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Xyratex Ltd Announces Results for the Fourth Quarter and Fiscal Year 2013

  Xyratex Ltd Announces Results for the Fourth Quarter and Fiscal Year 2013  PR Newswire  HAVANT, UK, Jan. 13, 2014  HAVANT, UK, Jan. 13, 2014 /PRNewswire/ --Xyratex Ltd (Nasdaq: XRTX), a leading provider of data storage technology, today announced results for the fourth fiscal quarter and fiscal year ended November 30, 2013.  Revenues for the fourth quarter were $185.3 million, a decrease of 30.2% compared to revenues of $265.4 million for the same period in the prior year. Revenues for fiscal year 2013 were $814 million, a decrease of 29.7% compared to revenues of $1,159 million for fiscal year 2012. These year over year declines were principally related to the continued reduction in revenue from NetApp with the current program coming to an end in our current quarter as previously announced.  Gross profit margin in the fourth quarter was 22.2%, compared to 14.5% in the same period in the prior year and 20.9% in the prior quarter. Gross profit margin for fiscal year 2013 was 21% compared to 16.9% in the previous year. The increases from last year reflect a favorable variation in customer and product mix in our Enterprise Data Storage Solutions product segment as well as improved margins for newer products in our Capital Equipment segment.  For the fourth quarter of fiscal 2013, GAAP net loss was $21.4 million, or $0.78 per share, compared to a GAAP net loss of $7.9 million, or $0.29 per share, in the same period in the prior year. Non-GAAP net loss was $0.8 million, or $0.03 per share, compared to a non-GAAP net loss of $6.4 million, or $0.24 per share, in the same quarter a year ago^(1).  GAAP net loss for fiscal year 2013 was $21.2 million, or $0.77 per share, compared to GAAP net income of $17.7 million, or $0.63 per diluted share, for fiscal year 2012. Non-GAAP net income for fiscal year 2013 decreased to $4.2 million, or $0.15 per diluted share, compared to $24.6 million, or $0.87 per diluted share, for fiscal year 2012.  Included in both the 2013 fiscal fourth quarter and full year GAAP results, but excluded from the non-GAAP results, is a non-cash valuation allowance against the deferred tax asset of $19.2 million. This valuation allowance relates primarily to UK tax losses which have been recorded as a result of certain tax concessions in the UK and the tax structure of the overall Xyratex Ltd group. This valuation allowance does not indicate in itself that the overall Xyratex Ltd group will not be profitable in future fiscal periods.  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 February 17, 2014 to shareholders of record as of the close of business on February 4, 2014. This dividend represents a quarterly payout of approximately $2.1 million in aggregate, or $8.4 million on an annualized basis.  Business Outlook and Conference Call Given the Company's announcement on December 23, 2013 that it has entered into a definitive agreement to be acquired by Seagate Technology plc, the Company is not providing an outlook for its fiscal 2014 first quarter and will not be hosting a conference call to discuss its results.  (1) Non-GAAP net income (loss) and diluted earnings (loss) per share exclude (a) amortization of intangible assets, (b) equity compensation expense, (c) the tax effects related to (a) and (b), (d) the tax expense resulting from recording a valuation allowance against the UK deferred tax asset, (e) the tax expense resulting from a reduction in the deferred tax asset caused by a fall in UK tax rates prior to the recording of a valuation allowance and (f) the recognition of a Malaysia deferred tax asset in the first quarter of fiscal 2012. A reconciliation of non-GAAP net income (loss) and diluted earnings (loss) per share to GAAP net income and GAAP diluted earnings (loss) per share is included in a table immediately following the condensed consolidated statements of cash flows.  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 us 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 (loss) of the change in tax expense that would have been recorded if these items had not been incurred; (d) and (e) the recording of a valuation allowance against the UK deferred tax asset and the impact of the reduction in UK tax rates are non-cash and not comparable across periods or with other companies; and (f) the recognition of the Malaysia deferred tax asset relates to the non-renewal of certain tax incentive arrangements in 2012, is non-recurring and will reverse if the incentive arrangements are renewed  Safe Harbor Statement This press release contains forward-looking statements. These statements relate to future events or our future financial performance. 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 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                 Three Months Ended,    Year Ended,                                 November    November   November    November                                 30,         30,        30,         30,                                 2013        2012       2013        2012                                 (US dollars in thousands, except per share                                 amounts) Revenues                        $ 185,254   $ 265,446  $ 814,318   $ 1,158,898 Cost of revenues               144,139     226,941    643,237     963,062 Gross profit                    41,115      38,505     171,081     195,836 Operating expenses:      Research and development 24,296      26,436     98,101      103,667      Selling, general and      18,333      17,507     69,466      68,432      administrative      Restructuring costs      857         4,120      3,672       4,120      Amortization of           452         617        2,057       3,154      intangible assets           Total operating       43,938      48,680     173,296     179,373           expenses Operating income (loss)         (2,823)     (10,175)   (2,215)     16,463 Interest income, net          50          176        257         799 Income (loss) before income     (2,773)     (9,999)    (1,958)     17,262 taxes Provision (benefit) for income  18,598      (2,056)    19,253      (398) taxes Net income (loss)               $ (21,371)  $ (7,943)  $ (21,211)  $ 17,660                                 . Net earnings (loss) per share:      Basic                      $ (0.78)    $ (0.29)   $ (0.77)    $ 0.64      Diluted                    $ (0.78)    $ (0.29)   $ (0.77)    $ 0.63 Weighted average common shares (in thousands), used in computing net earnings (loss) per share:      Basic                      27,560      27,024     27,463      27,513      Diluted                    27,560      27,024     27,463      28,199 Cash dividends declared per     $ 0.08      $ 0.08     $ 2.30      $ 0.29 share Comprehensive income (loss): Net income (loss)               $ (21,371)  $ (7,943)  $ (21,211)  $ 17,660 Unrealized gain (loss) on forward foreign currency        2,746       696        438         1,323 contracts Reclassification of loss (gain) 438         167        822         877 into net income Total comprehensive income      $ (18,187)  $ (7,080)  $ (19,951)  $ 19,860 (loss)  XYRATEX LTD CONDENSED CONSOLIDATED BALANCE SHEETS                                          November 30,          November 30,                                          2013                  2012                                          (US dollars and amounts in thousands) ASSETS Current assets:  Cash and cash equivalents               $ 102,992             $ 117,174  Accounts receivable, net                90,835                132,917  Inventories                             132,227               171,605  Prepaid expenses                        3,316                 3,134  Deferred income taxes                   762                   228  Other current assets                    11,612                7,121    Total current assets                  341,744               432,179  Property, plant and equipment, net      41,595                40,194  Intangible assets, net                  14,274                14,975  Deferred income taxes                   6,583                 23,929    Total assets                          $ 404,196             $ 511,277 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:  Accounts payable                        $ 67,061              $ 82,125  Employee compensation and benefits      18,896                17,961  payable  Deferred revenue                        4,880                 18,521  Income taxes payable                    1,649                 369  Other accrued liabilities               16,886                17,767    Total current liabilities             109,372               136,743  Long-term debt                          -                     -    Total liabilities                     $ 109,372             $ 136,743 Shareholders' equity  Common shares (in thousands), par value  $0.01 per share    70,000 authorized, 27,563 and 27,024  $ 275                 $ 270    issued and outstanding  Additional paid-in capital              314,465               354,593  Accumulated other comprehensive income  2,123                 863  Accumulated income (deficit)            (22,039)              18,808    Total shareholders' equity            294,824               374,534    Total liabilities and shareholders'   $ 404,196             $ 511,277    equity  XYRATEX LTD CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                                    Year Ended,                                                    November 30,   November 30,                                                    2013           2012                                                    (US dollars in thousands) Cash flows from operating activities: Net income (loss)                                  $ (21,211)     $ 17,660 Adjustments to reconcile net income (loss) to net cash      provided by operating activities: Depreciation                                       15,760         17,936 Amortization of intangible assets                  2,057          3,155 Non-cash equity compensation                       3,158          6,602 Loss on sale of assets                             -              2,297 Deferred income taxes                              16,387         (2,541) Changes in assets and liabilities, net of impact of acquisitions and divestitures:      Accounts receivable                          42,082         67,825      Inventories                                   39,378         (7,425)      Prepaid expenses and other current assets     (3,701)        1,208      Accounts payable                             (15,064)       (86,571)      Employee compensation and benefits payable    935            (3,825)      Deferred revenue                              (13,641)       10,829      Income taxes payable                         1,280          326      Other accrued liabilities                    (882)          (1,743)               Net cash provided by operating       66,538         25,733               activities Cash flows from investing activities:      Investments in property, plant and equipment (17,161)       (15,212)      Payment for acquisition of intangible assets  (1,355)        (3,500)               Net cash used in investing           (18,516)       (18,712)               activities Cash flows from financing activities:      Proceeds from issuance of shares              30             661      Repurchase of shares                          -              (13,600)      Dividends to shareholders                     (62,234)       (9,538)               Net cash used in financing           (62,204)       (22,477)               activities Change in cash and cash equivalents               (14,182)       (15,456) Cash and cash equivalents at beginning of period   117,174        132,630 Cash and cash equivalents at end of period         $ 102,992      $ 117,174  XYRATEX LTD SUPPLEMENTAL INFORMATION                           Three Months Ended         Year Ended Summary Reconciliation Of November 30,   November    November      November GAAP Net Income (Loss) To                30,         30,           30, Non-GAAP Net Income       2013 (Loss)                                   2012        2013          2012                           (US dollars in thousands,  (US dollars in thousands,                           except per share amounts)  except per share amounts) GAAP net income (loss)    $ (21,371)     $ (7,943)   $ (21,211)    $ 17,660    Amortization of        452            617         2,057         3,154    intangible assets    Equity compensation    1,260          1,554       3,158         6,602    Tax effect of above    (342)          (526)       (1,095)       (2,450)    non-GAAP adjustments    Valuation allowance    against UK deferred    19,225         -           19,225        -    tax asset    Effect of changes in   -              (134)       2,104         1,105    tax rates    Malaysia deferred tax  -              -           -             (1,489)    asset recognized Non-GAAP net income       $ (776)        $ (6,432)   $ 4,238       $ 24,582 (loss) Summary Reconciliation Of Diluted GAAP Earnings (Loss) Per Share To Diluted Non-GAAP Earnings (Loss) Per Share Diluted GAAP earnings     $ (0.78)       $ (0.29)    $ (0.77)      $ 0.63 (loss) per share    Amortization of        0.02           0.02        0.07          0.11    intangible assets    Equity compensation    0.05           0.06        0.11          0.23    Tax effect of above    (0.01)         (0.02)      (0.04)        (0.09)    non-GAAP adjustments    Valuation allowance    against UK deferred    0.70           -           0.70          -    tax asset    Effect of changes in   -              (0.00)      0.08          0.04    tax rates    Malaysia deferred tax  -              -           -             (0.05)    asset recognized Diluted non-GAAP earnings $ (0.03)       $ (0.24)    $ 0.15        $ 0.87 (loss) per share Segmental Information Revenues:    Enterprise Data        $ 148,323      $ 200,135   $ 655,184     $ 974,043    Storage Solutions    HDD Capital Equipment  36,931         65,311      159,134       184,855    Total                  $ 185,254      $ 265,446   $ 814,318     $ 1,158,898 Gross profit:    Enterprise Data        $29,895        $28,487     $122,212      $155,326    Storage Solutions    HDD Capital Equipment  11,296         10,298      49,093        41,475    Equity compensation    (76)           (280)       (224)         (965)    Total                  $41,115        $38,505     $171,081      $195,836 Summary Of Equity Compensation    Cost of revenues       $ 76           $280        $224          $965    Research and           329            522         738           2,300    development    Selling, general and   855            752         2,196         3,337    administrative    Total equity           $ 1,260        $1,554      $3,158        $6,602    compensation  SOURCE Xyratex Ltd  Website: http://www.xyratex.com Contact: Vice President of Investor Relations, Brad Driver, +1-510-687-5260, bdriver@xyratex.com  
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