Announces Cost Reduction Initiatives

BILLERICA, MA -- (Marketwire) -- 02/12/09 -- Soapstone Networks Inc. (NASDAQ: SOAP) today reported results for its fourth quarter and fiscal year ended December 31, 2008.

The Company also announced that it has undertaken an initiative to reduce permanent headcount by approximately 10% and its contractor workforce by approximately 75%, while lowering certain discretionary spending to conserve cash. The Company expects to incur charges for severance and related costs of approximately $0.3 million in the first quarter of fiscal 2009 in connection with this action and anticipates overall cash savings of approximately $5.0 million during 2009 as a result of these reductions when compared to the expense run rate in the fourth quarter of 2008. The actions related to this initiative are expected to be completed in the first quarter of 2009.

"We are taking the critical steps necessary to right size our business in the current economic environment," said Bill Leighton, Soapstone's CEO. "While we are disappointed that the PBT market has been delayed, we continue to see strong interest in the overall Carrier Ethernet market, with the PNC deployed in a Tier 1 Carrier's lab during the fourth quarter."

Bill Leighton continued, "We are committed to a more focused strategy aimed at making the PNC generally available for other Carrier Ethernet technology markets beyond PBT in 2009 and executing on our existing sales pipeline. Soapstone remains in the unique position of delivering a multi-technology, multi-vendor control plane solution for deployment in Carrier Ethernet networks."

As previously announced, the Company has exited the manufacture, sale and support of router products, making its last shipments in December 2007 and providing related support only through the end of December 2008. Accordingly, the Company will be disclosing its historical activities associated with its legacy router products and services as discontinued operations, as reflected in the attached Consolidated Statements of Operations which will be the Company's presentation from this time forward.

In addition and for a final time, the Company has also presented its results on a non-GAAP basis by including activities associated with its legacy business as continuing operations, which is consistent with its historical presentation. These Results of Operations are on a non-GAAP basis and exclude the charges for restructuring, certain stock based compensation and inventory credits.

GAAP loss from continuing operations for the fourth quarter ended December 31, 2008 was $7.1 million, or $(0.48) per share, compared to a GAAP loss from continuing operations of $3.7 million, or $(0.25) per share, in the prior year's fourth quarter. Including discontinued operations, GAAP net loss for the fourth quarter ended December 31, 2008 was $5.1 million, or $(0.35) per share, compared to a GAAP net income of $29.2 million, or $1.99 per share, in the prior year's fourth quarter. GAAP net (loss) income in the 2008 and 2007 periods include $0.8 million and $0.6 million, respectively, of certain non-cash equity based charges associated with Financial Accounting Standards Board Statement No. 123R ("SFAS 123R").

GAAP loss from continuing operations for the twelve months ended December 31, 2008 was $27.3 million, or $(1.84) per share, compared to a GAAP loss from continuing operations of $12.1 million, or $(0.85) per share, in the twelve months ended December 31, 2007. Including discontinued operations, GAAP net loss for the twelve months ended December 31, 2008 was $18.9 million, or $(1.28) per share, compared to a GAAP net income of $62.3 million, or $4.37 per share, in the twelve months ended December 31, 2007. GAAP net loss in the 2008 period includes $3.1 million of certain non-cash equity based charges associated with SFAS 123R. GAAP net income in the 2007 period includes $2.3 million of certain non-cash equity based charges associated with SFAS 123R and $0.3 million of special charges associated with the restructuring in the first quarter of 2006, partially offset by $0.2 million from the utilization of certain inventory previously written off.

Non-GAAP loss from continuing operations (GAAP loss from continuing operations excluding charges for certain stock based compensation) for the fourth quarter ended December 31, 2008 was $6.4 million or $(0.43) per share compared to non-GAAP loss from continuing operations of $3.3 million or $(0.22) per share in the fourth quarter of 2007. Including discontinued operations, non-GAAP net loss (GAAP net loss or income excluding charges for restructuring, certain stock based compensation and inventory credits, as applicable) for the fourth quarter ended December 31, 2008 was $4.3 million, or $(0.29) per share compared to non-GAAP net income of $29.8 million, or $2.03 per share in the fourth quarter of 2007.

Non-GAAP loss from continuing operations for the twelve months ended December 31, 2008 was $24.3 million, or $(1.64) per share compared to non-GAAP loss from continuing operations of $10.2 million, or $(0.71) per share in the twelve month period ended December 31, 2007. Including discontinued operations, non-GAAP net loss for the twelve months ended December 31, 2008 was $15.8 million, or $(1.07) per share compared to non-GAAP net income of $64.7 million, or $4.54 per share in the twelve month period ended December 31, 2007.

Cash, cash equivalents and marketable securities totaled $89.2 million at December 31, 2008.

Soapstone Networks will discuss these quarterly results as well as future business and financial expectations in an investor conference on February 12, 2009 at 8:30 AM eastern standard time. The conference telephone number is (800) 230-1085. A replay of the conference call will be available after 11:15 AM. Replay information will be available at (800) 475-6701 (USA) access code: 984885. Replay of this call is also available on Soapstone's Web site, www.soapstonenetworks.com, along with a copy of this release.

Soapstone and PNC (Provider Network Controller) are trademarks of Soapstone Networks Inc.

This release contains information about Soapstone's future expectations, plans, and prospects, including Soapstone's expectations for annual revenue, profitability, product introduction, commercial activities and the growth opportunity for Soapstone Networks, that constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Statements made with regard to interim results are not necessarily indicative of results that may be expected for future interim periods or for the full year. When used in this press release, the word "will," "expected" and other similar expressions are intended to identify such forward looking statements. Such risks and uncertainties include, but are not limited to, the early stage of Soapstone Networks, market acceptance of our products, services and enhancements, customer purchasing patterns and commitments, development of the market place, product development and enhancement, intensity of competition of other vendors, technological changes, reliance on technology and distribution partners, and other risks set forth in Soapstone's filings with the Securities and Exchange Commission. Soapstone does not undertake any duty to update forward-looking statements.

About Soapstone Networks

Soapstone Networks is at the forefront of the movement to Carrier Ethernet by developing resource and service control systems that realize NGN software-provisioned services in the new Carrier Ethernet transport network. Soapstone's common control framework decouples services from underlying network technologies.