activities totaled $2.9 million for the nine months ended January
31, 2005. The use of cash in operating activities resulted primarily from our net loss, an increase
in inventory levels, and a decrease in accounts payable. These items were partially offset by a
decrease in accounts receivable and an increase of accrued expenses. The increase in accrued
expenses was mainly due to the recording of restructuring charges during the third quarter of the
current fiscal year as discussed above. For the nine months ended January 31, 2004, net cash used
in operating activities totaled $14.1 million. The use of cash in operating activities resulted
primarily from our net loss, the gain from the sale of a business, a decrease of accounts payable
and accrued expenses, offset in part by decreases in accounts receivable and inventories. We operate in markets that have experienced a severe economic downturn several years ago and,
as a result, many of our customers may, from time to time, stretch their payment terms. Days sales
outstanding in accounts receivable was 55 days at January 31, 2005 compared to 57 days at April 30,
2004. Net cash provided by investing activities totaled $13.2 million in the nine months ended
January 31, 2005, including a $12.0 million net decrease in short-term investments, $0.2 million in
proceeds from the sale of fixed assets and $1.5 million of proceeds from the sale of assets held
for sale, offset by $0.5 million for the purchase of equipment. In the nine months ended January
31, 2004, net cash provided by investing activities totaled $3.4 million, including $2.6 million
for the purchase of equipment and facilities, a $6.5 million net increase in short-term 22




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investments, offset by $4.4 million of proceeds from the sale of a business, and $8.1 million
net cash acquired in the merger with Sterling. Net cash used in financing activities was $1.7 million in the nine months ended January 31,
2005. This amount consisted of a $1.6 million repayment of borrowings and $0.3 million of dividend
payments for preferred stock, offset in part by $0.1 million of proceeds from exercise of stock
options. In the nine months ended January 31, 2004, net cash used in financing activities was $14.8
million, including a $2.8 million repayment on borrowings, a $12.0 million distribution to the
former owners of Sterling, and $0.2 million in treasury stock transactions, offset in part by $0.2
million of proceeds from exercise of stock options. As of January 31, 2005, our principal source of liquidity was approximately $33.2 million in
cash, cash equivalents and short-term investments. We have implemented personnel reductions, shut down certain facilities, disposed of certain
assets and put in place other cost reduction programs. However, since many of our costs are fixed
in the near term, we expect to continue to incur significant manufacturing, research and
development, sales and marketing and administrative expenses. Consequently, we will need to
generate higher revenues while containing costs and operating expenses if we are to return to
profitability. If our efforts to increase our revenues and contain our costs are not successful, we
will continue to incur net losses. We are also examining and pursuing opportunities for improving
gross margins and cash flows. The merger with Sterling combined two companies with brands that are
well-respected by segments of the telecommunications, military, video and broadcast customer base,
that seek solutions to difficult problems at the electrical side of the high-performance,
high-bandwidth interface, which are solved by our products. We believe that these products, when
combined with superior customer service, provide the potential for improving gross margins and cash
flows. Our future capital requirements will depend on a number of factors, including our ability to
generate increased sales and our ability to manage operating expenses. The continued
diversification of our end markets and expansion of our product offerings through internal and,
possibly, external growth could materially change our level of cash and cash equivalents. This
diversification may require us to seek equity or debt financing. Our cash commitments are (i) the
repayment of the short term portion of our long-term debt in the amount of approximately $1.5
million during the coming 9 months and (ii) the payment of cumulative cash dividends on the Series
B Preferred Stock on terms specified in the Certificate of Designation for such stock, in the
amount of approximately $0.4 million annually. Also, we are obligated to redeem all shares of
Series B Preferred Stock in accordance with the terms of the Certificate of Designation for such
stock no later than 60 days following the occurrence of certain events relating to the achievement
of $250 million in annual revenue or $500 million in market capitalization. In addition, in the
event of a change of control, the Series B Preferred Stock become redeemable for an aggregate of
$5.0 million, subject to upward adjustment under certain circumstances relating to market price of
our Common Stock. We believe that our current cash balances will be sufficient to meet our cash needs for
working capital, capital expenditures, the Series B Preferred Stock dividend and repayments of 23




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borrowings for the next 12 months. The settlement of, or an adverse result in, current and future
litigation may, however, significantly affect our cash position and capital requirements. To
the extent that we need to, or deem it advisable to, seek equity or debt financing in connection
with any of the foregoing, no assurance can be made that such financing will be available, or that
it will be available on favorable terms. Off-Balance Sheet Arrangements We are not party to any transactions, arrangements and other relationships with unconsolidated
entities or other persons that are reasonably likely to have a current or future material effect on
our financial condition, results of operations, liquidity, or capital resources. Critical Accounting Policies The preparation of this Quarterly Report requires managements judgment to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting period. There can be no assurance that actual results
will not differ from those estimates. Our significant accounting policies are described in our Form 10-K for the year ended April
30, 2004, and in our Forms 10-Q filed thereafter. There have been no significant changes to those
accounting policies subsequent to those filings. Forward-looking statements You should read the discussions in this report together with our consolidated financial
statements and notes to those financial statements, which are included in this report. This report
contains forward-looking statements made pursuant to the safe harbor provisions of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934,
as amended. The words anticipates, intends, expects, could, should, plans, believes,
estimates, or words or phrases of similar import generally identify forward-looking statements.
You are cautioned that forward-looking statements are subject to risks, trends and uncertainties
that could cause actual results, performance or achievements to differ materially from those
expressed in any forward-looking statements. Important factors that could cause our actual results,
performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by those statements include, but are not limited to the
following: (i) the continuation of the current economic climate in the communications industry and
its effect on our business; (ii) our ability to meet analyst and investor expectations; (iii) the
long-term growth of the communications industry and its use of our technologies; (iv) our ability
to develop and market new products and technology and to make enhancements to existing products and
technology on a successful and timely basis; (v) our 24




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and our customers ability to comply with
evolving domestic and international government regulations; (vi) expenditures associated with
redesigning products to comply with evolving
industry standards or alternative technologies that become the industry standard; (vii) our
dependence on sales to the military/aerospace industry; (viii) our ability to develop and manage
relationships with large customers that comprise, and will comprise, a significant percentage of
our net sales; (ix) the length of sales cycles, which vary by product and customer, and the effect
that this length has on net sales and operating expenses; (x) the lack of long-term customer
contracts and its effect on customers ability to reduce, cancel and defer orders on short notice
without significant penalty; (xi) the effect on gross margins of an inability to reduce
manufacturing costs or increase sales of higher margin products; (xii) the impact of competitive
products; (xiii) our reliance on a limited number of suppliers and the effect of underestimating or
overestimating the need for certain supplies; (xiv) our ability to attract and retain qualified
personnel; (xv) the effect of defects in our products; (xvi) the effect of compliance with
environmental laws and other legal requirements; (xvii) the effect of economic, political and
regulatory risks associated with international operations, including acts of terrorism directed
against the United States or U.S. affiliated targets; (xviii) our ability to complete and integrate
acquisitions, strategic alliances and joint ventures; (xix) our ability to secure and defend
intellectual property rights and, when appropriate, license required technology; (xx) adverse
outcomes of pending, threatened or future litigation, including suits related to intellectual
property matters; (xxi) volatile market prices for securities of technology-related companies;
(xxii) the effect of provisions in our organizational documents and Delaware law that may delay or
prevent the acquisition of Stratos or may decrease the value of Stratos common stock; (xxiii) our
ability to complete the integration of Stratos and Sterling; and (xxiv) the impact on our earnings
of application of the purchase method of accounting in connection with the Sterling merger.
Because forward-looking statements are subject to assumptions and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking statements. Shareholders
are cautioned not to place undue reliance on such statements, which speak only as of the date of
this document or the date of any document incorporated by reference. All subsequent written and
oral forward-looking statements concerning the matters addressed in this document and attributable
to us or any person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. Except to the extent required by
applicable law or regulation, we undertake no obligation to release publicly any revisions or
updates to such forward-looking statements to reflect events or circumstances after the date of
this document or to reflect the occurrence of unanticipated events. Please read the cautionary statements included as Exhibit 99 Risks relating to our business
to this quarterly report for a more detailed discussion of the foregoing and other factors that
could cause actual results to differ materially from those included in the forward-looking
statements and that, among others, should be considered in evaluating our financial outlook. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are subject to certain market risks, including foreign currency fluctuations and interest
rates. Although our Stratos U.K. subsidiary enters into transactions in currencies other 25




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than its
functional currency, the Pound Sterling, foreign currency exposures arising from these transactions
are not material to us. The primary foreign currency exposure arises from the translation of our
net equity investment in our foreign subsidiary to U.S. Dollars. We generally
view our investment in our foreign subsidiary as long-term. The primary currency to which we
are exposed is the Pound Sterling. We do not have exposure to interest rate risk related to our debt obligation because the
interest rate is fixed. Our market risks include lower income from our short-term investments if
interest rates decline. 
 Item 4. Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the periods specified in the rules and forms of the
Securities and Exchange Commission. This information is accumulated and communicated to our
management, including our principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosures. Our management, including
our principal executive officer and our principal financial officer, recognizes that any set of
controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. Under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, we conducted an evaluation of our disclosure
controls and procedures within 90 days of the filing date of this report. Based on this evaluation,
our principal executive officer and principal financial officer concluded that our disclosure
controls and procedures are effective in alerting them on a timely basis to material information
required to be disclosed in our periodic filings. There were no significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of the evaluation referenced in the
foregoing paragraph. 26




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PART IIOTHER INFORMATION 
 Item 1. Legal Proceedings. From time to time, Stratos becomes involved in various lawsuits and legal proceedings that
arise in the normal course of business. We believe that the resolution of these lawsuits and legal
proceedings will not have a significant effect on our business, financial condition or results of
operations. Stratos and certain of our directors and executive officers have been named as defendants in
purported class action lawsuits filed in the United States District Court, Southern District of New
York. The first of these lawsuits, filed on July 25, 2001, is captioned Kucera v. Stratos
Lightwave, Inc. et.al. No. 01 CV 6821. Three other similar lawsuits have also been filed against
Stratos and certain of our directors and executive officers. The complaints also name as defendants
the underwriters for Stratos initial public offering. The complaints are substantially identical
to numerous other complaints filed against other companies that went public during the time of
Stratos IPO. The complaints generally allege, among other things, that the registration statement
and prospectus from our June 26, 2000 initial public offering failed to disclose certain alleged
actions by the underwriters for the offering. The complaints charge Stratos and several of our
directors and executive officers with violations of Sections 11 and 15 of the Securities Act of
1933, as amended, and/or Section 10(b) and Section 20(a) to the Security Exchange Act of 1934, as
amended. The complaints also allege claims solely against the underwriting defendants under Section
12(a)(2) of the Securities Act of 1933, as amended. In 2003, we agreed to a Memorandum of Understanding, which reflects a settlement of these
class actions as between the purported class action plaintiffs, Stratos and the defendant officers
and directors, and our liability insurer. Under the terms of the Memorandum of Understanding, our
liability insurers will pay certain sums to the plaintiffs, with the amount dependent upon the
plaintiffs recovery from the underwriters in the IPO class actions as a whole. The plaintiffs will
dismiss with prejudice their claims against Stratos and our officers and directors, and we will
assign to the plaintiffs certain claims that it may have against the underwriters. The plaintiffs
have filed with the court a motion for preliminary approval of the settlement, which, if granted,
will lead to the mailing of class-wide notices of the settlement and a hearing date for approval of
the settlement. The issuers filed a statement joining in the plaintiffs motion for preliminary
approval of the settlement. The underwriter defendants opposed the motion. On February 15, 2005,
the Court issued its ruling granting the plaintiffs motion for preliminary approval of the
settlement with the issuers, pending certain changes to the bar order to be included as part of the
settlement and to the notice to the class. The settlement still remains subject to final approval
by the Court after notice of the settlement is sent to the class and the class members and other
parties have an opportunity to have their objections, if any, to the settlement heard at a final
fairness hearing. In February 2002, we acquired Tsunami Optics, Inc. The acquisition agreement contemplated a
potential earn-out payment of up to $18 million in common stock if certain 27




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financial targets were
achieved following the acquisition. In June 2002, Catherine Lego, as
representative of the former Tsunami shareholders, filed a lawsuit against Stratos alleging,
among other things, that Stratos breached the acquisition agreement by refusing to allow Tsunami to
operate as a separate subsidiary, firing the Tsunami executives that were necessary to operate the
business and thereby making it impossible for Tsunami to achieve the targets required to receive
any earnout payments. The complaint also alleged fraud and violations of federal securities laws in
connection with the acquisition of Tsunami. Plaintiffs sought $38 million in damages or the
rescission of the acquisition agreement. Stratos filed a counterclaim against Ms. Lego and several
other shareholders and officers of Tsunami which alleged fraud, breach of contract and violations
of federal securities laws. The counterclaim sought compensatory and punitive damages. In April 2004, the Court entered an order in favor of Stratos to dismiss with prejudice 11 of
13 counts of the plaintiffs complaint. The damages sought for the plaintiffs two remaining claims
(breach of contract and rescission) remained unchanged at $38 million. A trial of this action was
held in December 2004 in the United States District Court, Northern District of California. On
February 16, 2005, the Court entered judgment in Stratos favor on both of plaintiffs two
remaining claims. The Court entered judgment against Stratos on its counterclaim against the
plaintiffs. In August 2002, James Campbell, the former CEO of Tsunami, filed a lawsuit against Stratos
alleging wrongful termination in breach of his employment contract, fraud and age discrimination.
Campbells claims were subsequently amended to include intentional infliction of emotional
distress. Campbell seeks unspecified damages, punitive damages and attorneys fees. We believe
that this lawsuit is without merit and intend to vigorously defend against these claims. An August
2004 trial date was originally set but was vacated, and a new trial date has not been set. In August 2004, Federal Insurance Company, issuer of the Directors and Officers Insurance
policy for Stratos, filed suit against Stratos and others in the United States District Court,
Northern District of Illinois. The Complaint for Declaratory Judgment has been filed to deny
coverage to Stratos, under our Director and Officer policy, for the Lego and Campbell lawsuits.
The suit was filed in response to Stratos submission of a claim for insurance coverage for the
Lego and Campbell lawsuits and the tender of defense costs to the insurer for reimbursement.
Federal does not seek damages from Stratos and Stratos disputes denial of the coverage. This
action is scheduled for trial in June 2005. In March 2003, Alcatel USA filed suit against Stratos and others, seeking unspecified damages
and alleging breach of contract, breach of warranty, negligent misrepresentation, fraud and
conspiracy in connection with Alcatels purchase of certain goods from the defendants over a period
spanning 2000 and 2001. We asserted certain counterclaims against Alcatel relating to the same type
of goods at issue in Alcatels complaint. In April 2004, Alcatel and Stratos executed a written
settlement agreement resolving all disputes. Pursuant to the terms of the written settlement
agreement, the parties executed mutual releases and the case was dismissed with prejudice on August
13, 2004. 28




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Stratos has a pending patent infringement suit against Picolight in the U.S. District Court
for the District of Delaware. Picolight has asserted defenses and counterclaims including
non-infringement, patent invalidity and unenforceability and antitrust claims. Picolight has also
counterclaimed for infringement of four of its patents. Honeywell International, Inc., indemnified Stratos with respect to the products it supplies to
Stratos that relate to all but one Picolight patent. Honeywell settled with Picolight prior to
trial. We are vigorously defending the remaining counterclaims. On November 24, 2003, a jury returned a verdict finding that Picolight infringed six Stratos
patents. Picolights unenforceability counterclaim was bench tried shortly after the infringement
trial. We are awaiting a ruling on unenforceability. The trial will proceed to the patent
validity and damages phases if a favorable unenforceability ruling is entered. Stratos has also brought a patent infringement suit against Picolight in the U.S. District
Court for the Northern District of Illinois. This suit has been transferred to the U.S. District
Court for the District of Delaware. This suit, which is in the early stages, asserts patents
different from those in the other Delaware suit. During the second quarter of fiscal year 2005 we settled a patent infringement case and as a
result of this settlement we received approximately $1.4 million, which was recorded as income from
settlements of litigation in the condensed consolidated statements of operations. 
 Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to a vote of security holders during the three-month period
ended January 31, 2005. 29




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Item 6. Exhibits. ExhibitNumber
    
    Description of Document2.1
    
    Agreement and Plan of Merger, dated as of July 2, 2003, as amended as of August 19, 2003
and October 31, 2003, among Stratos Lightwave, Inc., Sleeping Bear Merger Corp. and
Sterling Holding Company (12)3.1
    
    Restated Certificate of Incorporation of Registrant (13)3.2
    
    Bylaws of Registrant (1)3.3
    
    Certificate of Designation of Series A Junior Participating Preferred Stock, included as
Exhibit A to Exhibit 4.33.4
    
    Certificate of Designation for Series B Preferred Stock (11)4.1
    
    Specimen certificate representing the common stock (1)4.2
    
    Specimen Certificate representing the Series B Preferred Stock (13)4.3
    
    Rights Agreement, dated as of March 23, 2001, between Stratos International, Inc. and
Mellon Investor Services LLC (2)4.4
    
    First Amendment, dated as of July 2, 2003, to Rights Agreement, dated as of March 23,
2001, between Stratos Lightwave, Inc. and Mellon Investor Services LLC, as Rights Agent.
(10)4.5
    
    Registration Rights Agreement, dated as of July 2, 2003, among Stratos Lightwave, Inc.,
Citicorp Venture Capital Ltd., the William N. and Carol A. Stout Trust dated November
24,19/98 and the William N. and Carol A. Stout Charitable Remainder Unit Trust (11)4.6
    
    Standstill Agreement, dated as of July 2, 2003, between Stratos Lightwave, Inc. and
Citicorp Venture Capital Ltd. (11)10.1
    
    Form of Indemnity Agreement between Registrant and Registrants directors and officers (1)10.2
    
    Stratos Lightwave, Inc. 2000 Stock Plan, as amended and restated (3)10.3
    
    Agreement and Plan of Reorganization, dated January 22, 2002, by and among the
Registrant, Tundra Acquisition Corp. and Tsunami Optics, Inc. (4)10.4
    
    Stratos Lightwave, Inc. 2002 Stock Plan for Acquired Companies (5)10.5
    
    Agreement and Plan of Reorganization, dated March 18, 2002, by and among the Registrant,
Polar Acquisition Corp. and Paracer, Inc. (6)10.6
    
    Management Retention Agreement between the Registrant and James McGinley (7)10.7
    
    Management Retention Agreement between the Registrant and David Slack (7)10.8
    
    Management Retention Agreement between the Registrant and Richard Durrant (7)10.9
    
    Stratos Lightwave, Inc. Severance Plan (7)10.10
    
    Agreement and Plan of Merger, dated as of July 2, 2003, as amended as of August 19, 2003
and October 31, 2003, among Stratos Lightwave, Inc., Sleeping Bear Merger Corp. and
Sterling Holding Company (11)10.11
    
    Amendment to Management Retention Agreement between the Registrant and James McGinley (8)10.12
    
    Amendment to Management Retention Agreement between the Registrant and David Slack (8)10.13
    
    Amendment to Management Retention Agreement between the Registrant and Richard Durrant (8)10.14
    
    Amendment to Stratos Lightwave, Inc. Severance Plan (8)10.15
    
    Stratos Lightwave, Inc. 2003 Stock Plan (10)10.16
    
    Stratos Lightwave, Inc. 2003 Employee Stock Purchase Plan (10)10.17
    
    Employment, Confidentiality and Noncompete Agreement, dated as of November 3, 1997, by
and between Trompeter Electronics, Inc. and Joe Norwood (13)10.18
    
    Salary Continuation Agreement, dated as of October 18, 2000, by and between Trompeter
Electronics, Inc. and Joe Norwood (13)10.19
    
    Amendment to Salary Continuation Agreement, dated as of July 26, 2004, by and between
Trompeter Electronics, Inc. and Joe Norwood (13)10.20
    
    Salary Continuation Agreement, dated as of August 10, 2004, by and between Trompeter
Electronics, Inc. and Joe Norwood (13)10.21
    
    Amendment to Management Retention Agreement between the Registrant and James McGinley (13)10.22
    
    Management Retention Agreement dated February 1, 2005 between Stratos International, Inc.
 30




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ExhibitNumber
    
    Description of Documentand Phillip A. Harris. (14)10.23
    
    Amendment to Management Retention Agreement between Stratos International, Inc. and David
A. Slack dated February 4, 2005. (15)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer*31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*32.1
    
    Section 1350 Certification of Chief Financial Officer*32.2
    
    Section 1350 Certification of Chief Executive Officer*99
    
    Cautionary Statements*
   (1)
    
    Incorporated by reference to the Registrants Registration Statement on Form S-1
effective June 26, 2000.(2)
    
    Incorporated by reference to the Registrants Form 8-K dated March 22, 2001.(3)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the year
ended April 30, 2001.(4)
    
    Incorporated by reference to the Registrants Form 8-K dated February 4, 2002.(5)
    
    Incorporated by reference to the Registrants Registration Statement on Form S-8
dated January 31, 2002.(6)
    
    Incorporated by reference to the Registrants Form 8-K dated March 28, 2002.(7)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for
the quarter ended October 31, 2002.(8)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended April 30, 2003.(9)
    
    Incorporated by reference to the Registrants Form 8-A/A filed August 7, 2003.(10)
    
    Incorporated by reference to the Registrants Form S-4/A effective September 29,
2003.(11)
    
    Incorporated by reference to the Registrants Form 8-K dated November 6, 2003.(12)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the
quarter ended October 31, 2003.(13)
    
    Incorporated by reference to the Registrants Form 10-K/A filed August 30, 2004.(14)
    
    Incorporated by reference to the Registrants Form 8-K filed February 1, 2005.(15)
    
    Incorporated by reference to the Registrants Form 8-K filed February 9, 2005.*
    
    Filed or furnished herewith. 31




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 17, 2005
    
    Stratos International, Inc.By:
    
    /s/ Barry HollingsworthBarry HollingsworthChief Financial OfficerBy:
    
    /s/ Phillip A. HarrisPhillip A. HarrisPresident and Chief Executive Officer
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##### Table of Contents



EXHIBIT INDEX ExhibitNumber
    
    Description of Document2.1
    
    Agreement and Plan of Merger, dated as of July 2, 2003, as amended as of August 19, 2003
and October 31, 2003, among Stratos Lightwave, Inc., Sleeping Bear Merger Corp. and
Sterling Holding Company (12)3.1
    
    Restated Certificate of Incorporation of Registrant (13)3.2
    
    Bylaws of Registrant (1)3.3
    
    Certificate of Designation of Series A Junior Participating Preferred Stock, included as
Exhibit A to Exhibit 4.33.4
    
    Certificate of Designation for Series B Preferred Stock (11)4.1
    
    Specimen certificate representing the common stock (1)4.2
    
    Specimen Certificate representing the Series B Preferred Stock (13)4.3
    
    Rights Agreement, dated as of March 23, 2001, between Stratos International, Inc. and
Mellon Investor Services LLC (2)4.4
    
    First Amendment, dated as of July 2, 2003, to Rights Agreement, dated as of March 23,
2001, between Stratos Lightwave, Inc. and Mellon Investor Services LLC, as Rights Agent.
(10)4.5
    
    Registration Rights Agreement, dated as of July 2, 2003, among Stratos Lightwave, Inc.,
Citicorp Venture Capital Ltd., the William N. and Carol A. Stout Trust dated November
24,19/98 and the William N. and Carol A. Stout Charitable Remainder Unit Trust (11)4.6
    
    Standstill Agreement, dated as of July 2, 2003, between Stratos Lightwave, Inc. and
Citicorp Venture Capital Ltd. (11)10.1
    
    Form of Indemnity Agreement between Registrant and Registrants directors and officers (1)10.2
    
    Stratos Lightwave, Inc. 2000 Stock Plan, as amended and restated (3)10.3
    
    Agreement and Plan of Reorganization, dated January 22, 2002, by and among the
Registrant, Tundra Acquisition Corp. and Tsunami Optics, Inc. (4)10.4
    
    Stratos Lightwave, Inc. 2002 Stock Plan for Acquired Companies (5)10.5
    
    Agreement and Plan of Reorganization, dated March 18, 2002, by and among the Registrant,
Polar Acquisition Corp. and Paracer, Inc. (6)10.6
    
    Management Retention Agreement between the Registrant and James McGinley (7)10.7
    
    Management Retention Agreement between the Registrant and David Slack (7)10.8
    
    Management Retention Agreement between the Registrant and Richard Durrant (7)10.9
    
    Stratos Lightwave, Inc. Severance Plan (7)10.10
    
    Agreement and Plan of Merger, dated as of July 2, 2003, as amended as of August 19, 2003
and October 31, 2003, among Stratos Lightwave, Inc., Sleeping Bear Merger Corp. and
Sterling Holding Company (11)10.11
    
    Amendment to Management Retention Agreement between the Registrant and James McGinley (8)10.12
    
    Amendment to Management Retention Agreement between the Registrant and David Slack (8)10.13
    
    Amendment to Management Retention Agreement between the Registrant and Richard Durrant (8)10.14
    
    Amendment to Stratos Lightwave, Inc. Severance Plan (8)10.15
    
    Stratos Lightwave, Inc. 2003 Stock Plan (10)10.16
    
    Stratos Lightwave, Inc. 2003 Employee Stock Purchase Plan (10)10.17
    
    Employment, Confidentiality and Noncompete Agreement, dated as of November 3, 1997, by
and between Trompeter Electronics, Inc. and Joe Norwood (13)10.18
    
    Salary Continuation Agreement, dated as of October 18, 2000, by and between Trompeter
Electronics, Inc. and Joe Norwood (13)10.19
    
    Amendment to Salary Continuation Agreement, dated as of July 26, 2004, by and between
Trompeter Electronics, Inc. and Joe Norwood (13)10.20
    
    Salary Continuation Agreement, dated as of August 10, 2004, by and between Trompeter
Electronics, Inc. and Joe Norwood (13)10.21
    
    Amendment to Management Retention Agreement between the Registrant and James McGinley (13)10.22
    
    Management Retention Agreement dated February 1, 2005 between Stratos International, Inc.
and Phillip A. Harris. (14)10.23
    
    Amendment to Management Retention Agreement between Stratos International, Inc. and David A.
 33




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##### Table of Contents



ExhibitNumber
    
    Description of DocumentSlack dated February 4, 2005. (15)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer*31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*32.1
    
    Section 1350 Certification of Chief Financial Officer*32.2
    
    Section 1350 Certification of Chief Executive Officer*99
    
    Cautionary Statements*
   (1)
    
    Incorporated by reference to the Registrants Registration Statement on Form S-1
effective June 26, 2000.(2)
    
    Incorporated by reference to the Registrants Form 8-K dated March 22, 2001.(3)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the year
ended April 30, 2001.(4)
    
    Incorporated by reference to the Registrants Form 8-K dated February 4, 2002.(5)
    
    Incorporated by reference to the Registrants Registration Statement on Form S-8
dated January 31, 2002.(6)
    
    Incorporated by reference to the Registrants Form 8-K dated March 28, 2002.(7)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for
the quarter ended October 31, 2002.(8)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for the
fiscal year ended April 30, 2003.(9)
    
    Incorporated by reference to the Registrants Form 8-A/A filed August 7, 2003.(10)
    
    Incorporated by reference to the Registrants Form S-4/A effective September 29,
2003.(11)
    
    Incorporated by reference to the Registrants Form 8-K dated November 6, 2003.(12)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the
quarter ended October 31, 2003.(13)
    
    Incorporated by reference to the Registrants Form 10-K/A filed August 30, 2004.(14)
    
    Incorporated by reference to the Registrants Form 8-K filed February 1, 2005.(15)
    
    Incorporated by reference to the Registrants Form 8-K filed February 9, 2005.*
    
    Filed or furnished herewith. 34