Xyratex Ltd Announces Results for the Third Quarter Fiscal Year 2012

     Xyratex Ltd Announces Results for the Third Quarter Fiscal Year 2012  Declares Quarterly Cash Dividend  PR Newswire  HAVANT, England, Oct. 2, 2012  HAVANT,England, Oct. 2, 2012 /PRNewswire/ -- Xyratex Ltd (Nasdaq: XRTX), a leading provider of data storage technology, today announced results for the third fiscal quarter ended August 31, 2012. Revenues for the third quarter were $275.7 million, a decrease of 24% compared to revenues of $361.8 million for the same period last year.  For the third quarter, GAAP net income was $7.7 million, or $0.28 per diluted share, compared to GAAP net income of $9.7 million, or $0.32 per share, in the same period last year. Non-GAAP net income was $10.3 million, or $0.37 per diluted share, compared to non-GAAP net income of $12.7 million, or $0.42 per share, in the same quarter a year ago^(1).  Gross profit margin in the third quarter was 18.5%, compared to 16.7% in the same period last year and 16.5% in the prior quarter. The increase from last year primarily reflects improved gross margins for HDD Capital Equipment products.  Today, the Company also announced that its Board of Directors has approved a quarterly cash dividend of $0.075 per share, unchanged from the prior quarter. The dividend will be payable on October 30, 2012 to shareholders of record as of the close of business on October 16, 2012. This dividend represents a quarterly payout of approximately $2.0 million in aggregate, or $8.0 million on an annualized basis.  During the quarter the Company repurchased 892,922 of its common shares at a total cost of $10.0 million under its previously announced share repurchase plan, bringing the total repurchases in the first nine months of the 2012 fiscal year to 1,199,275 common shares at a total cost of $13.6 million. The Company's cash balance amounted to $103.2 million at the end of the third quarter, a decrease of $28.6 million from the prior quarter due primarily to increased inventories resulting from reduced sales.  "Our third quarter proved to be a very challenging quarter due to a number of factors as we stated in our press release last month. Over the last few weeks, we have been able to resolve most of the technical and performance issues with our latest Capital Equipment and High Performance Computing products that prevented us from recognizing the associated product revenue prior to the end of the third quarter and we are working very closely with our customers to resolve the remaining issues. I am confident that we will be able to successfully meet all the required technical requirements for the respective products. With regard to the weaker than expected enterprise storage demand that impacted our quarterly results, I do believe that the industry dynamics are weaker than what was expected a few months ago and as a result we have taken a more cautious outlook going forward," said Steve Barber, CEO of Xyratex. "Over the next 18 to 24 months we have a number of new opportunities, particularly in the area of Big Data/High Performance Computing that I believe will be positive for the company. We will continue to focus on new growth opportunities while also managing our costs and investments. With a strong balance sheet, I believe we are well positioned to capitalize on these opportunities."  Business Outlook  The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.^    oRevenue in the fourth fiscal quarter of 2012 is projected to be in the     range of $235 million to $285 million.   oWe anticipate recording a loss per share of between $0.15 and $0.43 on a     non-GAAP basis in the fourth quarter. Non-GAAP earnings per share excludes     amortization of intangible assets, equity compensation expense, specified     non-recurring items and related taxation expense.  Conference Call Information  The company will host a conference call to discuss its results at 1:30 p.m. PT/4:30 p.m. ET on Tuesday, October 2, 2012.  The conference call can be accessed online via the company's website www.xyratex.com/investors, or by telephone as follows:  United States              (800) 561-2731 Outside the United States (617) 614-3528 Passcode                  86990813  A replay will be available via the company's website www.xyratex.com/investors, or can be accessed by telephone through October 9, 2012 as follows:  United States             (888) 286-8010 Outside the United States (617) 801-6888 Passcode                  33193526  (1) Non-GAAP net income and diluted earnings per share exclude (a) amortization of intangible assets, (b) equity compensation expense, (c) the tax effects related to (a) and (b), (d) the recognition of a Malaysia deferred tax asset in the first quarter of fiscal 2012 and (e) the tax expense resulting from a reduction in the deferred tax asset caused by a fall in U.K. tax rates. Reconciliation of non-GAAP net income and diluted earnings per share to GAAP net income and GAAP diluted earnings per share is included in a table immediately following the condensed consolidated statements of cash flow.  The intention in providing these non-GAAP measures is to provide supplemental information regarding the company's operational performance while recognizing that they have material limitations and that they should only be referred to with reference to, and not considered to be a substitute for, or superior to, the corresponding GAAP measure. The financial results calculated in accordance with GAAP and reconciliations of these non-GAAP measures to the comparable GAAP measures should be carefully evaluated. The non-GAAP financial measures used by the company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.  The company believes that the provision of these non-GAAP financial measures is useful to investors and investment analysts because it enables comparison to the Company's historical operating results, those of competitors and other industry participants and also provides transparency to the measures used by management in operational and financial decision making. In relation to the specific items excluded: (a) intangible assets represent costs incurred by the acquired business prior to acquisition, are not cash costs and will not be replaced when the assets are fully amortized and therefore the exclusion of these costs provides management and investors with better visibility of the costs required to generate revenue over time; (b) equity compensation expense is non-cash in nature and is outside the control of management during the period in which the expense is incurred; (c) the exclusion of the related tax effects of excluding items (a) and (b) is necessary to show the effect on net income of the change in tax expense that would have been recorded if these items had not been incurred and (d) the recognition of the Malaysia deferred tax asset relates to the potential for the non-renewal of certain tax incentive arrangements in 2012; (d) is non-recurring and will reverse if the incentive arrangements are renewed and (e) the impact of the reduction in tax rates is non-cash and not comparable across periods or with other companies due to the existence of a significant U.K. related deferred tax asset which is expected to reduce over time  Safe Harbor Statement  This press release contains forward-looking statements. These statements relate to future events or our future financial performance, including our projected revenue and fully diluted earnings per share data on a non-GAAP basis for the fourth quarter. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.  Factors that might cause such a difference include our inability to retain major customers and meet the required technical and performance specifications of our products in a timely manner or at all, the cyclical nature of the markets in which we operate, changes in our customers' volume requirements, our inability to compete successfully in the competitive and rapidly changing marketplace in which we operate, deterioration in global economic conditions, diminished growth in the volume of digital information, patent infringement claims and our inability to protect our intellectual property and the impact of natural disasters. These risks and other factors include those listed under "Risk Factors" and elsewhere in our Annual Report on Form 20-F as filed with the Securities and Exchange Commission (File No. 000-50799). In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "projects," "potential," "continue," or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  About Xyratex  Xyratex is a leading provider of data storage technology, including modular solutions for the enterprise data storage industry, and hard disk drive (HDD) capital equipment for the HDD industry. Xyratex enterprise data storage platforms provide a range of advanced, scalable data storage solutions for the Original Equipment Manufacturer and High Performance Computing communities. As the largest capital equipment supplier to the HDD industry, Xyratex enables disk drive manufacturers and their component suppliers to meet today's technology and productivity requirements. Xyratex has over 25 years of experience in research and development relating to disk drives, storage systems and manufacturing process technology.  Founded in 1994 in an MBO from IBM, and with headquarters in the UK, Xyratex has an established global base with R&D and operational facilities in North America, Asia and Europe.  Website: www.xyratex.com     XYRATEX LTD UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                Three Months Ended,     Nine Months Ended,                                August 31,  August 31,  August 31,  August 31,                                2012        2011        2012        2011                                (US dollars in thousands, except per share                                amounts) Revenues                       $ 275,670   $ 361,836   $ 893,452   $ 1,060,883 Cost of revenues              224,653     301,465     736,121     907,411 Gross profit                   51,017      60,371      157,331     153,472 Operating expenses:    Research and development  25,308      30,047      77,231      88,272    Selling, general and       17,192      16,698      50,925      52,114    administrative    Amortization of intangible 617         1,230       2,537       3,279    assets          Total operating       43,117      47,975      130,693     143,665          expenses Operating income               7,900       12,396      26,638      9,807 Interest income, net         283         209         623         288 Income before income taxes    8,183       12,605      27,261      10,095 Provision for income taxes     437         2,948       1,658       314 Net income                     $ 7,746     $ 9,657     $ 25,603    $ 9,781 Net earnings per share:    Basic                       $ 0.29      $ 0.33      $ 0.93      $ 0.32    Diluted                     $ 0.28      $ 0.32      $ 0.90      $ 0.31 Weighted average common shares (in thousands), used in    computing net earnings per    share:    Basic                       27,171      29,499      27,674      30,280    Diluted                     27,764      30,299      28,423      31,232 Cash dividends declared per    $ 0.08      $ 0.05      $ 0.22      $ 0.05 share  XYRATEX LTD UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS                                          August 31,           November 30,                                          2012                 2011                                          (US dollars and amounts in thousands) ASSETS Current assets:  Cash and cash equivalents               $ 103,177            $ 132,630  Accounts receivable, net                143,205              200,742  Inventories                             209,108              164,180  Prepaid expenses                        4,389                3,296  Deferred income taxes                   1,411                9,020  Other current assets                    3,528                7,016    Total current assets                  464,818              516,884  Property, plant and equipment, net      43,072               45,215  Intangible assets, net                  15,591               18,128  Deferred income taxes                   20,468               13,476    Total assets                          $ 543,949            $ 593,703 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:  Accounts payable                        $ 104,873            $ 168,696  Employee compensation and benefits      16,391               21,786  payable  Deferred revenue                        24,350               7,692  Income taxes payable                    221                  43  Other accrued liabilities               15,874               26,312    Total current liabilities             161,709              224,529  Long-term debt                          -                    -    Total liabilities                     161,709              224,529 Shareholders' equity  Common shares (in thousands), par value  $0.01 per share    70,000 authorized, 27,024 and 27,568  270                  276    issued and outstanding  Additional paid-in capital              353,185              361,070  Accumulated other comprehensive deficit -                    (1,337)  Accumulated income                      28,785               9,165    Total shareholders' equity            382,240              369,174    Total liabilities and shareholders'   $ 543,949            $ 593,703    equity  XYRATEX LTD UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                                    Nine Months Ended,                                                    August 31,      August 31,                                                    2012            2011                                                    (US dollars in thousands) Cash flows from operating activities: Net income                                         $ 25,603        $ 9,781 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation                                       12,528          15,031 Amortization of intangible assets                  2,537           3,279 Non-cash equity compensation                       5,048           6,268 Loss (gain) on sale of assets                      1,183           (44) Deferred income taxes                              171             (2,016) Changes in assets and liabilities, net of impact of acquisitions and divestitures      Accounts receivable                          57,537          34,302      Inventories                                   (44,928)        38,739      Prepaid expenses and other current assets     2,395           (3,654)      Accounts payable                             (63,823)        3,793      Employee compensation and benefits payable    (5,395)         (4,118)      Deferred revenue                              16,658          (6,451)      Income taxes payable                         178             365      Other accrued liabilities                    (3,634)         4,141              Net cash provided by operating        6,058           99,416              activities Cash flows from investing activities:      Investments in property, plant and equipment (11,568)        (15,521)      Payment for acquisition of intangible assets  (3,500)         (4,700)      Acquisition of business                       -               (6,084)              Net cash used in investing            (15,068)        (26,305)              activities Cash flows from financing activities:      Proceeds from issuance of shares              661             2      Repurchase of shares                          (13,600)        (23,884)      Dividends to shareholders                     (7,504)         (1,459)      Decrease in book overdraft                    -               (2,374)              Net cash used in financing            (20,443)        (27,715)              activities Change in cash and cash equivalents               (29,453)        45,396 Cash and cash equivalents at beginning of period   132,630         90,842 Cash and cash equivalents at end of period         $ 103,177       $ 136,238    XYRATEX LTD SUPPLEMENTAL INFORMATION                              Three Months Ended      Nine Months Ended Summary Reconciliation Of    August 31,  August 31,  August 31,    August 31, GAAP Net Income To Non-GAAP Net Income                   2012        2011        2012          2011                              (US dollars in          (US dollars in thousands,                              thousands, except per   except per share amounts)                              share amounts) GAAP net income              $7,746      $9,657      $25,603       $9,781    Amortization of           617         1,230       2,537         3,279    intangible assets    Equity compensation       1,203       1,855       5,048         6,268    Tax effect of above       (482)       (1,127)     (1,924)       (2,140)    non-GAAP adjustments    Effect of changes in tax  1,239       1,044       1,239         1,044    rates    Malaysia deferred tax     -           -           (1,489)       -    asset recognized Non-GAAP net income          $10,323     $12,659     $31,014       $18,232 Summary Reconciliation Of Diluted GAAP Earnings Per Share To Diluted Non-GAAP Earnings Per Share Diluted GAAP earnings per    $ 0.28      $ 0.32      $ 0.90        $ 0.31 share    Amortization of           $ 0.02      0.04        0.09          $ 0.11    intangible assets    Equity compensation       $ 0.04      0.06        0.18          $ 0.21    Tax effect of above       $ (0.02)    (0.04)      (0.07)        $ (0.07)    non-GAAP adjustments    Effect of changes in tax  $ 0.05      0.03        0.04          $ 0.03    rates    Malaysia deferred tax     $ -         -           (0.05)        $ -    asset recognized Diluted non-GAAP earnings    $ 0.37      $0.42       $1.09         $ 0.59 per share Segmental Information Revenues:    Enterprise Data Storage   $ 223,380   $ 336,621   $ 773,908     $ 971,969    Solutions    HDD Capital Equipment     52,290      25,215      119,544       88,914    Total                     $275,670    $361,836    $893,452      $1,060,883 Gross profit:    Enterprise Data Storage   $34,370     $58,063     $126,839      $150,187    Solutions    HDD Capital Equipment     16,872      2,420       31,177        3,947    Equity compensation       (225)       (112)       (685)         (662)    Total                     $51,017     $60,371     $157,331      $153,472 Summary Of Equity Compensation    Cost of revenues          $225        $112        $685          $662    Research and development  403         697         1,778         2,244    Selling, general and      575         1,046       2,585         3,362    administrative    Total equity compensation $1,203      $1,855      $5,048        $6,268    SOURCE Xyratex Ltd  Website: http://www.xyratex.com Contact: Brad Driver, Vice President of Investor Relations, +1-510-687-5260, bdriver@xyratex.com  
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