XYRATEX LTD. 
By
Based upon preliminary, unaudited information, Xyratex Ltd expects:
-- Revenues for the fourth quarter to be $285.4 million, an increase of
15.1% compared to revenues of $248 million for the same period last
year. Revenues for the full year to be $1,049.7 million, an increase
of 12.7%, compared to revenues of $931.6 million for fiscal year 2007.
-- A fourth quarter GAAP net loss of $63.2 million, or $2.17 per diluted
share compared to GAAP net income of $11.7 million in the same period
last year. A GAAP net loss for fiscal year 2008 of $55.4 million or
$1.90 per diluted share compared to a GAAP net income of $28.1 million
for fiscal year 2007.
-- A fourth quarter non-GAAP net loss of $6.3 million, or $0.22 per
diluted share compared to non-GAAP net income of $13.1 million, in the
same quarter a year ago. A non-GAAP net income for fiscal year 2008 of
$9.5 million, or a diluted earnings per share of $0.32 compared to
non-GAAP net income of $37.5 million, or $1.26 per diluted share, for
fiscal year 2007(1).
-- Gross profit margin in the fourth quarter of 9.8%, compared to 18.5%
in the same period last year and 17.6% in the prior quarter.
Included in both the 2008 fourth quarter and full year preliminary GAAP results, but excluded from the non-GAAP results are the following significant charges:
-- A non-cash impairment of Goodwill of $34.3 million. The Company has
considered the value of Goodwill as required under FAS142 and
primarily as a result of the recent share price decline, associated
with the current macroeconomic environment, it has concluded that a
full impairment should be taken against the value of Goodwill.
-- A non-cash valuation allowance against the deferred tax asset of $20.6
million. This valuation allowance relates primarily to UK tax losses
which are not expected to be utilized as a result of the current
economic situation, 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.
Included in both the 2008 fourth quarter and full year GAAP and non-GAAP preliminary results are the following significant charges:
-- An additional Inventory provision of approximately $5 million. This
provision primarily relates to the Networked Storage Solutions (NSS)
RAID products which have seen a material decline in demand associated
with the current global economic situation.
-- A specific provision of $9.5 million representing inventory and future
vendor claims. This provision is associated with a specific NSS
customer's product forecast which currently indicates a transition to
an updated version sooner than originally planned, giving rise to an
exposure on long lead time components. The value of this exposure is
dependent upon product demand and final timing of this proposed
transition.
As at the date of this release the Company is still assessing the
extent of this specific provision and opportunities to mitigate the
overall exposure. The outcome of this exercise is not expected to be
finalized until the end of January at the earliest and hence the
Company has provided at this point what it believes will be its
maximum probable exposure of $9.5 million. This is the one area where
the Company recognizes a material level of uncertainty and has
resulted in all financial results in this press release being
described as preliminary. Adjustment to the provision may be required
once the analysis is completed, and any such adjustment will be
reflected in a subsequent filing giving final 2008 fourth quarter and
full year results.
Revenues from sales of our NSS products are expected to be
"The worsening macroeconomic environment and the pace at which business
conditions have changed have resulted in some significant one time non-cash
and cash charges in the fourth quarter as detailed in this press release. I do
however remain cautiously optimistic with regard to our long-term
opportunities and competitive position. I fundamentally believe that we have
the right combination of technology and financial strength to be successful in
the markets we serve. And while we are not immune from constrained capital
expenditure by the Hard Drive Industry, I believe our competitive
differentiation and business fundamentals in both of our businesses remain
strong," said
Business Outlook
Given the reduced visibility caused by the recent changes in the macroeconomic environment, Xyratex Ltd will not be providing formal financial guidance for the first quarter of fiscal year 2009.
Conference Call/Webcast Information
Xyratex quarterly results conference call will be broadcast live via the
internet at http://www.xyratex.com/investors on
A replay will be available through
(1) Non-GAAP net income (loss) and diluted earnings (loss) per share excludes (a) amortization of intangible assets, (b) equity compensation expense, (c) specified non-recurring or non-cash items, such as the impairment of goodwill and the valuation allowance against a deferred tax asset, and (d) the related tax effects. 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 below.
The intention in providing these non-GAAP measures is to provide supplemental information regarding the Company's operational performance whilst recognizing that they have material limitations and that they should only be referred to with reference to the corresponding GAAP measure.
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, is outside the control of management during the period in which the expense is incurred and in addition has not been measured consistently as a result of the implementation of FAS 123R; (c) the impairment of goodwill and the valuation allowance against the deferred tax asset is non-recurring, non-cash and is not comparable across periods or with other companies; (d) the exclusion of the related tax effects of excluding items (a) to (c) 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.
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 compete successfully in the competitive and rapidly changing
marketplace in which we operate, failure to retain key employees, changes in
our customers volume requirements, cancellation or delay of projects and
adverse general economic conditions in
About Xyratex
Xyratex is a leading provider of enterprise class data storage subsystems and storage process technology. The company designs and manufactures enabling technology that provides OEM and disk drive manufacturers with data storage products to support high-performance storage and data communication networks. Xyratex has over 20 years of experience in research and development relating to disk drives, storage systems and high-speed communication protocols.
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
XYRATEX LTD
PRELIMINARY UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended, Year Ended
November November November November
30, 30, 30, 30,
2008 2007 2008 2007
(US dollars in thousands, except per
share amounts)
Revenues:
Networked Storage Solutions $222,300 $187,216 $855,770 $693,990
Storage Infrastructure 63,127 60,772 193,946 237,643
Total revenues 285,427 247,988 1,049,716 931,633
Cost of revenues 257,327 202,133 898,639 762,582
Gross profit:
Networked Storage Solutions 11,143 28,165 99,775 100,573
Storage Infrastructure 17,234 18,046 52,566 69,716
Equity compensation (277) (356) (1,264) (1,238)
Total gross profit 28,100 45,855 151,077 169,051
Operating expenses:
Research and development 22,726 19,370 85,897 77,559
Selling, general and
administrative 15,984 16,532 63,686 61,977
Amortization of intangible
assets 1,223 2,485 4,882 7,304
Impairment of goodwill 34,256 - 34,256 -
Total operating expenses 74,189 38,387 188,721 146,840
Operating income (loss) (46,089) 7,468 (37,644) 22,211
Other income - - - 890
Interest income, net 166 1,030 1,618 3,283
Income (loss) before income taxes (45,923) 8,498 (36,026) 26,384
Provision (benefit) for income
taxes 17,324 (3,229) 19,383 (1,725)
Net income (loss) $(63,247) $11,727 $(55,409) $28,109
Net earnings (loss) per share:
Basic $(2.17) $0.40 $(1.90) $0.97
Diluted $(2.17) $0.39 $(1.90) $0.94
Weighted average common shares
(in thousands), used in
computing net earnings (loss)
per share:
Basic 29,096 29,100 29,157 28,985
Diluted 29,096 29,758 29,157 29,866
XYRATEX LTD
PRELIMINARY UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, November 30,
2008 2007
(US dollars and amounts in thousands)
ASSETS
Current assets:
Cash and cash equivalents $28,013 $70,678
Accounts receivable, net 140,879 122,327
Inventories 123,783 91,662
Prepaid expenses 2,746 2,994
Deferred income taxes 1,000 3,000
Other current assets 4,430 8,275
Total current assets 300,851 298,936
Property, plant and equipment, net 47,229 37,421
Intangible assets, net 11,195 54,175
Deferred income taxes 9,545 19,743
Total assets $368,820 $410,275
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $111,295 $96,046
Employee compensation and benefits
payable 9,745 13,280
Deferred revenue 8,386 15,212
Income taxes payable 2,573 1,165
Other accrued liabilities 30,732 11,311
Total current liabilities 162,731 137,014
Long-term debt - -
Total liabilities 162,731 137,014
Shareholders' equity
Common shares of Xyratex Ltd (in
thousands), par value $0.01 per
share 70,000 authorized, 29,146 and
29,117 issued and outstanding 293 291
Additional paid-in capital 366,065 356,268
Accumulated other comprehensive
income (13,603) 1,847
Accumulated deficit (146,666) (85,145)
Total shareholders' equity 206,089 273,261
Total liabilities and
shareholders' equity $368,820 $410,275
XYRATEX LTD
PRELIMINARY UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
November 30, November 30,
2008 2007
(US dollars in thousands)
Cash flows from operating activities:
Net income (loss) $(55,409) $28,109
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation 15,770 13,683
Amortization of intangible assets 4,882 7,304
Impairment of intangible assets 34,256 -
Non-cash equity compensation 7,646 8,057
Loss on sale of assets 185 341
Changes in assets and liabilities,
net of impact of acquisitions and
divestitures
Accounts receivable (18,552) (17,003)
Inventories (32,121) 1,449
Prepaid expenses and other current
assets 1,455 (2,956)
Accounts payable 15,249 11,150
Employee compensation and benefits
payable (3,535) (3,365)
Deferred revenue (6,826) (1,091)
Income taxes payable 1,408 (476)
Deferred income taxes 16,944 (1,616)
Other accrued liabilities 5,818 (2,266)
Net cash provided by (used in)
operating activities (12,830) 41,320
Cash flows from investing activities:
Investments in property, plant and
equipment (25,763) (16,974)
Acquisition of intangible assets - (4,833)
Acquisition of business, net of
cash received - (1,661)
Net cash used in investing
activities (25,763) (23,468)
Cash flows from financing activities:
Payments of long-term borrowings - (7,000)
Repurchases of common shares (6,116) -
Proceeds from issuance of shares 2,044 2,905
Net cash used in financing
activities (4,072) (4,095)
Change in cash and cash equivalents (42,665) 13,757
Cash and cash equivalents at
beginning of period 70,678 56,921
Cash and cash equivalents at end of
period $28,013 $70,678
XYRATEX LTD
PRELIMINARY SUPPLEMENTAL INFORMATION
Three Months Ended Year Ended
November November November November
30, 30, 30, 30,
Summary Reconciliation Of GAAP Net
Income To Non-GAAP Net Income 2008 2007 2008 2007
(US dollars in (US dollars in
thousands, except thousands, except
per share amounts) per share amounts)
GAAP net income (loss) ($63,247) $11,727 ($55,409) $28,109
Amortization of intangible assets 1,223 2,485 4,882 7,304
Impairment of goodwill 34,256 - 34,256 -
Equity compensation 1,755 2,237 7,646 8,057
Other income - - - (890)
Tax effect of non-GAAP adjustments (1,024) (1,602) (3,791) (4,050)
Valuation allowance against UK
deferred tax asset 20,632 - 20,632 -
Effect on deferred tax of changes
to UK tax rates and exchange
rates 110 (1,743) 1,254 (1,040)
Non-GAAP net income ($6,295) $13,104 $9,470 $37,490
Summary Reconciliation Of Diluted
GAAP Earnings Per Share To Diluted
Non-GAAP Earnings Per Share
Diluted GAAP earnings (loss) per
share ($2.17) $0.39 ($1.90) $0.94
Amortization of intangible assets $0.04 $0.08 $0.17 $0.24
Impairment of goodwill $1.18 $0.00 $1.17 $0.00
Equity compensation $0.06 $0.08 $0.26 $0.27
Other income $0.00 $0.00 $0.00 ($0.03)
Tax effect of non-GAAP adjustments ($0.03) ($0.05) ($0.13) ($0.14)
Valuation allowance against UK
deferred tax asset $0.71 $0.00 $0.71 $0.00
Effect on deferred tax of changes
to UK tax rates and exchange
rates $0.00 ($0.06) $0.04 ($0.03)
Diluted non-GAAP earnings per share ($0.22) $0.44 $0.32 $1.26
Summary Of Equity Compensation
Cost of revenues 277 356 1,264 1,238
Research and development 567 711 2,469 2,477
Selling, general and
administrative 911 1,170 3,913 4,342
Total equity compensation 1,755 2,237 7,646 8,057
SOURCE Xyratex Ltd
