Download Annual Report, 2.44 MB - Xyratex

XYRATEX LTDNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars and amounts in thousands, except per share data, unless otherwise stated)1. The Company and its OperationsOperations. We are a leading provider of enterprise-class data storage subsystems and storageprocess technology with principal operations in the United Kingdom (‘‘U.K.’’), the United States ofAmerica (‘‘U.S.’’) and Malaysia. We design, develop and manufacture enabling technology in support ofhigh-performance storage and data communication networks.Initial Public Offering and new parent company. On June 29, 2004, in connection with an initialpublic offering (IPO) on the NASDAQ National Market which completed on this date, Xyratex Ltd, aBermuda company, became our parent company. On this date shareholders in Xyratex Group Limited,the previous parent company, exchanged their outstanding class A and class B preferred ordinaryshares and class C ordinary shares for common shares of Xyratex Ltd in the ratios 1.036378, 0.945 and1.071671 respectively. These ratios were agreed by the shareholders as part of a scheme of arrangementunder Section 425 of the Companies Act in the United Kingdom. Following this exchange Xyratex Ltdbecame the owner of the entire share capital of Xyratex Group Limited. On completion of the IPOXyratex Ltd issued 4,000 common shares at $14.00 per share. The total proceeds were $56,000 and netproceeds received by the Company after deducting underwriting discounts and other offering expenseswas $48,150. Also in connection with the IPO, 135 common shares were issued to employees to satisfyshare options generating proceeds of $644. Xyratex Ltd was formed in April 2002 and prior to thisoffering had no operations.For the periods prior to June 29, 2004 these financial statements represent the financial position,results of operations and cash flows of Xyratex Group Limited, and its subsidiaries and subsequent tothis date represent the results of operations and cash flows of Xyratex Ltd and its subsidiaries. In thesenotes both Xyratex Limited and Xyratex Group Limited together with their subsidiaries are referred toas the ‘‘Company’’.As a result of the IPO the company recorded a non cash equity compensation expense totaling$181,073 of which $12,924 relates to discontinued operations. Benefit for income taxes includes abenefit of $12,295 related to this expense.Private equity investment. On September 17, 2003, funds managed by HgCapital, a Europeanprivate equity firm, acquired a 56% shareholding in Xyratex Group Limited, the previous parentcompany. HgCapital acquired 10,434 shares directly from existing shareholders and 665 shares wereissued by Xyratex Group Limited to HgCapital as described below. In connection with this transaction,Xyratex Group Limited repurchased and cancelled 2,661 outstanding ordinary shares at a cost of$18,939 funded by a new bank loan of $19,000. Xyratex Group Limited also incurred expenses for cashpaid to professional advisors and exiting management of $5,275 and $1,668 respectively, and for 665new shares which were issued to HgCapital in connection with their fees equivalent to $4,682. As aresult of this transaction the Company recorded non-cash equity compensation expense of $77,201. Ofthis amount $19,940 is included in discontinued operations.2. Basis of Presentation and Summary of Significant Accounting PoliciesA summary of the significant accounting policies followed in the preparation of the accompanyingconsolidated financial statements, which conform to accounting principles generally accepted in theUnited States, is presented below.F-6